Health Care Capital Expenditures in Minnesota- A Data Short Take -

Health Economics Program

March | 2019

Background on Health Care Capital Expenditures

• Hospitals, clinics, and other health care providers commonlyspend money in the following ways:

• Updating, leasing, or building new facilities• Replacing or adding medical equipment• Installing or modernizing electronic health records systems

• These expenses contribute to what some call a ‘medical armsrace’1 where providers invest in costly technology2 or buildingprojects to attract patients away from competitors.

• Health care capital expenditures have been found to add about 5percent in overall spending3 nationally as providers must pay forthese investments by borrowing, using revenue exceedingexpenses, or other assets such as charitable foundations.

2

Capital Expenditure Monitoring in Minnesota

• Under Minnesota law, all major spending commitments (over$1 million) by health care providers must be reported to MDH4

• MDH started comprehensively collecting these major spending commitments in 2007

• There is likely additional spending on health care projects beyond what is reported, as the following types of projects over $1 million are exempt:

• Medical education or medical research

• Building maintenance or projects not directly related to patient care (e.g., parking lot or elevators)

• Certain changes in ownership or control (e.g., mergers or acquisitions)

3

General Trends in Health Care Capital Expenditures

5

Amount of Health Care Dollars Devoted to Capital Expenditures in Minnesota

In 2016, health care providers committed $645.4 million to major projects

This amounted to $2.12 spent

on major capital projects for every $100

spent health care in 2016

Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17 and data collected to estimate health care spending in Minnesota. US10dollorbill-Series 2004A (2018, July 22). Wikimedia Commons, the free media repository. Retrieved, August 30, 2018 from https://commons.wikimedia.org/w/index.php?title=File:US10dollarbill-Series_2004A.jpg&oldid=312119332.

Three-year Rolling Average Total Capital Expenditure Spending with Maximum and Minimum, 2007 to 2016

6Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section. 62J.17. The year shown is the midpoint of the three-year average and the upper and lower bound are the maximum and minimum for each three year period.

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2008 2010 2012 2014 2016

Mill

ions

of D

olla

rs

Maximum of Three-Years

Average of Three-Years

Minimum of Three-Years

Total capital expenditure spending varied substantially by year, but there was a reduction in spending following the

recession of 2008

Minnesota Health Care Capital Expenditures by Size of Major Spending Commitment

7Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17.

While most commitments

were less than $5 million, half of all

spending was over $20 million and nearly one

quarter was devoted to just 12 projects over

$100 million from 2007 to 2016

10.2%

17.4%

11.6% 10.8%

26.4%

23.6%614

482

141

66 68

120

100

200

300

400

500

600

700

Less than$2 million

$2 to $5Million

$5 to $10Million

$10 to $20Million

$20 to $100Million

Over $100million

0%

5%

10%

15%

20%

25%

30%

Num

ber o

f Maj

or C

omm

itmen

ts

Percent of Spending by Project Size

Percent of Spending Number of Major Commitments

Percent of Capital Expenditures by Health Care System, 2007 to 2016

8Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17 for 2007 to 2016.

More than half of spending is invested by large health care systems

Mayo Clinic, 18%

Fairview Health Services, 17%

Allina Health System, 11%

Park Nicollet Health Services, 8%

CentraCare Health System, 5%

Children's Hospitals and

Clinics, 5%

HealthPartners, Inc., 4%

HealthEast Care System, 3%

Essentia Health, 2%

North Memorial Health Care, 2%

Sanford Health, 2%Lakeview Health

System, 1%

University of Minnesota Physicians,

1%

No Affiliation, 16%

Other Affiliated Providers, 6%

Other, 30%

Types of Capital Expenditure Projects

Capital Expenditures by Type of Provider

Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17 for 2007 to 2016.

$125.7

$236.4

$1,974.8

$5,956.8

$0.0 $1,000.0 $2,000.0 $3,000.0 $4,000.0 $5,000.0 $6,000.0 $7,000.0

Surgery Centers

Diagnostic Imaging Centers

Health Care Systems or Clinics

Hospitals

Millions of Dollars

Hospitals are the leading source of health care capital expenditures in

Minnesota comprising 72% of all spending between 2007 and 2016

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Capital Expenditures by Type of Provider and Project Type, 2007 to 2016

Building andSpace

MedicalEquipment

HealthInformationTechnology

OtherExpense

Hospitals $4,301 $1,026 $369 $260Health Care Systems and Clinics $512 $200 $609 $147Diagnostic Imaging Centers $108 $119 $4 $5Surgery Centers $65 $55 $0 $6

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Nearly two-thirds of health care capital

spending are devoted to building and space

64% of all projects

18% of all projects13% of all projects

5% of all projects

11Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17 for 2007 to 2016.

Capital Expenditures, by Type of Project and Year, 2007 to 2016

12Note: Major spending commitments can span several years and are monitored by commitment date such as board authorization.Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17.

