Hospitals are now the third-largest source of construction work in the state

The $86.7 million “Elliot at the River’s Edge” project planned for the former Jac Pac Foods site in Manchester is the largest, but far from the only, hospital construction project seeking approval from the state Health Services Planning and Policy Review Board.

In fact, projects awaiting approval under the Certificate of Need statute total $177.8 million. The board this year has already approved more than $192 million in capital investments for hospitals.

“There certainly has been a lot of activity,” said Mark Holden, president of the 255-member Associated Builders and Contractors of New Hampshire and Vermont, which is based in Concord. Construction work on New Hampshire hospitals totaled $23.5 million in 2005, he said, but jumped to $76.7 million last year. This year, $84 million in hospital construction had been completed by September, he said.

In dollar value, hospitals are the third-largest source of construction work in the state, after schools and municipal buildings, according to Holden.

While additions to and renovation or replacement of existing structures accounts for much of the surge in building, some of the new construction of “off-campus” hospital facilities has raised concerns about what some see as a unhealthy competition among health-care providers for patients and dollars.

“I think there’s a little bit of a nuclear arms race going on in hospital construction,” said Tom Buchanan, administrator of the Derry Medical Center, with locations in both Derry and Londonderry. Derry Medical is joined with Parkland Medical Center in Derry and Catholic Medical Center in Manchester in a suit in New Hampshire Supreme Court over the recently opened $11 million Elliot Medical Center in Londonderry, which houses both outpatient services and urgent medical care.

The plaintiffs are challenging a decision by the Health Services Planning and Review Board that the facility was not subject to review under the Certificate of Need statute.

At issue is whether Elliot’s sale of the facility to a private developer in a purchase-leaseback agreement removed the project from the CON requirement.

Lawyers for both sides argued before the board over whether the “operational lease” still qualifies as a capital investment as defined by the CON statute.

“This sort of behavior feeds on itself,” Buchanan said. “When one hospital moves into another area without (CON) approval, other places feel compelled to do other kinds of projects,” he said.

Driving up costs?

Derry Medical Center’s Londonderry site and the new Elliot Medical Center are both on Buttrick Road, about a quarter of a mile apart. The Elliot center duplicates services Derry Medical provides, Buchanan contended, something the Certificate of Need requirement is supposed to prevent. And, because it is owned by a hospital, the Elliot Center may add a facility use charge to its billings that an independent medical center may not, he said.

“I’m not sure most patients are aware of that,” said Buchanan, since the fees are paid in most part by the patients’ insurers. “That’s why insurance premiums are going up 20 percent a year.”

Spokesmen for both Elliot Hospital and Parkland Medical Center turned down requests for interviews for this article.

Alyson Pitman Giles, president of Catholic Medical Center, said CMC is not necessarily opposed to Elliot’s Londonderry operations, but is petitioning the high court to subject the new facility to the Certificate of Need requirement.

“I don’t know exactly what their strategy is,” she said. “We just want to keep a level playing field, so everyone can see exactly what you’re planning to build. You have to show there is a need; why you are doing it, what you plan to accomplish and what is the community benefit?”

Paul Spiess, co-chairman of Citizen’s Health Initiative in Concord, views Elliot’s move into Londonderry as an example of a growing trend on the part of hospitals to compete more aggressively for a greater share of the health care market.

“There was no apparent or evident need for a new facility in that market, which seemed to be well served by several hospitals in the area,” said Spiess. “Elliot went down there essentially to expand its base of customers. Behind that drive is a shift away from being provider of services to being a competitor for customers. That’s a very subtle, but I think significant, philosophical change in the way hospitals orient themselves to the market. I think hospitals today are run like businesses and think like businesses, not run like hospitals and thinking like nonprofits.”

That, he said, can have the effect of driving up costs through redundant services, since hospitals are competing not on the basis of price, but on convenience and location.

He cited Southern New Hampshire Medical Center’s plans for a hospital-owned medical office building in the north end of Merrimack as an example.

“They’re doing essentially what Elliot is doing in Londonderry. Northern Merrimack geographically is closer to Elliot than it is to Southern New Hampshire Medical Center (in Nashua). Was that done to truly address the needs of the community or was it to expand its market into the area of the competitor? It’s not that people in north Merrimack don’t have access to health care, it’s just a question of whose health care they’re going to access.”

Scott Westover, marketing director at Southern New Hampshire Medical Center, said the hospital already has a large share of the Merrimack health-care market, and the new medical office building will help meet an already existing demand.

“Actually, we have 45.8 percent of the market share in Merrimack. That’s our town,” said Westover, who doubts hospitals or the patients they serve are suffering from an increasingly competitive health-care market. “I’d say you would see some hospitals going out of business if there weren’t enough market to sustain this activity.”

But the patient population is both increasing in number and advancing in age in the health-care field, “consumption is just increasing,” he said.

Easier for patients?

According to Dr. James Squires, president of the nonprofit Endowment for Health in Concord, it is not surprising to find hospitals expanding their respective territories.

“I think it represents the fact that health care, especially running a hospital, is a very expensive business. In order to maintain that, you have to grow your market share. One way to grow the market is to reach out to areas where there might be patients inclined to use your services and put your services there.”

But that can lead to more pressure for yet more capital spending, he noted.

“If suddenly you attract more patients, you have to expand your capacity and you have to go out and borrow more money,” Squires said. “It’s kind of a cycle we’re in here.”

The construction of new “off-campus” facilities also reflects the fact that hospitals are better able today to provide one-day surgery and out-patient care as an alternative to overnight hospital stays, said Squires, adding, “The bed part of the equation is not what it was 30 years ago.”

Mike Hill, president of the New Hampshire Hospital Association, dismissed the notion that hospital expansion is being driven by a desire to increase market share.

“For one thing, boards of trustees see it as their responsibility to make sure they’re not frivolously spending money to expand to bring in more patients,” he said. But there is, he said, “a tendency to want to distribute services around where the general population is. Clearly the object of the hospitals is to make it easier for patients to be served. A whole lot of pretty serious planning goes into locating facilities and services.”

But Buchanan of the Derry Medical Center argued that an increasing number of patients and health-care dollars are being drawn into hospitals and hospital-owned facilities for services that can be provided at lower cost by physicians in private practice.

“Hospitals take about 60 to 80 percent of the health-care premium dollar,” says Buchanan. “At some point it’s important for physicians to say, ‘Hey, this isn’t the best use of resources.’”