Warding Off Industry Ailments : Health care: While other providers are faltering or going under, UniHealth has been able to expand by making careful use of resources.

The health care industry is a sick business, but Burbank-based UniHealth America thinks it has found a way to treat the disease: It just keeps growing.

UniHealth, a nonprofit corporation formed by the merger of two hospital groups in 1988, keeps adding hospitals and programs but is still a distant second in size to the Los Angeles area’s biggest health care provider, Kaiser Permanente.

But at a time when many health care providers are suffering, Paul Teslow, UniHealth’s president and chief executive, says UniHealth wields enough marketing muscle and economies of scale to give it a good shot at surviving today’s turbulent market.

The current squeeze in health care is due largely to tighter reimbursement policies the federal government adopted in 1984, which have been imitated by large insurance companies. At the same time, hospitals and other medical facilities are faced with rapidly rising costs because of increasingly expensive labor and technology and the high cost of treating growing numbers of uninsured patients. But they are finding it tougher to pass on those costs to customers such as big employers.

“There’s already been tremendous pressure from employers to do more about health care costs,” said Lois Evans, head of accounting firm Deloitte & Touche’s West Coast health care consulting practice. “That pressure is only going to get much more severe.”

As a result, many hospitals have been mothballing wings, merging and closing their money-losing trauma care centers. Some health maintenance organizations--which developed largely as a response to rising costs by offering services for prenegotiated prices--have also had troubles. For instance, Los Angeles-based Maxicare filed for bankruptcy protection last year.

UniHealth is a nonprofit corporation, but it must still take in more money than it spends to stay solvent and to pay for new programs and facilities. Unlike a for-profit corporation, a nonprofit is required to reinvest all its earnings into the organization.

In the nine months that ended May 31, UniHealth earned a “profit” of $34.4 million, compared with a $14.8-million profit in the fiscal year that ended Sept. 30. Revenues are expected to hit $2.1 billion this year, in contrast with $1.7 billion in fiscal year 1989.

Given the troubled state of health care, “just being in the black is pretty good right now,” Evans said. How does UniHealth do it?

One plus it has is being a nonprofit organization. Last year, for instance, the California Health Facilities Financing Authority, a state agency, sold $200 million in tax-exempt bonds for UniHealth, and Teslow plans to use much of that money on a big expansion plan.

In the next few years, UniHealth plans to spend $250 million to build new outpatient facilities and create a state-of-the-art management information system that will allow every part of its network to call up patient information at the push of a button. This information system would also allow UniHealth to gather data on treatment outcomes for a wide range of diagnoses, which it can then show to potential customers.

Another advantage for UniHealth is its size. UniHealth owns 12 hospitals, including Northridge Hospital, Santa Monica Hospital and Long Beach Community Hospital. It owns LifePlus, a psychiatric and drug dependency program, the ElderMed America seniors program, home health care services, dialysis centers and a mail-order pharmacy.

UniHealth also benefits from its ownership of CareAmerica, an HMO that has grown profitable through a strategy of targeting small employers, and its 58% interest in PacifiCare, one of the nation’s most highly regarded HMOs. PacifiCare reported its net income increased 71% to $10.9 million in 1989 on revenue of $650.2 million.

Being big also helps UniHealth strike better deals with suppliers. When it purchased a sophisticated diagnostic imaging machine for one hospital recently, it negotiated a $540,000 discount on the $3-million list price because the vendor knew UniHealth would place orders for other hospitals. It has also been able to cut printing costs by 40% by standardizing forms used at its facilities.

UniHealth also attracts doctors--and their patients with them--because it offers the stability of a large, financially sound organization, and advanced technology. Long Beach Community Hospital, for example, recently opened a $1.5-million state-of-the-art cardiac catheterization laboratory, a drawing card for heart specialists.

The size and scope of UniHealth also allows it to offer its customers the ability to negotiate a wide range of services under one contract. That was a major selling point for Southern California Edison, a large self-insured employer. “When you’re not sitting down and negotiating with several different hospitals, it does streamline things,” said Donovan Ayers, an Edison contract administrator.

In fact, Teslow sees UniHealth becoming sort of a one-stop-shopping network for health care. It is even creating a line of “brand name” services, such as its New Arrivals maternity care program. UniHealth hopes expectant mothers will choose the program because it combines a wide array of birthing options with highly personalized care at its six maternity centers.

That coordinated marketing approach to health care will give UniHealth an advantage over smaller systems and independent facilities, Teslow said. “Virtually no other networks, aside from Kaiser, operate on the kind of business plan that we’re working on,” he said.

Health care experts give high marks to UniHealth’s strategy. “I think they’ve positioned themselves extremely well,” said Roger F. Greaves, chairman of Woodland Hills-based Health Net, a large HMO that contracts with UniHealth hospitals. An executive at rival Kaiser, Robert Essink, said UniHealth provides good competition. “They’re smart people and they know what they’re doing,” he said.

UniHealth was formed in June, 1988, when Woodland Hills-based HealthWest Foundation and LHS Corp. of Los Angeles, two large hospital groups, decided to pool their resources. The renamed UniHealth moved its headquarters to Burbank and named Teslow, formerly HealthWest’s president, to his current post. Samuel Tibbetts, former president of LHS, is now chairman of UniHealth.

“We were very tradition-bound coming into the merger,” Teslow said. Even as HealthWest and LHS added new hospitals and services, he said, each unit continued to operate independently. But he envisioned a more systematized approach.

“The first year was kind of a watershed period where we were able to change the practice of how we delivered health care,” Teslow said.

It was also a period of cost-cutting. In the first year after the merger, UniHealth laid off 1,000 workers, consolidated services, became self-insured, refinanced its debt and sold some operations for a combined savings of $11 million. UniHealth now has 12,000 employees and 5,000 doctors affiliated with its hospitals.

Only two of UniHealth’s hospitals posted operating losses in the nine months that ended May 31. Its biggest money loser is California Medical Center in downtown Los Angeles, which serves a largely indigent population and loses about $5 million a year. But Teslow says there are no plans to close or sell the hospital, because, as a nonprofit organization, “our commitment to community service is strong.”

Meanwhile, UniHealth is hoping some strong independent hospitals and outpatient services will also opt to pool their resources with a large network. San Gabriel Valley Medical Center, for example, recently merged with UniHealth, and Teslow says several others will likely come on board during the next few years.

Teslow said if all goes right, he envisions building a similar one-stop medical complex around UniHealth’s lone operation outside California, Meadowlands Hospital Medical Center in New Jersey.

But first, Teslow wants to make UniHealth a household word in Southern California. That will happen, he said, when “people and employers become familiar with the network of services and they’ll see that UniHealth is the glue that holds these comprehensive services together.”