Another wealthy hospital system expanding in the suburbs

Boston Children’s Hospital wants to augment its outpatient services

HERE WE go again.

First came Mass General Brigham and its $400 million plan to launch new ambulatory care centers in Westwood, Woburn, Westborough, and Salem, New Hampshire.

And now comes Boston Children’s Hospital, which wants to spend $435 million to expand an existing site in Waltham, move physicians in Weymouth into a new office building, and build an entirely new Needham multi-specialty outpatient surgery center.

A pattern is emerging here, of high-cost hospital systems expanding further into wealthy suburbs. The hospitals say they are just trying to serve their customers better, but it certainly appears from their expansion locations that Mass General Brigham and Boston Children’s Hospital are trying to snare a greater share of the lucrative commercial insurance patient market and to create opportunities for referrals for additional inpatient and outpatient care at their expensive, flagship hospitals.

The Mass General Brigham expansion has received a lot of attention, particularly from competitors who might be affected by it. The details of the Children’s expansion have not been released yet, but it too demonstrates how our dominant and wealthy health providers just seem to want to grow even bigger.

Children’s is the highest-priced hospital in Massachusetts other than the geographically isolated hospitals on Martha’s Vineyard and Nantucket.  According to 2019 data from the  Center for Health Information and Analysis, or CHIA, Children’s accounts for 7.3 percent of total state commercial health care spending even though it has just about 3 percent of the state’s commercial patient volume. While the more complex patients that Children’s often handles will contribute to its higher spending numbers, that sort of volume/spending mismatch is clearly a result of exorbitant prices being paid to Children’s both for its hospital care as well as for its physician services.

This latest expansion proposal should make us all stop and reflect about what is going on here.

Clearly, the name of the game in health care these days is outpatient care, which, according to CHIA, is nearly equal to inpatient state spending overall and closely followed by spending on physician services.    In the commercial insurance part of the market, hospital outpatient care and physician services are even more dominant as the top two service categories where most dollars are spent; with pharmaceutical spending third and inpatient care a distant fourth.

I present this detail to show how important office-based and hospital outpatient care is for generating revenues for providers, especially where market negotiating leverage plays a huge role in determining both the prices paid and total spending.  CHIA data specific to Children’s underscores this reality. Children’s had an overall 12.1 percent decline in patient admissions from 2015 to 2019; outpatient visits grew 23 percent and outpatient revenue grew 35 percent during the same period.

One could think that these new suburban expansion proposals by our wealthy systems became more pressing as they suffered financially during this COVID era.  But like what has happened in the US with wealthy individuals only getting much wealthier during COVID, the same seems to be true for our very rich heath care providers in Massachusetts.

Children’s is already, by some measures, the wealthiest hospital system in the state, even if Mass General Brigham has larger overall net assets.  Fueled by growth in its investments, Children’s has a net worth over $7.3 billion, up from pandemic lows of $5.7 billion a year prior, according to the latest CHIA data for the quarter ending March 31. That net worth is enough to cover three years of annual operating expenses. (Mass General Brigham’s net worth only covers a year of operating expenses.)

I have the highest regard for the individual clinicians and researchers in the trenches doing great work at Children’s and its affiliated organizations.   However, my continuing concerns are tied to the ‘business side’ of the organization, its pricing practices primarily as well as other things it does to maximize revenues.

So, given that perspective, here is what I worry about with this new proposal:

First, as Children’s gains more commercial market share from expansion, this directly leads to higher medical spending.  The additional market share gained from the expansion fuels additional leverage at the negotiating table with insurers, leading to even higher price increases and rising premiums in the future as the cycle continues.

Second, even if the expansion proves to be a bust, unlike providers with less market clout who would suffer financially from such a result, we premium payers may be on the hook for the project’s costs anyway. Children’s has the market clout to raise prices to cover the annual depreciation and operating costs of this $435 million investment, and that too will further add to premium pressure.

Third, adding ambulatory care services in a market where there is already adequate supply of those services is incredibly wasteful. When a dominant provider like Children’s adds duplicating infrastructure, our health care premiums need to support both old and new operations.   And unlike other industries where businesses come and go as they lose out to competitors, health care is dominated by non-profits, which tend to hang around for quite a while, commanding resources even as their business and productivity decline.

Finally, this is another lost opportunity for our state’s leader in child care health and well-being to show that its spending priorities align with addressing the most pressing health needs of children, and especially for more vulnerable populations. Behavioral health is a good example. Demand for behavioral health increased exponentially during COVID. Shouldn’t we expect an acclaimed care leader like Children’s to use its resources to help meet those needs rather than investing in brick and mortar aimed at attracting more high-paying, suburban patients?

For some readers, they may view what I have said here as being too harsh on Children’s.  After all, pediatric care is not a growth business, at least in Massachusetts and the region where demographic projections all point to a smaller, child-age population in the upcoming years. Boston Children’s Hospital is considered to be at or near the top of all pediatric hospitals in the country quality-wise. So chasing high-paying patients in the suburbs may make sense from a business perspective.

But Children’s is not fundamentally a business. It is a charitable hospital with affiliated providers whose aim is to provide quality care to support the health and well-being of kids.  That sort of mission needs to be accomplished in as affordable a way as possible, so that it can be maintained and offered broadly to benefit all children, including poor and middle class ones.

Meet the Author

This sort of proposed expansion seems to be a decision that moves Children’s further away from that goal and so ought to be carefully scrutinized.

Paul A. Hattis is a retired professor at the Tufts University Medical School and a former member of the Health Policy Commission.