Medical building boom increasing Americans' health care costs
By Andrew Conte and Luis Fábregas
Published: Sunday, Dec. 18, 2011, 12:24 p.m.
Hospitals nationwide are spending billions on large new facilities in a medical arms race to dominate markets and increase profits, while ultimately raising health care costs for patients, taxpayers and anyone with insurance.
From 2008 through Nov. 1, U.S. hospitals borrowed $144 billion through public bond issues for construction, refinancing, equipment and other expenses, the Tribune-Review found as part of a yearlong investigation into the rising cost of health care.
Pennsylvania ranks fourth in spending, the Trib analysis showed, and like the top two states -- California and Texas -- has no agency to regulate the need for hospital construction. Many hospitals are nonprofits competing for patients like big retail chains, and experts say it's gone too far.
"Hospitals can't be like Starbucks, where you have one on every corner," said Dr. Dan Pesavento, an obstetrician in Barrington, Ill. "There's pressure to fill the beds. "
The Trib looked at metro areas across the country where new hospitals with massive glass fronts, light-filled atriums, lush healing gardens and other high-end extras are sprouting up to compete with existing facilities. San Francisco, Chicago and Denver spent the most on hospital projects during the past two years.
Western Pennsylvania is having its own hospital building boom. In Monroeville, health giant UPMC is building a $240 million, glass-walled hospital less than a mile from Forbes Regional Hospital, which is owned by rival West Penn Allegheny Health System. Insurer Highmark Inc. plans to take over Forbes as part of its acquisition of West Penn Allegheny, raising the stakes for the entire region.
"You don't need all that fancy stuff," said Evelyn Benzo, 82, who lives 10 miles from the new hospital and across the street from the former UPMC Braddock site. "We just want solid, good care."
The Trib investigation into hospital spending found that:
• San Francisco leads the country in hospital construction, with six hospitals planned or underway at a cost of $4.9 billion during the past four years. Spurred by a California mandate to make hospitals earthquake-ready, construction projects statewide could cost more than $250 billion when long-term financing payments are counted.
• An hour west of Chicago, health care companies this year proposed spending $350 million on two new hospitals in an area where three nearby facilities say they average more than 300 empty beds every day.
• In the mountains of western North Carolina, a group of small hospitals and physicians is protesting a hospital chain's plans to build a $30 million medical center four miles from a recently renovated hospital.
• In Western Pennsylvania, the administrator of a physician-owned hospital that opened last year in Washington, Pa., talks about providing "Ritz-Carlton amenities" to patients with insurance who rarely pay more out of pocket.
"There's a lot of wasteful competition," said Frank Sloan, a health policy professor at Duke University in Durham, N.C. "They feel like, to compete, 'We've got to have the best and the latest.' "
UPMC East, scheduled to open next year, will be a 156-bed hospital with what one spokeswoman called "hotel-like amenities," such as room service and flat-screen monitors from which patients can check e-mail.
An executive with the Ritz-Carlton hotel chain spoke with some UPMC employees about using hospitality principles with patients.
Just down Mosside Boulevard, Forbes is firing back with a face-lift of its 33-year-old, 218-bed hospital. In addition to adding a trauma center, officials are refurbishing patient rooms, nurses' stations and common areas. Highmark has committed $475 million to shore up Forbes and its four sister hospitals.
"We're not building, under any circumstances, Taj Mahals," said Dr. Keith Ghezzi, West Penn Allegheny's CEO. "What we're trying to do is upgrade facilities and modernize equipment to current standards."
UPMC's construction of a community hospital in a well-served area is financially unsustainable and will cost the public more, Ghezzi said.
"Anytime you put capacity into a market that's not needed, you're going to increase health care costs," Ghezzi said.
UPMC, which reported nearly $9 billion in revenue and $406 million in operating profit despite shuttering its 250-bed Braddock hospital, says it is meeting a need with the new hospital.
About 90 residents of Pittsburgh's eastern suburbs get admitted daily to UPMC Shadyside and UPMC Presbyterian, justifying expansion east of the city, said Mark Sevco, president of UPMC East.
"As long as that demand is there, UPMC will work hard to respond to those opportunities," Sevco said.
If a hospital adds beds, doctors will find a way to fill them with patients, according to a health care axiom by the late Dr. Milton I. Roemer, a UCLA researcher. He concluded in 1959 that "a built bed is a filled bed."
The Congressional Budget Office came to a similar conclusion in a 2008 report: "Physicians are more likely to recommend hospitalization if beds are available." Once a patient is admitted, the budget office said, costs rise quickly with consultations, tests and surgeries.
Though the number of hospital beds in the United States has dropped by 250,000 since 1990, the occupancy rate remains steady at nearly 70 percent, according to the federal Centers for Disease Control and Prevention.
Roemer's finding contributed to the establishment of so-called "certificate of need" legislation. All but 14 states have a review process to make sure hospitals and equipment such as MRI machines aren't added where they aren't needed. Pennsylvania let similar regulation expire in 1996. The Keystone State and Indiana are the only states east of the Mississippi River without such oversight.
Too many beds in an area adds waste, said Courtney Avery, administrator of the Illinois Health Facilities and Services Review Board, which runs the certificate of need program there. "If the beds aren't used, you still have to have the physicians there and you still have to have the nurses staff those beds," she said.
Hospitals see it differently, saying they've had to update aging facilities to meet patient expectations and make room for changing information technology, said Chad Beebe, director of codes and standards for the American Society for Healthcare Engineering.
"We have a different patient today than we did 10 years ago," he said.
There's a mistaken perception that more technology and better designed hospitals lead to better outcomes, said Dr. Albert Wu, director of the Center for Health Services and Outcomes Research at Johns Hopkins Bloomberg School of Public Health.
A private room might help a patient avoid a hospital-acquired infection, but the general population would be better off if money were spent on preventing diseases, he said.
"If we had a lump sum of money, it could be better spent on primary care than in new hospitals," Wu said.
Like other experts in health care policy and economics, Lanier Cansler, North Carolina's secretary of Health and Human Services, said hospital construction and health care spending need to be brought under control.
"We either find a way to change the way we're doing business and stop the duplication of effort and find ways to limit the growth in the health care arena," he said, "or ultimately we're going to starve the system to death."
To read the Trib's "Code Green: Bleeding Dollars" series on waste in national health care costs, click here .
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