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mill

ions

of D

olla

rs

Building and Space Medical Equipment Health Information Technology Other Expense

In 2007, several hospitals had major building and space projects including one of the largest from 2007-2015

In 2010, the Mayo Clinic boosted medical equipment spending with its $200 million proton beam radiation oncology project

In 2009, the US Congress enacted the Health Information Technology for Economic and Clinical Health Act

In 2015, the Mayo Clinic began a $237 million health information technology investment that totaled $1.5 billion in subsequent years

While large projects can span multiple years, certain projects explain variation across years

Single Capital Expenditure Projects Over $100 Million, 2007 to 2016

13Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17 from 2007 to 2016.

$201.2 million

$102 million

$126.4 million

$127 million

$170 million

$175 million

$215 million

$281.8 million

$103.8 million

$134 million

$172 million

$175.5 million

$0 $50 $100 $150 $200 $250 $300

Mayo Clinic Hospital - Rochester, 2010

Mercy Hospital, 2015

Maple Grove Hospital, 2010

U of M Medical Center - Fairview, 2012

Park Nicollet Methodist Hospital, 2014

U of M Medical Center - Fairview, 2007

St. Cloud Hospital, 2007

Children's Hospital, Minneapolis, 2007

HealthEast Care System, 2013

Mayo Clinic Hospital - Rochester, 2015

Mayo Clinic, 2015

Fairview Health Services, 2009

Hosp

ital

HIT

Millions of Dollars

Hospital Construction

or Renovation

Health Information Technology

Proton Beam Facility

Proportion of Hospital Construction Expenditures by Setting Type, 2014 to 2016

Inpatient Only30.0%

Both Inpatient and Outpatient

49.1%

Outpatient Only20.9%

Less than one-third of hospital capital expenditures are devoted to inpatient services alone

Examples of combined inpatient and outpatient hospital capital expenditures include facility renovation or replacement of existing facility housing inpatient and outpatient services

14Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17 from 2014 to 2016.

Proportion of Capital Expenditures on Medical Equipment

15‘Other Imaging’ includes a variety of equipment types such as angiography, single photon emission computed tomography, x-ray, and other modalities.Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section. 62J.17 for 2007 to 2016

MRI Equipment16.8%

CT or PET Equipment9.7%

Other Imaging Equipment

11.2%

Surgical Equipment14.6%

Radiation Oncology Equipment

13.2%

Other Medical Equipment

34.5%

More than one third of major spending commitments was devoted to diagnostic imaging equipment including magnetic resonance imaging (MRI), computed tomography (CT), and other imaging modalities from 2007 to 2016

Geographic Location of Capital Expenditure Projects

Location of Minnesota Health Care Capital Expenditures by Project Size, 2007 to 2016

17

The volume of spending isdependent on the location of major health careproviders

Distribution of Minnesota Health Care Capital Expenditures in Urban and Rural Areas, 2007 to 2016

18

82.3%

6.7%

7.1%3.9%

Percent of Health Care Capital Expenditures

Urban Areas had 82% of

state health care capital

expenditures and 74% of

the state population

Urban Areas also had 79%

of available hospital

beds

Minnesota Hospital Capital Expenditures by Type of Service, 2014 to 2016 by Urban or Rural Status

19

Buidling and Space Only, 25.1%

Buidling and Space Only, 52.0%

Building and Space & Medical Equipment,

46.5%

Building and Space & Medical Equipment,

44.2%

Medical Equipment Only, 9.3%

Medical Equipment Only, 1.2%

Health Information Technology, 16.3%

Health Information Technology, 2.3%

Non patient care, 2.7% Non patient care, 0.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Urban Rural

Source: MDH, Health Economics Program analysis of major spending commitments submitted under Minnesota Statutes, Section 62J.17.

References

1 Devers, K. J., Brewster, L. R., & Casalino, L. P. (2003). Changes in Hospital Competitive Strategy: A New Medical Arms Race?. Health Services Research, 38(1p2), 447-469.

2 Smith S. et al., “Income, Insurance, and Technology: Why Does Health Spending Outpace Economic Growth?” Health Affairs, 28, no. 5 (September/October 2009): 1276-1284. A prior analysis estimated technology was responsible for 38-65 percent of spending growth: Robert Wood Johnson Foundation. “High and Rising Health Care Costs: Demystifying U.S. Health Care Spending.” Research Synthesis Report, No. 16. October 2008.

3 Glied, S., Ma, S., & Solis-Roman, C. (2016). Where The Money Goes: The Evolving Expenses Of The US Health Care System. Health Affairs, 35(7), 1197-1203.

4 Minnesota Statues, Section 62J.17 requires all providers of health care services (with the exception of nursing homes) to report major commitments to the Minnesota Department of Health (MDH). The threshold was $500,000 from 1992 through 2002 and is currently $1 million. The information in this presentation only includes spending officially reported to MDH; however, we routinely track health care capital expenditure information reported elsewhere.

3/8/2019 20

Contact and Other Information

Health Economics ProgramHealth.hep@state.mn.us

651-201-3550

___________________

HEP Home Page: www.health.state.mn.us/healtheconomics

Health Care Market Statistics: http://www.health.state.mn.us/data/economics/chartbook