It could be Fairfax County's hottest go-go company.
A modest revenue surplus of $223,000 in 1977 jumped to $6.5 million in 1981 and is expected to top $11 million this year. The $161-million-a-year business employs more workers than the combined Fairfax operations of Mobil Oil Corp., Honeywell Inc. and the American Automobile Association. It is nearly beyond the reach of local officials and has a monopoly grasp on one of the wealthiest and fastest-growing markets in America.
This business is the Fairfax Hospital Association, a private, nonprofit association created by the county Board of Supervisors in 1956 to run Fairfax's first hospital. Today the system includes three respected and competitively priced hospitals with 1,051 beds and enough sophisticated specialties to rival big-city hospitals.
That very success, however, has stirred controversy and efforts by the nation's two largest profit-making hospital chains to gain a foothold in affluent Northern Virginia. Right now, the association is locked in a battle with Hospital Corporation of America and Humana Inc., both of which want to build a new hospital in western Fairfax.
Winning that battle would virtually ensure the association's dominance of the Fairfax marketplace; losing it, says association President Franklin P. Iams, would be a disaster. It would deal "a significantly serious financial blow to the Fairfax Hospital Association such that it could not continue to provide the level of service that it's able to provide now," Iams says.
The showdown in Fairfax is cut from a national trend: Community nonprofit hospitals dominated the nation until the 1960s when expanding insurance programs assured that many services would be automatically reimbursed--turning hospitals into big business. Since 1968, the number of profit-making hospitals grew from virtually none to 500 today.
And at a time when Fairfax's hospitals are being assaulted from without, local health planners argue that the association's Mount Vernon Hospital is underused and county politicians complain that the association is too secretive with its financial facts and figures.
"I'm tired of being made to feel like a rat," says Republican Supervisor and hospital board member Nancy Falck of the pressure she feels from association officials when she briefs the supervisors on hospital business.
The county paid for and owns the association's facilities, which they lease back to the organization for $1 a year. Though the association must submit its budget and any rate increases 30 days before they take effect, the board lacks veto power, short of canceling the lease. "FHA says, 'Here's our budget,' " says Falck. " 'Here's what we're going to do, regardless of what you say.' "
The lightning rod for discontent with the association is 57-year-old Frank Iams, the force behind the association since he gave up his post as administrator of New York University Hospital in 1958 to take over Fairfax Hospital. Hard driving and intense, aggressive and charismatic, Iams can refuse to compromise one minute and be generously conciliatory the next, county officials say. He is often described as abrasive.
"I personally have an ingrained, inborn fear of the power of government," responds Iams. " . . . I believe that if not carefully checked and watched, that power corrupts."
It was Iams who oversaw the growth of the 656-bed Fairfax Hospital from community medicine to the high-tech specialties such as open-heart surgery, cancer treatment, care for high-risk newborns and intensive care for stroke victims--moves some call costly and unnecessary empire building because the services are available in the District.
"Too many hospitals feel the need for facilities that their neighbors have," said Democratic Supervisor James Scott. "We can't have Johns Hopkins in every jurisdiction."
Indeed, during the last decade federal attempts to slow the duplication of costly medical treatment, stem hospital construction and redistribute underused beds have dramatically shaped health care. In Northern Virginia, for instance, the new regulation helped the association fight off the advances of profit-making hospitals by, in effect, grandfathering in existing hospitals.
Because health regulators believe the 2,917 licensed beds in the 12 Northern Virginia hospitals meet the area's needs, they have blocked all proposals to build a new hospital to serve the rapidly growing western Fairfax, Loudoun and Prince William counties. The most recently rejected proposal was from Humana Inc., to build a new 200-bed hospital near Reston, a decision Humana is appealing.
"The problem is that there are too many beds inside the Beltway and too few outside the Beltway," said Dean Montgomery, the executive director of the Health Systems Agency of Northern Virginia, a federally mandated regional planning agency. In Northern Virginia, 73 percent of the area's hospital beds are inside or near the Beltway while virtually all the region's population growth is outside that area.
The puzzle for health regulators is to move those beds from, say, Alexandria, with three hospitals and a stable population, to western Fairfax, where there is no hospital and the population is expected to double in the next decade.
Taking that cue, Hospital Corp., the nation's largest hospital chain, has offered to close its Circle Terrace Hospital in Alexandria and Dominion Psychiatric Treatment Center in Falls Church in return for permission to open a $36.6 million, 226-bed hospital in the Fair Oaks region of western Fairfax, near the intersection of I-66 and Rte. 50.
Fairfax Hospital Association officials have countered that offer: Let us build a $30 million, 185-bed Fair Oaks Hospital, and we'll close Fairfax City's Commonwealth Hospital, which needs millions in renovations.
But the association has its own pecular problem--Mount Vernon Hospital. The modernistic hospital south of Alexandria was built after a battle between the medical establishment, which opposed the location, and former Democratic representative Herbert E. Harris II, who wanted the hospital--sometimes referred to as the "Herb Harris Memorial"--in his district.
Today, the association is essentially held hostage by that decision. Hospitals should shoot for an 85 percent occupancy rate, Montgomery says, but only three of Northern Virginia's hospitals meet that mark--Fairfax Hospital, Jefferson Memorial Hospital in Alexandria and Arlington Hospital.
Mount Vernon's occupancy rate in 1981 was only 58.8 percent of its 235 licensed beds, according to the agency. Association officials argue that Mount Vernon's occupancy rate should be based on the 191 beds it actually operates--which would give Mount Vernon an 83.2 percent occupancy rate. But so far, the agency has refused to allow more beds in Fairfax until Mount Vernon is used to licensed capacity.
The agency is scheduled to hold public hearings Tuesday and Wednesday on these issues and proposals to add a new hosptal to the county. Its recommendations will go to the state health commissioner, who ultimately will decide whether any hospital is built. Until then, the debate among the profit-making and not-for-profit hospitals continues.
"Competition definitely contributes to constraining the rising costs of health care," argues Milt Capps, a Hospital Corp. spokesman. "Where patients have a choice of hospitals, even good hospital become better hospitals."
Iams sees things differently. A profit-making hospital could "siphon off" money-making cases from association hospitals, while forcing them still to treat indigent cases profit-making hospitals would refuse, he says.
"This is not downtown Chicago," responds Hospital Corp. development director Ed Childs, who argues that his hospital group would not reject the relatively few indigent cases it would get in Fairfax. "This is an affluent population of people."
And that is, after all, the allure of Fairfax: It is a well-insured and wealthy population of young and healthy people who live in a state without mandatory medical-rate controls.
For hospitals, that translates into bills paid on time, people who are healthy enough that they generally stay in the hospital only a few days--the days when most money-making tests and surgery are performed on patients. The area's wealth and youthful population also mean few patients on Medicaid or Medicare, both money losers for hospitals.
Fairfax County is simply the kind of place any hospital would want to be--whether it is recording profits or recording what the not-for-profits euphemistically call excess of revenue over expenditures.
"There just aren't that many poor people there," says Childs of Fairfax. "We're talking about an affluent bedroom community . . . Look at the average income, employment. This is an affluent neighborhood we're talking about."