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Janesville in midst of health care building boom

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Photo by Dan Lassiter

Workers install the brick and rock facade on Mercy North, and new emergency center and physicians clinic that will open next month near Pine Tree Plaza in Janesville.

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Photo by Dan Lassiter

The main entrance and lobby of the $145 million St. Mary’s Janesville Hospital and Dean Clinic-Janesville East will start welcoming patients and visitors Jan. 9.

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Photo by Dan Lassiter

The new waiting area, as well as the pharmacy, ophthalmology and optical departments at Mercy Clinic East, which recently underwent a $10 million expansion that Mercy officials say will better serve patients on the east side of Janesville.

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Photo by Dan Lassiter

One of the medical/surgical rooms at the new St. Mary’s Janesville Hospital. Officials say the new hospital will complete an integration loop in Janesville that includes clinics and physicians, insurance coverage and, now, hospital services.

JANESVILLE — A new hospital.

Two new clinics.

Millions of dollars more spent on remodeling and expanding area health care facilities.

Why the spending explosion in the local health care industry? Will it improve local health care or is it a medical arms race simply intended to attract more patients?

Health care providers wrapping up nearly $200 million in construction and renovation said the projects will improve access to health care, satisfy consumer demand and create a competitive environment that leads to improved quality and better controls on rising health care and insurance costs.

Some industry observers, however, say such projects often are designed to increase the number of patient procedures, capture market share and lock down profits, regardless of the community's medical needs.

In less than a month, SSM Health Care of Wisconsin and Dean Health System will open a $145 million hospital and clinic on Janesville's southeast side. That follows SSM's recent involvement in the $27 million construction of the new Edgerton Hospital and Dean's ongoing construction of an adjacent clinic.

Janesville's Mercy Health System also has been busy with contractors. Three highly visible projects are under way in Janesville that will cost more than $25 million. They come as Mercy progresses on a $45 million expansion and renovation of its hospital and clinic in Walworth.

Whether on billboards or at construction sites, it's nearly impossible to drive anywhere in Janesville and not see the evidence of what some industry experts call a medical arms race.

Providers—only slightly slowed by the recent recession—are in expansion mode in an effort to hold or grow market share in an increasingly competitive sector, those experts say.

"It has little to do with what consumers want or need," said Dr. David Goodman, co-principal investigator for the Dartmouth Atlas Project and director of the Center for Health Policy Research at the Dartmouth Institute for Health Policy and Clinical Practice.

"You've got well-meaning organizations that are trying to optimize their own health and strength."

The whys and wherefores

Improved access to local health care that's more efficient from a cost and quality perspective is the main reason for the new St. Mary's Janesville Hospital and Dean Clinic-Janesville East, leaders of the two organizations said.

"We heard from the community that it wanted choice in its health care options," said Kerry Swanson, president of the St. Mary's Janesville Hospital that will open Jan. 9. "As we started to evaluate, we clearly identified that a lot of people were actually leaving Janesville for health care."

For years, Dean physicians have treated patients in Janesville at Riverview and Northview clinics.

When hospitalization was necessary, some of those patients were admitted and treated by Dean doctors at Mercy Hospital and Trauma Center, where Dean patients fill about 30 percent of the beds on any given day.

Early studies—many supported by insurance claim information—showed that a significant number of patients get primary care in Janesville but 40 percent of residents leave Janesville for hospital services, often to St. Mary's in Madison or Beloit Memorial Hospital, Swanson said.

"It became obvious to us that they want to be part of an integrated delivery system," said Charlie Johnson, chief financial officer for SSM Health Care of Wisconsin. "So where we just had the physician presence and the insurance presence, we weren't successful as an integrated system."

Dean patients, Johnson said, wanted a more complete range of health care services in Janesville, and the new hospital answers that demand.

Craig Samitt, Dean's president and chief executive officer, said the integrated model that Dean and St. Mary's share in Madison will be successful in Janesville.

"Riverview would be adjacent to a hospital that we wouldn't admit to anymore," Samitt said. "Riverview Clinic is fine, but it's really more about achieving clinical integration physically and conveniently for the patients."

Swanson said the neighboring providers would be able to develop efficiencies that will create a safer, more cost-effective environment.

Part of that will be an immediate reduction in cost—estimated at 38 percent—that Dean won't pay to put its patients in Mercy's beds.

