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A hospital without beds

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  • | 11:00 a.m. July 10, 2015
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Executive Summary
Company. Lee Memorial Health System Industry. Health care Key. Health systems are changing the way they deliver care because of shifts in the way they're paid.

Can you build a hospital without beds?

In a bold move, Lee Memorial Health System is planning to do just that after the state denied its application to build a new hospital on Coconut Road in Estero.

On a 33-acre parcel of land it acquired 10 years ago in South Lee County, the health care system plans to build a health care campus that will have everything except hospital beds, including an emergency room and an outpatient surgery center with accompanying imaging, lab and rehabilitation facilities.

In addition, there's room for medical office space to house physicians and facilities for other uses such as an adult day care and stores to sell medical equipment. Lee Memorial is billing the center as a health and wellness destination that will focus on early detection of health issues, patient education and chronic-disease management.

The fast-growing area of South Lee County is home to the new Hertz global headquarters, three large regional malls, Florida Gulf Coast University and Southwest Florida International Airport. Developers are building new houses and apartments as the economy recovers, and the hospital system projects one-third of the county's population will one day reside in that area.

“We see this as being transformational,” says Kevin Newingham, the chief strategy officer of Lee Memorial Health System.

Indeed, some of the groundbreaking parts of the project won't be visible. For example, the system will use the new center as a way to integrate electronic medical records throughout so that patient records will follow them throughout the facility, regardless of which services they use.

The project's total costs are estimated to be as high as $140 million, though the first phase's 172,000-square-foot building may cost half that amount. Newingham says Lee Memorial, which acquired the land for about $17 million 10 years ago, will fund the project from operations without the need to incur additional debt. “We're looking at multiple phased efforts,” Newingham says.

And there's plenty of room for growth. Indeed, Newingham says there will be room on the site for a tower with hospital beds if it can persuade the state to allow it. “At some point in time the population will warrant a hospital,” he says.

State: No need
Lee Memorial originally applied for a hospital in Estero with the state's Florida Agency for Health Care Administration in February 2013. It sought to transfer 80 licensed beds from Lee Memorial Hospital on Cleveland Avenue in Fort Myers to the proposed facility.

NCH Healthcare System in Naples contested the application because of its proximity, and the state denied Lee Memorial's application in June 2013.

Lee Memorial then appealed, and an administrative law judge sided with NCH last year and recommended denial of Lee's application for a certificate of need (see box, above.)

But Lee Memorial's administrators believed the population growth would eventually justify a new hospital, and, instead of shelving the project, they began planning for what they now call Lee Memorial Health System at Coconut Point.

“It didn't change the need for medical services,” says Newingham. “We've had a vision for quite some time in South Lee County.”

Despite the initial setback, Lee Memorial officials believe time will vindicate their vision and the state will grant them the beds they're seeking. “We're proponents of the certificate of need process,” Newingham says.

New health care model
Even if it doesn't build a hospital, Lee Memorial is using its new health care campus in South Lee to deal with health care's most vexing problem: tracking and caring for older people with multiple health challenges. “The vision is for more than the traditional outpatient setting,” Newingham says.

Using Epic medical records software, the system plans to tie physicians, labs and all parts of the health center together so that patients only have to register once. With a centralized scheduling system, the patient has just one record that every health care professional can access to manage various problems that come with age. “Technology is what will drive this,” says Newingham.

As it is now, most patients have to register and sign forms with every medical provider they see, and they're responsible for managing their own cases through the complex labyrinth of specialists and facilities.

Part of what's driving this is the government's move toward “bundled payments.” Instead of paying each provider for a service, the government would rather pay a group such as Lee Memorial a lump sum to care for a patient with multiple health problems. For example, if a patient needs a hip replacement, such a single payment would cover the surgeon, the hospital and the rehabilitation therapist.

The idea behind bundled payments is to drive efficiency and lower costs. “You have to be efficient to be successful,” says Newingham.

The squeeze on costs is also another reason why physicians are increasingly joining with hospitals, either in joint ventures or as employees. The new facility will have room for physicians to establish their offices.

“Increasingly it's more attractive for them to be part of something larger,” Newingham says. “They don't want to take on the cost of additional infrastructure.”

What is a certificate of need?
The state's Florida Agency for Healthcare Administration regulates hospitals and decides whether an operator can be opened under a process it calls a “certificate of need.”

In addition to new hospitals, a certificate of need is required for new hospices, skilled nursing facilities and certain facilities to care for developmentally disabled people.

According to a recently published report by the Mercatus Center at George Mason University, Florida has restricted health care in such a way since 1973, and it is one of 36 states to do so. The intent of the law is to limit the supply of health care providers, such as hospitals, to reduce costs, including requiring holders of such certificates to provide health care to the poor.

However, the effectiveness of the certificate of need process in Florida has drawn mixed results, according to Mercatus' review of various studies. That's because the certificate of need essentially gives operators a monopoly to charge higher prices than they would under truly competitive conditions.

Florida Gov. Rick Scott's Commission on Healthcare and Hospital Funding is currently reviewing the elimination of the certificate of need process in the state. “The elimination of certificate of need laws in Florida, as the Florida House highlighted in their legislation during the special session, is another important way we can increase competition and improve patient quality of care in Florida,” says Scott in a statement.

South Lee's real estate draw
Health care campuses like the one planned by Lee Memorial Health System in Bonita Springs promise a real estate boost in the area.

“The whole complexion of the area is changing in large part because of Hertz and Lee Memorial,” says Andrew DeSalvo, commercial broker with Premier Commercial in Bonita Springs who assisted Lee Memorial in assembling the land in South Lee County 10 years ago.

Hertz is building a new corporate campus a few miles from Lee Memorial's proposed health campus. The car-rental giant moved its headquarters to Southwest Florida from New Jersey two years ago.

“It validates the importance of that area as the ground zero for health care delivery,” says Mark Alexander, managing director with commercial real estate brokerage Sperry Van Ness in Fort Myers. “It's right in the center of the demographics.”

South Lee County, which includes the municipalities of Bonita Springs and Estero, straddles the area between Fort Myers and Naples. “There's a lot of people looking at Estero,” says Jay Crandall, whose brokerage Crandall Commercial Group in Bonita Springs specializes in helping medical businesses with real estate.

Crandall says physician groups from outside Southwest Florida are looking at South Lee County for sites to build outpatient surgical centers, for example.

While the office-space market continues to lag the economic recovery, Alexander says medical-office space vacancy rates are lower and command significantly higher rents.

Although it's hard to say exactly how much medical-office space is available, Alexander says much of it is empty space that hasn't been built out for doctors to move in. “When doctors need space, they need it right away,” Alexander says. “They can't wait six to nine months to build it out. You've got to have it ready to go.”

However, the boom has pushed land prices in the area to the point where it's risky to build speculatively. “Developers are being very cautious,” says Crandall. “It's in this market that big mistakes are made.”


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