Growth, donations keep University Hospitals healthy in its 150th year

For much of its 150-year history, University Hospitals remained a quiet health system nestled on Cleveland's East Side.

But over the last decade and the last two years in particular, the health system has grown into a dominant force in Northeast Ohio with big ambitions. And as UH celebrates its 150th anniversary, the system isn't just reflecting on its last century and a half of service, but rather looking toward the future.

With both Broadview Heights and North Ridgeville health centers and freestanding emergency departments set to come online in roughly the next year — and the construction of a new women's and children's facility in urban Cleveland — UH continues to evolve.

Much like hospitals across the country, the UH system looks vastly different than a decade ago. And much of that is due to the vision of UH president and CEO Tom Zenty, who arrived in 2003 from Cedars-Sinai Health System in Los Angeles and envisioned building a truly regional health care system.

“What's the same is our commitment to the highest quality patient care, our commitment to the communities that we serve,” Zenty said in a recent interview with Crain's. “We were built on a commitment to support the community. … (That) remains an important part of who we are today.”

UH acquired five hospitals in 2014 and 2015, which broadened its reach all the way south to Ashland, helping strengthen UH's status as a regional system. The five hospital acquisitions helped UH significantly grow its market share from 20% in 2010 to 32% by the end of 2015. Over that same period, the system's total operating revenue ballooned from about $2 billion to $3.29 billion, or almost half the size of the rivaling Cleveland Clinic.

However, Zenty is quick to note, “We are not expanding for the sake of growth.”

Despite the major investments, the system has maintained a healthy profit — no small feat in today's challenging health care environment. In 2015, UH posted operating income of $93.6 million on operating revenues of $3.29 billion — a margin of about 2.84%, which is in line with 2014's operating margin of 2.88%.

UH is currently not in the middle of any transactions to integrate more hospitals. Also, with the exception of Lake Health, the immediate market is fully consolidated.

“Where there are opportunities, we'll pursue them,” Zenty said. “But we'll do it with the same vigilance as we did in the past several years.”

The system added UH Parma Medical Center and UH Elyria Medical Center to its portfolio in January 2014. Completing two transactions in parallel in one year was “fairly stunning,” said Paul Tait, UH's chief strategic planning officer said.

But the pace continued, driven in large part by the market, as is the case across the nation, Tait said. As smaller hospitals face more and more challenges and financial pressures in the current environment, they're looking to join systems to find efficiencies or to have a partner to help them respond to the mounting requirements of health care reform.

Shortly after Parma and Elyria, UH announced plans to take over Robinson Memorial Hospital in Portage County. Now known as UH Portage Medical Center, the community hospital was integrated into the UH network in June 2015. Then in November, UH added UH Samaritan Medical Center in Ashland and assumed full ownership of UH St. John Medical Center, which it had co-owned with the Sisters of Charity Health System since 1999.

“We said no to a couple other situations in the last two years also, which again, shows you what the pace is in the market,” Tait said.

This market-driven push stands in contrast with the last major string of hospitals UH integrated into its system a couple of decades ago, said Richard W. Pogue, who retired from the UH board of directors this month after 41 years as a member.

In the 1990s, a large national hospital group began buying several hospitals in Northeast Ohio, setting off a chain reaction in the market, Pogue said. Though that national group withdrew from the market a few years later, the wave of merger activity it stimulated remained.

“Today, it's a national phenomenon basically caused by Obamacare and rising costs,” said Pogue, who has now been appointed as a lifetime director for the board, but no longer a voting member. “Every year the government reimbursement seems to go down and the costs keep going up, so it's just very, very difficult for a small hospital to survive.”

This wave of hospital integration was much more deliberate and, in Pogue's view, “a tremendous, positive trend.”

“From my perspective, it's an expansion of what used to be purely an academic medical center into a regional system,” he said.

Bill Ryan, president and CEO of the Center for Health Affairs, which advocates for Northeast Ohio hospitals, assumed the role in the early 2000s within a year of Zenty beginning his tenure.