"Our view was that we have an integrated system, but in Janesville we had an integrated system that was with another local hospital owned by someone else," said Lon Sprecher, president and chief executive officer of Dean Health Plan, which covers about 20,000 people in Rock County.

"Our whole model works on collaboration and efficiency, which then gives better premium control. By having the Janesville hospital integrated with the Riverview Clinic, that gives us the collaboration and efficiency and premium control that we've got in other places in our network."

Mercy: Staying the course

Each year, Janesville-based Mercy Health System targets about 5.8 percent of its operating budget to capital projects.

In recent years, that's translated into capital spending of about $25 million annually, said John Cook, Mercy's chief financial officer.

"When you look at our 10-year history, we have been through similar cycles of growth," he said. "Our current level of capital investment is in line with the size of our health care system and our previous capital investments."

Mercy has several current projects that are particularly visible.

In addition to the Walworth project, Mercy is making renovations, expansions and façade improvements at its main hospital in Janesville and at its Mercy East clinic. It's also building Mercy North, an emergency department and physician clinic, near the Pine Tree Plaza on the northeast side.

"What we have going on is a few very obvious projects that people see, so they think, 'Oh my, there's a lot of construction going on,'" said Javon Bea, Mercy's president and chief executive officer. "The fact of the matter is that there is no more construction or expenditure of capital dollars than what we typically do."

Mercy operates 64 facilities in 24 communities in southern Wisconsin and northern Illinois. It spends money each year so that, on average, it replaces its entire plant and equipment every seven and a half years, which Cook said is typical for an "A-rated" system such as Mercy.

Larger projects such as the Walworth expansion require Mercy to sell bonds to raise money.

"For smaller and ongoing projects, we utilize our operating cash to the extent that we do have investment earnings that help to fund that, and then the fallback is to go to the bond markets," he said. "Bond markets are very favorable right now, similar to mortgage rates."

Bea said the front of the hospital and its patient services area haven't been touched in 15 years.

Mercy East, he said, was much the same as it was when it was built 25 years ago, and Mercy North is necessary because the system needs more emergency rooms in Janesville and is landlocked at its main campus.

"We've got these three projects going on that are kind of in people's faces," he said. "But what people don't know is that we had the same kind of level of expenditures with the big double MRI suite that blends right into the hospital, so people don't even know that it was an addition to the hospital.

"We put tons of money into new electronic medical records, millions into big, gigantic standby generators. People don't see that stuff. We're not doing any more expenditures or construction than we ever have. It's just that it's more visible right now."

Visible but necessary?

There's little doubt patients in the Janesville area soon will have more convenient access to a variety of expanded and improved health care services.

Some people, however, wonder whether the growth is necessary and question whether an increasingly competitive health care market is expanding without regard to the community's medical needs.

Leaders of the two primary health care providers in Janesville scoff at the notion. They say their projects are the direct result of listening to their customers and meeting their needs.

Others, including industry watchers, say unchecked growth leads to unnecessary care that everyone pays for either through higher premiums for private insurance or through taxes to support Medicare and Medicaid.

The Dartmouth Atlas Project studies regional variations in health care spending and workforce capacity issues that it says can sometimes lead to unnecessary care.

In a 2006 study, it found that the Janesville area was above the national average in 33 out of 44 categories in selected hospital capacity and workforce measures.

For example, the study found that the local area had more primary care physicians than the national population-based average but fewer pediatricians.

Because demographics differ across the nation, the data do not mean the Janesville area is necessarily "overcapacity" in any particular area, but they do provide a comparative talking point.

"Generally speaking, adding capacity beyond what the community needs is not a great thing," said Alwyn Cassil, director of public affairs for the Washington, D.C.-based Center for Studying Health System Change.

"The question becomes: Is what's being done truly addressing the community's needs, or are they being done to address someone's bottom line?"

Cassil said health care spending is increasing faster than the nation's gross domestic product.

"If we're getting better health care for that kind of spending, then maybe it really is better than a few more flat screen TVs," she said.

Samitt said Dean doesn't look at communitywide ratios when determining staffing or services.

Instead, he said, the system bases its staffing on patient demand. That starts with primary care physicians and expands to specialty care physicians as warranted, he said.

Who measures demand?

John Mullahy, a professor of population health sciences at UW-Madison, said those who identify a community's demands typically include providers, patients, insurance companies and the government, which supports Medicare and Medicaid.

"There are some nuances, in my opinion, when you talk about 'community need,'" Mullahy said. "There is a pretty significant number of health care consumers who believe more is better, shinier is better.

