Battle for the burbs: The fight for market access

First, homeowners discovered the edge of suburbia. Then, retailers followed. Now, finally, it appears hospitals are following, too, leading many to believe that physicians will decamp to the outer suburbs as well -- though it appears doctors could be ahead of hospitals on this trend.

On the outer ring of metropolitan areas, hospital systems are competing heavily to stake their claims. In the Denver suburbs -- which include Douglas County, the nation's fastest-growing county -- at least six hospitals will have opened between 2002 and 2007. At least three hospital systems are competing to build in the Minneapolis suburb of Maple Grove, Minn.

Rick Wade, spokesman for the American Hospital Assn., says his group isn't sure how many new hospitals are being built in suburban areas, but he said his organization was familiar with similar building booms or attempts to create a building boom in such states as Arizona, California, Michigan and Virginia.

The stakes are high: Expanding medical services to the well-insured patient population in the area could help a system's urban hospitals diversify their payer mix enough to subsidize some of the indigent care that they provide to city dwellers, perhaps helping them stay afloat financially. It also could help them retain the patients that already use their outpatient services.

The obstacles, however, are formidable. Not only must hospitals prevail over competitors in a cutthroat industry to stake a claim on the business, but they also must win regulatory approval for the projects and overcome any legal challenges made to that approval. In Illinois, for example, the state's hospital board rejected plans by two hospital systems to build in Chicago's southwestern suburbs, saying those facilities were unnecessary and could financially drain other hospitals within a half-hour drive.

The conventional wisdom is that where hospitals go, so go physicians, and where hospitals don't go, physicians don't go -- mainly because they don't want to waste time on long commutes to hospital rounds. A Mercer University survey in suburban Atlanta showed a much lower physician-to-population ratio in suburban areas than in urban areas.

But it helps when, say, UC Physicians' hospital project in Cincinnati's suburban Butler County adds thousands of square feet of new, ready-made office space for physicians. On the other hand, plenty of physicians -- unencumbered by certificate-of-need laws or the zoning battles often associated with large hospital projects -- already have decided to set up shop in the suburbs. They do it for the same reason they set up urban areas years ago: because that's where the people are.

In its 2001 housing survey, the U.S. Census Bureau determined that 62% of all housing units were located in suburban areas. And that number is sure to increase. The Census Bureau's 2004 list of the fastest-growing counties is topped by exurban locations of such places as Atlanta; Chicago; Dallas; Indianapolis; Washington, D.C.; and Columbus, Ohio.

Moving out in Detroit

Metropolitan Detroit for many years has been defined by its central city emptying as its suburbs boomed, and for that reason two of the city's biggest hospital systems are fighting for a piece of the edge cities.

Henry Ford Health System has proposed transferring 300 existing beds, mostly from its flagship hospital in downtown Detroit, to its ambulatory facility in West Bloomfield. At the same time, St. John Health wants to transfer 200 beds to an outpatient center in Novi. Combined, the projects could cost nearly $500 million. Both suburbs are located in Oakland County, a growing and affluent suburban area.

"Look at where the shopping centers are being built. When I came to Detroit in 1970, people went downtown to shop. Now they go to suburban malls," said Vinod Sahney, PhD, a senior vice president of Henry Ford Health System.

Both Henry Ford and St. John Health have had a presence in the areas for decades -- just like most hospitals targeting suburban areas have put up a physician office or ancillary outpost to get an early foothold in a growing market.

For example, Dr. Sahney said Henry Ford acquired land in West Bloomfield in 1975, targeting it as a growth area. Since then, volume has built up, and now there are about 100 patients each day who are sent from the area to the downtown hospital.

But Sahney said another 30 to 40 patients refuse to travel downtown so they are referred to other community hospitals in the area where their physicians might not have privileges. That disrupts the continuity of care, he said.

As Donald Potter, past president of the Southeast Michigan Health and Hospital Council, said: "Health care in many ways is like the grocery stores and service stations. It's got to be close by and you've got to be able to access it when you need it."

Scores of doctors already have moved to the Detroit suburbs, said Adam Jablonowski, executive director of the Wayne County Medical Society of Southeast Michigan. "We know just from looking at our membership here that a large number of doctors have moved out of Wayne County and into Oakland County and Macomb County, but they're simply following the population," he said.

