Turf War: Christ Hospital's quest to expand in Northern Kentucky could take years to resolve

St. Elizabeth: More is not better

CINCINNATI - In his four-year fight against colorectal cancer, Doug Miller crossed the Ohio River at least 75 times for medical care at Christ Hospital.

“I call them my dream team,” said Miller, 51, of Highland Heights. “They saved my life.”

Doug Miller

So Miller is excited that Christ Hospital is planning a big new medical complex in Fort Mitchell. And he doesn’t understand why St. Elizabeth Healthcare is fighting to prevent it.

“Just welcome the competition,” said Miller, a Bellevue High School graduate who coaches football for his alma mater. “You’ve treated everybody in Northern Kentucky for how many years? If people like you, they’re going to come back. If they don’t like you, they’ll go to Christ Hospital.”

The fight has gotten much more complicated than that, as hospital officials trade accusations in the media, in court filings and in a two-week hearing that wrapped up in early January at the Kentucky Cabinet for Health and Family Services in Frankfurt.

The hospitals are fighting over a piece of paper called a “certificate of need” permit that would give Christ Hospital the right to build a $24 million outpatient surgery center at the old Drawbridge Inn property on Buttermilk Pike. The process is expected to wrap up by June, but court challenges could keep the fight alive for months after that.

If Christ Hospital wins, its ambulatory surgery center would be the anchor of a $135 million development on the highly visible 22-acre site. Christ Hospital expects the four new operating rooms would perform 2,100 surgeries by 2021, generating $36 million in gross revenue. Eventually, the Fort Mitchell Gateway project could include a freestanding emergency room, medical office buildings, retail and hotel properties.

Demolished Drawbridge Inn site in Fort Mitchell

St. Elizabeth has so far opposed only the surgery center, saying five of Northern Kentucky’s nine ambulatory surgery centers already operate at 52.1 percent capacity or less.

“More is not better in the health care world,” said Mark Guilfoyle, a DBL Law partner who represents St. Elizabeth. “If we want to build an ASC on every street corner and have all this full-blown competition, all we’re going to do is drive up cost.”

If St. Elizabeth wins the fight, it preserves one of its major competitive strengths: an 80 percent inpatient market share in Northern Kentucky, where it’s been the only acute care hospital provider since buying long-time rival St. Luke in 2008. It owns five of the nine surgery centers now operating in Northern Kentucky. Physician groups own the others.

“The consumers in Northern Kentucky are seeking alternatives to the one provider in that marketplace,” said Vic DiPilla, chief business development officer for Christ Hospital Health Network. “Nowhere else in Kentucky where there’s a population of any significance is there not more competition.”

Sizing up the market

Christ Hospital’s Northern Kentucky invasion is a predictable result of several health care trends, said Allan Baumgarten, a Minneapolis, Minnesota-based health care consultant who publishes a biannual report on the Ohio hospital market.

Baumgarten said the unraveling of hospital alliances and increased consumer involvement in health-care decisions have led to a building boom in Southwest Ohio as hospitals try to get closer to fast-growing neighborhoods. They’re also competing against Dayton hospitals, with big new medical clusters emerging in West Chester and Mason.

“Competition is a good thing, but capital investment has to be paid for,” Baumgarten said. “Since Medicaid barely pays its way at all these days and Medicare doesn’t negotiate, it mostly falls on the employers to pay the bill.”

Baumgarten’s data shows both hospitals were comfortably profitable in 2014; Christ Hospital with a 14.1 percent margin on $624.9 million in net patient revenue. St. Elizabeth had a 12 percent margin on revenue of $859 million.

St. Elizabeth ranked third among Greater Cincinnati hospital systems with a 17.6 percent market share in 2011, while Christ Hospital's 10.1 percent share ranked fifth, according to Moody's Investors Service.

Both hospitals are amply bolstered by a combined $2 billion in investment assets, more than $1 billion of it in Christ Hospital’s foundation, the Elizabeth Gamble Deaconess Home Association.

Building a case on 'zero codes'

Christ Hospital Joint and Spine Center

But those advantages didn’t count for much in 2013, when Christ Hospital began its quest to expand across the river.

“About 14 percent of our business comes from Northern Kentucky today,” said Christ Hospital’s DiPilla. “What we’re trying to do is be responsive to the consumers that are customers today. There’s been an outcry by them to have options.”

