On October 22, 2012, Sibley Memorial Hospital applied to build a four-room proton-therapy cancer facility on its campus in upper Northwest DC. Two days later, Georgetown University Hospital applied to build a smaller proton-therapy unit at its Lombardi Comprehensive Cancer Center.
On the surface, the applications are a seemingly routine part of hospital expansions—but they touched off a rare public skirmish in the quiet technology arms race across the Washington health-care industry.
For patients, the arrival in Washington of proton therapy—an innovative radiation procedure that relies on a concentrated beam of particles that can spare surrounding healthy tissue—would be an exciting development. The still unproven technology, which is 20 to 30 times more expensive than existing therapies, holds great promise for treating tumors in children and growths in the brain or near the spinal cord in adults.
With cancer rates in the District among the highest in the nation—the disease is the number-one cause of premature death in the capital, higher than heart disease and HIV/AIDS—the possibility of having two new facilities in the area offering cutting-edge cancer treatment for the first time shows all signs of being a major advance welcomed by the health-care community.
Except that precisely because the therapy is so expensive, it also has great business potential for both hospitals—Sibley predicts it would generate 80 percent of its profits within six years. With that incentive, the applications turned into a duel between two of the region’s dominant hospital systems: MedStar Health—which owns Georgetown University Hospital—tried to kill the application by Sibley; in response, Sibley suggested MedStar’s methods might have been “fraudulent.” Johns Hopkins has been expanding south from its Baltimore home and had recently merged with Sibley, the small but profitable hospital in DC’s Spring Valley. MedStar saw a threat to its command of Washington’s cancer-treatment market.
“We’re all doing a lot of the same things,” says Barry Wolfman, CEO of George Washington University Hospital, who watched from the sidelines. “You don’t want someone on your turf.”
“It happens very rarely for hospitals to openly oppose one another,” says Amha Selassie, director of DC’s State Health Planning and Development Agency, which considered the two applications. He’s been at the agency since 1985. “This was about a new player coming to town. The environment is changing.”
The public conflict provides a glimpse into the fierce competition for new technology, patients, and revenue that hospitals in the Washington area are facing in the era of consolidation and health-care reform.
“This is more than a fight over machines,” says David Catania, the DC Council member responsible for overhauling the city’s health-care system in the past decade. “This is about market share and survival.”
Although Washington has long had distinguished hospitals and doctors, without a star facility such as the Cleveland Clinic or the Mayo Clinic, it has never been known as a destination for medical expertise. But in recent years, the area’s health-care reputation has been on the rise.
“DC is emerging from the sleepy Southern town it was in the 1990s in many ways,” Catania says. “That’s true for health care, too. I see no reason why we can’t create an environment where we bring the best players in the world here and let them compete for the best services at the best prices.”
Washington already has many of the building blocks to become a destination for those in need of high-quality health care. The suburbs are wealthy and growing, providing patients who need and can pay for care. In the District, 92 percent of residents are covered by private or public health insurance, making it a potentially lucrative market.
To meet the demand, hospital systems across the region are pouring millions into rebuilding and adding new facilities, especially outpatient services.
Bethesda’s National Institutes of Health, with its multibillion-dollar research budget, is willing to form alliances; there’s an NIH stroke center at Washington Hospital Center and an NIH cardiac-surgery center at Suburban. And Children’s National Health System, ranked among the country’s best pediatric hospitals, is partnering with NIH on research into pediatric heart disease. All the babies in NIH programs that have genetic diseases are being cared for at Children’s.
“We are creating a branch of NIH here in our hospital,” says Kurt Newman, president and CEO of Children’s. “We have patients and doctors. They have the science. Only in Washington can you do these things.”
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All of these projects and new technologies cost money, and the business models to provide care are under assault. “If you are not affiliated with someone or part of a larger group, you get run over,” says Julius Hobson Jr., a senior policy adviser specializing in health care with the Polsinelli law firm. “You simply cannot make it as a freestanding hospital. You can’t achieve the economies of scale.”
From a hospital’s standpoint, the advantages of consolidation are many—from buying supplies in bulk to contracting with groups of doctors who bring patients to building outpatient facilities to providing health-care insurance along with the services. The goal is to keep patients—and the revenues from their care—within the “megasystem” from cradle to grave.
Thanks to a wave of mergers in the 1990s, almost every independent community hospital in the area has joined a larger health-care system. In 1997, George Washington University Hospital became part of Universal Health Services, an investor-owned management company in Pennsylvania; Holy Cross Hospital in Silver Spring joined with Trinity Health, a Catholic health system in Michigan. Dimensions Healthcare owns Prince George’s Hospital Center and three other hospitals in the county.
But by far the most dominant players in the Washington health-care market are three nonprofit megasystems: MedStar Health, Inova Health System, and Johns Hopkins Medicine.
MedStar, the region’s largest health system, owns seven hospitals in Maryland and three in DC, including Georgetown, Washington Hospital Center, and National Rehabilitation Network. It also operates a variety of medical businesses, outpatient facilities, and its own insurance plan. It reported revenue of $4.2 billion in 2012.
Inova Health System has dominion over Northern Virginia with five hospitals—including its flagship in Fairfax, ranked by U.S. News & World Report as the top hospital in Washington. Inova reported $2.4 billion in revenue for 2012 and cleared $215 million. Inova has 95 “centers of care,” president and chief operating officer Mark Stauder says, including those for urgent care, surgery, and other outpatient facilities. The nonprofit firm also owns a Medicaid managed-care company and a health-insurance company in a joint venture with Aetna.
Johns Hopkins Medicine owns the top-rated, flagship health center and medical school in Baltimore plus five academic and community hospitals and four suburban health-care and surgery centers, primarily in Maryland. Its Hopkins Community Physicians includes 37 community health-care providers. A latecomer to Washington, Hopkins merged with Bethesda’s Suburban Hospital in 2009 and with Sibley 18 months later. It reported revenue of $6.3 billion, with a net income of $204.1 million, in 2012.
These revenues seem large, but you can’t evaluate hospitals as if they’re car dealerships. Their mission of keeping people healthy and working in the communities they serve adds an altruistic element. Most of the area’s acute-care hospitals are nonprofit and operate on small margins. They must return extra revenue to the community in the form of free care, education, or research. Inova, for example, says it delivered 3,000 babies at no charge last year. MedStar says it provides more than $300 million in free care and education annually.
“We take care of people who show up at our door, whether they can pay or not,” says John Sullivan, president of MedStar’s Washington Hospital Center. But at the end of the day, hospitals need to break even, at the least.
“Money is the blood of hospitals,” says Robert Malson, longtime head of the District of Columbia Hospital Association. “No money, no mission.”
The mission of keeping hospitals alive now includes competition to attract and keep patients, the need to advertise services, the ability to lure great doctors, the expansion into health insurance, and the race for the latest technology. What’s more, the Affordable Care Act—commonly known as Obamacare—has created a “new order,” according to Inova president Mark Stauder. Hospitals and health-care systems will no longer be compensated on the “fee for services” model, based on the volume of patients and the number of treatments they perform. They’ll be paid and judged on quality of care, measured by how efficiently they treat patients and keep them well and out of the hospital.
“The business of health care will be megasystems competing against one another,” says Paul Lee, founder of Strategic Health Care, a consulting firm in the District. “It’s happening across the country. DC is no different.”