Running a hospital in Orange County, like much of healthcare, has taken on a lot of complexities and challenges.
Local hospital chiefs have many things on their plates. Some of the largest examples include gearing up for or beginning work on large expansion projects designed to bring their facilities in line with California’s hospital seismic safety law, which requires acute-care facilities to remain standing for 72 hours after a major earthquake.
Local hospitals also face some shifts in the managed-care landscape, primarily driven by the purchase of PacifiCare Health Systems Inc., the longtime local HMO bellwether, by UnitedHealth Group Inc. And they also have personnel challenges, including a persistent shortage of nurses, therapists and other key healthcare personnel.
The Business Journal interviewed local hospital chief executives to get their pulse on the industry.
Following are their edited comments.
The big managed healthcare story here during the past year was national HMO plan provider UnitedHealth Group Inc.’s acquisition of Cypress-based PacifiCare Health Systems. Are you concerned that healthcare consolidation will affect what you do on the local level?
DEBORAH KEEL
Chief executive
Fountain Valley Regional Hospital
Fountain Valley
The rapid consolidation among managed care organizations reduces competition and concentrates power in the hands of a handful of players.
This ultimately reduces options for employers and puts enormous financial pressure on local hospitals in serving our communities.
Ever-increasing costs of providing care to patients (labor, new technology, drugs, regulatory compliance, among others), combined with increasing bad debt and reduced competition among managed care organizations, is putting our traditional healthcare system at risk.
KIMBERLY CHAVALAS CRIPE
Children’s Hospital of Orange County
Orange
I understand, from a strict business standpoint, the benefits that consolidation has to offer managed care organizations. Yet, here at CHOC, our priority is to provide the best possible care to our patients versus the business benefit to the managed care organizations.
We don’t want managed care organizations to lose sight of the most important benefits of all,the continued health and well-being of our community’s children and ongoing access to our highly specialized programs and services.
We have worked diligently during the past decade to align CHOC and CHOC at Mission with the appropriate managed care payers and regional primary care physician groups,to benefit the healthcare needs of the OC community.
OC’s pediatric population is one of the largest in the state. In light of the trend of industry consolidation, we need to preserve ongoing network access and protect the future healthcare needs of the community by ensuring that healthcare decisions are made for the benefit of enrollees, while balancing provider and plan needs.
JULIE MILLER-PHIPPS
Senior vice president and
service area manager
Kaiser Permanente Orange County
Irvine
National employers are increasingly seeking to meet their health insurance needs from carriers with national scope that provide a “one stop shop” approach for their multiple sites.
High quality, high value regional plans risk being eliminated,ultimately reducing choice for consumers and potentially limiting regional plans to primarily address the small and midsize employer markets.
While Kaiser Permanente’s providers will not see a change in incentives, other managed care providers may see a shift from capitation to fee-for-service, which is UnitedHealth’s preferred approach nationally.
Local providers may have to re-assess their business models if the national carriers favor the fee-for-service approach.
In the long run, the combination of less competition (fewer local plans) and less capitation (potentially higher utilization) could increase costs disproportionately. Kaiser Permanente should be able to offer an increasingly compelling value proposition.
LARRY AINSWORTH
Chief executive
St. Joseph Hospital
We are working with UnitedHealth to increase its understanding of the strong links between patients, doctors and St. Joseph Health System hospitals.
Since they are not a California-based company, we jointly recognize the need to enhance its knowledge of local market dynamics.
MAUREEN ZEHNTNER
Interim chief executive
UCI Medical Center
Orange
The recent consolidation is most likely of concern to hospitals as it gives UnitedHealth sufficient market share to cut reimbursements to providers. Offering cut-rate fees to providers, which often do not cover actual costs, may seem like a benefit for UnitedHealth members.
However, some physicians and hospitals may instead opt to not contract with UnitedHealth, deteriorating networks and providing less choice for consumers. The merger is also of concern to smaller PPOs, which may be forced out of the market due to their inability to compete on premiums.
A negative impact on “safety net” hospitals like UCI is that when private payers force such hospitals to accept lower reimbursement rates, increased costs for other patients and payers can result.
The financial burden levied on the hospital by serving the uninsured and those dependent on government programs becomes greater and threatens the future viability of the institution. The result is decreased access to care for the entire community, not just those covered by a specific health plan.
Although UCI Medical Center recently joined with the four other University of California medical centers to negotiate our UnitedHealth contract as a system, we expect in the future that UnitedHealth will try to use its strength to further cut reimbursements and impose a “take-it-or-leave-it” approach to negotiations.
Consumers will not benefit if these types of consolidations are allowed to continue, which creates a health insurance market that is controlled by a few dominant companies.
