A potential threat to the San Diego region’s health and its ability to control medical costs might come as a surprise: a glut of hospital beds.
The region's acute care bed count as of 2013 numbered 5,824, which was 2,284 more beds than the region's population will need by 2020, and 1,577 more than needed by 2030, according to the California Health Care Foundation's report "Beds for Boomers" issued last year. Not until 2040 would demand for beds come close to matching the region's supply.
But an inewsource analysis shows the gap is even greater than the report’s chart suggests. Its calculations don't include Kaiser Permanente's new 450-bed hospital in Kearny Mesa, expected to open in April 2017, or UC San Diego Health's 245-bed Jacobs Medical Center, opening in the next several months in La Jolla, each with a price tag just under $1 billion. A third Kaiser hospital may be in the works for San Marcos by 2030, if Kaiser meets future membership enrollment goals.
Nor does it include the San Diego Naval Hospital’s 272 acute-care beds, the San Diego VA hospital's roughly 200 acute care beds, or Camp Pendleton's 42 beds, because federal facilities don't report to the state, the source of the CHCF report's data. The report, however, does include the populations served by those hospitals to project demand.
That's 7,033 beds, or 3,493 more than projected needs in 2020. A lot of unnecessary hospital beds add significantly to health care costs, and may produce an incentive for clinicians to admit more patients and perform more procedures when less intense alternatives would be better for the patient.
"There clearly is a growing mismatch between the needs of the population and the beds that are being constructed," said Maribeth Shannon, director of the CHCF team that produced the report. The foundation is a philanthropic organization that focuses on improving access to health care, especially for low income people.
"We see a lot of new construction in surgical specialties, things that are generously reimbursed, as opposed to psychiatric beds that don't have good revenue streams."
To be fair, not all of those beds are always available. Industry experts say that on any given day, 15 percent of those beds are — practically speaking — offline to allow patient transitions and room cleaning. Sometimes, hospital staff avoid housing patients of opposite sex in the same room, a consideration that can result in an empty adjacent bed.
Also, Palomar intends to close its 319-bed downtown Escondido hospital next year. Kaiser's Zion Avenue hospital in Grantville and UCSD intend to convert many of their double-bed rooms to singles when their new hospitals open. And Fallbrook Hospital, with 47 beds, became an urgent care center in 2014.
But adjusting for those reductions still leaves about 5,500 useable beds on a given day, nearly 2,000 more than the region needs by 2020 and about 1,250 more than by 2030.
The CHCF report's authors carefully considered the demographics for the San Diego and Imperial County region, which include a significant aging population. Seniors are generally admitted to hospitals more often than younger patients. The report estimated that in the San Diego area, the number of acute care days will increase by 123 percent from 2010 to 2040 among those who have reached their 65th birthday.
Also considered was the region's 4 percent expected growth rate by 2040, and expanded coverage of people previously uninsured.
San Diego was one of five regions in the state the report said has more licensed beds than they are projected to need. The others are the Central Coast, Greater Bay Area, Northern and Sierra, and Orange County. The Inland Empire, San Joaquin Valley, Los Angeles and Sacramento areas are said to be “in danger of bed shortages at 85 percent occupancy rates.”
Other factors that may reduce bed demand even farther than the report projects are many new federal and health plan care models and financial penalties that are expected to further drive down in-hospital utilization especially in cancer, orthopedics and cardiac care. An increasing number of treatments and surgeries are moving from inpatient to outpatient settings, a trend that is expected to continue.
But hospital executives disagree on the topic of whether the region has too many beds.
To Dan Gross, executive vice president of Sharp Healthcare, the opposite is true. He said San Diego is "underbedded," because planned hospital expansions won't keep pace with population growth or an increase in seniors, the fastest growing segment of the region's population.
"We would have to run a deeper analysis to confirm our suspicions, but the back-of-the-envelope numbers don't suggest the county will face a glut of beds anytime soon," Sharp's media representative John Cihomsky wrote in an emailed response.
And Patty Maysent, UC San Diego Health CEO, said in an interview that at least as far as her hospitals are concerned, there's a huge need for more beds, not fewer.
"We're packed every day … and now scheduling surgeries out to October, November and December," she said. UCSD also finds itself turning down about 100 transfers a month from other hospitals because it doesn't have room.
Maysent and others pointed to the requirements in state Senate Bill 1953, the law that requires acute care hospitals and their essential support structures to be strong enough by 2030 to withstand a strong earthquake and continue operating.
