Houston's energy company boom fuels hospital expansion

In 2011, ExxonMobil Corp. began construction on a massive new campus near The Woodlands, Texas, a city about 25 miles north of downtown Houston.

Local businesses have been buzzing for the past three years as the 385-acre plot of land has transformed from a lush, wooded area into a high-technology playground for one of the largest gas and oil companies on the planet. ExxonMobil's campus is expected to open next year and house 10,000 employees.

That development is but one example, experts say, of how other industries in Houston are piggybacking off the growth of the city's fast-growing energy firms. For the past several years—and especially over the past few months—health systems also have hopped on board.

In early May, 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 to complement its hospital a few miles further north.

Later that month, Houston Methodist Hospital announced it would build a new 193-bed, $328 million hospital in The Woodlands, to be completed in 2017. Memorial Hermann Healthcare System already has an inpatient facility in The Woodlands, a predominantly white, affluent area whose population has grown almost 70% since 2000.

In an era when many hospitals and health systems are pumping the brakes on new inpatient projects and large-scale investments, Houston's thriving energy economy presents an antithetical scenario to providers. Healthcare organizations are pouring massive capital into new facilities, in part to follow energy companies and their well-insured patients.

“That's driven the growth and the belief that there's going to be increased demand for healthcare in Houston,” said Vivian Ho, a professor and health economics chair at Rice University, who has followed the area's economy for the past decade.

Houston is the fourth most-populous city in the country with 2.2 million residents, according to the latest U.S. Census Bureau data, and its greater metropolitan area is home to a laundry list of huge oil and gas conglomerates. The city's Energy Corridor houses offices for BP America, Shell Oil Co., ConocoPhillips and Citgo Petroleum Corp., among others. Phillips 66, Halliburton Co. and Marathon Oil Corp. are headquartered in the city itself.

Houston has always been a crude oil haven, Ho said, conveniently located near one of the busiest U.S. ports. But now, more energy companies are profiting from shale and natural gas through the controversial process of hydraulic fracturing, or fracking. These companies, Ho said, are posting record earnings and providing attractive health insurance policies to their growing employee ranks.

Many of those workers are migrating to such Houston suburbs as Katy, Sugar Land, Cypress, Spring and The Woodlands, which were previously agricultural towns. And despite its iconic status, not even Houston's Texas Medical Center can withstand the broader national trend of patients preferring to seek care closer to home.

“The large healthcare providers have realized they can't just provide care in the Texas Medical Center,” Ho said. “The medical center is where they provide all the very high-tech procedures, but they also want to expand out to those areas because that's where the well-insured people are moving.”

The four largest health systems in Houston—Memorial Hermann, HCA, Houston Methodist and CHI St. Luke's Health—have all made significant moves in recognition of that trend. Dominant player Memorial Hermann, with a 24% inpatient admission market share (PDF) and $3.6 billion in annual revenue, 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 eventually construct inpatient and outpatient facilities. Those projects come on top of its $650 million expansion and renovation plan for Memorial Hermann-Texas Medical Center, the system's flagship hospital.

The system plans to invest $1.6 billion over the next four to five years, according to Marshall Heins, chief facility services officer at Memorial Hermann. “We have this giant eight-county service area,” he said. “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.”

HCA, meanwhile, has spent more than $70 million to build a new hospital in Pearland, Texas, set to open in 2015. The for-profit chain, based in Nashville, also invested more than $90 million last year to expand Clear Lake Regional Medical Center in Webster, Texas. Earlier this year, CHI 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 (PDF), told Modern Healthcare the system has a deliberate 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.

While health systems have been staking out turf in Houston's periphery communities, Rice University's Ho pointed out that 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. Houston's Harris County is even worse—nearly 30% of its residents are uninsured, most of whom are Latino.

“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.”

Allan Baumgarten, a healthcare consultant who tracks several major metropolitan markets, including Houston, said the expansion is not likely to slow down soon. Houston is also working on a Grand Parkway, a proposed 170-mile thoroughfare that will become the city's third loop.

With that construction in mind, energy multinationals are already preparing. This month, Chevron Corp. inked a deal to purchase more than 100 acres of land near Katy, right off the Grand Parkway. “It's definitely a sprawling area with an economy that's doing really very well right now,” Baumgarten said.

Health system officials confirm 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.

“If you look at our inpatient volumes, we're growing tremendously. Outpatient volumes are also growing,” Memorial Hermann's Heins said. Systemwide 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