Hemmed In at Home, Nonprofit Hospitals Look for Profits Abroad
Across the street from the Buckingham Palace Garden an ocean away from its Ohio headquarters, ClevelClinic is making a nearly $1 billion bet that Europeans will embrace a hospital run by one of America’s marquee health systems.
ClevelClinic London, scheduled to open for outpatient visits later this year for overnight stays in 2022, will primarily offer elective surgeries other profitable treatments for the heart, brain, joints digestive system. The London strategy attempts to attract a well-off, privately insured population: American expatriates, Europeans drawn by the clinic’s reputation, Britons impatient with the waits at their country’s National Health Service facilities. The hospital won’t offer less financially rewarding business lines, like emergency services.
“There are very few people out there in the world who would not choose to have ClevelClinic as their health care provider,” said chief executive Dr. Tomislav Mihaljevic.
Facing the prospect of stagnant or declining revenues at home, around three dozen of America’s elite hospitals health systems are searching with a missionary zeal for patients insurers able to pay high prices that will preserve their financial successes.
For years, a handful of hospitals have partnered with foreign companies or offered consulting services in places like Dubai, where Western-style health care was rare money plentiful. Now a few, like the clinic, are taking on a bigger risk — a potentially larger financial reward.
These foreign forays prompt questions about why American nonprofit health systems, which pay little or no taxes in their hometowns, are indulging in such nakedly commercial ventures overseas. The majority of U.S. hospitals are exempt from taxes because they provide charity care other benefits to their communities. Nonprofit hospitals routinely tout these contributions, though studies have found they often amount to less than the tax breaks.
Despite their tax designation, nonprofit hospitals are as aggressive as commercial hospitals in seeking to dominate their health care markets extract prices as high as possible from private insurers. Though they do not pay dividends, some nonprofits amass large surpluses most years even as more more patients are covered by Medicare Medicaid, the U.S. government’s insurance programs for the elderly, disabled poor, which pay less than commercial insurance. ClevelClinic, one of the wealthiest, ran an 11% margin in the first three months of this year paid Mihaljevic $3.3 million in 2019, the most recent salary disclosed.
The advantages of international expansion for their local communities are tenuous. Venturing overseas does not provide Americans with the direct or trickle-down benefits that investing locally does, such as construction work health care jobs. Even when hospitals abroad add to the bottom line, the profits funneled home are minimal, according to the few financial documents tax returns that disclose details of the operations.
“It’s a distraction from the local mission at a minimum,” said Paul Levy, a former chief executive at Boston’s Beth Israel Deaconess Medical Centernow a consultant. “People get into them at the beginning, thinking this is easy money. The investment bankers get involved because they get the financing, the senior faculty get on board say, ‘This is great; it means I can go to Italy for two years’ — there’s not a real business plan.”
There are financial hazards. For instance, ClevelClinic has warned bondholders that its performance could suffer if its London project does not launch as planned. There are also risks to a system’s reputation if a foreign venture goes awry.
Finance experts temper expectations that operations of overseas hospitals will have a major bearing on a system’s balance sheet. “Even though they do well, they’re small hospitals — they’re never part of the overall picture,” said Olga Beck, a senior director at Fitch Ratings. “It does help [the U.S. operations] because it gives a global name presence in other markets.”
Hospital executives say their foreign ventures provide an additional source of revenue, thus adding stability, benefit the care of their hometown patients.
“As we go to different areas around the world, we learn we continuously improve for all our patients,” said Dr. Brian Donley, CEO of ClevelClinic London. He said the clinic has learned from U.K. practices more efficient ways to sterilize surgical instruments perform X-rays.
For decades, wealthy foreigners — who are willing to pay the list prices for specialized surgeries cancer care that domestic insurers bargain down — have been appealing targets for U.S. hospitals. Hospitals like MedStar Health’s Georgetown University Hospital in Washington, D.C., assist foreign patients with special offices staffed by people with job titles such as “international services coordinator” “international services finance administrator.”
Between July 2019 June 2020, U.S. hospitals treated more than 53,000 foreign patients, charging them more than $2.8 billion, according to a survey of members by the Chicago-based U.S. Cooperative for International Patient Programs. In addition, instead of just importing patients, 37 of 51 health systems in the survey said they offer international advisory or consulting services abroad.
“‘Send us your patients’ is pretty much a dying approach,” said Steven Thompson, a consultant who has spearheaded international programs for Baltimore’s Johns Hopkins Medicine Boston’s Brigham Women’s Hospital. “People see it on both sides for what it is: a one-way relationship.”
One of the oldest foreign ventures is the organ transplant program the Pittsburgh-based nonprofit system UPMC has run in Palermo, Italy, since 1997, when Sicily’s government Italian insurers realized it would be cheaper to perform those procedures there than continue to send patients to the U.S. Since then, UPMC’s Palermo facility has performed more than 2,300 transplants.
In this initial expansion, the U.S. hospital was providing a highly specialized type of surgery — one that UPMC is renowned for — that was not available locally. But UPMC, one of the most entrepreneurial U.S. health systems, didn’t stop there. In Ireland, UPMC owns a cancer center provides care for concussions through sports medicine clinics. Since 2018, the system has acquired hospitals in Waterford, Clane Kilkenny. They are staffed mostly by independent Irish physicians, but UPMC regularly sends over its leading U.S. specialists to lend expertise, according to Wendy Zellner, a UPMC spokesperson.