The California Office of Statewide Health Planning and Development supplied inewsource with a chart of the seismic status of all buildings related to acute care hospitals that need to meet requirements. It shows many hospitals, including UCSD Hillcrest, Paradise Valley, Alvarado and Scripps Mercy's two hospitals require major renovation or rebuilding to comply. Hospitals must score a Seismic Performance Rating of 3 or higher to meet year 2030 requirements.
UCSD plans to replace its Hillcrest facility with a new hospital between 100 and 300 beds by 2030 to comply, Maysent said.
However, not all of those hospitals would have all of their beds off line during construction at the same time. And, as a more recent CHCF report on the San Diego County hospital market noted, many San Diego providers believe that the rule's timeline and requirements will be significantly relaxed before 2030, said Ha Tu, senior researcher with Mathematica Policy Research, which prepared the report for the foundation. Some argue that the enormous costs to rebuild entire hospitals or make required repairs would force essential facilities out of business, which could be politically problematic.
The region ‘will be overbedded’
But Chris Van Gorder, president and CEO of Scripps Health, has serious concerns that hospital building here has gotten out of hand, saying bluntly in a series of emails that the region "will be overbedded." He added that too many beds in so many new structures will prompt a complex domino effect that's not healthy for the region and could force some hospitals to close.
"Building excess capacity creates a reverse supply and demand issue — too much capacity gives leverage to the insurance companies who continue to consolidate so they can secure lower rates from hospitals and providers and increase their profits," Van Gorder said.
"When a hospital has too many beds — which is a cost — they will try to fill those beds to cover costs," Van Gorder said. "They will lower rates to try to secure contracts hoping that they can lower other costs to break even or make a small profit. But if unsuccessful, (they) will ultimately get into financial trouble and will have to either merge, sell or close."
That's what happened 16 years ago when several hospitals, including a Scripps hospital in El Cajon, closed "due to low census and financial challenges," he wrote.
"I fear we are going to repeat history in San Diego," he continued. "Not right away but it's coming again. The strong will get stronger and the weaker -— sometimes even necessary safety-net hospitals to a region, will struggle and maybe even close."
Nationally, health policy experts say larger hospital organizations that are the result of mergers and sales often result in reduced competition and thus, higher costs to health plans and consumers, who are left with fewer choices.
Mile of hospitals
Van Gorder, whose system operates three hospitals in San Diego's more affluent areas north of Interstate 8 and two hospitals in lower economic areas south of I-8, is especially critical of UCSD's new expansion.
"The problem is that in some cases they are building where beds are not needed — UCSD building beds in La Jolla — and planning to close beds where they are needed — south of the 8. That's driven by 'business needs,' not 'community need'; a better payer mix and philanthropy."
The stretch from La Jolla to Kearny Mesa areas will soon house seven adult acute care hospitals, the VA, Kaiser, Scripps Green, Scripps Memorial, Sharp Memorial and Sharp Mary Birch, while the South County will have three, Paradise Valley, Scripps Mercy in Chula Vista and Sharp Chula Vista.
Maysent firmly defends the rationale for UCSD's new Jacobs hospital, saying that as the region's academic medical center and medical school, it offers procedures and services that other area hospitals don't, including bone marrow and stem cell transplants, lung and heart/lung transplants and immunotherapy trials not available anywhere else in the state, and receives referrals from physicians in other hospital systems all over the globe.
Van Gorder has several reasons to be more nervous than many other area hospital executives because of the impact the building boom could have on Scripps.
First, Kaiser Permanente, which has 600,000 enrollees in San Diego, or one in five insured county residents, and is growing, now contracts with Scripps Memorial for virtually all of its interventional and surgical cardiac procedures.
Experts estimate this constitutes between 30 percent and 40 percent of Scripps Memorial's lucrative cardiac service line. Heart attack patients who show up at Kaiser's Zion Avenue hospital are promptly transported to Scripps Memorial, whose $456 million Prebys Cardiovascular Institute opened last year on the La Jolla campus.
That contract expires in 2020, and could be modified sooner if Kaiser decides to develop its own cardiac care service line before then. After all, many observers suggest that's the basic premise behind Kaiser's integrated health plan model: Kaiser believes patients have better outcomes when they are treated by Kaiser's doctors and care teams with Kaiser protocols in Kaiser facilities, under Kaiser's oversight.
Second, Kaiser also contracts with Scripps Mercy to perform bariatric surgeries for Kaiser enrollees. And Scripps Mercy also takes most of Kaiser's overflow patients when beds at Zion are full.