MELINDA BESWICK
Anaheim Memorial Medical Center
Anaheim
I am quite concerned about the consolidation that has been occurring in the health plan industry these past few years.
As the health plans merge, their increasing size, along with the elimination of competitors, amplifies their ability to force contractual terms that are not necessarily favorable to providers,hospitals and physicians in particular.
Consolidation also impacts patients, as ultimately they will have fewer choices. The UnitedHealth acquisition of PacifiCare has resulted in a major regional player moving its corporate headquarters out of Southern California.
PETER BASTONE
Chief executive
Mission Hospital
Mission Viejo
Consolidation of payers is a major challenge for healthcare providers, which include both hospitals and physicians. The reason is consolidations have turned not-for-profit companies into for-profits, changing the makeup in California to a majority of for-profit insurance carriers.
Due to this fact and quarterly earnings pressure from Wall Street, insurance carriers are focused strictly on fiscal performance of premium revenues instead of patient care and clinical outcomes.
Insurance carriers speak to quality of patient care, but if you review their contracts with providers, it is based on the dollars. With the increased pressure from stockholders, insurance companies are giving more dollars back to investors instead of reimbursement to providers who need to cover the costs of care and meet clinical outcome goals for patients.
That said, the mergers should not impact the way hospitals deliver care, but it will impact reimbursement levels when new contracts come up for renewal.
One potential positive the consolidations could bring about is providing consistency in the number of contracts we manage. This could help streamline the processes on our end with the possibility of reducing our administrative costs.
RICHARD AFABLE
Hoag Memorial Hospital Presbyterian
Newport Beach
Large scale consolidation in the health insurance industry can be valuable in achieving cost savings and economies of scale in administration and certain elements of care management.
However, that assumes cost savings that are created are used by the health plan to reduce premium increases to employers and purchasers, enhance or expand services to enrollees, or improve reimbursement to providers.
Unfortunately, common practice has seen that consolidation has led to increased profitability and larger cash reserves, as the evidence has shown in the recent mergers of UnitedHealth and PacifiCare, and Anthem and WellPoint.
Consolidation for the sake of increasing already excessive profitability, accomplished many times through active elimination of competition, should concern everyone.
One must hope that government oversight and purchaser/provider input will be effective in keeping these large mergers in balance with the needs of doctors, hospitals and ultimately people seeking care.
The state should work to ensure this balance is maintained and prevent excess leverage by putting limits on health plan profitability and cash reserves, and/or requiring major health plans to participate actively and substantially in community benefit activities.
STEVE GEIST
Chief executive
Saddleback Memorial Medical Center
Laguna Hills
My biggest concern with the purchase is the increasing leverage that UnitedHealth will have over providers.
To get a sense of what this will be like, simply look to another national giant, Blue Cross, which uses its significant leverage to continually hammer providers for lower unit prices with little concern or recognition for quality or outcomes.
Although it sounds like good news to employers who seek lower healthcare premiums, increasing national corporate control will mean a stronger emphasis on price with little differentiation for quality, resulting in the value proposition for patients getting out of balance,all while these companies are enjoying operating margins north of 20%.
There is no evidence that a national plan provider will bring any added benefit to the healthcare delivery system. It is more likely to accelerate the already complex dysfunctional relationships that exist between providers and payers.
As Tom Porter points out in his new book, “Redefining Health Care,” what are desperately needed are incentives to reward providers that provide patient-centered, value-based services with demonstrably better results.
The current system does not reward the best providers, nor does it drive weaker providers out of business.
Our system needs to be redesigned around providing value to patients, not providing value to shareholders, and I believe shareholder value is exactly what national plan providers are striving for.
How are the hospital’s expansion projects going?
Keel of Fountain Valley Regional:
Fountain Valley Regional has received about $2.8 million in additional capital funding for 2006 from its parent company to design and build a new Outpatient Diagnostic Center on its campus.
The additional capital will be used initially to purchase equipment such as a new 1.5 tesla magnet magnetic resonance imaging machine, and to bring all the other radiology outpatient modalities such as CT scan, radiology and fluoroscopy, ultrasound and mammography, under one roof.
Patients and physicians also will benefit from a new centralized scheduling system where they can schedule these procedures 24 hours a day. This is a significant capital infusion,one that will help Fountain Valley Regional fulfill our companywide commitment to deliver high-quality care, and maintain its status as a place where our physicians are proud to refer their patients.
We are investing these supplemental dollars in a way that meets the healthcare needs of the community and supports the requests of our affiliated physicians.
During the past six months, we’ve also been updating and upgrading many areas of the hospital,from lobbies to patient rooms,to help make the experience at Fountain Valley Regional as comfortable as possible. With the help of an interior designer, we’re creating a modern, relaxing environment for patients, family and friends.
