In June, New Orleans-based Ochsner Health System will cut the ribbon on a new 30,000-square-foot surgical hospital adjacent to a 155,000-square-foot medical office building that opened earlier this year on a 20-acre site at The Grove near the highly visible intersection of Siegen Lane and Interstate 10.
Together, the two-building medical complex represents a $110 million investment—the largest ever in the 77-year-old system’s history—and it’s only part of Ochsner’s recent capital expansion in Baton Rouge.
In 2017, the $3.4 billion system completed a $13 million cancer center on its main campus on O’Neal Lane. More recently, it began working on plans to develop a clinic on a 2.2-acre tract at the highly traveled intersection of Bluebonnet Boulevard and Burbank Drive, though it’s not yet willing to divulge details.
In short, Ochsner is making an aggressive play for the local market, where it has had a presence—though a relatively small one—for two decades. Executives with the company determined a couple of years ago they had a choice in the Capital Region: go big or go home. They chose the former.
“Baton Rouge is a really important market for us,” Ochsner CEO Warner Thomas says. “You will see Ochsner have more presence there. We are gaining momentum and we will get bigger in Baton Rouge. The only question is, do we build it or do we buy it?”
Ochsner is not the only provider investing heavily in bricks and mortar at the moment. A stone’s throw down the interstate from Ochsner’s new medical complex, Our Lady of the Lake Regional Medical Center is completing a $230 million Children’s Hospital.
Meanwhile, in Ascension Parish, Baton Rouge General is building a 10-bed neighborhood hospital, and will soon break ground on a $10 million freestanding emergency room on O’Neal Lane.
But Ochsner’s expansion is noteworthy because it is part of the regional growth strategy of the state’s largest health system, and comes at a pivotal moment in the local market. Employers are demanding better deals, as health care costs continue to escalate. Providers are struggling to transition to a new business model based on the outcomes they deliver rather than the treatments they provide. And the longtime, dominant player in the market, OLOL, is in the throes of both a leadership upheaval as well as a fundraising scandal that could make it more vulnerable to competition than in the past.
In the midst of all this, Ochsner has figured out where health care is headed—and how to capitalize on new payment models and value-based incentives. It is driving the train, not running to catch it, according to industry watchers, who say Ochsner has set its sights on Baton Rouge and that the competition needs to be ready.
“Ochsner has looked into the future and seen what it is,” says Walter Lane, chairman of the economics and finance department at the University of New Orleans and an expert on health care economics. “They’ve figured out if they’re going to play they’re either going to be taken over or be the one who goes there. They have a very good vision for what the future is going to be and what they’re going to do.”
Down the leaderboard
Ochsner has a long way to go until it is the 900-pound gorilla in Baton Rouge, where its inpatient market share is only around 10%. The leader, by far, is still OLOL, which has more than 700 inpatient beds—more than twice as many as any other hospital in the city—and remains where literally half of Baton Rouge goes when sick enough to require an inpatient hospital stay.
But not every patient requires an overnight stay in an acute care facility and a growing number of medical procedures are done on an outpatient basis. Ochsner is banking on this trend and, for now at least, is building facilities in Baton Rouge that are less geared toward competing with OLOL’s Level II trauma services than towards growing a patient base.
“The trends are that people are moving from inpatient to outpatient to home,” Thomas says. “So we’re trying to present an offering of what is going to be attractive in the future. And, with that, you get the lives that grow your risk pool.”
The risk pool to which Thomas refers is important to understanding Ochsner’s model, which is increasingly shifting towards one built around population health, where doctors and hospitals enter into contracts with employers or insurance companies and get paid based on the health outcomes of the group.
Under the traditional fee-for-service model, providers get paid to treat sick people. Under a value-based or outcome-based model, providers get paid to keep people well. It turns the old system on its head and hasn’t entirely evolved yet. But it’s where health care is heading and it requires cultivating a population base of patients.
“When you get paid to keep people well, you basically become an insurer, and the basis of insurance is you have to have a lot of lives in your pool to manage the risk,” Lane says. “But you need people to go to your doctors and use your digital portals so you can control everything. You need a large network to make that happen.”
Ochsner already has the state’s largest network by far, boasting some 40 owned or affiliated hospitals in Louisiana and Mississippi. Some it has acquired outright, like the former Baptist Hospital in New Orleans, where Ochsner now owns five of the major acute care facilities in the market.
With others, like Slidell Memorial Hospital, it has developed a looser, affiliation agreement. The arrangement creates not only economies of scale for things like purchasing or laundry service, but also for the thing that really matters: access to and control over a population base through a shared medical records platform.