For the time being, those contracts remain in play, but for how long is unclear.
"At this time, no decisions have been made to terminate contracts at other facilities," said Kaiser spokeswoman Jennifer Dailard.
Third, Scripps faces competition from UC San Diego Health's three-year old Sulpizio Cardiovascular Center and its Jacobs center, which will devote three floors to cancer care, a major service line for Scripps, which recently announced plans to collaborate with one of the nation's largest cancer centers, MD Anderson in Houston.
With both UCSD and MD Anderson designated as National Cancer Institute comprehensive cancer centers, health plans and fee for service Medicare patients will have choices.
Also affected by Kaiser's second hospital is Palomar Medical Center in western Escondido, which now allocates more than 100 of its beds to Kaiser patients. Palomar's patient base would be further challenged if Kaiser builds a third hospital in San Marcos, a project now under discussion.
Palomar spokesman Chris Saunders replied to a request for comment saying "Palomar Health has enjoyed a strong and collaborative relationship with Kaiser for many years and look forward to our continued work together in caring for health and wellness of the communities we serve."
Underpinning the concern that San Diego may have too many hospital beds is the industry’s fact of life: Hospitals don’t make money unless they have patients, and if they don’t, they find effective ways to market their care. The alternative is to close.
"We have a saying, 'a built bed is a filled bed,'" said Daniel Wolfson, executive vice president and chief operating officer of the American Board of Internal Medicine Foundation, which launched the Choosing Wisely list of procedures patients and physicians should avoid in 2012, based on 70 specialty society recommendations.
A look around the country shows that in places with higher numbers of specialists relative to primary care providers, and more hospital beds, utilization rates are higher. And that translates to more unnecessary care, he said.
“The association of higher bed supply and the potential for overuse and inefficiency and wasted money is clearly established today,” said Dr. David Goodman, co-principal investigator of the Dartmouth Atlas, which uses Medicare data to spot national trends in health care utilization at hospitals, which are the biggest drivers of Medicare costs.
“It’s certainly my impression — as someone who spends time around medical centers — it's really quite staggering sometimes to see the amount of construction that's occurring, both the quantity of it and the quality of it.
“The fact is, the most common causes of hospital admissions are for conditions for which there are often — not always but often — alternatives,” and those alternatives are often equal to or better than hospitalization, he said.
Goodman pointed out that over the last several decades there’s been a steady and gradual decrease in hospital admission rates, but it varies “tremendously from market to market and region to region,” with little reason why. In many cases, the degree to which a hospital aggressively tries to reduce admissions and readmissions “is driven by their current circumstance: are they very pressed for beds?”
Cases of outright fraud are rare, but some have come to light. For example federal charges were filed against Health Management Associates, a 71-hospital chain accused of unnecessarily admitting patients who came to the emergency room.
Dr. R. Adams Dudley, director of the Center for Healthcare Value at the University of California San Francisco, who has studied the issue of bed supply and utilization, said there's "abundant evidence" that oversupply of beds fosters overuse.
"If you increase the supply of hospital beds — or even services such as specialized surgery — more health care will be delivered. Someone will have to pay for that,” he said.
An important recognition throughout the health care industry, including payers like Medicare and Medicaid and insurance companies, is that some 30 percent of care may be unnecessary or unwarranted, and much of that is in the most expensive type of care: hospitalizations. A 2011 American College of Cardiology study of stent procedures found 12 percent were medically unnecessary, and one-third were unclear.
In Southern California, Prime Healthcare Services, the company that owns two San Diego hospitals, Alvarado Medical Center and Paradise Valley, faces federal whistleblower accusations that it admitted patients who should have been treated as outpatients. An Alvarado nurse filed the original complaint.
The Affordable Care Act and other laws and regulations have since imposed myriad policy changes designed to reduce demand for unnecessary acute care.
Just to name a few:
• Hospitals with higher rates of 30-day readmissions are now financially penalized as much as 3 percent of their Medicare revenue.
• Hundreds of types of surgical procedures are now being performed in ambulatory, outpatient facilities where patients go home the same day.
• A new regulation taking effect in January subtracts 2 percent of Medicare payments for skilled nursing facilities that have higher numbers of preventable hospital re-admissions starting in 2018, and as of July, is now publicly reported on Nursing Home Compare.
• Increasing use of programs such as the new oncology payment model and accountable care organizations, are expected to avoid unnecessary and sometimes harmful emergency department visits and admissions.