Fountain Valley regional recently opened a neurosurgery program for adult and pediatric care, expanding treatment options for OC residents. The hospital has invested significant funds in technology for this program, especially minimally invasive equipment.
The physicians focus on brain, spine and peripheral nerve damage, ranging from tumors and hydrocephalus to degenerative disc disease and carpel tunnel.
The addition of a pediatric neurosurgeon also enhances the already comprehensive pediatric program that includes one of the largest neonatal intensive care units in OC, our 11-bed pediatric intensive care unit and our 21-bed pediatric unit.
Chavalas Cripe of CHOC:
To meet the needs of the growing community, we have embarked on an ambitious campus plan that includes multiple construction projects to be completed within the next couple of years.
Due to the increase in the number of children accessing our clinics, we are expanding and remodeling the CHOC Primary and Specialty Care Clinics in Orange.
The project will encompass more than 47,000 square feet, which will include 84 exam rooms and a 16-bed patient observation and infusion unit.
When completed, the clinic will be capable of handling more than 135,000 visits per year in a more advanced, efficient and convenient outpatient environment for our patients and their families, as well as for our physicians and staff.
We also are moving ahead with the build-out of CHOC’s sixth floor shell with a 30-bed, state-of-the-art pediatric and cardiovascular intensive care unit. It will feature the most advanced cardiac monitoring and imaging capabilities.
The new pediatric unit will rival the best in the world and increase our capacity to care for OC’s most critically ill children in a holistic, family-centered environment.
The sixth floor will feature a family zone, which will include a bright, airy waiting area and respite lounge. Amenities will include private sleep alcoves, a kitchenette, shower facilities, Internet access and a family consultation room, located just steps away from patient rooms, physicians and staff.
To support our Adolescent and Young Adult Cancer Program, we are expanding our oncology/hematology unit to include three new patient rooms, a family area and teen space.
Miller-Phipps of Kaiser:
In 2005, Kaiser Permanente broke ground on a new hospital in Irvine (see story, page 3 for more on the project).
Meanwhile, several major remodeling projects have occurred at the Anaheim Medical Center on Lakeview Avenue.
We have remodeled the laboratory, post anesthesia care unit, labor and delivery, neonatal intensive care unit and radiology.
All of these were done to better serve patients and also introduce new technology for the members we serve. The largest project undertaken was a complete remodel of the labor and delivery area and the addition of six new rooms that are larger, and provide increased comfort and safety for the patient and her family members.
All floors of the hospital have had cosmetic upgrades and a complete remodel of the radiology waiting area is planned.
A pedestrian bridge is being built across Lakeview Avenue to increase crossing safety for our staff, members and visitors between the hospital and the staff parking lot and visitor amenities on the other side of the road.
Ainsworth of St. Joseph:
The four-story St. Joseph Hospital Patient Care Center that will be ready for occupancy in fall 2007 combines the hospital’s rich history with modern technology and medical innovation.
Patients will continue to receive the care they have come to trust, in a building that meets new seismic safety standards.
As visitors approach the hospital, the inspirational words of one of the founding sisters,Mother Bernard Gosselin,will be etched into the glass exterior, reinforcing her message of hope to St. Joseph Hospital patients and visitors.
Details of the 248,000-square-foot, 150- (mainly private) bed patient care center include: 14 new operating rooms to expand our surgical capacity to better accommodate the latest innovations in technology and medical equipment, two 20-bed critical care units, two 30-bed medical/surgical units, a new intensive care unit, an efficient and stress-free preoperative care area, a perianesthesia care unit and an additional CHOC short-stay unit.
Zehntner of UCI:
UCI Medical Center started construction on a world-class university hospital in February 2005 to meet the seismic requirements set forth by the state of California.
The hospital project is currently on time and budget and the framework for the building is clearly visible from nearby freeways.
A total of 5,500 tons of steel is framing the building, and the last steel beam will be placed by the end of summer.
Scheduled for completion in early 2009, the facility will replace the main hospital building that was built in 1960. It will be seven stories tall and house the latest medical technologies and treatment rooms, including 13 new operating rooms and three interventional procedure rooms.
The spaces have been carefully designed to support the teaching and research missions of UCI’s School of Medicine and will strengthen our ability to provide specialized medical and surgical treatments for patients.
There will be 191 spacious, private rooms to create a healing environment for patients and families, bringing the total number of beds at UCI to 377.
The hospital is estimated to cost $371 million. Although much of the cost will be covered by state lease-revenue bonds, university reserves and financing, we need another $50 million in private gifts to meet all construction goals.
To date, the response from donors and the local community has been outstanding. Some $30 million in private gifts and grants already has been received.
