Just what is Banner Health planning?

Banner Health System’s plans for a medical campus in Fort Collins have raised a number of questions, not the least of which is just how many hospital beds a city might need.

Fort Collins is home, of course, to Poudre Valley Hospital, which is licensed at 241 beds.

In the world of health care and hospitals, the generally accepted notion is that a community needs two or three beds per 1,000 people, depending in part on the average age and health of the people in that community.

Given its 2010 Census count of 143,986 souls, Fort Collins would need between 288 and 432 beds.

If matters were black and white, that would mean Banner could add as many as 191 hospital beds in Fort Collins and ostensibly fill them, though perhaps not too easily.

But it’s not quite so clear-cut, which helps explain why, thus far, Banner has been a bit coy about its plans.

The Arizona-based company is buying 29 acres at Presidio, an 85-acre parcel at the intersection of Harmony Road and Lady Moon Drive.

Plans it submitted to the city indicate several buildings, but two stand out. One is labeled “phase I hospital,” and the second is labeled “future hospital.” All of the various buildings in the complex would total 211,500 square feet.

But Banner’s statement on the matter suggests that immediately constructing a hospital would be inappropriate under current market conditions, though the company would consider doing so in the future.

“These long-term plans are based on what we believe may be needed over the next 40 years. While the drawings on file with the city show a variety of medical services, we have not announced specific plans for the construction of a hospital,” Banner said in its statement.

Exactly what might prompt it to move forward is, apparently, not a question Banner is ready to address, at least not in public.

“Banner Health will evaluate a variety of indicators to determine how best to meet the long-term health care needs for our patients in Fort Collins,” it said in its statement. “In our opinion, any discussion today on the merits of a Banner hospital in Fort Collins is premature.”

That may be, but the discussion is going on nonetheless.

One thing’s certain: in Fort Collins’ hypercompetitive health care market, Banner’s announcement has caught the attention of University of Colorado Health, the new owners of PVH.

Others in the health care industry also have taken notice, and have been weighing the odds.

“Banner knows what it’s doing,” said Errol Biggs, director of UC Denver’s health care administration MBA program. “I would be surprised if they complete a full hospital investment without the patient numbers.”

Those numbers are, in fact, expected to grow, especially now as the economy recovers and Northern Colorado once again begins to see swelling in-migration figures.

More immediately, in constructing a medical campus, Biggs said, Banner can fairly safely count on Kaiser Permanente adding more members in Fort Collins.

Kaiser and Banner announced a partnership late last year that included an announcement that Kaiser would open three clinics in Northern Colorado. Two of those clinics, in Fort Collins and Loveland, opened last month. The third is planned for Greeley in early 2014.

Kaiser members can also get their care covered at any of the numerous Banner Health clinics throughout Northern Colorado, but concerns have been raised about hospital care for Fort Collins residents.

Except in cases of emergency, Kaiser members will only be able to get hospital care covered at Banner hospitals, which are located in Greeley and Loveland.

In other words, a Banner hospital in Fort Collins would ensure that Fort Collins residents can access insured hospital care in their hometown.

Even before it physically entered the market, Kaiser had 6,000 members in Northern Colorado, a number that is expected to grow as its presence here grows.

In any case, Biggs speculated that, for the moment, Banner is most likely to start by building an urgent-care facility in Fort Collins.

Population growth

In weighing the pros and cons, Banner is no doubt crunching all sorts of numbers including just how busy PVH might be.

According to Biggs, it’s not.

“They’re not diverting patients due to capacity,” Biggs said.

Hospitals divert patients when their staffs are at capacity.

PVH’s 2012 occupancy rate through October was 63.67 percent, according to PVH, which is healthy enough but far from capacity.

Another factor in Banner’s calculations: the community’s lifestyle.

For the most part, Fort Collins is home to a healthy, active population that requires less hospital care than do residents of other parts of the country.

The growing trend of outpatient care also must be considered; outpatient treatments have been steadily rising for the past decade.

In 2002, hospitals across Colorado reported a total of 6.9 million outpatient visits. In 2011, that number had increased to 7.8 million, while the number of inpatient visits remained “essentially flat,” Julian Kesner of the Colorado Hospital Association.

That pattern isn’t likely to change, even with an aging population, because of new technologies that allow hospitals to treat patients in less invasive ways, according to Carol Davis, a Fort Collins-based health care industry consultant.

Competition and care

Until the 1980s, the question of whether to build a new hospital ultimately rested in the hands of the state.

Regulators would issue “certificates of need,” which were issued only after a lot of hearings, much debate and were considered a way of controlling health care costs.

The process, however, was done away with because little evidence could be found that preventing duplication of services helped keep costs down.

When Colorado did away with the certificate of need, it made it easier to add a hospital to any given market.

There are consequences, though, for building a hospital in a community that doesn’t necessarily support it, Biggs said.

Lower occupancies lead to higher overhead costs, and in that situation, according to Biggs, “someone is going to lose money.”

But adding a new hospital can drive down health care costs because of the increased competition, according to Jason Shafrin, a health care economist based in California.

“Hospital competition improves quality of care. This is true under both administered price systems, such as Medicare, and market-determined pricing such as the private health insurance market,” Shafrin said in a recent blog, citing a Robert Wood Johnson Foundation study.

The study, however, noted mixed results in “market-determined” systems.

Banner — and PVH — rely on a blend of both.

Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, marmbrister@ncbr.com or twitter.com/MArmbristerNCBR
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