The medical society has not taken a position on the proposed expansions in Novi and West Bloomfield, but Jablonowski said physicians seem relatively supportive of the building proposals -- especially those who are associated with one of the hospitals.

James Golden, MD, an office-based internist in West Bloomfield, said he currently sends his patients to a hospital nearly 10 miles away in Royal Oak. But he's not sure he would send patients to any new hospital that was built even if it was closer. "It's really going to depend on what happens once it's in place and what kind of reputation it gets," Dr. Golden said. "We're going to have to see how it plays out. If patients seem to want to go there and it's going to be an open-staff model, then I'll have to look into it."

Robert Casalou, president of Providence Hospital, a St. John Health member hospital, said nearly one-third of the patients who get admitted to the health system's Southfield facility come from the outpatient facility in Novi, 13 miles away. He said the population already has shifted to that area, producing demand for hospital services. And he said fulfilling that demand could produce a win-all situation for the Novi and Detroit communities and the health system.

"Our hospitals are under tremendous strain with a terrible payer mix, and so there are tremendous losses to subsidize," Casalou said. "We'll solve the access problem and we'll balance our payer mix as a total system" by transferring beds to Novi.

Limiting growth

But a group of five other hospitals has taken legal action to stop the projects. They are challenging the constitutionality of portions of a law state lawmakers passed that allowed Henry Ford and St. John Health to bypass the certificate-of-need regulatory approval process for building. Detroit's big businesses -- including the Big Three automakers -- also objected to the projects, which they saw as wasteful spending of health dollars.

Stephen Afendoulis, lead attorney for the plaintiffs, said his clients believe that Henry Ford and St. John Health were given anticompetitive and unfair exemptions to the law. The state's Legislature approved hospital expansion if beds were transferred from one facility to another, but Afendoulis' clients -- which include city and suburban hospitals, as well as three private citizens -- argue that legislation was specialized to Henry Ford and St. John Health and therefore unfair.

"Where a need is identified, the comparative review process allows all of the potential health care providers to submit their proposals for fulfilling that need. Everybody plays by the same rules and everybody has a shot. That is competition. These exemptions ... they have no competition," he said.

For now, the fate of the projects is unclear as the legal case unfolds. An Ingham County circuit judge ruled last summer that the plaintiffs didn't have legal standing to intervene. But the ruling is being appealed.

In the Minneapolis area, state lawmakers may have the final say whether three proposed hospital projects in the same area would create an unnecessary proliferation of beds. North Memorial Health Care, Fairview Health Services and a partnership of Park Nicollet Health Services and Allina Hospitals & Clinics all have proposed new hospitals in the Maple Grove area, a fast-growing suburb with an affluent population and plenty of land on which it can grow more.

Donald Wegmiller, a Minneapolis-based consultant and chair of the Clark Consulting Healthcare Group, said each hospital might have a slightly different motivation for wanting to build.

North Memorial already has a major outpatient facility on the edge of Maple Grove, so it could be looking to protect the business it has generated so far, Wegmiller said. On the other hand, he said that Fairview, which is located in downtown Minneapolis, might be looking to capture new business. And he said the Park Nicollet-Allina project could be aimed at retaining physicians who are already working at clinics in the area and capturing some new business.

"But the state is not going to allow all three of them to build. Only one will be allowed to build, because we have a state certificate-of-need law," he said. Any hospital that gets rejected might be able to resell the land it bought to avoid a major loss on the deal. But projects that are approved will require a great deal of capital to complete, which is why it is often only the larger health systems with access to capital that try these projects at all, he said.

When new hospital projects are approved and built, said Kaveh Safavi, MD, chief medical officer for Evanston, Ill.-based hospital consultant Solucient, it could draw more physicians to the area because they "generally like to practice in a nice building and new building." But just building a hospital alone may not be enough to attract physicians to the suburbs.

"Doctors like to live where they practice," he said. "The presence of a hospital alone is not sufficient to create a magnet for physicians. You've got to have housing and schools and something that makes it interesting for the physician."