OHSU makes a pitch for upscale care
Health - A plush addition is a lesson in hospital economics, where profits lie in procedures covered by insurance
Sunday, June 04, 2006
JOE ROJAS-BURKE and TED SICKINGER
When Oregon Health & Science University unveils the Peter O. Kohler Pavilion today, it will showcase an 86-bed health care palace that towers over the slopes of Marquam Hill.
The hospital wing marks an escalation in Oregon's health care arms race. Every major metro-area health system is building bigger, more technology-laden and increasingly spalike facilities and hiring highly trained specialists to compete for the same, limited pool of fully insured patients seeking expensive procedures.
Some economists and health care experts maintain that the Portland area already has more than enough hospital beds, and they wonder why a public institution such as OHSU is adding more specialty beds while areas such as primary care and mental health go underserved. Others worry that the hundreds of millions of dollars being sunk into construction will saddle consumers with ever-higher medical costs.
OHSU is being driven by the same financial incentives as its competitors, but its economic needs may be keener.
An analysis of hospital discharge records filed with Oregon's health-policy agency shows OHSU badly trails competitors' market share in many of the most lucrative procedures, such as heart-bypass operations and orthopedic surgery.
Moreover, unlike competitors, the academic medical center has to earn enough to support its role as a medical school, research center and provider of care to underserved rural and poor communities. OHSU officials also are juggling an ambitious expansion -- on Marquam Hill as well as the South Waterfront -- that depends on strong, consistent cash flow from its hospital.
"They, among all the players out there, have the most to win from a strategic investment or the most to lose if it's not done properly," said Randall Pozdena, an economist with consulting firm EcoNorthwest who has studied the metro-area hospital market. "Providence (Health System) is not going to sit on its haunches and watch this market share disappear. There will be a rivalrous response."
OHSU's Kohler Pavilion, open today for a public preview, will contrast starkly with the older, linoleum-tiled wards of its existing hospital.
Inside the 11-story glass aerie, visitors will pad down carpeted hallways of oiled hardwood or recline on one of the plum-colored leather banquettes to take in the building's museum-quality art collection. From the outsized VIP suites to the landscaped terrace of the Center for Women's Health, they will enjoy spectacular views.
Packed with the latest technology to improve patient care and hospital efficiency, the building also makes a loud architectural statement: We mean business.
Hospital executives at OHSU and other expanding health systems say they are responding to growing demand for hospital care, driven by a growing and aging population. They assert that Portland has lost three hospitals since 1997 and went for decades without significant hospital construction until Legacy Health System built a Clark County hospital in 2005.
Hospitals can all point to examples of crowding and overdue remodeling. OHSU, for instance, says its expansion will help relieve the metro area's long-standing shortage of critical-care beds for trauma patients. Brad King, OHSU vice president and chief financial officer, said lack of space has forced the hospital to divert ambulances to competitors on as many as 10 days a month.
But critics assert that when all Portland-area hospitals are counted together, the region has a bed surplus that is likely to worsen.
Pozdena, the economist, estimates the area has about 1,500 surplus beds. Considering projects planned or under way, Pozdena projected that unused capacity will expand to 2,208 beds by 2025. That's assuming the addition of 2.2 million residents and a doubling of residents older than 65.
Excess capacity drives up the cost of health care because hospitals have to pay for construction by generating revenue from their best-paying customers -- individuals with private insurance. Hospitals already mark up prices to privately insured patients by 15 percent to 20 percent to make up for underpayment by government programs for the poor and elderly, according to health insurers.
"It's a hidden tax," said Bart McMullan, president of Regence BlueCross BlueShield of Oregon. If patients realized how directly they were on the hook for hospital executives' spending decisions, McMullan said, "we might be satisfied with something a little less opulent that might deliver care just as good or better."
Paradoxically, the building boom is bypassing some of the region's most pressing health needs. For instance, the number of rooms for mental health patients in the Portland area has dropped by half in the past four years. But only one local hospital company, Kaiser Permanente, has announced plans to add rooms for mental health care.
Meanwhile, the companies appear to be expanding where affluence is greatest, not where health care needs are most severe, according to Pozdena. His study mapped expansions and closures during the past decade, showing growth clustering in higher-income areas of Portland and well-heeled suburbs populated by relatively few uninsured residents.
Competitors including Legacy, Providence and Kaiser are all pouring tens of millions of dollars into the most profitable services, such as surgical suites, women's health centers, diagnostic imaging clinics and cancer treatment centers.
Construction projects to house profitable, technology-driven services outnumbered projects for less profitable treatments by nearly 3-to-1 during the past three years, according to an analysis by the Service Employees International Union Local 49.
"It's clear that a lot of the competition is at the high end of the market," said Metro Councilor Karl Hosticka. "We hope in that process the average person's needs don't get lost."
