Like college kids at spring break, the nation’s biggest names in health care are spending some serious coin in Florida.
In March, the Mayo Clinic said it would spend $100 million at its hospital in Jacksonville to better position the medical center as a health care destination for the southeastern U.S.
It was the latest move by Mayo in Florida, where the Rochester-based clinic isn’t the only out-of-town operator that’s growing in the state.
Medical centers are competing for patients with serious conditions that generate more revenue, while also confronting trends that generally are limiting payments for inpatient services, said Martin Arrick, an analyst with Standard & Poor’s.
“You’re beginning to see people leapfrogging outside of their immediate service areas,” said Arrick. “[There’s] this whole sense that people need to get bigger, and want to put their stake in the ground in more places, because they want a bigger funnel back to the mother ship.”
Within the past year, the Cleveland Clinic and Johns Hopkins Medicine in Baltimore have announced plans to grow their respective operations in southeast Florida and St. Petersburg. In February, New York’s Memorial Sloan Kettering rolled out plans for joint operation of a cancer center in the Miami area, while Houston’s M.D. Anderson recently teamed with a Jacksonville hospital to launch a cancer center.
Florida, the nation’s third-largest state by population, is also among the fastest-growing. Nearly 20 percent of its 20.3 million residents are over age 65, a demographic that uses a lot of health care. Those factors make it an attractive market, analysts say, along with its proximity to patients who travel for health care from Central and South America.
For a variety of reasons, the federal Medicare program pays more per person in Florida than in many other parts of the country, including Minnesota, said Allan Baumgarten, an independent health care analyst in St. Louis Park.
Citing figures from the Dartmouth Atlas of Health Care, Baumgarten said the average spending in 2012 for a Rochester resident in the traditional Medicare program was $7,325 — significantly less than the $11,239 average in Jacksonville.
“It’s part of the business opportunity for Mayo to grow in Florida,” Baumgarten said.
Hospital officials say their growth plans aren’t motivated by payment rates, but demand in Florida for what they offer.
“What this allows us to do is expand our ability to take care of patients with complex needs like cancer,” said Dr. Gianrico Farrugia, chief executive of the Mayo Clinic in Florida. “It allows us to serve the people that want to come to us much better than we’ve been able to thus far because of space limitation.”
Mayo takes root in 1986
Mayo opened an outpatient facility in Jacksonville in 1986. The next year, the clinic bought a local hospital called St. Luke’s that served as Mayo’s admitting hospital in Florida until 2008. That year, Mayo opened its own hospital, having sold St. Luke’s to another operator.
In 2012, Mayo took over a hospital in nearby Waycross, Ga., with the idea of creating a network of regional hospitals owned by the clinic — much like Mayo’s network of hospitals in southern Minnesota, Iowa and Wisconsin. The Georgia hospital in 2014 lost $14.3 million, according to a tax document, and Mayo is in the process of returning the medical center to local control.
Now the focus is building up the Jacksonville campus as a destination. Last year, Mayo and a biotech company announced plans to build in Jacksonville a lung restoration center that’s meant to improve preservation of lungs that are donated for transplant.
This summer, Mayo plans to start building a four-story medical building for patients with complex cancer cases, as well as those needing neurological and neurosurgical care.
“If you look at cancer, and then you look at Florida … there are about 100,000 new diagnoses with cancer every year. That’s the second highest in the nation,” Farrugia said. “We haven’t been able to take care of a significant proportion of patients who would like to come to see us.”
Those statistics about cancer cases in Florida also were cited by M.D. Anderson officials in October, when the Houston-based cancer center announced the opening of a facility in Jacksonville with a local hospital system called Baptist Health. It’s the third such relationship for M.D. Anderson, which has similar centers in Arizona and New Jersey.
M.D. Anderson is looking for a partner on cancer centers on the west coast and in the Midwest, as well, said Amy Hay, vice president for the M.D. Anderson Cancer Network. In February, Memorial Sloan Kettering Cancer Center in New York partnered with a Miami area center — another example of how a large provider could care for “snowbirds” as they migrate between homes in the north and Florida.
‘Ratcheting it up’
The cancer centers make sense as partnerships with local hospitals, said Baumgarten of St. Louis Park, because the big-name hospitals can expand their presence without investing as much capital. The local hospitals, meanwhile, benefit from the link to a national brand, said Baumgarten, who publishes annual reports on the Florida health care market.
“I don’t know how you could say there was a shortage of high-end cancer care,” Baumgarten said. “But these national brands are ratcheting it up to a new level.”
Baltimore-based Johns Hopkins Medicine acquired a children’s hospital in St. Petersburg during 2011 in a noncash transaction. The health system in November broke ground on an $85 million project for a research and education building scheduled to open in 2018.
Johns Hopkins decided to grow in Florida not so much because of the growth prospects , but because of the chance “to expand the pediatric opportunities for both research and teaching, and ways of improving health care delivery,” said Dr. Jonathan Ellen, the hospital’s president.
“It was more predicated on expanding mission,” Ellen said, “than it was on a good business strategy.”
Last year, the Cleveland Clinic said it would invest $302 million on expansion plans that include improvements to its hospital campus in the southeastern Florida city of Weston, plus a new clinic and surgery center at another town in the region. One year earlier, the Cleveland Clinic completed $100 million worth of construction in the region, said Dr. Wael Barsoum, president of Cleveland Clinic Florida.
The clinic established operations in southeastern Florida more than 20 years ago. In addition to the Weston hospital, the clinic currently has seven outpatient centers in the region.
Whereas the population in Cleveland is shrinking, southeastern Florida is growing so fast that more care centers are needed, Barsoum said. The Cleveland Clinic wants to care for those patients in Florida, he said, adding that payments from insurers to Florida hospitals and doctors are much lower than Medicare data might suggest.
A study released last month by the Health Care Cost Institute, for example, found that prices for more than 200 services in Florida are among the lowest in the country.
“The reimbursement rates in Florida are extremely competitive,” Barsoum said. “We’ve recognized that the demand for our services is really greater than our footprint allows us to deliver.”