Specialty health systems are expanding geographically, seeking to extend their brands and referral base while broadening their recruitment reach.
Cancer centers like City of Hope, children’s hospitals such as Phoenix Children’s Hospital and academic medical centers including UVA Health have historically been slower to expand than traditional hospital operators, relying heavily on philanthropy and their brand-recognition. But that dynamic seems to be shifting as specialty systems seek broader statewide or national recognition via acquisitions and partnerships.
Health systems that specialize in treating the most complex patients need geographic breadth since they are dealing with a small part of the population, said Joe Lupica, chair of Newpoint Healthcare Advisors, a consultancy. Meanwhile, quaternary specialty systems need to compete with traditional systems that continue to improve their care quality, he said.
“Their experience taught them that delivering the very highest quality is often more important than controlling costs," Lupica said. "But the math is changing as general health systems are catching up or have caught up to the astounding advances in care quality."
While the strategies vary by organization, the expansions are poised to boost top-line revenue growth, attract more physicians, patients and clinical trial participants and potentially offer and hone treatments across diverse populations.
“Scale is really important. In years past, academic health systems could control that geography just because they exist and nobody else did that type of work. That’s not so anymore,” UVA Health CEO Dr. Craig Kent said. “When we own the hospitals and physician groups, that allows us to feed our tertiary and quaternary programs.”
Health systems have continued to grow through mergers and acquisitions, wielding their scale in contract negotiations with insurers, which are inclined to pay higher rates to organizations that their health plan members perceive as essential. While that typically isn’t the main driver behind specialty systems’ expansion, it can be an ancillary benefit for those looking to extend their reach.
UVA Health, for instance, had been slow to expand beyond its 700-bed flagship hospital in central Virginia. But that shifted in 2021, when the Charlottesville, Virginia-based system acquired Novant Health’s ownership stake in a three-hospital joint venture, which predominantly covers northeast Virginia.
UVA Health also expanded its clinical affiliations with Lynchburg, Virginia-based Centra Health and Carilion Clinic in Roanoke, Virginia, which both refer complex care to UVA Health’s specialists. In January, the system launched a $300 million biotechnology institute to advance its cellular and gene therapy research and broaden its reach for clinical trials, Kent said.
“One of our goals is a statewide expansion. We really want to be Virginia's healthcare organization,” Kent said.
Phoenix Children’s has charted a similar path as it seeks to keep up with demand around Maricopa County, one of the fastest-growing areas in the country.
It is building a facility in Glendale, Arizona, that will provide inpatient care, an emergency department, a surgery center and a multispecialty clinic when it fully opens in 2024. Later this month, it will unveil a new emergency department at its Avondale, Arizona, campus.
The health system is also working on a 97-bed expansion to Phoenix Children’s Hospital–Thomas Campus, located in Phoenix, and is partnering with Dignity Health, a division of Chicago-based CommonSpirit Health, to expand their Gilbert, Arizona, hospital, set to open next year. Intel is investing about $20 billion to add chip manufacturing plants in the East Valley of Phoenix.
The health system looks to build a broad network of services and specialists for women and children to support young families settling in the area, President and CEO Robert Meyer said.
“It is a growth market. The expansion of services will help our recruitment of new physicians. We are putting our own primary care physicians in fast-growing areas where there are virtually no pediatricians,” he said. “We know we have enough doctors when our backlogs start to decline; so far that is not the case. As much as we add, the population is growing more rapidly.”
Meanwhile, cancer centers such as Duarte, California-based City of Hope and University of Texas MD Anderson Cancer Center, have also grown via acquisitions and affiliations.
In February 2022, City of Hope acquired Cancer Treatment Centers of America for $390 million, expanding the Southern California-centric organization to Arizona, Illinois and Georgia. The acquisition broadened the system’s philanthropic efforts as donors recognized the value of research, precision medicine and clinical trial expansion, CEO Robert Stone said.
Philanthropy, along with success in licensing new treatments and technology, has allowed City of Hope to emphasize less-profitable services like supportive care, which addresses physical and emotional issues that arise during and after treatment, Stone said. The acquisition also extended City of Hope’s clinical trials across five geographies, increasing access to new types of treatment and advancing its precision medicine program, he said.
“Outcomes vary widely by ZIP code and the distance to a [National Cancer Institute]-designated center. This helps close the care gap,” Stone said.
MD Anderson has a similar vision guiding its growing number of clinical affiliations, said Dr. Peter Pisters, its president. It formed a partnership with New Orleans-based Ochsner Health in June. Ochsner joins seven other health systems that have adopted Houston-based MD Anderson’s oncology standards and treatment plans.
MD Anderson’s partnerships allow it to extend its brand and clinical trials into different cities, while partners benefit from its specialists, care models and name recognition. Health system affiliates often attract independent medical practices in the same or adjacent communities, as well as MD Anderson clinicians and staff looking to relocate, Pisters noted.
“This extends our mission by elevating the standard of care in communities that are far away from southeast Texas,” he said. “We bring our know-how, the strength of our brand and caliber of our faculty to help health systems elevate their oncology game.”
Health systems, both specialty and generalists alike, are expected to continue to consolidate. More than two-thirds of the country’s some 5,200 acute-care hospitals were part of larger systems as of January 2022, according to American Hospital Association data. Fifteen years ago, the share of system-affiliated hospitals versus independent facilities was close to a 50-50 split.
“With rising healthcare expenses and declining reimbursement levels, we strongly believe that the patient’s definition of value should be prioritized,” Stone said. “The scale of being the national cancer organization gives us the ability to advocate on behalf of those patients and change the value paradigm.”