Unlike Ohio, Kentucky regulates hospital spending with a Certificate of Need, or CON program. According to the Kentucky Cabinet for Health, CON “prevents the proliferation of health care facilities, health services and major medical equipment that increase the cost of quality health care in the commonwealth.”

It’s no small barrier to new investment, based on a hospital construction database at www.ConstructConnect.com. It shows Northern Kentucky had barely a trickle of hospital spending in the last five years: three projects totaling $22.5 million. Southwest Ohio has 11 projects in the database totaling $549 million.

Christ Hospital argues there's a similar shortage of surgical services in Northern Kentucky.

“We did an extensive review of the last six years of the Kentucky hospital data and we found about 240 (hospital billing) codes that were not being done within the Northern Kentucky marketplace, either at all or they were done in a disproportionately low volume compared to the rest of the state,” DiPilla said. “Because of that, we felt there was a significant opportunity or a need for those services. That’s the basis of our claim.”

DiPilla said the under-performed surgeries include operations in orthopedics, urology, gynecology and vascular specialties.These “zero codes,” as DiPilla calls them, would be offered in Fort Mitchell if Christ Hospital is granted a certificate of need.

"We would have clinicians willing to provide all of them if the care is warranted," DiPilla said.

But St. Elizabeth argues there are no zero codes in Northern Kentucky. They say all of the billing codes called out by Christ Hospital are either being performed at St. Elizabeth or by independent physician groups in Northern Kentucky.

“Any Christ Hospital surgeon has the ability to apply for credentials at St. E,” said Sarah Giolando, chief strategy officer for St. Elizabeth. “They could be doing these surgeries today in Northern Kentucky with no additional capital expenditures.”

Next stop: courthouse

St. Elizabeth has four Northern Kentucky Hospitals

St Elizabeth has raised concerns that Christ Hospital will build its business around the most profitable surgeries and erode its ability to act as a “safety-net hospital” for Northern Kentucky.

St. Elizabeth claims it delivered $111 million in uncompensated care and community benefits in 2014 and more than 70 percent of its patients are uninsured or covered by Medicare or Medicaid.

It obtained a "payor mix" analysis for the Christ Hospital’s outpatient center in Fort Wright and provided it to WCPO. It shows 3.9 percent in revenue from low-income patients covered by Medicaid and state supplemental assistance.

“We are not afraid of competition,” Guilfoyle said. “But we expect fair competition. Is it fair that we are the safety net hospital that takes care of 20 percent Medicaid? Is it fair to compete against somebody who does less than 4 percent? That’s not what we call fair competition.”

Christ Hospital calls that claim a misnomer.

“That is not only untrue, but it’s illegal in the sense that we take all Medicaid patients,” DiPilla said. “ We will continue to treat them in our locations here and in Northern Kentucky.”

St. Elizabeth has also challenged the constitutionality of the CON rule that Christ Hospital cited in its application, arguing that it resulted from an “egregious” act of lobbying by Christ Hospital.

The rule change – adopted by Kentucky regulators in August, 2015 – allowed hospitals to seek a CON based on specific unmet surgeries, but lifted a requirement that the ensuing surgery center perform only those operations. Christ Hospital argued in a June 2015 letter to the state that such a restriction would make surgery centers unfeasible.

The rule was in tact when Christ Hospital applied for a CON in March, but Gov. Matt Bevin repealed it in September with an emergency order that said it could cause “a proliferation of unnecessary” surgical centers with the “potential to negatively impact the viability of our full-service safety net hospitals.”

St. Elizabeth was denied an injunction last fall to halt the CON process, after Christ Hospital argued it had “an absolute constitutional right” to offer public comments when as Kentucky regulators invited ideas to modernize its CON rules. But Guilfoyle said it's one of several issues St. Elizabeth could raise on appeal if Kentucky approves a CON for the Fort Mitchell project.

"The appeal process could take four to five years," Guilfoyle said. "I would think the losing party will appeal to the Franklin Circuit Court, then Kentucky Court of Appeals."

DiPilla wouldn't say how long Christ Hospital would wait to break ground in Fort Mitchell. But it did open an outpatient center in Fort Wright two years ago, even though its CON for its MRI scanner is still being challenged in court.

“Clearly, before we invest $23 million in a center we’re going to want to make sure that we are not going to be held up,” DiPilla said. “So I think we’ll have to work through the appeal process first.”

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