"Give me the shiniest toy, and I can be a happy health care consumer."

Community needs often are confused with community preferences, Mullahy said.

"The needs of today are not what they were 20 or 40 years ago," he said. "If it's out there, we want it.

"I and others are somewhat vexed when it comes to convincing health care consumers that more is not always better, newer is not always better, shinier is not always better."

Meeting customer preference is not a bad business model, he said, adding that it's the backbone of most businesses.

Health care, however, is different, he said.

"Bigger, newer, shinier costs more, but how are those price signals translated back to consumers?" he said. "Those price signals often get diluted."

To illustrate his point, Mullahy talks about what likely happened at recent enrollment sessions for health care plans in communities such as Janesville that are experiencing growth.

Suppose, he said, there are two providers, and one just built a shiny, new facility, with all the fancy trappings that Mullahy refers to as the "hotel side" of health care.

When presented to employees, the insurance premium for that provider's plan is $1,000 a month, he said, picking arbitrary numbers.

"The one that didn't build anything comes in with a premium of $950," he said. "So at open enrollment, you, the employee, are sitting there thinking that $50 a month isn't bad for something fancier.

"But what if the difference was $100, $200 or $300 a month? At what point do those true price signals get through to the consumer?"

Decisions, he said, often are influenced by human nature and not honest determinations of whether the newer, bigger and fancier components contribute to better health care.

"The evidence is pretty vague that it does," Mullahy said. "We may perceive that we are healthier and happier, but are we really?"

Cheryl DeMars is president and chief executive officer of The Alliance, an employer-owned and directed not-for-profit cooperative that helps companies—including several in Rock County—manage their health insurance.

She said time will tell whether competition in Janesville and other markets in Wisconsin is centered on price and quality.

"Amenities are often used as a proxy for quality," DeMars said. "Most consumers are often tempted to believe that newer means better quality."

DeMars said consumers often don't have any idea what a community needs in terms of health care.

"Do we need ambulatory surgery centers, more beds, more mental health providers?," she said. "Where is the objective data to help us decide? There just isn't any."

Health care, she said, is unlike other industries in that providers create the demand that can lead to an over-supply.

"We're going to have to live with the infrastructure that's being created for a long time," she said. "I hope it improves quality and costs, but only time will tell.

"We need better, more objective data to understand what our communities need, and I would think that most consumers, given the choice of good data, would dismiss the amenities, waterfalls and fireplaces."

Do better or do more?

Local providers say consumers aren't paying for their building projects in the short term.

Granted, they say, patients and their insurers do feed an organization's earnings, which ultimately pay the capital expenditure bills and bond retirement.

"You've got to remember that most health care pricing is set on fixed-price margins," said Quint Studer, a national health care leadership consultant and former Mercy executive. "The reality is that prices don't go up or down based on the number of hospitals."

Medicare and Medicaid reimbursements are fixed, and all indications are that they will decrease, he said. Similarly, insurance providers negotiate prices specific to a wide range of procedures and services.

For the most part, others tell health care providers what they can charge.

"The rates are set, so the question for providers becomes, 'How can we make more money?'" Studer said. "Then it comes down to volume."

Goodman of the Dartmouth Institute agrees that the issue of increased volume has more to do with a provider's bottom line than it does with a community's health care needs.

"We've got a health care reimbursement system that pays for any care that's delivered, whether it's valuable or not," Goodman said. "That has led to this unbridled growth.

"An increase in providers or services does not lead to better quality and lower price. It leads to a medical arms race where everyone is adding more and more, and that added capacity needs to be kept busy."

Mercy, SSM and Dean officials said that Goodman's statement is true from a broad perspective.

In many markets, they said, competing providers are building to increase the number of procedures.

But not locally, they said.

"That's one of the ways that Dean/SSM are a bit of a different system than others," Samitt said.

"For many years, our focus has not been on volume; it's been on value. To function as an integrated system, we're responsible and accountable for the physicians, the hospitals and the cost of care through health care premiums. Our focus has been on improving the quality of care and being prudent stewards of our customers' resources."

Samitt and Mercy's Cook said the reimbursement model is changing, and it will put more emphasis on cost and quality than on volume.

That's a result of the Patient Protection and Accountable Care Act of 2010.

One the act's provision is a program called value-based purchasing, which gives the government the power to base a portion of hospital reimbursement payments on how well hospitals perform in 25 core measures.

