Pa­tient pref­er­ences tug hos­pi­tal spend­ing to­ward out­pa­tient fa­cil­i­ties

Modern Healthcare - - NEWS - By Dave Barkholz

“Over the past sev­eral years, we’ve put our cap­i­tal in growth, be­cause we had to turn down al­most 2,000 ad­mis­sions last year be­cause of ca­pac­ity is­sues.” Chuck Stokes Chief op­er­at­ing of­fi­cer Me­mo­rial Her­mann Health Sys­tem, Hous­ton

Fin­ish­ing work on big projects in Detroit, El Paso and San An­to­nio, Tenet Health­care Corp. is about to throt­tle back cap­i­tal spend­ing for hos­pi­tals to the tune of $150 mil­lion. Tenet’s 2017 cap­i­tal bud­get is ex­pected to range be­tween $700 mil­lion and $750 mil­lion. That doesn’t mean the na­tion’s third-largest in­vestor-owned hos­pi­tal com­pany is done spend­ing on health­care fa­cil­i­ties though. In fact, it’s just the op­po­site on the am­bu­la­tory side.

Tenet plans to open 15 free-stand­ing emer­gency de­part­ments or mi­cro-hos­pi­tals over the next 18 to 24 months, as well as add ur­gent-care cen­ters in its hub mar­kets, Eric Evans, pres­i­dent of hos­pi­tal op­er­a­tions, said in a re­cent earn­ings call. He added that Tenet ex­pects growth in those ar­eas to strengthen vol­ume.

Tenet isn’t alone. Hos­pi­tal sys­tems have be­gun in earnest to shift more of their cap­i­tal spend­ing to out­pa­tient fa­cil­i­ties to pro­vide more cost-ef­fec­tive and con­ve­nient set­tings for con­sumers. As fee-for-ser­vice medicine gives way to value-based re­im­burse­ments that put providers at greater fi­nan­cial risk, hos­pi­tal sys­tems need ac­cess points in the com­mu­nity that of­fer con­ve­nient care at what is nor­mally a frac­tion of the cost of go­ing to the hos­pi­tal.

That means not only build­ing more am­bu­la­tory cen­ters, but in­vest­ing in in­for­ma­tion tech­nol­ogy as well.

Oak­land, Calif.-based Kaiser Per­ma­nente, the na­tion’s largest in­te­grated health sys­tem, spends one-quar­ter of its $3.8 bil­lion cap­i­tal bud­get on in­for­ma­tion tech­nol­ogy, CEO Bernard Tyson said. And it’s easy to see why.

More than half of the 100 mil­lion pa­tient en­coun­ters that Kaiser Per­ma­nente clin­i­cians have with the com­pany’s 11.7 mil­lion health plan mem­bers are now virtual vis­its through telemed- icine or other elec­tronic means.

While the fo­cus is shift­ing to out­pa­tient set­tings, ex­ec­u­tives aren’t ig­nor­ing nec­es­sary up­grades to their ag­ing hos­pi­tal in­fra­struc­tures, many of which were de­ferred dur­ing and im­me­di­ately after the Great Re­ces­sion.

Me­mo­rial Her­mann Health Sys­tem in Hous­ton, for ex­am­ple, is putting the bulk of a $2 bil­lion an­nual cap­i­tal bud­get into new hos­pi­tal tow­ers to re­lieve over­crowd­ing at its flag­ship Texas Med­i­cal Cen­ter cam­pus in Hous­ton as well as its cam­puses in Katy and Sugar Land, Texas, Chief Op­er­at­ing Of­fi­cer Chuck Stokes said.

“Over the past sev­eral years, we’ve put our cap­i­tal in growth, be­cause we had to turn down al­most 2,000 ad­mis­sions last year be­cause of ca­pac­ity is­sues,” Stokes said.

Like­wise, the Univer­sity of Kansas Health Sys­tem last month raised $190.2 mil­lion in the bond mar­ket, $120 mil­lion of which will be used to add floors to a pa­tient tower that was al­ready un­der­way on its main Kansas City cam­pus. Such is the pa­tient de­mand there.

Many hos­pi­tals de­layed projects after the re­ces­sion to see how fast value-based re­im­burse­ment would take hold fol­low­ing pas­sage of the Af­ford­able Care Act, said Ryan Freel, se­nior vice pres­i­dent at health­care fi­nan­cial ad­vis­ing com­pany Kauf­man, Hall & As­so­ci­ates.

Though the lion’s share of cap­i­tal spend­ing at Me­mo­rial Her­mann will nec­es­sar­ily go into hos­pi­tal projects, the 14-hos­pi­tal sys­tem is “very cog­nizant” of out­pa­tient trends, Stokes said. Me­mo­rial Her­mann has eight large “con­ve­nient care” cen­ters ei­ther open or be­ing built in its mar­kets that of­fer a wide va­ri­ety of am­bu­la­tory ser­vices.

The cen­ters each fea­ture a 24-hour free-stand­ing ER with an imag­ing cen­ter. They are an­chored, Stokes said, by a pri­mary-care prac­tice with other ser­vices as well, in­clud­ing phys­i­cal ther­apy and re­hab space.

North­well Health, based in sub­ur­ban New York City, plans to spend about $200 mil­lion on am­bu­la­tory fa­cil­i­ties in 2017 or nearly twice what it spent in 2015, Se­nior Vice Pres­i­dent Terry Ly­nam said.

That’s about 25% of the $800 mil­lion to $900 mil­lion that North­well spends an­nu­ally for cap­i­tal ex­pen­di­tures, in­clud­ing nearly $250 mil­lion on IT, Ly­nam said.

North­well is ag­gres­sively build­ing clin­ics and out­pa­tient cen­ters around its 21 hos­pi­tals to pro­vide pa­tients with easy, lower-cost ac­cess to care, he said.

Projects run the gamut, in­clud­ing med­i­cal of­fice build­ings; med­i­cal and sur­gi­cal spe­cialty cen­ters; can­cer cen­ters; ac­qui­si­tion of new physi­cian prac­tices; and joint ven­tures such as am­bu­la­tory surgery cen­ters, ur­gent-care cen­ters and dial­y­sis cen­ters, he said.

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