For nearly two decades, hospitals in most markets had far more beds than they could ever fill. Today, in many of those same markets, hospitals are being forced to light up the "no vacancy" sign.
During the past year, the two hospitals that make up Exempla Healthcare in Denver turned away patients about 20% of the time because they had reached capacity. In fact, Exempla President and Chief Executive Officer Jeffrey Selberg says there have been times when ambulance companies reported they literally had no place in the entire Denver area to take sick patients.
"This is the first time-and I started working in hospitals in 1967-in my career where demand is greater than supply," Selberg says. "And as far as the future is concerned, I don't see signs of abatement."
The Denver metropolitan area, which has experienced roughly 30% population growth during the past 10 years with no corresponding growth in hospital capacity, may be an extreme case, but it's one of many examples of what some healthcare experts say is a recent and accelerating turnaround in patient volume (Aug. 27, p. 20).
Although many parts of the country still have more hospital beds than they need, some providers are becoming constrained to the point where they are making a 180-degree turn from the consolidation that was in vogue several years ago. They are building new hospitals-not replacement facilities-for the first time in years. And with the baby boomers marching toward old age, the demand for healthcare services is likely only to increase, some experts say.
"Basically, the hospital industry went through a 15-year period where inpatient volumes declined on an annual basis, between 1982 and 1995," says Gary Taylor, a healthcare facilities analyst for Banc of America Securities in New York. "The last three years or so we've seen hospital admissions growing again about 1% on average per year. We believe you're going to see that rate accelerate into the 2% to 3% range, nearly double what we've seen in the past few years."
Demographics drive construction
Although technological advancements and the subsequent growth of outpatient care has somewhat alleviated the need to boost the number of inpatient beds up until now, demographics are beginning to reverse that trend.
In a May 2001 report on hospital volume and pricing trends, Taylor predicts that inpatient admission growth will continue and accelerate through at least 2040. Although the number of acute-care hospitals will decline through 2005, continuing a decades-long trend, by 2025 new construction will outpace closures to keep up with volume growth (See chart, p. 30). Citing data from the American Hospital Association and government sources, Taylor says national hospital occupancy rates reached a high of about 78% in the mid-1970s, and then plunged to a low of 59% in the mid-1990s, thanks to declining lengths of stay. Since then, however, patient stays have remained flat while the total number of hospital beds has declined, causing occupancy rates to rise to an average of about 61% in 1999. Taylor projects total hospital occupancy will increase to 68% to 72% over the next 10 years, and to 75% to 97% over the next 40 years. If such growth occurs, it would likely speed up the pace of hospital construction.
The AHA also has been collecting anecdotal evidence from its members that admissions have been climbing. According to a recent AHA survey, inpatient admissions nationwide rose more than 4% in three out of four quarters in 2000.
"We have heard from a large number of our members that they are seeing unusual increases in volume of inpatient services, outpatient services and emergency services," says Carmela Coyle, the AHA's senior vice president of policy. "It seems to be an increase in volume that's being experienced across the board in the healthcare field."
Coyle attributes the growth to the aging of the population, a consumer backlash against managed care that has caused insurers to ease restrictions on care, and to technology that saves lives but sends more people through the healthcare system.
Busier than ever
Bruce Flanz, executive vice president and chief operating officer for MediSys Health Network in New York, says the three hospitals owned by his system have experienced similar trends. MediSys operates 384-bed Jamaica Hospital Medical Center and 293-bed Flushing Hospital Medical Center in Queens and 881-bed Brookdale University Hospital Medical Center in Brooklyn. It took over operations at the Flushing hospital in 1999, rescuing it from a tangled Chapter 11 bankruptcy filing after its previous manager, 421-bed New York Hospital Medical Center of Queens, had planned to consolidate the facility's operations into its own.
"They thought they could consolidate all the inpatient services into one hospital," Flanz says. "When we took over, there were 190 patients in the beds; even though this other hospital had planned to close it down, you could see there was a tremendous need for services."
In May 2000, MediSys added back 43 beds that had been taken out of service, including 18 in a psychiatric unit, and added more than 250 jobs that had been cut. In 1999, the year MediSys took over the Flushing hospital, it broke even financially after losses of $46 million in the two previous years combined. In 2000, the hospital reported a $2 million surplus, Flanz says. In each of the past three years, the emergency department has experienced 10% growth.
"The demographics really support having another hospital here," he says.
Clearly, some of the volume trends are partly the result of local pressures and do not apply in every market, but some providers have worked hard to handpick their locations to take advantage of future trends. Although Denver may be at the extreme end of the spectrum, it is one of many high-growth markets in which investor-owned hospital chains have chosen to roost and in which they already have begun spending money to increase their productivity and make the appropriate services available to the growing populations of potential patients.
Joseph Vumbacco, president and CEO of Health Management Associates, says he believes turning away patients because of inadequate physical capacity or lack of staff is a failure on the hospital's part.
"We really have a philosophy in the company, and it starts with our people and our physicians, that if you have to (divert patients), you have failed your community," he says.
A focus on the ER
For that reason, HMA, a for-profit chain based in Naples, Fla., that operates 38 rural hospitals, has focused on making its emergency departments more modern, welcoming and productive environments. HMA's experience shows that the urban markets are not the only ones experiencing high growth; rural areas in the Southeast and Southwest are feeling the pinch too.
