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Expansion, Competition, And Consequences: The Health Care Industry In Northeast Ohio

Construction workers expand Cleveland Clinic's Fairview campus (photo by Brian Bull).
Construction workers expand Cleveland Clinic's Fairview campus (photo by Brian Bull).

Expand and consolidate. Both dynamics are at play in the healthcare arena in Northeast Ohio and it's affecting the biggest and smallest of operators.

Cleveland Clinic CEO Toby Cosgrove says what's happening here is happening nearly everywhere.

"I think 60 percent of hospitals in the U.S. are part of a system....and systems are starting to talk to systems about consolidating," says Cosgrove. "And so you're seeing the same thing happening here that you saw happening in grocery stores, the same thing that you saw happening with bookstores and banks, and you're seeing major consolidation because you get the efficiency that way."

What used to be small medical practices and neighborhood hospitals have disappeared or been swallowed into "systems" like The Cleveland Clinic or University Hospitals. And those systems, in turn, have been on a building spree in the name of efficiency.

"We have just opened three new outpatient facilities in Twinsburg, Avon and in Huron," continues Cosgrove. "We've just added a brand new facility for laboratory medicine; we've built a $170 million data center, here in Cleveland. We'll be expanding shortly our cancer center here, and we'll have a new facility for our neurological institute in the near future."

The expansion spurt by University Hospitals is also impressive.

"We just completed what we call `Vision 2010' which was a $1.2 billion expansion," says UH President Michael Nochomovitz. "Including Seidman Cancer Hospital, the Ahuja Medical Center, the new neo-natal ICU at Rainbow Babies and Children's hospitals. As well as a number of ambulatory sites across Northeast Ohio, like Concord, Twinsburg, Medina."

Reporter Brandon Glenn who follows the industry closely for MedCity News says the consolidation and expansion is all about controlling as much of the market you can. The bigger you are, the more power you have to negotiate price with insurance companies and other suppliers.

"What these hospitals are competing for is patients," says Glenn. "These hospitals need to fill their beds to generate revenues and to make money. However, its not any kind of patient these hospitals are competing for. They want generally wealthier patients who are going to have private insurance which pays more, much more, than Medicaid and Medicare. So you'll see hospitals like the Clinic and UH going out of the suburbs...the Beachwood area, the south suburbs of Medina."

But the trend doesn't stop there. Smaller players too are expanding their footprint such as a new primary care center in Middleburg Heights. MetroHealth's Chief Administrative Officer, Dan Lewis, says the center-city hospital has to be more accessible throughout the whole county. He calls expansion "the survival of the fittest."

"This is becoming increasingly an outpatient world that we live in," says Lewis. "More and more services are delivered closer to where people live. They're being delivered in a more efficient from both time and cost standpoint delivery model."

The result of all this activity is stiff competition. Or as Lewis puts it, "This has got to be one of the more hyper-competitive landscapes in all of the U.S. when it comes to the delivery of healthcare. The patients in this county have a lot of choice."

Adding to the tension is that it's all happening in an environment of falling population in Northeast Ohio, generally. So what worries doctors Cosgrove of The Clinic and Nochomovitz of UH, among others, is over-capacity.

"We're over capacity in beds in Cleveland right now, the average occupancy of a hospital here is 68 percent," says Cosgrove. "It should be more like 85 percent to be at maximum efficiency, so we've too many beds here. No question about that."

"We know there are redundancies today," says Nochomovitz. "I do believe that we've reached points depending on the discipline, where we probably do have too many providers."

Each player has a somewhat different strategy to going forward. The Cleveland Clinic sees this market as nearing a saturation point. The Clinic's future growth potential, Cosgrove says, lies outside Ohio by forming partnerships with health systems elsewhere and by building facilities under its own national and international brand.

"We also have a hospital in Ft. Lauderdale, outpatient facilities in Palm Beach, another one in Toronto, Canada, a place in Las Vegas, and a very big facility in Abu Dhabi."

University Hospitals is more landlocked, analysts say, but its leaders believe it can still gain market share in Northeast Ohio as well as expand into other parts of the state.

"We're seeing lot of interest, particularly amongst independent physicians in aligning with us," says Nochomovitz. "We've also had some interest outside Cleveland, within the state, for hospitals and providers who are perhaps further afield than the immediate Northeast Ohio area, and having a relationship with our centers of excellence."

MetroHealth -- which stands at a distant third in this "size matters" race -- is banking on new facilities outside of the center city -- across Cuyahoga County -- to keep growing.

"Our strategy is to be the low cost, high quality provider," explains MetroHealth's Dan Lewis. "That's the principal strategy that we're employing to grow our business. It's not through acquisition or mergers."

MetroHealth may be under the greatest financial pressures since a large percentage of its current patients either don't have insurance or have Medicaid. If the Affordable Health Care Act stands, it may capture more patients through Medicaid. But MedCity News reporter Brandon Glenn says that's a double-edged sword.

"The problem with Medicaid from the hospital's perspective is that it pays much, much less than private insurance pays," says Glenn. "So the more Medicare patients that you see going to MetroHealth, the bigger of a problem that it potentially becomes for them in terms of covering their costs."

As with any business, capturing new audience is one of the surest avenues to new growth. That battle may play out a couple more decades before outcomes are determined. More certain is that each hospital system is convinced it can't stand still.