Tech­nol­ogy, con­struc­tion bud­gets hit as hospi­tal sys­tems shift pri­or­i­ties

Tech­nol­ogy, con­struc­tion bud­gets take hits as sys­tems re­fo­cus pri­or­i­ties

Modern Healthcare - - NEWS -

Late last year, one of the na­tion’s largest not-for-profit hospi­tal sys­tems plunged deeper into the man­aged-care mar­ket by pur­chas­ing a ma­jor­ity stake in Sound­path Health, a Washington state in­surer.

Catholic Health Ini­tia­tives’ $24 mil­lion ac­qui­si­tion—while only a small frac­tion of the sys­tem’s cap­i­tal in­vest­ment last year—wasn’t its first in­surance deal and likely won’t be the last for the En­gle­wood, Colo.-based sys­tem.

CHI’s es­ca­lat­ing foray into in­surance is part of a sig­nif­i­cant shift un­der way in cap­i­tal spend­ing by the na­tion’s hospi­tal op­er­a­tors, which is mod­er­ately ex­pand­ing again this year af­ter the ma­jor slow­down trig­gered by the fi­nan­cial cri­sis and re­ces­sion.

More tra­di­tional cap­i­tal ex­penses—ma­jor hospi­tal con­struc­tion and costly, high-tech­nol­ogy equip­ment—are los­ing ground. Sys­tems are chan­nel­ing their lim­ited cap­i­tal dol­lars into in­vest­ments that di­ver­sify op­er­a­tions and re­duce costs, which hospi­tal ex­ec­u­tives con­tend are nec­es­sary to adapt to changes un­der health re­form and mar­ket pres­sure.

And, as has been a ma­jor em­pha­sis in re­cent years, sys­tem op­er­a­tors are con­tin­u­ing to in­vest in ar­eas that knit to­gether their op­er­a­tions in ways that im­prove qual­ity and lower cost.

“You see a lot of money be­ing spent on in­for­ma­tion tech­nol­ogy” to pre­pare for fi­nan­cial risk and bet­ter co­or­di­nate care, says An­drew Ma­jka, man­ag­ing di­rec­tor and chief op­er­at­ing of­fi­cer for Kauf­man Hall, a health­care fi­nan­cial ad­vi­sory firm based in Skokie, Ill. “You see a lot of money be­ing spent on am­bu­la­tory net­works. You see a lot of money be­ing spent on physi­cian align­ment.”

Na­tion­ally, spend­ing by hos­pi­tals and other health­care providers on struc­tures and equip­ment was pro­jected by the CMS to grow 3.3% last year, only slightly less than the mod­er­ate growth of 3.6% in 2011. That fol­lows a sharp de­cline the prior two years. Plant and equip­ment in­vest­ments plunged 8.7% in 2009 and 1% in 2010, the first time since data was first col­lected in 1960 that the in­dus­try has seen cap­i­tal spend­ing drop for two con­sec­u­tive years.

The de­clines were a re­sponse to volatile mar­kets in 2008 and 2009 that strained hospi­tal bal­ance sheets as the na­tion strug­gled through a deep and pro­longed re­ces­sion that stripped mil­lions of U.S. house­holds of pay­checks and health in­surance. But as bal­ance sheets re­cov- ered, hos­pi­tals have re­mained ret­i­cent to pour money into costly hospi­tal ca­pac­ity thanks to mar­ket and pub­lic pol­icy ini­tia­tives that have tar­geted hospi­tal use and cost as one way to im­prove ef­fi­ciency.

New in­surance models—such as ac­count­able care and bun­dled pay­ments—seek to tie hospi­tal prof­its and losses to over­all spend­ing on pa­tients’ med­i­cal care, in­creas­ing the in­cen­tive to treat pa­tients in less costly lo­ca­tions, such as clin­ics or the home.

At Catholic Health Ini­tia­tives, spend­ing on deals for doc­tors, am­bu­la­tory ser­vices and other growth op­por­tu­ni­ties—in­clud­ing in­surance deals—in­creased to 27% of cap­i­tal spend­ing of $1.4 bil­lion last year. That to­tal bud­get in­cluded $320 mil­lion to help fi­nance a deal with Jewish Hospi­tal & St. Mary’s Health­Care in Louisville, Ky. It was still an in­crease from cap­i­tal bud­gets of $850 mil­lion in 2011 and $830 mil­lion in 2010, says John Di­Cola, CHI’s se­nior vice pres­i­dent for strat­egy and busi­ness devel­op­ment.

Fi­nan­cial risk un­der new pay­ment models has also prompted height­ened in­ter­est in in­for­ma­tion tech­nol­ogy to an­a­lyze pa­tients’ med­i­cal and spend­ing data for ways to im­prove care and re­duce costs. Data an­a­lyt­ics and other in­for­ma­tion tech­nol­ogy ac­counted for 21% of CHI’s cap­i­tal spend­ing last year, up from 6% in 2010, he says.

Build­ing and de­sign firms and ma­jor hospi­tal equip­ment sup­pli­ers, on the other hand, are los­ing ground as pri­or­i­ties shift. Spend­ing on fa­cil­i­ties or on new and re­place­ment equip­ment dropped to 52% of the CHI’s cap­i­tal bud­get last year com­pared with 84% in 2010.

