Two longtime rivals, Cedars-Sinai Medical Center and UCLA Health System, are teaming up to open a 138-bed rehabilitation hospital in Century City, reflecting both the growing need for this specialty care and the pressure on hospitals to control costs.
The unprecedented deal between two of the biggest names in Southern California healthcare is expected to be formally announced Tuesday. The two healthcare giants in West Los Angeles will jointly own the new hospital along with Select Medical Holdings Corp., a Pennsylvania healthcare company that runs rehabilitation facilities across the country.
The three partners say they plan to renovate the former Century City Hospital that has been closed for about four years and reopen it in late 2015. No financial terms were disclosed.
The new hospital is intended to serve the rising demand for inpatient rehabilitation for people suffering from strokes, spinal cord and brain injuries and other complex cases in Los Angeles and all along the West Coast.
Cedars and UCLA have worked together for years on training medical students, but this deal marks new territory for two institutions that often compete over well-known doctors, researchers and expansion opportunities in a crowded hospital market.
"This is the first time we have worked together on a patient-care facility of any type," said Thomas M. Priselac, chief executive of Cedars-Sinai.
The deal underscores the pressure that even big-name institutions are facing as the federal healthcare law pushes medical providers to collaborate more on patient care in an effort to reduce costs in a fragmented industry. Employers and insurers are also squeezing hospitals over high prices and demanding better deals.
All this has triggered a wave of healthcare consolidation and some unusual alliances.
"This is a sign of the times and you will see strange bedfellows working together," said Steve Valentine, president of the Camden Group, an El Segundo healthcare consulting firm. "Both UCLA and Cedars have a high cost structure, and here's an opportunity to bring in a cost-effective operator who can help them."
But Valentine said the new hospital will face stiff competition from established providers across the region such as the Rancho Los Amigos National Rehabilitation Center in Downey.
Both Cedars and UCLA said joining forces with Select Medical gave them the best opportunity to address the business and financial challenges ahead.
"We know there are significant constraints in the current healthcare environment, so it became apparent to both of our organizations that this was an opportunity for us to do something unique and special by doing it together," Priselac said.
David T. Feinberg, president of the UCLA Health System, said there's a healthy competition with Cedars, but in this case it made more sense to collaborate.
"Cedars is not the enemy," Feinberg said. "The real enemy is stroke, neurological conditions and other medical issues that require long-term rehabilitation."
Both UCLA and Cedars say they are experiencing a shortage of beds for those patients. Cedars has 28 beds now; UCLA has just 11.
Those rehab units are frequently full and patients often must be transferred elsewhere in Southern California or even out of state for specialized treatment. The bed shortage can have a ripple effect within a hospital, forcing patients that are ready to be discharged for rehab to stay longer than necessary in a higher cost hospital bed.
Cedars, in particular, has come under scrutiny recently for high prices in recently released Medicare data and by insurers forming smaller networks of lower-cost providers in the state's insurance exchange. Priselac said this deal could be a cost-saver. The ability to get patients into the appropriate setting faster can make care less expensive, he said.
Select Medical, a publicly traded company in Mechanicsburg, Pa., will operate the new hospital, and UCLA and Cedars will contribute physicians, medical staff and other resources.
Select already runs 15 rehab hospitals in the U.S. and more than 100 long-term acute-care hospitals. It also has nearly 1,000 outpatient clinics providing physical therapy, including several in Southern California. In the first nine months of this year, Select Medical reported revenue of $2.2 billion and net income of $85.5 million.
The company has forged similar deals with academic medical centers in Texas and Pennsylvania. It also runs the well-known Kessler Institute for Rehabilitation in New Jersey, where the late actor Christopher Reeve received treatment.
David S. Chernow, president of Select Medical, is a Los Angeles native and UCLA graduate, so he said he realized the rare opportunity he had to help bring together two high-profile hospitals. He said tens of millions of dollars will be invested in the new hospital, but he declined to give a specific figure.
"We were the honest Switzerland broker who saw value in bringing each one to the table," Chernow said. "The stars lined up."
In another development Monday, two nationally known sports medicine groups agreed to partner with Cedars-Sinai on a new orthopedic center. The Kerlan-Jobe Orthopaedic Clinic and the Santa Monica Orthopaedic and Sports Medicine Group said they will work with the hospital on a new Institute for Sports Sciences.
The institute will provide advanced training for doctors and research future treatments. The medical groups said they plan to work with Cedars-Sinai on clinical trials, including the use of stem cells and other experimental treatments for sports injuries.