October 11, 2015

The Need to Redeploy Excess Healthcare Facilities and Other Resources

One of the biggest causes of higher health care costs is “supply-driven demand.” As Niko Karvounis wrote in a 2008 blog in Healthbeat:

“High consumption of care is driven by the crowd of academic medical centers, specialists, and equipment needed to perform tests. The Bay State has one doctor for every 267 citizens — versus one doctor for every 425 people in the nation as a whole. Supply drives demand. “

Supply-driven demand happens for two reasons, often overlapping:

  • Healthcare providers believe in a particular treatment or therapy, and try to maximize the number of people who access it. This is often reduced to the saying that “If you have a hammer, every problem is a nail.” Supply-driven demand occurs when people who should not be customers for a particular service become customers because the provider of that service force it beyond its natural market.
  • Healthcare providers have excess capacity, and try to get that capacity in use. This happens with expensive diagnostic imaging equipment, hospitals, and outpatient centers. It is even arguable that physicians react to reduced usage of their services by patients who become healthier by increasing the frequency with which they see other patients.

The other reason hospital capacity drives demand is that, even when it makes sense to close or shrink a hospital, there is a strong reluctance to shrink or close a facility that appears to be a strong job preservation engine in a community. However, we must confront the issues associated with repurposing healthcare facility and provider assets, because our current healthcare architecture is unsustainable. Too many Americans, probably now in excess of 15 million, are employed in healthcare, and too much of our GDP, now around 17%, is devoted to healthcare spending. We need to redeploy a significant percentage of healthcare assets toward alternative uses.

Closing a hospital can be done in the situation in which there are other hospitals that can absorb the patient population the closed hospital used to serve. In Stamford, Connecticut, St. Joseph’s Hospital was closed and most of its patient population migrated to the Stamford Hospital in the late 1990’s. The Stamford Health System, which owns the Stamford Hospital, created a new wellness, outpatient diagnostic, and outpatient surgery center on the old St. Joseph’s Hospital site.

However, there are less drastic alternatives to closing a hospital, especially when there is one hospital in a community and closing it completely is not a viable option for the served population. Repurposing big chunks of hospital campuses is an option that healthcare policy makers have to consider, and for which they need to develop an expertise. Although the examples I have found around North America all relate to redeploying complete hospital sites, as opposed to partial redeployment, they are instructive on what could be done with separable parts of hospitals.

In Vancouver, British Columbia, the unused hospital space became an Arts Center. In Rogers, Arkansas, the closed St. Mary’s Hospital became a Center for Nonprofits. At Virginia Commonwealth University, a former hospital was converted to student housing. At the Tufts Medical Campus, unused hospital space became a café and fitness center.

The repurposing of hospital space that is no longer needed for patient care can also take into account the needs of medical residents, who could live in the space, which, in some cases, has been converted to residential and retail space. Given the exorbitant cost of medical school and medical residency programs, subsidized housing could be a great alternative to more hospital beds.

I could also envision an innovation incubator, in which there are small offices for entrepreneurs of start-up businesses. In downtown Stamford, Connecticut, there is an attempt to use an old government building as an incubation center.

While hospitals will lose revenue potential by shrinking, the overall healthcare system needs to look at what benefits society as a whole, as opposed to what will maximize an individual hospital’s revenue and jobs.

What happens to those no longer working at the hospital?

  • Those working as healthcare professionals, doctors, nurse-practitioners, nurses, physician’s assistants and nurse’s aides can be redeployed to the remote or the onsite care of patients in their homes.
  • Those working in clerical and administrative jobs could also be redeployed in organizations that provide care, but in a less capital intensive organization.
  • Those who provide facilities related services can provide those services to whatever uses are substituted on the site. There are some facilities services, such as hazardous medical waste management, that will go away completely, but food service, maintenance and repair, and delivery services will survive.

Who loses when a hospital is repurposed?

  • Providers of expensive diagnostic technology will see a significant volume drop. Eventually, Medicare and other payers will create payment systems that reduce payments to a level at which unconstrained use of diagnostic imaging tests will not be able to be reimbursed.
  • Doctors who rely on scheduled surgeries will lose opportunity because the hospital will do fewer surgeries. However, one alternative to a portion of a hospital is an outpatient surgical center, which can absorb a portion of the supply.
  • Providers of ambulance and emergency medical technician services will see a volume drop only if there is not alternative hospital to which to take patients, so emergency departments will not be automatically reduced to handle real emergencies. However, there are emergency department transactions for non—urgent care that can be taken out of the hospital altogether, and can be managed through remote care.
  • Labor unions which represent certain groups of employees that will be scattered when redeployed among a number of employees will lose, to the degree that their collective bargaining agreement is narrowly targeted at a specific employer.

The bigger challenge in closing or repurposing a hospital is political. Elected officials intervene on behalf of any group, which believes it will be disadvantaged. This is especially the case if the apparently disadvantaged group is organized to effect powerful political advocacy, such as a labor union, or if there is a high proportion of people of color in the groups affected by the decision.

The biggest skill set required in repurposing healthcare assets is the ability to envision a future that is better for the community, better for the community patient population, and not unduly disruptive to the various stakeholders, which benefit from having the hospital remain intact.

Having leaders who can think through and implement a game plan to transition elected officials and the communities they represent toward an alternative future that reduces the footprint of the healthcare system is our biggest challenge.