Energy boom in Houston fuels hospitals' rush to suburbs

Houston-area healthcare providers are piggybacking off the rapid growth of the city's energy industry.

Big energy companies in the area are posting record earnings, profiting from shale and natural gas recovered through hydraulic fracturing. They are offering generous healthcare coverage to their growing employee ranks, and many energy workers are migrating to suburbs including Katy, Sugar Land, Cypress, Spring and The Woodlands, which were previously agricultural towns.

The four largest health systems in Houston—Memorial Hermann Healthcare System, HCA, Houston Methodist Hospital and CHI St. Luke's Health—all have made significant investments in response. Dominant player Memorial Hermann has made multimillion-dollar investments in its hospitals in Katy and Sugar Land. It also bought a 32-acre site this month in Cypress to construct inpatient and outpatient facilities. Those projects come on top of its $650 million expansion and renovation plans for its flag-ship, Memorial Hermann-Texas Medical Center.

“They want to expand out to those areas because that's where the well-insured people are moving. (They believe) there's going to be increased demand for healthcare in Houston,” said Vivian Ho, a professor in health economics at Rice University.

But while health systems have been staking out turf in Houston's periphery communities, the real estate race may be leaving the uninsured behind. Roughly one in four Texans has no health insurance, the highest rate of any state, and Texas is not expanding Medicaid under the Patient Protection and Affordable Care Act. In Harris County, which includes Houston, nearly 30% of its residents, most of whom are Latino, are uninsured.

“You tend to have a large amount (of uninsured) inside the 610 loop,” Ho said, referring to the 40-mile interstate that envelops downtown Houston. “But these hospital systems are building in these well-to-do suburbs.”

Last month, CHI St. Luke's Health—formerly St. Luke's Episcopal Health System before its acquisition by Catholic Health Initiatives—said it would build a $110 million outpatient medical complex near ExxonMobil's new campus in The Woodlands to complement its hospital a few miles further north. That campus is expected to open next year and house 10,000 employees.

In May, Houston Methodist announced it would build a 193-bed, $328 million hospital in The Woodlands, to be completed in 2017. Memorial Hermann already has an inpatient facility in that affluent community whose population has grown almost 70% since 2000.

In an era when many hospital systems are pumping the brakes on new inpatient projects and large-scale investments, Houston's booming energy economy creates opportunities for healthcare providers, who are pouring massive capital into new facilities. Memorial Hermann plans to invest $1.6 billion over the next four to five years, said Marshall Heins, the system's chief facility services officer. “We have this giant eight-county service area. It's only natural to take some of the care out closer to some of the patients who will then use that care closer to home.”

Nashville-based HCA, meanwhile, has spent more than $70 million to build a hospital in Pearland, Texas, set to open in 2015. It also invested more than $90 million last year to expand Clear Lake Regional Medical Center in Webster, Texas. And earlier this year, CHI St. Luke's said it plans to spend more than $1 billion to beef up the region's healthcare infrastructure over the next five years.

In addition to its new venture in The Woodlands, Houston Methodist in February acquired two area hospitals from Irving-based Christus Health. A new $540 million inpatient tower at its flagship within the Texas Medical Center is the centerpiece of the system's three-year $1 billion plan to expand and renovate facilities throughout the Houston region.

Dr. Marc Boom, president and CEO of the $2.6 billion Houston Methodist, said his system has a strategy to increase patient access to all its services, especially ambulatory care, while reinvesting in its downtown hub. “As we cannibalize our volume out to the community, we've been replacing that with a critically intensive type of care in an academic-type environment,” Boom said.

Health system officials confirmed that the energy boom has been a driving factor in suburban investments and has given them a leg up on the rest of the country to build facilities closer to patients. But they deny that their development plans are a form of keeping up with the Joneses. Memorial Hermann's Heins said his system's admissions and outpatient visits increased 4.4% and 9.6%, respectively from 2012 to 2013.

“We're being driven by strategic decisions to provide good-quality care, and we don't care what the competition is doing,” Heins said.

Follow Bob Herman on Twitter: @MHbherman