BILLINGS - When you walk the streets of the “medical corridor" in downtown Billings, you're looking at the fruits of $600 million in hospital-related revenue every year.

This fistful of money buys top-flight health care, say those who work at the 70-plus acres of medical services operated primarily by two of the largest hospitals in the state, St. Vincent Healthcare and the Billings Clinic.

It's also part of the revenue stream behind some of the biggest businesses in Montana, with hospital executives earning up to $500,000 a year and millions of dollars invested in medical equipment, personnel and construction projects.

“We think it ends up creating outstanding health care, which is the end game," says Nick Wolter, chief executive officer of Billings Clinic and its 3,100 employees. “I hope people find that as we're growing and bringing state-of-the-art medical care to the state, that there is a lot of value in the size that we have."

Yet is this financial juggernaut we call hospitals delivering cost-efficient, affordable health care? Are health-care consumers in Montana getting the best bang for their insurance and tax dollars that pay the hospital bills?

Montana's nine largest hospitals have a $1.5 billion-a-year financial reach that includes clinics, nursing homes, cancer centers, office buildings, X-ray and other medical imaging centers, insurance firms and even a health club.

Hospital executives insist hospitals are not “empire building," and say their decisions are driven by what consumers and local communities demand and need for health care.

“What we do does not just focus on money," says Jack Bell, chief operating officer at St. Vincent Healthcare in Billings. “St. Vincent has been here 108 years, and our mission is health care. What we do here really focuses on our mission to take care of patients."

They also point out that hospital care isn't cheap, given the need for pricey equipment and highly-trained medical professionals who command good salaries.

“It's 24 hours a day, seven days a week at a hospital," says John Solheim, CEO at St. Peter's Hospital in Helena. “So to be available to meet people's health care needs is very expensive."

That means juggling a budget to cover millions of dollars annually in unpaid bills, as well as the cost of patients whose government-funded insurance pays only a fraction of the costs.

Still, hospitals are not immune from criticism that their spending and financial decisions sometimes have more to do with increasing “market share" and profits, rather than providing the affordable care the community needs.

“When the CEO and the comptroller sit down to decide how to use money to provide the best outcome for patients, I don't know that they're asking the right questions," says Rep. Eve Franklin, D-Great Falls, a registered nurse and former nursing professor who is now executive director of the Montana Nurses Association. “They're making decisions about market share and cost centers: ‘What is the highest yield that you're going to get for certain kinds of procedures?' Ultimately, you follow the money."

Together, the state's nine largest hospitals - two each in Billings and Missoula; one each in Helena, Kalispell, Butte, Bozeman and Great Falls - have annual revenue approaching $1.5 billion. That's one-third of the state's entire health care economy.

They employ more than 14,000 people, including CEOs and physicians with six-figure incomes, admit 85,000 patients a year, own hundreds of acres of property and control scores of health care-related businesses.

“The demographics alone are going to propel this thing forward," says Larry Swanson, an economist and director of the Center for the Rocky Mountain West at the University of Montana. “All of our population expansion after 2015 will be 65 and older.

“The only constraint you can see on this side of the economy is the financing, the sheer size of it. Everybody knows there is going to be some cost containment at some point."

Six of Montana's major hospitals are locally controlled, by community boards. Three of them - St. Vincent in Billings, St. James in Butte and St. Patrick in Missoula - are owned by out-of-state Catholic religious orders, but also have local governing boards.

The profit margin for Montana's major hospitals last year ranged from a low of 2.6 percent at Billings Clinic (including its clinics and other businesses) to a high of 10 percent at St. Vincent Healthcare. All of these hospitals are nonprofit entities, so the “profit" or net margin gets plowed back into the operation.

Hospitals nationwide reported record-high profits of $26 billion in 2004. But the price of Montana hospitals is relatively low, when compared to hospitals elsewhere.

According to a December 2005 report by the Institute for Health and Socio-Economic Policy of Orinda, Calif., Montana ranks 47th among the states for the relative price of its hospitals to consumers. The report said hospital prices in Montana averaged 147 percent of overall costs for the 2003-04 fiscal year, while the highest state - New Jersey - had hospital prices averaging 450 percent of costs.

“When you start looking at hospitals (in Montana), yes, they're huge and are a giant part of the economy," says Wayne Dunn, chief financial officer at Benefis Healthcare in Great Falls. “But when you look at the profitability of hospitals, it's very small."

Dunn notes that hospitals are purveyors of “retail health care," meaning their costs reflect what they pay for drugs, equipment and other supplies, various services and labor.

“One of the things I think is a real problem is the add-on costs and the profit levels being generated by the ‘middlemen' of health care," he says. “Orthopedic implants, drugs - their price is the hospital's cost. Our cost is the insurance company's cost.

