The model of medical practice called by various names, such as “boutique”, “concierge”, “membership”, “patient-paid”, and “retainer” began in Seattle in the mid 1990s with a practice called “MD2” (MD-squared), where patients now pay over $10,000 per year for luxury-level access, amenities and services.  Hospitals have offered “boutique” levels of care in two different ways so far, as “VIP” units, wings, pavilions in larger general hospitals, and as specialty hospitals that emphasize hotel/resort-style facilities and amenities.

In many cases, specialty hospitals have been labeled as “boutique hospitals, when they are suburban-located, free of Emergency Room, and aim for resort-hotel-type amenities to attract as many affluent and well-insured patients as possible, while avoiding as many poor and poorly- or uninsured patients as possible.  Many hospitals and physician practices also offer preventive health diagnostics, consultations, and even coaching as executive health programs for those able to afford a few thousand dollars, or whose employer foots the bill.

Recently a “chain” of eight hospitals in California has been described as operating under a similar approach, involving the cancellation of insurance contracts and avoidance of serving Medicare or Medicaid patients, wherever possible.  The owner and operator is Prime Healthcare Services, owned by the family of Dr. Prem Reddy, described as one of the wealthiest physicians around, with two multi-million-dollar mansions and his own helicopter.

Rather than accept as little as 30% of charges from insurance payers, the hospitals do not contract with such payers, and collect about $10,000 per patient day at one of their facilities, desert Valley Hospital in Victorville.  The company’s total revenue, according to newspaper reports, is over $500 million a year, with profit at around 15% at several of its facilities, quoting Dr. Reddy.  The company has acquired seven hospitals since 2004, including four last year, with a total of 1256 beds overall, and has announced another “major acquisition” coming this year. [D. Costello “Hospital Group Rejects System and Cashes In” Los Angeles Times July 8, 2007 (www.latimes.com)]

While specialty hospitals have avoided ERs in order to avoid having to accept all patients regardless of insurance, the Prime Health Services hospitals take advantage of their ERs as a major source of patients.  When patients are emergencies, they cannot be denied coverage by insurance, and since Prime does not contract with insurers, it can charge them their normal charges and expect to get paid.  I recall in my last job as Chief Marketing/Strategy Officer for a multi-hospital system in Denver, one insurer with whom we did not contract approached us with a request for discount prices when patients were admitted through our ERs, but offered nothing in return, so we kept charging and getting full-charge payment.

The doctor who created the business and his hospitals have been investigated, charged, and sued for various personal and business practices, though most seem to have been settled out of court.  Insurers have criticized the company as a threat to bankrupt the medical care system because of its high charges and avoidance of serving uninsured and government-insured patients.  The company has denied such charges, and countered that it provides superior care, noting that its original facility, Desert Valley Hospital, scored 98% on its most recent accreditation survey.

To a great extent, this chain of hospitals is doing nothing much different from the many specialty hospitals and general, full-service hospitals that have located or re-located to the suburbs in an effort to reduce the amount of unpaid care and Medicare/Medicaid patients they serve, since non-paying and uninsured patients, as well as government-paid patients typically pay less than the costs of serving them.  As insurance firms keep resisting paying the difference, hospitals in many cases have to look elsewhere.  By avoiding discount contracts, Prime Medical Services may have found yet another way to survive and prosper in the increasingly difficult healthcare market.