UPMC has company in Ireland: in 2019, Bon Secours Mercy Health, a Roman Catholic system with hospitals in Eastern states, merged with a five-hospital Catholic system there.
Over the past two decades, UPMC did advisory consulting work in 15 countries but ultimately decided to narrow its involvement to four: Italy, Ireland, China Kazakhstan, where UPMC is helping a university develop a medical teaching hospital. Charles Bogosta, president of UPMC International, said UPMC wanted to focus its efforts where it was confident it could improve the quality of care, bolster UPMC’s reputation earn profit margins greater than its U.S. hospitals do.
UPMC officials said the economics are favorable abroad because labor is cheaper the mix of patients is heavily tilted toward those with commercial insurance, which pays better than government programs.
“What we’ve been doing overseas has been really helpful in addressing what everyone in the U.S. is trying to do, which is come up with diversified revenue sources,” Bogosta said.
Even so, that extra revenue remains a small part of UPMC’s earnings. The health system’s foreign hospital business generated gross revenues of $96 million, or 1% of UPMC’s $9.3 billion total hospital revenues in 2019, according to a KHN analysis of a UPMC financial disclosure. Since that figure is before accounting for the costs of running the hospitals, taxes other expenses, the actual profits the foreign hospitals might send back to Pittsburgh are much smaller. In Ireland, where corporations are required to disclose audited financial statements, UPMC Investments Ltd., an umbrella group that owns the Waterford hospital operation property, reported net profits of about a half-million dollars in 2019 on more than $47 million in gross revenues.
In an email, Zellner said the Irelstatements “do not give you the totality of the picture in Irelor International, where our results are far better than these documents would suggest.” UPMC declined to provide more detailed financial data.
Like other systems, UPMC has expanding ambitions in China. In 2019 it signed an agreement with the multinational corporation Wanda Group to help manage several “world-class” hospitals, starting with one opening in Chengdu next year.
But foreign ventures can misfire. “These partnerships can turn into nightmares, as Hopkins has learned,” Thompson wrote in a 2012 article for the Harvard Business Review that described his observations as the founder first CEO of Johns Hopkins Medicine International, a for-profit venture jointly owned by Johns Hopkins Medicine Johns Hopkins University.
Anadolu Medical Center, which Hopkins helped establish in Istanbul in 2005, was “plagued by quality problems,” including overbooked operating rooms physicians who refused to follow evidence-based procedures quality protocols, he wrote. Thompson attributed the problem to the Turkish mandate that the hospital be run by a Turkish citizen wrote that the problems did not dissipate until Hopkins was allowed to install its own manager in the second-highest position dissolve the top position to get around the citizenship requirement “while remaining in technical compliance with the law.”
While “the project is now thriving,” he warned that “lending the Hopkins name to a hospital that delivers unimpressive care could significantly damage our 135-year-old br— that’s a real danger in developing areas, especially in a project’s early days.”
Hopkins has remained skittish about outright ownership or even management responsibilities. Instead, it has affiliations with hospitals health systems in 13 countries, including Vietnam, China, Turkey, Lebanon, Brazil Saudi Arabia. Hopkins does not run any of the hospitals but helps develop hospital master plans clinical programs, trains doctors, advises on patient safety infection control.
Even so, in 2014 it created a joint venture with the oil gas company Saudi Aramco to provide health care to 255,000 employees their dependents retirees. Hopkins, which owns a fifth of the venture, said all foreign net revenue is returned to the system’s parent organizations to fund research, expansion of care scholarships. But its public records report meager income from its foreign subsidiary, just $7 million in 2018 — a tenth of a percent of the health system’s $7 billion revenues.
Charles Wiener, the current president of Johns Hopkins Medicine International, focused on other benefits. “If we can put in robust quality safety at one of our affiliates, their patients do better,” he said. “If we can export our education training models, we believe that allows our people to benefit from learning from other cultures, some of their people come here to train.”
ClevelClinic London is unusual in that U.S. health systems rarely build a hospital abroad from scratch without a local partner. The clinic chose that more cautious approach with ClevelClinic Abu Dhabi, a 364-bed hospital owned by the Mubadala Investment Co. that the clinic manages. It also has a consulting practice that is helping a Singapore health care company build a hospital in Shanghai.
Foreign enterprises appeal to the clinic because it has limited growth opportunities in Ohio, where the population is growing slowly aging, meaning more patients are leaving high-paying commercial insurers for lower-paying Medicare. The clinic has expanded in Florida, acquiring five hospitals to take advantage of population increases wealthier patients there.
The London project will have 184 beds eight operating rooms. Donley said it will be staffed primarily by U.K. physicians, including ones who also work for the National Health Service.
“The clinic has a long track record of being able to execute on its strategies,” said Lisa Martin, an analyst at the bond rating agency Moody’s Investors Service. “The London project is obviously the biggest venture the biggest financial risk that they’ve made abroad.”
CORRECTION: This story was corrected on June 22, 2021, at 9:20 a.m. ET. MedStar Health’s Georgetown University Hospital does not solicit foreign patients.
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