Building boom out of hand?: Critics say hospital construction boosting health care costs

September 26, 2005

The network has launched a growth spurt that will take it into new markets, boost technology and strengthen Riley Hospital for Children all over the next few years. This construction also will pile on to the cost of health care, according to several researchers and health care experts. How that trickles down to the average patient bill, or if it does, remains to be seen.

Consultant Edmund Abel has to think back more than 20 years to recall a capital project that comes remotely close to matching Clarian's current ambitions. In the early 1980s, Methodist Hospital launched a $200 million expansion and renovation to essentially replace the old hospital. The size and complexity of that project "was just unfathomable," recalled Abel, a director of health care services for the Indianapolis-based consulting firm Blue & Co. who has worked in the city since 1978.

"That was considered just outrageous at that time," he said.

Clarian will quadruple that amount and then some. The hospital network, which formed in 1997 and now includes Methodist, opened Clarian West Medical Center in Hendricks County last year and plans to open Clarian North Medical Center in Hamilton County later this year.

Last week, it held a ground-breaking ceremony for the IU Cancer Center, a $150 million addition it plans to attach to IU Hospital. Last month, it announced plans to attach a 10-story addition to Riley for a cool $200 million.

There's more. Clarian also is looking into "potential collaboration and partnership" opportunities with Lafayette-based Arnett HealthSystem, according to Rebecca Carl, Arnett's vice president of marketing and communications.

Arnett has tried unsuccessfully to build a third hospital in that market. Carl and Clarian spokesman Jon Mills declined to elaborate on the Clarian discussions.

All told, the hospital network's latest five-year plan calls for spending $1.6 billion on capital projects, a total that includes renovations and equipment upgrades as well as new construction, said Isadore Rivas, Clarian's vice president of finance.

Clarian, of course, is not alone. Community Health Network has launched a $170 million expansion of its north campus in Indianapolis and opened a stand-alone heart hospital there. The other two major hospital networks in town-St. Vincent Health and St. Francis Hospital & Health Centers-also have completed large cardiology projects in the past few years.

"Everybody's doing this," said Leslie Zwirn, an Indianapolis-based health care policy analyst. "Clarian's just bigger than everybody."

Since 2000, roughly $4 billion has been spent on health care construction in Indiana, according to Blue Cross Blue Shield insurer WellPoint Inc., which tracks the activity through media reports.

Costs flow downstream

Big numbers like those smack Indiana employers squarely in the ledger, according to many health care experts. They say hospitals have to recover those costs from somewhere, and many believe the employers and their workers ultimately foot part of the bill.

"We feel we pay a premium on hospital pricing because of all that new construction," said Russ Towner, a regional director of health care initiatives for Daimler-Chrysler who also represents General Motors Corp.

Those two companies provide health care coverage for 125,000 people in Indiana, counting employees, their families and retirees.

Towner said DaimlerChrysler pays 35 percent more for inpatient and outpatient hospital care in Indiana than in other states. He has lobbied the Legislature unsuccessfully for laws aimed at curbing health care construction.

Towner sees many reasons behind the cost imbalance in Indiana, including the poor health of many Hoosiers and high use of the system. He also thinks the state has a "capital expansion problem."

"Our feeling is it builds inefficiencies into the system," Towner said, though he, like other experts, can't quantify the financial impact.

Researchers at the Washington, D.C.-based Center for Studying Health System Change share his concern. The not-forprofit has been studying the health care market in Indianapolis and 11 other cities since 1996.

As part of its ongoing study, the center earlier this year interviewed 95 leaders in "We're just driving ourselves into the ground with all this proliferation of resources."

Look beyond construction

Clarian CEO Dan Evans says critics of the construction boom are zeroing in on the wrong culprit.

He points to heavy use of the health care system and the cost of technology as the main reasons behind cost increases. Compared with other states, Evans noted, Indiana finishes in the bottom quarter by any measure of health status.

"Don't use [the health care system] and you won't spend a nickel, but the fact of the matter is Indiana is an obese, smoking state with poor health," he said. "So we have a high utilization rate in Indiana, and the only way to drive down costs effectively is to improve the health status of Hoosiers."

An executive with WellPoint subsidiary Anthem Blue Cross and Blue Shield of Indiana agrees. The "health burden" created by obesity and tobacco has a far greater impact on health care costs than does construction, said Dr. David Lee, Anthem's vice president of health care management.

He noted that about 5 percent of Anthem's insured population bears responsibility for 50 percent of the health care costs in the state.

Technology adds to the tab, too. Clarian plans to spend $500 million over the next five years just for equipment and facility upgrades at Methodist, IU and Riley. Buying a single MRI that can capture an image of a beating heart costs at least $1 million.

Hospitals often feel they have no choice but to upgrade technology to stay competitive and improve patient care, consultants note. In the long run, those investments help patients lead healthier lives, reducing future costs, noted Bill Cleverley of Columbus, Ohio-based Cleverley & Associates, a health care financial services firm.

Furthermore, consultants say, any hospital that slammed the brakes on major investments would be putting its future in peril. Patients demand private rooms, the best equipment and facilities, and they'll go to a rival to get them.

Even so, some health care observers believe the Indianapolis hospitals can't keep expanding at such a frenetic pace.

As the Center for Studying Health System Change noted in a report this summer, "The array of expensive capital expansion projects under way in Indianapolis threatens to push the already high cost of health care even higher."
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