“So what you have is this sort of trickle-up effect. If they keep adding a lucrative profit on their cost structure, somebody has to end up paying for it. It ends up with people and employers."

But hospitals' biggest expense is labor, accounting for about 50 percent of overall spending. Health-care labor costs are not cheap, especially when the industry is facing a general shortage of many types of workers, such as nurses and medical technicians.

High-demand specialists such as cancer doctors and heart surgeons command annual salaries that can top $700,000, and it's not uncommon for other specialist physicians such as neo-natologists and surgeons on hospital staffs in Montana to get paid between $300,000 and $400,000 a year.

“You're looking at a market that has (labor) shortages everywhere," says John Nordwick, CEO at Bozeman Deaconess Hospital. “And the demand for health care has grown, and so has the number of patients. We find ourselves recruiting nationally a lot more than we used to."

Yet some believe hospital spending trends too much toward the latest high-tech equipment and hot-shot doctor, rather than the nuts-and-bolts of health care, such as nursing care.

Franklin, the head of the nurses' association, says some studies show that patient-to-nurse ratios in hospitals have been increasing, meaning that fewer nurses are being asked to care for more patients.

“You go to the hospital when you need nursing care," she says. “That's the product. Otherwise, (the care or surgery) is done in an outpatient center."

“(Hospitals) have to show that the money they are spending is doing something more than feathering someone's financial nest," she says. “They have to be able to show that it's producing the best available care."

Major hospitals in Montana say their patient-to-nurse ratios and vacancy rate for nursing positions are below national norms - although they acknowledge a shortage of skilled nurses.

Just last month, Billings Clinic, which employs 900 nurses, was named by the American Nurses Association as a “magnet" hospital because of its good record of recruiting and keeping nurses.

Steve Akre, chief medical officer at the Great Falls Clinic, which is part-owner of a small surgical center, says some hospitals listen less to physicians about spending on patient care and pay more attention to the bottom line.

“It all boils down to leadership," he says. “A hospital where the leadership values physician input, there's a potential for that to work just fine."

The clinic is involved in a legal dispute with Benefis Healthcare, which has sued to block clinic ownership of a small, specialty hospital in Great Falls. Benefis says the clinic wants to steer profitable patients to its own hospital; the clinic says it is trying to offer a less expensive, better alternative for less complicated surgeries.

Akre also notes that when major hospitals list their top specialties, they're often the same: cardiac care, surgery, orthopedics and cancer care, which are high-tech, high-cost and usually high-profit items.

“I understand the pressure from the public to have everything in every community," Akre says. “But it can't be afforded (everywhere)."

David Richhart, chief financial officer for Community Medical Center in Missoula, says insurance companies, physicians and patients play a role in creating demand for services at hospitals.

“Insurance companies like to be able to contract with a full-service hospital," he says. “That may force hospitals to compete when they don't really want to, because they don't want to lose out on patients."

Within the last year, Community took a hard look at whether to start offering heart surgery, which is a specialty of its cross-town competitor, St. Patrick Hospital.

The medical staff had concerns about creating too much duplication, so the hospital backed off, but it may reconsider in the future, Richhart said.

At the same time, St. Patrick is building a new obstetrics unit to offer baby delivery and pediatric care - which already is a leading specialty at Community Medical Center.

“There's an old saying that the most powerful tool in the hospital is the ordering pen of the physician," says Jim Oliverson, vice president of community relations for the Kalispell hospital.

For example, if 10 different orthopedic surgeons do knee replacements, each can order the knee from a different “vendor," and the hospital must stock that part - even if the cost is hundreds of dollars more expensive than a competing supplier.

In Kalispell, the hospital is trying to get physicians to standardize their supplier of certain surgical parts and/or drugs, to reduce the cost to the hospital and, ultimately, to consumers.

“We give reports to each doctor to show how efficient they are," says Stevens, the CEO at Kalispell Regional. “We're doing a pilot program where we are going to be very serious about controlling those costs. It might cost $2,000 more for a knee implant if you haven't standardized your vendor for knees."

Wolter, the only CEO at a large Montana hospital who is also a physician, says while hospitals are mammoth organizations with many parts, they are dedicated to controlling costs.

The size and structure of large hospitals can be helpful in that regard, he says, because they can coordinate good medical practices and reduce duplication of services in a community.

Billings Clinic is the product of a merger 13 years ago of Deaconess Hospital and the Billings Clinic. It employs more than 200 doctors, operates several clinics in the region and offers a wide range of care, from family doctors to the hospital.

“I believe there is a place for more coordination of care, more integration of care, along the lines of what we've done (at Billings Clinic)," he says. “If you're more organized, you can hold a group more accountable for the quality and cost of health care."

Billings Clinic also employs the administrators of several smaller hospitals in south-central Montana and northern Wyoming, and has some joint ventures with competitor St. Vincent.

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