A group called Loudoun Health Watch warned Loudoun Healthcare Inc. officials in 1995 that they could not afford to build a new hospital in the eastern part of the county, especially if they continued to operate the old campus in Leesburg. But hospital officials said the new facility would be so efficient that costs would be kept in check.

"It has turned out just the opposite," Supervisor James G. Burton (I-Mercer) said this week. He was a member of the citizens group, which made financial arguments for what was then a very emotional cause: keeping the hospital in the west, where it had been for 85 years.

Loudoun Healthcare officials disclosed last week that they face a financial crisis and possible sale of the not-for-profit Loudoun Hospital Center because of the unexpected costs of moving to the new $58 million hospital at Lansdowne and operating two campuses.

They said those costs were compounded by the expense of buying private physicians' practices in an effort to secure their patients' business and by a sharp reduction in reimbursements from managed care plans, contributing to a $20 million loss at the hospital in the last two years.

"In hindsight, I think the day we moved into [the new hospital], we should have had a definite plan as to what to do with the other location" on Cornwall Street in Leesburg, said John Archer, a physician who serves on the hospital board of directors. He said the decision to keep it was an emotional one--a nod to its symbolic importance to western Loudoun residents.

According to hospital figures, the transitional-care facility at the campus on Cornwall Street in Leesburg operated at 39 percent occupancy last year--far below the 80 percent level that industry analysts say would be necessary to break even. A walk-in urgent care center at the campus, opened for western residents who were accustomed to using the emergency room, was closed last year for lack of business.

Keeping the old campus was part of what G.T. Dunlop Ecker, president and chief executive of Loudoun Healthcare, was referring to last week when he said the financial crisis is a result of "mistakes of the heart."

In moving to the new facility, expanding outpatient services and acquiring the practices of primary care physicians, "we've been doing exactly what we should be doing, given our mission and service area," Ecker said in a statement released last week. "It has cost us more than we thought, but these are mistakes of the heart. We will get through this."

Loudoun Healthcare officials say they are committed to remaining independent. But, in private meetings with members of the Board of Supervisors this week, they said they might have to sell if they cannot achieve a turnaround in the next several months, according to some supervisors who attended.

In an interview this week, Ecker said the hospital is in talks with several health care organizations, including Inova Health System, one of the largest hospital chains in the region. "We have asked for proposals, mostly having to do with shorter-term financial relationships," Ecker said.

Burton and Supervisor Eleanore C. Towe (D-Blue Ridge) said Towe asked Ecker at Tuesday's meeting why he had assured her in March that the hospital was on solid financial ground. They said he replied that he was not aware until April that the hospital was in critical condition.

"It makes one wonder why he didn't know what was going on. . . . I think he was being less than candid with us back in March," Towe said.

Ecker said it was April when financial officers informed him that a large increase in the number of managed care patients had changed the outlook for this year, when a $7 million surplus had been expected.

Meanwhile, the hospital has divided the management staff into task forces to identify costs that can be cut, and it has hired a consultant to help with the effort. They will be looking for $5 million in cuts from Loudoun Health Services, the subsidiary that includes its physicians' practices, and $12 million in hospital operating costs.

The cost-cutters will be trying to compensate not only for the cost of running two campuses but also for external financial pressures faced by hospitals across the country.

Among the most expensive trends at hospitals nationwide has been physician integration--buying up private practices in an effort to secure their patients' loyalty and gain leverage in negotiations with managed care companies.

For many hospitals, physician integration is a financial "disaster," said Gerard Anderson, professor at Johns Hopkins University.

"The concept of buying practices has some appeal if you don't pay too much and if you can motivate the physicians and if you can collect the revenue," Anderson said. But he added that most hospitals have not figured out a successful formula and end up exhausting reserves.

Loudoun Hospital Center had no reserves to spare. One area doctor, whose practice is not owned by the hospital and who asked not to be identified, said the hospital is losing large amounts on its acquired practices, offering too much money and taking on too much risk.

For example, the doctor said, the hospital does not tie physicians' salaries to performance or the number of patients the practice brings in. In addition, the hospital has taken over billing and collections from many of the physicians, straining information systems and forcing the hospital to add staff. Anderson said that has been a common mistake at hospitals nationwide.

Loudoun Healthcare "acquired too many, too fast," said physician Grace Keenan, whose practice was purchased in April, the latest acquisition by Loudoun Hospital. "Some practices have not been managed effectively. They weren't busy enough to cover the overhead for the practice, or the reimbursement doesn't cover the overhead in some cases."

When asked why the hospital had continued to acquire practices even as its dire financial situation was coming to light, Cheree Cleghorn, senior vice president for corporate affairs, said the deal with Keenan had been in the works for a while.

Industry analysts say physician integration often strengthens hospitals' hands in negotiations with managed care companies, which are cutting reimbursement rates and forcing hospitals to deliver more care at lower costs. But Archer said Loudoun Hospital has tried to renegotiate only one contract since the move to Lansdowne. "We should have looked at others," he said.

Recent talks with Trigon Healthcare Inc., a Blue Cross and Blue Shield company and the state's largest health insurer, lasted several months and settled only the preferred provider component, not the managed care contract, which is still under negotiation. Cleghorn said the contentious Trigon negotiations diverted management's attention from daily operations--which were being drained in part by older contracts, negotiated under different conditions at a different facility.

"People may have gotten too busy with certain things and not paid attention to other things," Archer said.

Archer said he expects several high-level resignations in the next several weeks from what he indicated was a top-heavy management staff. Cleghorn already has submitted her resignation.

Staff writer Dana Hedgpeth contributed to this report.

CAPTION: Opening Loudoun Hospital Center's Lansdowne campus has proven costlier than its parent company, Loudoun Healthcare, anticipated.