Bill, this was in the Dallas Morning News. Dallas area hospitals have a lot of cash to spend and the only way to combat this is competition or cost plus. Amazing as this is the only industry doing so well.
By GARY JACOBSON
GARY JACOBSON The Dallas Morning News
Staff Writer
Published: 13 October 2012 10:57 PM
The Dallas-Fort Worth area is in the midst of an unprecedented health care building boom.
You can see the most visible evidence in the Dallas medical district. There, several blocks apart, construction cranes signal more than $2 billion worth of new hospitals — the $1.27 billion replacement for Parkland Memorial Hospital and an $800 million replacement hospital at UT Southwestern Medical Center.
But that represents only about a third of the more than $6 billion in hospital, outpatient clinic and other health care-related construction and renovation recently completed, under way or planned for North Texas communities by public, private and not-for-profit health organizations.
Baylor Health Care System has more than $1.2 billion in projects. HCA, Texas Health Resources, Methodist Health System, Cook Children’s Health Care System of Fort Worth and Children’s Medical Center each has hundreds of millions of dollars worth of projects. So does newcomer Forest Park Medical Center, which is owned by doctors.
Many health care experts warn against overbuilding, saying unnecessary facilities mean higher costs for everybody. Costs in North Texas are already higher than the national average.
“In health care, sometimes competition leads to excess capacity,” said Fran Weisberg, executive director of the Finger Lakes Health System Agency, which monitors and helps plan hospital expansion in the Rochester, N.Y., area.
But health care executives here say they are taking care not to overbuild. And José Pagán, who serves on a statewide panel concerned about access to quality and cost-effective health care, said he doubts that medical construction and renovation here is outpacing need.
“I don’t think having more and better infrastructure will be a bad thing,” said Pagán, a member of the Code Red Task Force on Access to Health Care in Texas.
Pagán, chairman of the Department of Health Management and Policy at the University of North Texas Health Science Center in Fort Worth, warns that if these facilities are not available and if the number of health care providers — doctors, nurses and other practitioners — does not increase, “then we will all experience a decrease in the quality of health care services.”
The current boom is a continuation of a longer trend. In early 2006, The Dallas Morning News reported, hospital construction activity — then totaling $2.2 billion — was at a level never before seen by local health care officials. The region was catching up after years of underinvestment, the story said.
The primary reasons for building remain the same as six years ago: a rapidly increasing and aging population. Older people use more health care services.
A new factor is the Affordable Care Act, which is expected to put even more pressure on facilities, especially those for outpatients, as uninsured people get coverage. With Texas having a higher rate of uninsured than any other state, big metro areas could be particularly affected.
“What we’re trying to do is skate where the puck is going,” Baylor chief operating officer Gary Brock said of staying ahead of the trends. A recent Baylor in-house analysis showed that the number of licensed hospitals in the 12-county area increased from 75 in 2001 to 131 in 2011.
Comparing areas
Because of its fast growth and variety of health care competitors, the Dallas-Fort Worth market, with 6.5 million people, is different from many other areas in the country.
North Texas added about 1.5 million residents in the past decade, more than the total population of the slow-growth Rochester region. D-FW also has a strong mix of for-profit and not-for-profit health care providers, including one of the largest concentrations of doctor-owned facilities in the country. Rochester has only not-for-profit providers.
Another factor is comparatively low construction costs. Among 25 large cities in the U.S., only Winston-Salem, N.C., in 2011 had lower costs than Dallas (about $240 a square foot for a four- to eight-story hospital), according to an analysis by a Reed Construction Data economist. Chicago was 37 percent higher, Minneapolis 30 percent, Houston 1.5 percent.
For the health care organizations, construction costs are funded by debt, operating cash flows, donations, partners, other investors, and, in the case of Parkland, significant taxpayer support.
Baylor, a not-for-profit system, and Emerus, a for-profit company based in The Woodlands, announced a joint venture earlier this year to build several free-standing emergency departments over the next few years.
Each facility could cost $12 million or more, yet Baylor said its capital cost budget for the first eight would be only $8.2 million.
The buildings and land will be owned by third parties whose business is investing in medical-related real estate around the country. Baylor, which controls more than 50 percent of the venture, will commit to long-term leases. Such arrangements are common.
Another difference: In New York and many other states, hospitals have to prove need before they can build. Not so in Texas.
Some experts believe Certificate of Need requirements help hold down medical costs, but others disagree. In a study published this month, a Rice University researcher found that Medicare costs for open heart surgery declined slightly in states that removed such regulation.
Boosting bed numbers
With all the competition among providers here, North Texas doesn’t seem out of line in the supply of hospital beds.
The Dartmouth Atlas of Health Care, which measures the efficiency and effectiveness of the nation’s health care system, put Dallas and Fort Worth in the middle of the pack nationally in 2006, the Atlas’ most recent measures.
On the metric of acute hospital beds per 1,000 population, Dallas had 2.4 and Fort Worth 2.1, compared to 2.5 for Houston, 2.6 for Cleveland and Kansas City, Mo., and 3.7 for Chicago. Rochester was at 1.9.
The American Hospital Association’s most recent information is for 2010. It analyzes “community” hospital beds per thousand population for states and the country, but not individual metro areas.
In 2010, Texas had 2.4 beds per 1,000 population compared to 2.6 for the U.S. The Dallas and Fort Worth region, with about a quarter of the state’s population, had 22 percent of the state’s hospital beds, according to the AHA, indicating the ratio here was also less than the national average.
The Dallas-Fort Worth Hospital Council doesn’t track beds at area institutions.