“The medical records are really the key,” Lane says. “That’s how you can control the costs because you know what services your population is receiving and you’re able to avoid duplication and unnecessary procedures.”
Other hospitals are moving towards population health as well because, really, it’s the only long-term choice. Employers are demanding it. In 2016, the Franciscan Missionaries of Our Lady Health System—the other major health system in the state with five hospitals, including OLOL in Baton Rouge—established the Health Leaders Network. It includes more than 850 primary care physicians, specialists, clinics and hospitals statewide and has more than 100,000 patients. In 2017, HLN achieved some $9 million in savings on health care costs, OLOL officials say.
Baton Rouge General has created several initiatives around population health as well. Since 2014, it has partnered with Blue Cross and Blue Shield of Louisiana on a narrow network that wins high marks from employers for the lower cost options it is providing in a market that has been dominated by one large provider with consistently higher costs.
“Employers are sick and tired of passing on costs, higher deductibles, higher premiums, and they’re saying, what can we do?” says Kerry Drake, president of employee benefits with BSX Insurance. “So these narrow networks are becoming more and more attractive to employers, especially large companies that self-insure.”
Though Drake and others don’t like to openly compare providers, they say Ochsner is ahead of the curve in the population health arena because it has embraced the new model, utilizing technology in ways not seen before.
An example is the use of a digital platform to treat patients for high blood pressure, one of the most common chronic conditions in the U.S. and the leading cause of strokes.
Traditionally, treatment involves encouraging patients to make lifestyle changes and putting them on medication, then following up with an office visit twice a year.
Ochsner’s program provides virtual care through an app, which is downloaded onto a patient’s phone at the “O Bar,” and a blue-tooth-enabled blood pressure monitor, which takes readings up to 10 times per week. The frequent blood pressure readings paint a more accurate picture of a patient’s condition than would occasional office visits, and medications are adjusted accordingly. Patients get emails updating their condition and prompts on their phones, reminding them to take their medicine.
Patients like the system because they get more attention and better care, Ochsner officials say. Employers like it because employees don’t have to leave work for office visits. More importantly, nearly 90% of patients on the digital platform have gotten their blood pressure under control, well above the 50% average under the traditional treatment system.
“Ochsner is being aggressive and directly calling on employers and saying, if you come with us, we will save you money,” Drake says. “They’re saying, if you come with us, you’ll have a better chance through technology of controlling the battlefield of costs—and a growing number of employers are interested because people are desperate to lower those costs.”
Ochsner’s expansion into Baton Rouge is part of a regional growth strategy that has system officials looking beyond Louisiana and Mississippi. With the increasing use of telemedicine and digital portals, geography becomes less important, according to Thomas, who says, “I think you’ll see us have a larger presence along the Gulf Coast and I think you’ll see us have more O&O facilities and partnerships in other states.”
Experts aren’t surprised. Health systems around the country are merging and consolidating. What that could mean for Baton Rouge in the not-too-distant future is a market eventually dominated by just two systems—one run by Ochsner and one run by FMOL.
But with the nuns who operate the FMOL system dwindling in number and long past retirement age, industry watchers also believe it’s possible a much larger Catholic health system like St. Louis-based Ascension, or Trinity Health in Michigan, could make a play for FMOL, particularly if it is also able to also pick up Woman’s Hospital, which already partners with OLOL on several initiatives and would give the system a complete suite of services.
“Ochsner clearly wants to be the regional player,” Lane says. “What that means for Baton Rouge is that anyone else who wants to be left standing in 10 years has to be part of Ochsner or FMOL, but FMOL needs the leadership to make that happen and it doesn’t sound like they have that.”
For now, officials at Woman’s and Baton Rouge General, both strong players in the local market, reject a scenario where they’d be acquired by Ochsner, FMOL or some other Catholic system. Woman’s interim CEO Robert Burgess says “Woman’s was founded to be independent and that’s not changing.”
Baton Rouge General is also fiercely independent. The hospital’s board of directors ultimately backed out of an affiliation agreement with Ochsner several years ago and CEO Edgardo Tenreiro says there are no plans to revive those talks, much less sell out to a larger system.
“We have proven consultants wrong time and again and time will tell,” Tenreiro says. “But I think there is an advantage to being community owned and controlled and small enough to react quickly to whatever is happening in the marketplace.”
But health care is changing so rapidly, it’s difficult to say what the local market will look like in the future. Those in the industry say the best indicator of who will be around in the next decade is to look around and see who is leading the change today.
“Health care is beyond the tipping point,” Drake says. “The pace has never been faster and it will never be as slow as it is right now. Everybody has to change and the ones who are aggressively changing are going to be leading this market.”