AN ARTICLE IN LAST THURSDAY'S EXTRA ABOUT LOUDOUN HEALTHCARE INC. SHOULD HAVE SAID THAT EACH MEDICAL DEPARTMENT AT LOUDOUN HOSPITAL CENTER WAS ASKED TO NOMINATE CANDIDATES FOR VICE CHIEF OF STAFF AND THAT A NOMINATING COMMITTEE OF BOTH INTEGRATED AND NONINTEGRATED PHYSICIANS WAS FORMED. THE ARTICLE INCORRECTLY REPORTED THAT THE HOSPITAL ADMINISTRATION HAD NOMINATED CANDIDATES FOR THE POSITION. (PUBLISHED 07/15/99)

The financial crisis at Loudoun Healthcare Inc. has aggravated a long-standing rift between two groups of physicians in the county: those who have sold their practices to the hospital and those who have remained independent.

Independent physicians have long charged that Loudoun Healthcare Inc. has reserved most of the perks at Loudoun Hospital Center--including appointments to key hospital committees and a majority of physician seats on the hospital board--for doctors whose practices it owns and whose salary it pays.

Now Loudoun Healthcare has attributed much of its fiscal troubles to the cost of buying and supporting those practices--known as physician integration. The independents say the hospital spent far more than it could afford for the practices, giving those doctors too much control over the community's only hospital and gambling with its future.

Loudoun Healthcare recently disclosed that it lost $20 million in the last two years and is pursuing a turnaround to avoid selling a health care chain. The hospital has secured a $5 million loan from Inova Health System, the region's largest not-for-profit health care provider, in hopes of buying time to find a long-term solution. Loudoun Healthcare officials said they will seek to cut costs and negotiate more favorable contracts with managed care providers, which have been steadily reducing reimbursement rates.

Some physicians and county officials had expected to air their concerns at yesterday's meeting of the Board of Supervisors. But hospital President G.T. Dunlop Ecker declined the board's invitation.

Physician integration has been a nationwide trend among hospitals eager to secure patients' loyalty and gain leverage in negotiations with managed care companies. It is also a means to bring physicians into the management fold and sensitize them to the cost pressures that hospitals face.

Specialists tend to agree that in many cases, physician integration has been financially catastrophic for hospitals. Buying the practices alone can be expensive, but there are other, hidden costs--including billing and collections--that eat into hospital reserves.

In the case of Loudoun Healthcare, the organization had few reserves to spare, partly because of declining reimbursements from managed care companies and the cost of running two campuses. The hospital moved to its new Lansdowne location in 1997 while continuing some operations at the old campus in Leesburg.

In addition, doctors, who have historically been entrepreneurs, can be difficult to manage, experts say.

"It's fair to say that the success rate [for physician integration] is not high," said Daniel Higgins, a lawyer specializing in health care with McCutchen, Doyle, Brown & Enersen in San Francisco.

Higgins added that the process almost always divides a medical staff, especially when a hospital is in trouble. "There tends to be a lot of finger pointing that goes on in these situations," he said.

James Towe is a nonintegrated physician whose wife, Supervisor Eleanor C. Towe (D- Blue Ridge), has criticized Ecker for not informing supervisors earlier that the hospital was in trouble. He said he and other doctors whose practices are not owned by the hospital feel as though they are "step-children," with all of the perks going the way of the integrated doctors.

Towe noted that of the four physicians on the hospital board of directors, only one--Russell E. McDow--is independent. Towe said that at one board meeting, the members declared that nonintegrated doctors could no longer be appointed to the board.

Ecker denied there ever was such a decision.

Towe also recalled a meeting last year at which the administration nominated its choices--two doctors whose practices are owned by the hospital--for the position of vice chief of staff. A mini-revolt ensued, he said, during which the several physicians offered McDow as their choice. McDow ultimately won the election.

Towe and other doctors also claim that the hospital has set up its doctors in geographic areas where they are competing with independent doctors for business in the same specialty.

That complaint is a common one, Higgins said, as is the complaint that hospital-owned doctors tend to refer patients to one another, often cutting independents out of the loop. "These are common complaints . . . and it's all true," Higgins said.

Ecker said he has become used to the accusations.

"We launched the integrated physician initiative three or four years ago, and I think that there were a variety of opinions with regard to that . . . and I don't think it's changed," he said.

Ecker said that of the 300 physicians with hospital privileges, 80 are on the hospital's payroll. But he said only about 40 of the 80 come from integrated practices. The others, according to Ecker, were hired several years ago when the hospital decided that it needed more primary physicians on its staff.

Hospital executives have said they spent about $2.7 million acquiring eight practices. That figure includes only the practices' hard assets--such as equipment--and their accounts receivable. But the financial problems have arisen not from the initial expense but from the administrative costs of carrying the practices.

Higgins said it is unlikely that the physician integration will be abandoned because in theory it makes sense and, done correctly, can streamline costs and put hospitals in a better position to negotiate with insurance companies.

The problem, he said, is that doctors are being forced to face the realities of a system that can no longer function as it used to.

"There are always going to be the joiners and the nonjoiners," Higgins said, "but medicine is changing. . . . We're never going to turn back the clock."