Debate raging across United States over new hospitals
By Andrew Conte and Luis Fábregas
Published: Monday, December 19, 2011
Like McDonald's versus Burger King or Wal-Mart against Target, U.S. hospitals spent $17 billion on new buildings the past two years to get your business.
"If there's a new hospital, somebody has to pay for it," said Nancy Griffith, 67, a hospital volunteer in Illinois.
Unlike 36 states, Pennsylvania doesn't regulate hospital construction. The Trib looked at two states that do (Illinois and North Carolina) and one that doesn't (California).
ASHEVILLE — In this city of more than 83,300 in the foothills of the Blue Ridge Mountains, a proposal by Mission Health System to construct a medical facility near two existing hospitals erupted into a statewide controversy this fall after its spokeswoman boldly described her firm's market dominance.
"There was a lot of talk about the fact that we are a monopoly, and we are," Janet Moore, Mission's then-communications director told a national meeting of marketing professionals. "We're kind of the 500-pound gorilla in North Carolina."
Moore's bosses fumed, calling her comments ill-advised. They were also ill-timed: Mission, a six-hospital chain that controls 90 percent of the market in Buncombe County, wants to expand into neighboring Henderson County.
Moore's resignation in October left behind a simmering health care battle and a trail of critics who pointed to her remarks as open admission of the health system's real intent.
"Everybody knows that they're buying this whole town," said Dr. Nathan Williams, a gynecologic oncologist who performs surgery at Mission Memorial, the system's 730-bed flagship.
Williams and other critics question Mission's plans to build a $30 million medical facility in the city of Fletcher, about 10 miles south of its flagship hospital in Asheville and four miles north of rival Park Ridge Hospital in Henderson County. The proposed facility would include an urgent care center, an endoscopy suite and physician offices.
Critics say it would duplicate existing services, including six endoscopy suites in Henderson County, and they want the state certificate of need review board to reject the plan.
"Something of that magnitude is a dagger aimed at our heart," said Park Ridge CEO Jimm Bunch. "If the state does nothing, in two or three years, Mission will be the only game in town."
If Mission Health is on a mission to dominate the market, critics contend it has done so with the blessing of state law. North Carolina legislators in 1995 approved the nation's first certificate of public advantage, or COPA, which gave Mission immunity from federal antitrust law so it could merge with its Catholic, across-the-street neighbor, St. Joseph Hospital. The law restricted Mission's ability to increase prices and hire primary care physicians.
Mission CEO Dr. Ron Paulus said he finds it offensive that anyone would describe Mission as a predatory organization. Although Mission has acquired several physician practices in the past several years, Paulus said, some practices would have gone belly-up without Mission. About 72 percent of Mission's patients are covered by Medicare and Medicaid, which pay hospitals much less than commercial insurers.
"We can and should be criticized if we're wasteful or if we profligate, but the only reason why we're here is to try to care for the community the way we've done for the last century plus," Paulus said. "It's a reality that the total dollars are getting smaller, so we have to re-engineer ourselves. We have to lower our average cost of care. We have to find lower cost delivery settings ... because nobody is going to pay us anymore."
He said patients in Fletcher drive about 10 miles north to receive care at Mission Memorial, the region's only facility that offers cardiac surgery and psychiatric care. Staying closer to home and getting care at the proposed facility would be less expensive than receiving treatment in a costly, inpatient hospital, he said.
Mission does not intend to expand west to Tennessee or east to nearby Charlotte, Paulus said. The health system's website includes a section titled "Is Mission a monopoly?"
"We don't have a massive headquarters in Orlando that governs our operations," Paulus said, referring to Adventist Health, the Florida-based, 43-campus hospital network that owns Park Ridge Hospital. On a recent weekday, Park Ridge's emergency room was nearly empty. "We're happy being a western North Carolina health system."
Williams said he doesn't buy it.
He organized a group of Mission's opponents, who persuaded the state department of health to conduct an independent study of COPA. The study found that the law allowed Mission to "impose excessive rate increases" and provided limited protection to consumers because it didn't limit the health system's ability to buy physician practices.
Based on the study, North Carolina legislators responded by creating an 11-member committee that is gathering public input on the state's certificate of need program. The committee, which held public meetings throughout the state this fall, is expected to make recommendations next year.
State Rep. John Torbett, who chairs the committee with Rep. Fred Steen, said he hasn't made up his mind about revisions, but he believes in competition.
"Complete and open competition is what keeps costs down," he said. "If a state regulatory process prohibits free competition, then how is that keeping costs down?"
ELGIN — Sunlight streams through a wall of windows at Sherman Hospital as visitors and employees in blue scrubs sit together in a busy cafeteria overlooking the 15-acre geothermal lake that heats and cools the building.
Upstairs, however, 40 percent of the rooms are empty many days. The lack of patients threatens hospital finances, two years after the facility opened in this area about an hour northwest of Chicago.
