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A NEW LEVEL OF HEALTH CARE 'Subacute' facility expects to cut bills


The cost of being admitted into a hospital rose by $5 a patient in Maryland when Homewood Hospital closed its doors on North Charles Street two years ago and regulators apportioned its multimillion debt. A successor medical facility opened at the site recently with a brand of care its managers say will help reduce the statewide hospital tab.

Mariner Health Care Inc. of Mystic, Conn., which provides rehabilitative services to patients stable enough to be discharged from a hospital at prices 30 percent to 60 percent lower, opened a 136-bed "subacute" care center at the site last month. It is the company's 10th facility and the first of its kind in Maryland. Mariner is for patients who expect to return home, not to a nursing home, and who can complete the transition in a less expensive setting.

Patients typically are recovering from strokes, broken limbs or hip or other joint replacements. In the future, the center plans to add cardiac surgery patients who need nursing and rehabilitation, cancer patients who need nutritional and pain management services, and patients on ventilatory therapies. Their treatment and discharge date is pre-planned in a "care map" established by Mariner when it accepts the patient. The average stay so far is 21 days, but some leave within a week.

"We're asking hospitals to discharge patients sooner because we can give that care here," said Sheila R. Jones, a Baltimore native and former nursing home administrator hired by Mariner to run the center.

"I see subacute care as a type of service that will catch on very quickly," she said. "We are the pioneers here in Maryland."

A month after opening, Mariner has taken in 34 patients and discharged 12 back to their homes. Once in full operation, projected for February, it will employ 200 people and is expected bring in $12 million annually in revenues. It now employs 65 people, screens 30 patients a week and admits up to 10. In the screening process, Mariner tries to determine whether its clinical programs are appropriate for the particular patient.

Mariner's entry into the Maryland health care market coincides with its effort to raise cash to pay off debts and expand further. The company last week filed with the Securities and Exchange Commission for an initial public offering of 3 million shares of common stock. It wants to raise $27 million.

The field of subacute care is a burgeoning one, although there is no standard definition of care, system of regulation, or single federal reimbursement rate. In the health care market, it is generally considered more price-sensitive and less wasteful than hospitals. To succeed, companies have to demonstrate to managed-care providers that their products actually shrink the total health care bill, rather than expand it.

Mariner, which was founded in 1988 and is one of the earliest in the field, specializes in patients who need between three and six hours of skilled medical care each day -- the step between acute-care hospitals and custodial nursing homes.

Unlike the two national subacute players in the market, Integrated Health Systems Inc. of Hunt Valley, and Vencor Inc. of Louisville, Ky., Mariner intentionally is sticking with low- to moderate-level acuity patients, said Gerry Gwynn, analyst with the Chicago Corp.

The first two companies are what Ms. Gwynn calls "medical" subacute facilities because they have a doctor on staff and can handle difficult cases. Mariner, in contrast, offers therapies and treatments to patients without the kinds of complications that could require a doctor's immediate attention. Mariner's market also is the most crowded, Ms. Gwynn said.

Mariner also is distinguished from the others because it relies heavily on Medicaid patients, a practice Ms. Gwynn said she does not find attractive because of growing pressure to reduce the government's health bill. The company charges between $450 and $500 a day -- on the low end of an industry that can charge upward of $800 or $900 a day for more sophisticated treatments.

The Baltimore facility has consultant relationships with doctors at nearby hospitals to assess the quality of care and refer patients. It opened with a staff of physical, occupational and respiratory therapists.

In Baltimore, Mariner has approached a half-dozen hospitals to send patients to Mariner and has admitted patients referred by Prudential, Maryland IPA, and CareFirst, an HMO owned by Blue Cross and Blue Shield of Maryland, on an individual contract basis.

The company's overall strategy is to go directly to the people who pay the bills -- insurance, managed care, and health maintenance organizations such as Kaiser Permanente, the Travelers Insurance Co., and U.S. Healthcare -- to contract for referrals at their facilities in different parts of the country.

"Providers are no longer in charge," Mariner President and Chief Executive Officer Arthur W. Stratton told an audience of investors two weeks ago at the annual Alex. Brown & Sons Inc. health care seminar. "Hospitals and physicians are being displaced by the payers of care, and we've targeted those payers," he said.

Despite rapid growth -- revenues jumped 175 percent, to $50 million, in 1992 -- Mariner has operated at a loss in all of its five years. Its losses are due primarily to high-interest mortgage debt that would be refinanced or repaid with the proceeds of the public offering. The company expects to lose money again this year because of the Baltimore facility opening and fees associated with prepayment of debt.

Earning an annual profit depends entirely on creating demand for Mariner products in new markets, according to its prospectus. So far, its operations have been financed by private stock issuances and borrowing, mostly mortgage loans.

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