In the end, hospital beds don’t appear to be a good indicator of cost. While health care costs rose steadily over the last three decades, the nationwide per capita rate of hospital beds generally declined as more and more services were performed on an outpatient basis.
Moving north
Much of the current expansion here is aimed at the fast-growing northern suburbs.
This past summer, Texas Health Resources completed a $92 million hospital in the Alliance area, north of Fort Worth, Baylor finished a $205 million expansion in McKinney and Forest Park opened an $80 million hospital in Frisco.
“It’s important for people to have facilities close to home and close to work,” said Barclay Berdan, chief operating officer of Texas Health Resources.
Berdan said THR watched the Alliance area for a long time, waiting for it to reach the right size before it built. He said more than 5,000 people attended an open house for the facility in mid-September, confirming to THR that it made the right decision.
Some of the expected growth is profound. By 2030, Baylor’s Brock said, McKinney will have more residents than Plano and Frisco combined.
Methodist, which controls about 40 percent of the market in its southern Dallas County service area, according to a Standard & Poor’s research report, is getting aggressive in the north.
It is building a $120 million hospital in Richardson, near the Bush Turnpike, after completing a $60 million surgery hospital in Addison and a $38 million expansion in McKinney, both in 2010.
Since 2007, Methodist said that it has “effectively” doubled in size, based on revenue, which now totals more than $1 billion a year. In 2011, Methodist purchased the facilities of Richardson Hospital Authority, which it had operated through a lease since 2009.
“Everyone is just trying to do everything they can to plant their flag and say ‘We are going to be the health care system in the area,’” said Marc Goldman, a principal at SRP Medical, a development firm that has partnered with Methodist and Forest Park.
From in to outpatient
To get specifics about the medical building boom, The News asked organizations to list projects that they had completed since 2010, currently had under way or had planned.
Parkland Health & Hospital System’s list of capital projects between 2010 and 2015 ran eight pages. In addition to the big new hospital, Parkland plans to spend an additional nearly $190 million in that span.
Some projects, like Baylor’s $170 million replacement hospital in Waxahachie, and UT Southwestern’s $225 million proton treatment center, still need approval from governing boards. The UTSW facility, planned and funded by a San Diego-based company, Advanced Particle Therapy, also will have space for researchers.
Along with new hospitals, the projects include expansions of existing emergency departments, family and community clinics, outpatient facilities, medical offices, and specialty treatment centers for children, adults, women and cancer care.
Some of the activity involves finishing out space that was built earlier and held idle, waiting for demand to catch up. Some involves building space that, likewise, won’t be finished for a while.
“The outpatient clinics and other outpatient centers will be vital in delivering patient care … rather than the traditional hospital setting,” said Steve Love, president and CEO of the Dallas-Fort Worth Hospital Council, emphasizing the major shift to outpatient care from inpatient care.
Law brings new focus
President Barack Obama’s health care law prohibits the creation of new doctor-owned hospitals that want Medicare patients, but Forest Park is forgoing that business and focusing on the privately insured.
“We find that area physicians are … hungry for a model that puts them in control of how they treat patients instead of the facility being in control,” Forest Park spokeswoman Kandace Cortez said.
The company opened its first hospital in Dallas in 2009. Since then, it has expanded that campus twice, opened in Frisco, broken ground for a Southlake hospital and has a Fort Worth hospital in development.
Cortez declined to say what the facilities cost. But adding together figures for Forest Park’s individual projects published in the Dallas Business Journal and other sources, the total for the Dallas expansions and subsequent projects is about $400 million.
Provided the numbers, Cortez said Forest Park couldn’t confirm their accuracy “at this time.” She said many of the figures included real estate and other costs not “necessarily directly incurred” by Forest Park Medical Center.
The rapid expansion has not been without conflict. Baylor sued a former executive of its Frisco hospital after she jumped to Forest Park’s Frisco facility, allegedly with confidential information. The case is ongoing.
Investments in tech
While most providers offered details about their North Texas projects, HCA, the giant Nashville, Tenn.-based company, didn’t. Between 2010 and 2015, HCA said, it will invest $500 million here on new facilities and expansions. But it did not list specific projects. HCA’s largest facility in the area is Medical City Dallas Hospital.
According to published reports, one of the projects was a stand-alone emergency department in the Alliance area. Another was a tower expansion for its children’s hospital in Dallas. Pressed for detail, an HCA spokesman said the company preferred to stick with its general comment.
“This is an incredibly competitive business,” SRP Medical’s Goldman said.
Methodist CEO Stephen Mansfield said another factor in the medical building boom is improvement in the delivery of care as evolving technology and approaches to medicine change the configuration of new hospitals.
Methodist Dallas Medical Center officially broke ground in September on a 248,000-square-foot, $108 million trauma and critical care tower, one of the largest capital projects in southern Dallas.
The new ER will help create “an optimal healing environment in which high-tech equipment is in harmony with high-touch design elements,” Mansfield said.
Brock, Baylor’s COO, said his organization’s new and renovated facilities will have an additional investment of more than $300 million worth of information technology equipment designed to improve care and communication. Berdan, THR’s COO, said his organization is spending $200 million to provide a system of electronic health records.
Not everything, though, is expanding. Baylor closed a small hospital in southwest Fort Worth this year. Berdan said the region may see other facilities close or decrease their number of beds as providers adjust to the changing market.
Longer term, Berdan worries about having enough doctors and nurses to handle all the patients and staff the facilities. “We are headed toward shortages,” he said.