As bad as things seem, they could be worse, said Mary Martini, Sherman's vice president of business development. Competing health systems wanted to build two hospitals in nearby McHenry County that would have eaten into Sherman's service area and that of five other hospitals.
"It's not like Burger King. Health care is expensive," Martini said. "Why spend that money if there's capacity in existing hospitals?"
Illinois is among 36 states that have certificate of need programs, which require hospital administrators to prove demand exists for beds, medical equipment and services before they can build or expand. Pennsylvania lawmakers allowed a similar law to expire in 1996.
The Illinois Health Facilities and Services Review Board, which oversees the certification program, estimates that McHenry County will need an additional 178 hospital beds by 2018.
Centegra Health System, based in nearby Crystal Lake, proposed building a $233 million, 128-bed hospital 15 miles from Sherman in Huntley. Mercy Health System in Janesville, Wis., proposed a 70-bed, $115 million facility 13 miles away in Crystal Lake.
"As a community grows, its needs for health care tend to change as well," said Rich Gruber, Mercy's vice president of community advocacy, noting that many cornfields have become residential buildings during the past 20 years.
A Centegra spokeswoman declined to comment when contacted by the Trib, but the company said in a statement that "numbers from the state's own staff confirmed that a new hospital is needed here."
Officials at Sherman and two other hospitals objected to the state's projections, issuing their own report saying that they average more than 300 empty beds every day. In an independent survey by the University of Illinois College of Medicine at Rockford, more than half of McHenry's residents said they have good access to health care, finding it easier to obtain than getting a college education or reaching elected officials.
"We already have the hospital, the nurses and the technology, so why duplicate those services when the new hospital would not be that far away?" said Dr. Daniel Wool, an independent surgeon on staff at Advocate Good Shepherd Hospital in nearby Barrington.
The geographic chess match exemplifies tensions playing out across the country as hospitals look to expand service areas before changes in the federal health care law take effect, said Dr. Matthew Stilson, medical director for Sherman's emergency room. If incentives change so hospitals are rewarded for keeping people healthy, hospitals want to have large patient populations.
"Health systems are strategically positioning to find areas, capture market share and hope their competitors close," Stilson said.
A community of two-story frame and brick homes built during the housing boom of the past decade sits across from a muddy farm field where Centegra's Huntley hospital would have been built. When residents need a hospital, for newborn babies or broken arms, they travel about 20 minutes.
"We're about almost right in the middle — close enough that they can justify not building the hospital but still far," said Matt Mikutis, 39, whose wife works for Centegra.
Many residents of the nearby Sun City Huntley retirement community moved in about 11 years ago when their homes were built and are reaching the age where they need frequent medical treatments or emergency care.
"It's always nice to have a hospital close by," Wayne Kelsey, 64, said while taking a break from working on a train display at the community center. "We have access to hospitals nearby ... but it would be nice to have one here in town."
Although the review board denied the two hospitals' proposals on Dec. 7, Martini said she thinks the Centegra proposal could come back before the board next year. The Centegra vote ended in a 4-4 tie — one short of approval, with one of nine board members absent. Mercy got two votes in support.
"I don't understand how any of them could have voted yes when there is no need," Martini said. "We're wasting health care dollars at a time when all eyes are on health care to try to reduce health care costs."
Within San Francisco's 49 square miles, six hospitals costing nearly $5 billion are being built or planned.
Health systems across California are responding to a state mandate to meet more stringent seismic standards. It's "renewal by earthquake," in the words of Wanda Jones, president of New Century Health Care Institute, a San Francisco-based nonprofit.
Rather than reinforcing old buildings, many hospitals have decided to build.
"Nobody has talked about it in those terms, but there might be a little competition in all of that," said Ron Smith, senior vice president of the Hospital Council of Northern and Central California.
In the city, The University of California, San Francisco, is spending $1.5 billion to build a hospital with 289 beds and specialized facilities to treat children, women and cancer patients. Three miles away, California Pacific Medical Center has proposed spending $250 million to renovate an 80-bed hospital as part of a $2.5 billion spending plan that would construct two hospitals elsewhere in the city.
Even San Francisco General Hospital and Trauma Center, owned by the city and county, is spending $887.4 million on a 284-bed facility. The steel frame building will rest on base isolators, allowing it to move 30 inches in any direction during an earthquake.
Thirty-five miles away in Palo Alto, Stanford University Medical Center is spending $5 billion to renovate one hospital, modernize and expand a children's hospital and construct another hospital.
All this construction comes at a cost. Lawmakers estimated in 1994 that the earthquake mandate would cost about $24 billion statewide. The final tab of new construction with long-term financing could top $250 billion, according to the California HealthCare Foundation.
Patients will bear much of the cost, Jones said. "It's like a tsunami about to hit the beach."
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