The new pri­or­i­ties are driv­ing the sys­tem’s spend­ing this year as well. CHI’s cap­i­tal bud­get for the year that ends in June is $1 bil­lion, and that doesn’t in­clude the es­ti­mated $500 mil­lion to $550 mil­lion it will spend to buy out its part­ners in Ale­gent Creighton Health, which op­er­ates in Ne­braska and Iowa.

At Geisinger Health Sys­tem, Danville, Pa., which has its own in­surance arm, early indi­ca­tions that Med­i­caid could ex­pand un­der health­care re­form prompted the sys­tem to be­gin plans to launch a Med­i­caid man­aged­care busi­ness, says Kevin Bren­nan, ex­ec­u­tive vice pres­i­dent and chief fi­nan­cial of­fi­cer. Penn­syl­va­nia’s gov­er­nor has re­jected Med­i­caid ex­pan­sion in the state, but the plan­ning al­lowed Geisinger to bid on a Med­i­caid man­aged-care ex­pan­sion for the ex­ist­ing en­rollees, Bren­nan says.

Other health sys­tems have also moved to ex­pand op­er­a­tions out­side their walls. Dig­nity Health, a San Fran­cisco-based not-for-profit health sys­tem with 37 hos­pi­tals in three states, ac­quired the for-profit ur­gent-care and oc­cu­pa­tional medicine net­work U.S. HealthWorks for $458.9 mil­lion last Au­gust.

The em­pha­sis on cost-cut­ting and in­te­gra­tion may be sub­tract­ing from tra­di­tional cap­i­tal needs for now, but con­struc­tion and ren­o­va­tion projects and equip­ment up­grades can be de­ferred only so long. Barn­abas Health, a West Or­ange, N.J., sys­tem that owns seven New Jersey hos­pi­tals, will spend $25 mil­lion, or one-fifth of its cap­i­tal bud­get, to fi­nance up­front costs that will help pre­pare the sys­tem for ac­count­able care, says Barry Ostrowsky, the sys­tem’s pres­i­dent and CEO.

That’s a sig­nif­i­cant in­crease from the prior two years, he says, when spend­ing for such costs was less than $25 mil­lion com­bined.

“I think many of us are faced with in­vest­ment in ex­ist­ing in­fra­struc­ture to be ef­fec­tive and an ad­di­tional layer of cap­i­tal in­vest­ment to get us ready for a dif­fer­ent en­vi­ron­ment,” he says.

None­the­less, hospi­tal con­struc­tion con­tin­ues. In 2008, East­ern Maine Health­care Sys­tems won state ap­proval to ex­pand its flag­ship hospi­tal. But that was be­fore the fi­nan­cial cri­sis erupted and the na­tion’s econ­omy sank into a deep re­ces­sion.

The re­ces­sion con­tin­ued into the next year, to be fol­lowed by a weak and fit­ful re­cov­ery. Then Congress and the White House en­acted sweep­ing leg­is­la­tion with in­cen­tives to over­haul health­care de­liv­ery and the po­ten­tial to sig­nif­i­cantly ex­pand ac­cess to health­care.

And so ex­ec­u­tives halted con­struc­tion of the 327,400-square-foot ex­pan­sion of the East­ern Maine Med­i­cal Cen­ter, Ban­gor. Now con­struc­tion is sched­uled to be­gin in March, nearly 4 years later, but only af­ter ex­ec­u­tives re­con­sid­ered the $164 mil­lion project to see if it would still be vi­able.

It was, says Deb­o­rah Carey John­son, pres­i­dent and CEO of the med­i­cal cen­ter, de­spite pro­jec­tions that new ef­forts to man­age the chron­i­cally ill will re­duce pa­tients’ need for hospi­tal stays. East­ern Maine Health­care in 2011 was named one of the first to test Medi­care’s ac­count­able care ini­tia­tive, which seeks to re­duce health spend­ing and bet­ter co­or­di­nate med­i­cal care for costly, com­plex pa­tients.

How­ever, de­mand at East­ern Maine has in­creased in re­cent years be­cause ru­ral hos­pi­tals have cut back op­er­a­tions to re­main el­i­gi­ble as crit­i­cal-ac­cess providers, a fed­eral des­ig­na­tion that pays re­mote hos­pi­tals more. But it is avail­able only to the na­tion’s small­est hos­pi­tals. East­ern Maine Med­i­cal Cen­ter, the state’s sec­ond-largest hospi­tal based on bed count, has strug­gled to ab­sorb the over­flow. The hospi­tal op­er­ates at ca­pac­ity and must turn away pa­tients, she says.

The sys­tem is also us­ing its lim­ited cap­i­tal dol­lars to ac­quire other op­er­a­tions, be­liev­ing the com­bin­ing op­er­a­tions will bet­ter pre­pare both fa­cil­i­ties for health­care re­form. East­ern Maine Health­care last year pledged $115 mil- lion in a deal to ac­quire Mercy Hospi­tal in Port­land, which, if suc­cess­ful, will boost the sys­tem’s ef­fi­ciency, says Der­rick Hollings, the sys­tem’s se­nior vice pres­i­dent, trea­surer and CFO. That would help the sys­tem com­pete on price as con­sumers shop for health in­surance through ex­changes that launch next year un­der health re­form.

“We are in­vest­ing our way to a lower unit­cost en­vi­ron­ment,” he says.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.