Life got a little scary the day David Covert learned his competition planned to move across the street. Catholic Healthcare West, Covert’s employer, and Banner Health were vying to build the first major hospital in Gilbert.
"We had a couple sleepless nights with Banner across the street from us," said Covert, who oversees Catholic Healthcare’s East Valley operations.
In December 2003, Banner Health canceled its plans, moving instead to Higley Road and U.S. 60. In the next three years, however, Banner and Catholic Healthcare likely will have many more competitors.
The East Valley is experiencing an explosion of hospital development. At east seven major projects are slated for completion by 2007, including three hospitals planned within seven miles of each other along U.S. 60. The building boom inspires an important question among health care analysts: Is the expansion too much, too fast?
"Now that we have shortages of beds, everyone has jumped in and we may run into overcapacity," said Bradford Kirkman-Liff, professor of health policy and biotechnology for the W.P. Carey School of Business at Arizona State University. "I don’t know if there’s going to be enough demand for all of these hospitals."
Analysts predict that some of the projects will be abandoned, or at least postponed, until hospitals can be sure there will be enough patients, doctors and hospital staff to go around.
Hospitals officials, however, said they are certain that the time is ripe for construction. With the East Valley adding about 50,000 people each year, there may not be enough hospital beds on the drawing board, said Adda Alexander, executive vice president of the Arizona Hospital and Healthcare Association.
"Even as we try to catch up, there are more people moving in," she said. "All this does is make it more convenient for people to get health care in their neighborhoods."
With convenience comes competition, according to health care authorities. More hospitals mean intense efforts to lure a short supply of local staff and physicians, especially if facilities are built close together.
"With the East Valley’s demographic trends, there will be plenty of market share 10 to 20 years from now," said Jim Hertel, publisher of the Arizona Managed Care Newsletter. "The question is, how will they fare in the interim?"
When Dr. Clint Leonard finished his residency at Maricopa Medical Center in Phoenix this year and began looking for financial help to start his solo obstetrics practice, he didn’t have to look far.
In exchange for setting up his practice near the new Mercy Gilbert Medical Center, hospital owner Catholic Healthcare is providing Leonard a loan that will be forgiven if he practices in the area for at least four years. Leonard is one of about 60 doctors recruited by Catholic Healthcare so far to practice in Gilbert.
"The buzz that I’m hearing is they’re really looking for a lot of doctors," he said.
Without enough doctors referring patients, hospitals lose in-patient volume and income, a lesson Banner Health learned after opening Banner Estrella Medical Center in the West Valley. This summer, Banner announced layoffs, largely because there weren’t enough physicians practicing in the area and filling Estrella’s beds.
"It’s a lesson for the rest of the hospitals that are opening in the future to make sure you have the physician base so you can be successful," said Wendy Lyons, vice president for strategic development for Scottsdale Healthcare Thompson Peak, a hospital expected to open in fall 2007 east of Thompson Peak Parkway and Scottsdale Road. Scottsdale Healthcare, which includes its Shea and Osborn campuses, is preparing to recruit staff and cross-train them to work at all three facilities.
Banner will take a more measured approach than it did in the West Valley when opening a hospital in Queen Creek, said Bill Byron, a Banner Health spokesman. Medical services will begin on a limited basis with emergency, surgery and diagnostic imaging services.
Catholic Healthcare also is planning to slowly expand health care services into a hospital in Queen Creek on Meridian Road south of Riggs Road, which is about a mile away from Banner’s location, said Paul Szablowski, a Catholic Healthcare spokesman. The close quarters, however, are not cause for concern, he said.
"The challenge is, can you build services fast enough? That’s the competition," Szablowski said. "You have to look forward . . . because you blink your eye and all of a sudden, there’s no space."
Throw into the mix the fact that people typically don’t like to travel more than seven miles for health care, and you have hospitals vying for proximity to the fastest growing population centers, and to transportation corridors such as U.S. 60, according to health care analysts.
Three hospitals are planned within seven miles of each other along U.S. 60: Banner Gateway Medical Center, at Higley Road; Mountain Vista Medical Center, which will break ground next month off of Crismon Road; and a hospital by Vanguard Health Systems, which has purchased property near Recker Road.
Competition is a given, said Byron, but overcapacity is not.
"The only thing that could make that risk come true is if the Valley inexplicably stopped growing," he said. "These beds are needed."
Arizona’s ratio of hospital beds to population is below the national average, according to 2004 statistics from the Health Forum, an affiliate of the American Hospital Association. Arizona has 1.9 beds for every 100,000 people compared with 2.8 beds for every 100,000 people nationwide.
Because of the state’s continued influx of new residents, the ratio will worsen even after more hospitals open, according to the Arizona Hospital and Healthcare Association. If 450 beds are added, the state’s ratio will drop from 1.9 to 1.8 beds for every 100,000 people.
While the numbers signal intense demand for more hospitals, developers should be cautious when basing expansion on the housing boom, said Kirkman-Liff. The real estate bubble could burst, especially if interest rates increase substantially.
"It’s dangerous to put all your economic eggs in the basket of new housing construction, and I think hospitals may be overly optimistic in their assumptions about that growth," he said.
Nonetheless, long waits in crowded emergency departments reflect how short the state is on hospital beds, a situation made worse by a lack of regional planning, which was abandoned two decades ago, analysts said.
In 1985, the hospital industry switched from being subject to a certificate of need program, which required evidence that a new hospital was needed in a community before building could begin, to following the market.
While some analysts say the certificate of need program was ineffective, others say the loss of regional planning will be to blame if there is a dramatic shift from undercapacity to overcapacity of hospital beds.
"No one was willing to build facilities even though we had shortages of beds," said Kirkman-Liff. Now that nearly every major hospital system in the Valley has a new hospital on its drawing board, health care authorities question whether they will be located in the best places.
While health care systems do their own market research, pinpointing high-growth areas for future hospital sites, they don’t necessarily know what each other is doing, said Roger Hughes, executive director of St. Luke’s Health Initiatives. "The whole process is proprietary," he said.
St. Luke’s Health Initiatives is working on a tool to improve community health care planning. Better planning and collaboration could mean better availability and quality of health care services, Hughes said.
Hospital officials said they would not be building new facilities if they didn’t have people’s health care needs in mind.
"Hospitals are used to being in proximity to one another," said Byron of Banner Health. "Hopefully in a growing area, services won’t be duplicated, they’ll be used."