“UH, when I first got here, was primarily an academic medical center focused at University Circle,” Ryan said. “They had some affiliation relationships, smaller community hospitals, particularly in the more rural counties, Geauga and Ashtabula, but they were really focused on that main campus. … Over time, I think part of what Tom saw was the need to have a way to access patients, serve patients across the whole of the region.”

In creating a strategy to be a “super-regional system,” Zenty said the goal was both integrating hospitals as well as expanding services and strengthening the continuum of care. Though the focus of transactions is often on acquiring a hospital, UH also gained the network of physicians, services and outpatient centers associated with each hospital.

“So you're building scale, which is important to reduce cost,” Tait said. “Quite often with transactions, you're adding new outpatient sites, new physician offices, and it does support where health care's going in terms of more outpatient care.”

Though 2014 and 2015 growth came at a historic pace, the past decade overall has brought many new services and facilities to UH. The UH Avon Rehabilitation Hospital opened in January. Its Beachwood rehab hospital opened in 2013.

The UH Seidman Cancer Center, the Center for Emergency Medicine and the Breen Breast Health Pavilion at UH Case Medical Center all opened in 2011, the same year UH opened its $298 million Ahuja Medical Center. And in years prior, the Medina, Sharon, Concord, Geneva, Twinsburg and Chesterland health centers have all opened since Zenty came to UH.

UH's growth, of course, reaches beyond facilities.

Last year alone, UH hired almost 300 doctors, many of whom will work in the newly acquired hospitals, help create new programs and serve those communities.

UH has passed the $1.4 billion mark on its $1.5 billion capital campaign and aims to meet that goal by the end of the calendar year.

Fundraising has grown tenfold in about a decade — both in dollars raised and in donors contributing. The UH donor base was about 7,000 in 2003. By the end of 2015, that number was more than 70,000. Last year, the system raised $133.5 million in donations, up dramatically from an average of $13.8 million a year between 1993 and 2003.

“We think it's a testament to the fact that the care that we provide to all of our patients is so widely recognized and appreciated that we have seen our donor base expand dramatically,” Zenty said.

Though UH's service is firmly focused on Northeast Ohio, its research stretches across the country and globe.

Since launching in 2012, the Harrington Discovery Institute at UH has funded 60 programs, supporting physician-scientists in the United States and the United Kingdom. UH's model for health is community-centric, yet it has a worldview from the standpoint of discovery, said Dr. Jonathan Stamler, director of the Harrington Discovery Institute.

“From the standpoint of discovery, (UH) can't do that locally. That's just a reality,” Stamler said. “So it can't change standard of care through support solely of discovery in its community. That is not meaningful, unlike the delivery aspect.”

The acquisitions that have enabled UH to provide care to a broader community also supports a strong, sustainable financial base, without which the discoveries and research the Harrington Discovery Institute supports wouldn't be possible, Stamler said.

Institutions tend to only put resources into discoveries that they alone contribute to, he said.

“UH is looking at this differently. It's saying that it wants to contribute in a meaningful way to the treatment of disease for the betterment of mankind,” Stamler said. “And so its patients, ultimately in the long run, and its community will benefit by virtue of a national global platform.”

UH has identified and filled a number of the needs and gaps of the newly integrated hospitals, so from a clinical standpoint, the integration is for the most part completed. The challenge for the next three to four years is the non-clinical side of integration and focusing on administrative functions like supply chain management, contracting services, human resources and common accounting practices.

And in particular, information technology, which is a “rather expensive and complicated” piece of the puzzle, Zenty said.

“All the elements that go along now with making our system as efficient and as effective as we can possibly be will require a lot of our attention in the next year or two,” Zenty said.

But also looming in the near future are numerous significant cost increases across the health care industry: annual pharmaceutical cost increases are in the double-digits; supply costs are up 4% or 5%; and wages and salaries increasing at 3% to 3.5%, Zenty said.

“So is a 3% margin enough? Well, as you begin to examine what is the rest of the industry passing onto us in terms of increased costs, you begin to see that there's an emerging pattern that we have to really focus on our efficiency and our effectiveness and as well as our level of profitability,” he said. “We're very mindful of how we're seeing increases accelerating rather dramatically across the country.”

"University Hospitals at 150: Growth, donations keep UH healthier than ever" originally appeared in Crain's Cleveland Business.