Hospital expansion strategies build on services for well-insured patients

A study conducted by the Center for Studying Health System Change (HSC) concludes that hospitals are expanding into targeted geographic areas to attract well-insured patients. The study, published in the April edition of Health Affairs, found that many hospital systems are seeking well-insured patients beyond traditional market boundaries, both in prosperous suburbs and in nearby areas with growing, well-insured populations.

Funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, the Health Affairs study is based on HSC’s 2010 site visits to 12 nationally representative metropolitan communities: Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets since 1996.

Key hospital strategies to expand into new markets include building full-service hospitals, establishing freestanding emergency departments and other outpatient services, acquiring physician practices and operating medical transport systems – all aimed at shoring up referral bases and capturing additional inpatient admissions, the study found.

“Whether these new hospital competitive strategies will raise costs, improve care or both is hotly debated – payers and competitors contend such strategies will lead to higher costs, while hospitals assert the expansions will increase efficiency, increase access and improve the quality of patient care,” said HSC Senior Researcher Emily R. Carrier, MD, coauthor of the study.

According to Carrier, a common trend “seems to be location, location, location to a certain extent. [Hospitals are adding facilities] that are convenient to the right areas, not always near rich people per se, but near communities where most of the people are insured. A lot of them are also building near major highways to make them very accessible.” 

Carrier added, “[A] consistent finding of our study of all the years is there really is a lot of diversity in healthcare. Not every market is the same…[it’s] an indication that people should look around in their community and see what is going on.”

The study also found:

  • In all 12 markets studied, hospitals pursued one or more types of competitive geographic expansions, including buying or building full-service hospitals or freestanding emergency departments, buying or establishing physician practices and developing a regional presence through emergency medical transport systems.
  • Among hospitals using these strategies, the drive to pursue well-insured patients beyond traditional hospital market boundaries appeared to be heightened by the recession rather than blunted by it. Even as hospital leaders pursued layoffs and contract renegotiations to cut operating costs, they often described freezes in construction outside of their traditional market areas as being brief and temporary, if pauses occurred at all.
  • Some markets, such as Phoenix and Indianapolis, showed evidence of all of the geographic expansion strategies, while others, such as Syracuse and Lansing, showed evidence of only one or two. All types of strategies appeared more common in markets where large hospital systems had or were pursuing significant employment of physicians and where service-line strategies, such as cardiac or cancer care, were well entrenched.

The net impact of hospitals' geographic expansions "remains to be seen," Carrier said.

“It is too early to tell what impact hospitals’ geographic expansions will have on patients’ access to care in different communities, the quality of care and costs. In theory, hospitals’ expansion strategies could both increase and decrease healthcare spending," she and her co-author wrote in Health Affairs. "Payers’ and policy-makers’ most commonly cited concerns were that new and potentially unneeded capacity will raise costs. Hospitals frequently countered that their expansions are necessary and sometimes overdue responses to population shifts and that cost increases reflect their efforts to provide high-quality care, not the cost of financing their expansions.”

Rene Letourneau is editor of Healthcare Finance News, a sister publication of PhysBizTech. Follow her on Twitter @ReneLetourneau.