In April, Metro councilors voted unanimously to scrutinize the impact of the hospital boom on health care costs and access. The council acted in response to a request by the Service Employees International Union, which, like other unions, is battling to keep health care affordable for members.
John Santa, a primary care doctor at the Portland VA Medical Center and medical director of the Center for Evidence-Based Policy, which independently studies the effectiveness of treatments, said hospital administrators are only doing what the U.S. health care finance system dictates. Insurers and government programs pay large rewards for high-tech interventions but much less to support for primary care, public health and disease prevention.
"We've got exactly the mess we've designed," Santa said.
Lagging market share
OHSU faces fierce competition in Portland, and it controls only a small fraction of the most profitable lines of hospital business.
Providence St. Vincent Medical Center, for instance, performs about 10 times more heart-bypass operations a year than OHSU and about eight times more balloon angioplasties, according to data collected by the Office for Oregon Health Policy and Research.
As the state's only academic medical center, OHSU has focused on providing cutting-edge technologies and exceptionally complex treatments such as organ transplants, newborn intensive care and heart surgery. But competitors also have managed to win growing chunks of those lines of business.
Legacy Emanuel Children's Hospital provides more pediatric heart surgeries annually than OHSU's Doernbecher Children's Hospital, and both Emanuel and St. Vincent treat more extremely premature newborns in their neonatal intensive care units than Doernbecher. Legacy Good Samaritan Hospital's kidney transplant program has nearly caught up with OHSU's in patient volume.
"The university has tended to focus on the most cutting-edge, high-technology stuff," Santa said. "What it struggles with is keeping it there. They wake up the next morning, and Providence has opened a program or Legacy has opened a program."
Nevertheless, OHSU's King said OHSU remains the sole provider of many important services. He also said the university is recruiting cardiologists and other diagnostic experts to work from clinics outside the hospital but refer patients to OHSU facilities.
Where the money is
OHSU's hospital is its golden goose, not only paying its own bills, but also throwing off cash to pay for teaching, research, campus maintenance and expansions, including those on the South Waterfront. But OHSU faces financial pressures that will make the hospital's success even more critical.
The National Institutes of Health is entering a period of stagnant research funding, meaning fiercer competition for smaller, shorter grants -- while OHSU is on a hiring binge for high-end researchers and is pushing doctors to fund more of their salaries with grants.
Even if researchers were to rake in more grants, King expects additional staffing costs to strain OHSU's finances as multiyear recruiting packages paid for in part by a $200 million state grant peter out.
The future of Medicare and Medicaid reimbursements also is a troublesome question, given OHSU's lopsided patient mix and the increasingly toxic brew of a growing federal budget deficit, aging population and growing numbers of the uninsured.
Since a recent drive to cut costs and improve efficiency, OHSU's hospital has made impressive profits. But the institution still lags other academic medical centers.
And, at least in the short term, OHSU's new wing is likely to add pressure as OHSU absorbs $25 million in fixed costs related to expansion while staffing up and operating at less than full capacity.
As a result, OHSU expects its consolidated net income from operations to drop from a projected $15.6 million this year to a loss of $11 million next year.
King said OHSU has plenty of cash to ride out the squeeze. Profitability, he said, should bounce back in 2008 as the new wing passes its break-even point, 72 percent of beds filled.
OHSU is advertising heavily in support of the OHSU brand -- with ads featuring well-known researchers such as cancer specialist Brian Druker -- as well as specific departments within the new wing, such as the women's health center.
Although OHSU has a strong reputation, King acknowledged that it needs to work harder to shed its image as an overburdened hospital for the homeless and start appealing more to the carriage trade. Focus groups say as much, he said.
King said the upscale expansion is in no way an effort to shirk its long-standing mission of serving un- or under-insured patients.
But, he said, "we'll have a better front door for those who can afford to go elsewhere."
Ted Sickinger: firstname.lastname@example.org
; 503-221-8505 Joe Rojas-Burke: email@example.com
OHSU expansion at a glance
Saturday, June 03, 2006
Peter O. Kohler Pavilion
Cost: $216 million
Phase 1: 86 new beds (net gain of 60 beds after OHSU closes some rooms in existing hospital), eight operating rooms, women's health center, 450-space parking garage
Open to patients: June 26
Phase 2: 60 beds, four operating rooms
Open to patients: timing not yet announced
Employees: 510-700, including those who transfer from OHSU hospital Other expansion highlights:
Biomedical Research Building (Marquam Hill): opened in December, still being built out
Center for Health and Healing (South Waterfront): medical practices, some research, scheduled for completion in November
Schnitzer Campus (S. Waterfront): timing yet to be announced
Parking garage, two new buildings housing commercial bioscience companies (S. Waterfront): when financially feasible
Aerial tram (between Marquam and S. Waterfront): scheduled for completion in December
On the Web: www.ohsu.edu/transformation/