Beswick of Anaheim Memorial:
Anaheim Memorial has been rapidly upgrading our entire imaging services department, installing the latest diagnostic and interventional imaging and archiving equipment, including new CT and MRI scanners, along with a leading-edge breast biopsy system with stereotactic table in our breast center.
Additionally, we recently added a second state-of-the-art cardiac catheterization lab with bi-plane technology to accommodate increasing patient volumes, as well as to enable our physicians to perform more advanced procedures.
All of these upgrades have required suite renovations to accommodate the new equipment.
We plan to build an ambulatory surgery center in partnership with several of our local surgeons.
Within our primary hospital facility, we are constantly remodeling and renovating our patient care areas to make them more inviting to our patients and their families.
Bastone of Mission Hospital:
Mission Hospital is in the midst of a multiyear, $150 million campus expansion to keep pace with the growing South County community.
We are funding two-thirds of this expansion through operations and borrowing. To help us meet this financial stretch, we have turned to our community’s spirit of giving to make up the final third.
Thanks to the generosity of numerous individuals and organizations, more than $34 million has already been raised.
Projects completed so far include a laboratory expansion and the opening of Mission Conference Center and the Swenson Family Pediatric Operating Pavilion.
Major construction work is nearly complete to double the size of the emergency room and expand Mission Regional Trauma Center,South County’s only trauma facility and one of only three countywide.
Set to be completed this fall, the ER will now be able to care for up to 80,000 patients a year. Additionally, a 1,500-space parking structure and a five-story medical office building along Crown Valley Parkway are expected to be completed before the end of 2006.
Once these projects are completed, we are looking to kick off the construction of a critical care tower next year.
The facility will include a diagnostic imaging floor and add 64 new beds with the majority in critical care.
With more than $30 million in technology upgrades planned for the new tower and emphasis on cultivating the best surgeons in trauma, vascular, neuro interventional and cardiovascular, Mission Hospital will be able to provide our community, doctors and staff the most sophisticated care in diagnostic and surgical interventions on the West Coast.
Mission Hospital also is dedicated to broadening the access of care to our growing community.
We have invested in Mission Health Centers throughout our neighboring communities of Aliso Viejo, Foothill Ranch, Ladera Ranch, Rancho Santa Margarita and San Clemente.
These urgent care and physician office buildings allow consumers to get the care they need close to home.
Afable of Hoag Memorial:
We are in the first five years of major facility improvement and expansion projects.
This will be a 15-year journey to create a medical campus and scope of services preparing us and our community for the next 30-plus years.
Things were actually going pretty well until the huge escalation in construction costs hit in 2005.
Suddenly, capital plans are no longer so reasonable, and we find ourselves having to rethink our goals and may scale back some of our functional programs because of the greatly increased costs.
Given that, we plan to double the size of our critical care capacity, a major area of focus as patients in the hospital are sicker and more demanding of critical care services.
We also will replace our operating rooms with larger facilities that can accommodate robotics, remote instrumentation and interoperative imaging.
We believe these will be requirements of excellent, distinctive contemporary surgical care into the future.
Expansions in cancer, women’s health and neurosciences round out programmatic and facility growth plans at Hoag Memorial.
Geist of Saddleback:
We have recently completed several projects that have added capacity in key areas such as intensive care and emergency services in our new $23 million Meiklejohn Critical Care Pavilion.
That has had a dramatic impact on improving the functionality of these high-end services, while dramatically reducing our paramedic diversion rates.
We are involved in a variety of projects aimed at improving value to patients by finding better ways to care for them while in the acute care setting, as well as seeking alternatives to traditional acute care.
The common denominator in these efforts is technology.
We are investing in state-of-the-art clinical infomatics, which will allow our clinicians access to advanced clinical decision support information, while hard-wiring evidence-based protocols and automating complex work flows.
This is making our hospitals seriously safer and more efficient.
We also are investing in many new clinical diagnostic services aimed at better, faster and less invasive ways to diagnose disease at the earliest stage possible, making interventions and cures less acute and more successful.
Advances in multi-slice CT, PET, digital mammography and digital collection and storage of all images have revolutionized our ability to detect cancer, heart and vascular disease and other anomalies at a very early stage.
Some of our projects involve new and expanded space to house these new technologies.
We are also investing in two new ambulatory surgical centers on our Laguna Hills and San Clemente campuses to provide a state-of-the-art and user-friendly surgical environment for this growing population.
We are excited to see continued improvements on our San Clemente campus. San Clemente is a growing area with limited access to healthcare.
In addition to the investment in ambulatory surgery, advances in imaging, emergency services and other acute care services are planned.
We have also developed a long range master plan, which includes the development of medical office space, additional parking and an increase of inpatient units, anticipated in the next five to 15 years.