One facet of the value-based purchasing program raises the stakes even higher for systems that voluntarily agree to become "accountable care organizations." ACOs, as they are known, will give doctors and hospitals further financial incentives to provide quality care to Medicare beneficiaries while keeping down costs.

"With value-based purchasing, unless you're at the top docile of performance, you're not going to get any of those incentives," Cook said. "We know that the average hospital out there is going to see less reimbursement. It's not going to grow."

The purpose of value-based purchasing and accountable care programs is to reward systems for doing better, not for doing more, Samitt said.

Integrating cost, quality efficiencies

While changes may be on the horizon, several health care industry watchers have argued that the national building boom has created an increase in services and procedures that are often duplicative and unnecessary.

Summing it up in 2007, Century Foundation fellow Maggie Mahar wrote: "Across the nation, as not-for-profit hospitals set out to invest in new construction and equipment, decisions seemed to be market-driven—but not necessarily driven by a local population's medical needs.

"Instead, they were powered by the hospital's need for market share."

In his lengthy career, Mercy's Bea has seen examples of what Mahar and others suggest.

Often, he said, hospitals without integrated physicians are forced to compete by adding buildings and equipment whether that growth serves a community need or not.

"They try to gain market share from doctors through building new facilities," he said.

That, however, is not the strategy for Mercy, which has long had doctors that are integrated into its system, he said.

With exceptions for referrals for advanced care, Mercy doctors admit their patients to Mercy Hospital and Trauma Center, just as Dean physicians will admit patients to the new St. Mary's Janesville Hospital.

"Our 380 doctors are part of our system," Bea said. "We don't have to go out and try to one-up a competing hospital with a new facility.

"We've been able to get full life and then some from our facilities because our doctors are integrated."

Bea said that in communities where doctors are not integrated into one hospital system or another, hospitals compete for market share by routinely dressing up their facilities to lure doctors and their patients.

Samitt agrees that integration is critical to controlling costs.

The new St. Mary's Janesville Hospital will close the SSM/Dean integration model in Janesville.

Full integration in Janesville—the hospital, the clinics, the doctors and the insurance product—will allow SSM/Dean to deliver high quality care as economically as possible, Samitt said.

"When we have separate elements to the system, we either can't guarantee on the quality side or the cost and efficiency side, and being an integrated system allows us to simultaneously focus on both," he said. "It's not just cost control by competition; it's cost control by functioning as an integrated system."

Health care officials: 'Integration' drives building

Talk to the leaders of SSM Health Care of Wisconsin and Dean Health System about their decision to build a $145 million hospital and clinic in Janesville, and you'll hear a lot about "integration."

The word also has been prominent in the vocabulary of Javon Bea, who took over the leadership of Mercy Hospital in 1989 and transformed Mercy Health System into a network of 64 facilities in 24 communities in southern Wisconsin and northern Illinois.

Generally, integrated health care systems are designed to contain costs while maintaining quality. They generally pursue economies of scale and eliminate redundancies through centralized control systems.

Since Bea arrived in Janesville, Mercy has grown into an integrated system because it provides a wide range of health care services, including primary, specialty, urgent and emergency care; inpatient and outpatient treatment; home care and hospice, and insurance services.

The intent is for the services to work together to provide patients with a coordinated and convenient continuum of care.

That continuum of care, Bea has said, allowed Mercy to incorporate far-reaching efficiencies that lower the cost and improve the quality of health care.

That's the same strategy SSM and Dean will use in Janesville when the new hospital and clinic open in January.

For decades, Dean Health System has served the Janesville and Rock County areas with clinics and insurance services. Dean has typically accounted for about 30 percent of Mercy's hospital patients. But Dean officials determined that the missing link in their Janesville network was their own hospital.

Dean has long partnered with St. Mary's on the hospital side, and officials from both organizations decided that a St. Mary's hospital in Janesville would best serve Dean patients here.

"It became obvious to us that they want to be part of an integrated delivery system," said Charlie Johnson, chief financial officer for SSM Health Care of Wisconsin. "So where we just had the physician presence and the insurance presence, we weren't successful as an integrated system."

Thus the new hospital, which Dean and SSM officials said will improve the quality of care delivered in Rock County. It will also help reduce costs, as Dean patients were paying what officials said was a hefty premium to be treated by Dean physicians in Mercy Hospital and Trauma Center.