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MedCath Moves Toward Dissolution

Margaret Dick Tocknell, for HealthLeaders Media, May 11, 2011

Whit Mayo, a senior research analyst with Robert W. Baird and Co. in Nashville, has followed MedCath through its up and downs since 2004. He says the company "never hit its stride on a growth model" and that it was "blind-sided by the specialty hospital moratorium" imposed by Congress in 2003. During the 18-month moratorium physician-investors in new specialty hospitals could not refer Medicare patients to those hospitals.

The shift from inpatient to outpatient cardio procedures, especially implanting stents, also hurt MedCath. "They had a lot of beds and then insurers quit paying for patients to be hospitalized for stent work," explains Mayo. In 2009, MedCath's president and CEO, O. Edwin French, noted in a stockholder's letter that 40% of MedCath's heart catheterization business was now handled on an outpatient basis and that there had been a "decline in the number of open-heart surgeries, partly because of the effective use of drugs and drug-eluting stents."

Efforts to diversify its stand-alone specialty hospitals included ER expansions, diagnostic imaging services and the addition of orthopedic surgeries. Despite these efforts, in the 2009 stockholder's letter French said non-cardiovascular services accounted for only 20% of MedCath's business.

Mayo says MedCath simply didn't have the wide support among physicians, especially in primary care, it needed for its diversification efforts.

The trend in recent years for large hospital and health systems to purchase physicians groups also caused problems for MedCath. "The docs they relied on the most aligned themselves with competing systems. MedCath's only option in those markets was to sell its hospital."

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