I write this not as a competitor, for that is no longer the case. Neither do I write this with some Machiavellian purpose to support my former hospital. I write it as a citizen watching the unfolding of a business plan that seems to me to be building in future health care cost increases for our region, or worse, potentially weakening one of the country’s great hospitals.
I refer to the exposition by Robert Weisman in the Boston Globe of expansion plans for Brigham and Women’s Hospital. The plan is to build roughly $500 million in clinical and research space over the next few years. It is hard to see how this much new clinical space can yield a positive return, given the pending environment of constrained payment rates from governmental and private payers. Indeed, the last major clinical addition to that hospital reportedly failed to show a positive return in the financial projections used at the time, and that was several years ago.
It is even more hard to see how additional research space would yield a positive return, given a likely flattening of NIH funding and given that research funds never fully compensate a hospital for the indirect costs associated with those laboratories.
When I read that the program was the result of consultation with hundreds of people in the hospital, it made me wonder whether it is partly a compendium of the wish-lists of different constituencies in the organization. How much rigorous analysis went into this, versus the kind of territorial expansion that usually characterizes strong-willed people in an academic medical center?
As I have noted before -- and as Clay Christensen puts so forth so clearly in The Innovator’s Prescription -- the business model of general hospitals is already at risk. Even more so for academic medical centers. The name of the game for the future must be to minimize new capital commitments and their concomitant fixed cost additions, while focusing on Lean or other process improvement approaches to reduce waste, inefficiency, and patient harm.
It is hard for me to see how the plan laid out in the Globe makes sense. It is either so brilliant that I cannot understand its basis, or so out of touch as to be an anachronism.
I refer to the exposition by Robert Weisman in the Boston Globe of expansion plans for Brigham and Women’s Hospital. The plan is to build roughly $500 million in clinical and research space over the next few years. It is hard to see how this much new clinical space can yield a positive return, given the pending environment of constrained payment rates from governmental and private payers. Indeed, the last major clinical addition to that hospital reportedly failed to show a positive return in the financial projections used at the time, and that was several years ago.
It is even more hard to see how additional research space would yield a positive return, given a likely flattening of NIH funding and given that research funds never fully compensate a hospital for the indirect costs associated with those laboratories.
When I read that the program was the result of consultation with hundreds of people in the hospital, it made me wonder whether it is partly a compendium of the wish-lists of different constituencies in the organization. How much rigorous analysis went into this, versus the kind of territorial expansion that usually characterizes strong-willed people in an academic medical center?
As I have noted before -- and as Clay Christensen puts so forth so clearly in The Innovator’s Prescription -- the business model of general hospitals is already at risk. Even more so for academic medical centers. The name of the game for the future must be to minimize new capital commitments and their concomitant fixed cost additions, while focusing on Lean or other process improvement approaches to reduce waste, inefficiency, and patient harm.
It is hard for me to see how the plan laid out in the Globe makes sense. It is either so brilliant that I cannot understand its basis, or so out of touch as to be an anachronism.
I think another aspect of this is that it's easy to get donors to commit money to capital projects but it's a pain to get them to contribute to on-going or fixed costs. So it might be that the building is expected to come at minimal or reduced cost. It's easy to punt on the problem of staffing and paying for overhead on an on-going basis - by the time it's a problem, you may not even be around anymore.
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ReplyDeleteDon't I recall that a new building at MGH built in the 80s sat idle for several years while they figured out that patient populations were declining, not increasing? But then again, they did find a use for it. Maybe just a twist on "build it and they will come"? But no sound financial analysis can ride on Fields of Dreams, nor ignore capital costs and amortization. At least not the way I learned it.
Excellent post. I've always felt that the most troubling leading indicator of our inability to control national health care costs is the number of cranes at academic medical centers.
ReplyDeleteDoesn't matter how many ACO pilots are created; until capital budgets are tamed costs will keep rising.
Bigger question is which hospitals are "too big to fail" and which bond holders will be left holding the bag if healthcare is reformed despite all the CapEx and some institutions can't make their bond payments.
Who has access to the footage x occupant list of the new construction? Who knows occupancy of the last construction project? Know this, and you will know the academic medicine x political x donor pipeline.
ReplyDeleteVanities, stoked dreams of cures, and millions in donations to the same machine that got us here should be anachronistic. Where are the scientist-foundation administrators when the development office knocks at the door? Where are the voices to inform resource-holders that their money can make an enduring and more far-reaching difference if allocated to root causes and redesign? Where is the innovation and science in foundation giving? We are in dire need of fresh vision in development and distribution of private and public charities.
...And we can still find a way to put your name on it.