The company has expanded or updated nearly every emergency department at its hospitals, spokesman John Merriwether says. A new emergency room at HMA's 247-bed Midwest Regional Medical Center, in Midwest City, Okla., is the busiest in the state, he says.
"There really is some truth to the ER being the biggest door to the hospital," he says. Some 40% to 60% of admissions come through the ER, he says. "Our goal is to make that first impression a really good one."
Vumbacco says HMA tries to treat and either admit or release patients who enter its ERs in two hours or less-compared with a national average of four to six hours.
"When the activity level increases, (nurse) managers throw off their coats and throw on their scrubs," he says.
According to an investor presentation HMA made late last month, ER visits at hospitals the company has owned for more than a year increased nearly 7% for the quarter ended Sept. 30 compared with the year-ago period. Patient admissions at those same facilities rose 3.5% in the same period.
Vumbacco says these figures are no accident. "We select markets that either are growing or have the capacity to grow," he says.
Some of the investor-owned chains appear to be more concerned with their volumes of surgeries, outpatient procedures and emergency department visits than with the more traditional measurement of inpatient bed occupancy when measuring utilization and productivity.
"The work of hospitals used to be measured in terms of inpatient admissions; it used to be measured in terms of occupancy," Coyle says. "We all know that measure is not very helpful, not very meaningful, because so much is done on the outpatient side, and now we're even realizing that the kinds of things we're doing in an inpatient setting look very different than they did 10 years ago."
Dallas-based Triad Hospitals has many hospitals in the Sun Belt and is nearing capacity in several markets. The company expects to spend more than $200 million this year on expansions and development at its hospitals, says Burke Whitman, Triad's chief financial officer.
"Capacity issues to us are service opportunities," he says.
At one Triad hospital, 134-bed Northwest Medical Center, in Tucson, Ariz., CEO Jeff Comer says doctors actually were delivering babies and taking care of emergency department patients in the hallways.
The hospital already has outgrown a new women's center it built in 1999 and opened in May 2000.
At that hospital alone, Triad has committed to $75 million in expansion projects, including the women's center, a remodeling of the emergency department, and a new patient tower with 20 critical-care beds and 40 medical/surgical beds.
The hospital happens to be located in a rapidly growing area within a rapidly growing county within a rapidly growing state. From 1990 to 2000, Arizona's population grew 40%, and in the hospital's service area, there are communities where the population has quadrupled in that same period, Comer says.
"I think we're seeing an aging population, and I think we're seeing an increasing demand on healthcare services," Comer says. "Most recently with Sept. 11 and the tragedy of that date, we're seeing a change immediately in the expectations of hospitals that I think are going to have some profound effects on us."
One thing the hospital has been trying to do is educate consumers about urgent-care centers they can access instead of the ER. Last January, the hospital had to divert patients 260 hours out of the month-more than one-third of the time.
More recently, in October, it did not divert patients at all. In addition to expanding the emergency department to 46 treatment bays from 22 and adding technology that improved the flow and speed of treatment, the hospital implemented a "fast track" system that handles patients with minor ailments.
Next year, the hospital is projecting 7% to 8% admissions growth.
HCA building boom
HCA, the nation's largest for-profit hospital chain, is another company that has plowed money into its ERs. HCA, which operates 189 hospitals, saw the population growth in its markets coming and now budgets about $1.5 billion annually on expansion and renovation projects, more than it used to budget several years ago when it owned more than 300 hospitals. The company has spent about $400 million during the past five years beefing up about one-third of its emergency departments, says Chief Operating Officer Richard Bracken.
In addition to updating and streamlining its emergency departments, HCA has committed to building three new hospitals, and possibly more, in some of its markets where there has been high population growth. In Denver, the company has begun construction of a $147 million, 107-bed facility.
"Some organizations feel they need to acquire hospitals to grow," Bracken says. "We think a better strategy for us is to reinvest in our existing hospitals that are in these strong growth markets. It's a lower-risk strategy, and we can invest the dollars and grow with these macro trends."
HCA is also developing an $85 million, 75-bed hospital in Smyrna, Tenn., a fast-growing community just south of Nashville, and it is spending $46 million to build a 70-bed hospital in Ocala, Fla. The company also has purchased land in Las Vegas on which it plans to build its third hospital in that booming market. There also has been some speculation that a fourth is on the drawing board.
In fact, in the Las Vegas area, there are about seven proposals in various stages of development to build new hospitals, as most of the local providers try to line up a piece of the action.
Bill Welch, president and CEO of the Nevada Hospital Association, says that in the past five years, two new acute-care hospitals have opened in Las Vegas, both of which since have had to nearly double in size to keep pace with admissions trends. Now, he says, many of the hospitals in Clark County are rushing to expand outpatient facilities and build satellite urgent-care centers because their ERs often are flooded.
Exempla's Selberg says that at his system's Lutheran Medical Center in Wheat Ridge, Colo., about 85,000 patients come through the emergency department. That number is expected to grow to more than 100,000 within two years, he says. Like HCA, Exempla has plans to build a new hospital in the northwest area between Denver and Boulder, Colo. Other Denver providers have plans to build new facilities as well, Selberg says.
"So we will find ourselves within four years with a lot more hospital capacity," he says. "Now the question is, what steps do we take to ensure we have adequate staff to operate them?"