Across from the garden of Buckingham Palace and an ocean from its Ohio headquarters, the Cleveland Clinic is making a nearly $ 1 billion bet that Europeans will adopt a hospital run by one of the health systems most famous in the United States.
The Cleveland Clinic London, slated to open for outpatient visits later this year and for overnight stays in 2022, will primarily offer elective surgeries and other treatments for the heart, brain, joints and digestive system. The London strategy tries to attract a wealthy population insured by the private sector: American expatriates, Europeans attracted by the reputation of the clinic, and a few Britons happy to pay. The hospital will not offer lower paying lines of business, such as emergency services.
“There are very few people in the world who would not choose the Cleveland Clinic as their health care provider,” said CEO Tomislav Mihaljevic.
Faced with the prospect of stagnant or declining incomes in their country, about three dozen of America’s elite hospitals and healthcare systems are missionary zealously seeking patients and insurers who can pay high prices that will preserve their financial success. .
For years, a handful of hospitals have partnered with foreign companies or offered counseling services in places like Dubai, where Western-style healthcare was scarce and money plentiful. Now a few, like the clinic, are taking greater risk – and potentially greater financial reward.
But these overseas forays raise questions about why US nonprofit healthcare systems, which pay little or no tax in their hometowns, engage in such purely commercial ventures at home. ‘foreign. The majority of US hospitals are tax exempt because they provide charitable care and other benefits to their communities. Nonprofit hospitals regularly tout these contributions, although studies have shown that they are often less than tax breaks.
Despite their tax designation, nonprofit hospitals are as aggressive as commercial hospitals in trying to dominate their healthcare markets and get prices as high as possible from private insurers. Although they do not pay dividends, some nonprofits are raking in large surpluses in most years even as more patients are covered by Medicare and Medicaid, the United States government’s insurance programs for the elderly, disabled and poor, who pay less than commercial insurance.
The Cleveland Clinic, one of the wealthiest, posted an 11% margin in the first three months of this year and paid Mihaljevic $ 3.3 million in 2019, the latest leaked salary.
The benefits of international expansion for their local communities are slim. Venturing abroad does not provide Americans with the direct or indirect benefits that local investment offers, such as construction work and health care jobs. Even when hospitals overseas add to the bottom line, profits funneled home are minimal, according to the few financial documents and tax returns that disclose transaction details.
“It’s at least a distraction from the local mission,” said Paul Levy, former executive director of Beth Israel Deaconess Medical Center in Boston. and now a consultant. “People start out thinking it’s easy money. The investment bankers get involved because they get the funding, and the senior professors join them and say, “This is great; that means I can go to Italy for two years ”- and there is no real business plan.
There are financial uncertainties. For example, the Cleveland Clinic has warned bondholders that its performance could suffer if its London project does not go ahead as planned. There are also reputational risks to a system if a foreign company goes wrong.
Financial experts are tempering expectations that overseas hospital operations will have a major impact on a system’s bottom line. “Even if they are doing well, they are small hospitals – they are never part of the big picture,” said Olga Beck, senior director at Fitch Ratings. “It helps [the US operations] because it gives a global name and a presence in other markets.
Hospital executives say their overseas businesses are an additional source of income, adding stability and benefiting patient care in their hometowns.
“As we travel to different parts of the world, we are continually learning and improving for all of our patients,” said Brian Donley, CEO of the Cleveland Clinic London. He said the clinic had learned from UK practices of more efficient ways to sterilize surgical instruments and take x-rays.
One of the oldest foreign companies is the organ transplant program that UPMC, a Pittsburgh-based non-profit system, has run in the Italian city of Palermo since 1997, when the government of Sicily and insurers Italians realized that it would be cheaper to perform these procedures there than to continue sending patients to the United States. Since then, the UPMC site in Palermo has performed more than 2,300 transplants.
During this first expansion, the American hospital offered a highly specialized type of surgery – which UPMC is famous for – which was not available locally. But the UPMC, one of America’s most enterprising healthcare systems, didn’t stop there. In Ireland, UPMC has a cancer center and manages concussions in sports medicine clinics. Since 2018, the system has acquired hospitals in Waterford, Clane and Kilkenny. They are mainly composed of independent Irish doctors, but the UPMC regularly sends its main American specialists to provide their expertise, according to Wendy Zellner, spokesperson for UPMC.
UPMC is present in Ireland: in 2019, Bon Secours Mercy Health, a Roman Catholic system, merged with a Catholic system of five hospitals.
Over the past two decades, UPMC has carried out advisory and consultative work in 15 countries, but decided to limit its involvement to four: Italy, Ireland, China and Kazakhstan, where the UPMC helps a university to develop a medical teaching hospital. Charles Bogosta, President of UPMC International, said the UPMC wanted to focus its efforts where it believed it could improve the quality of care, strengthen the reputation of UPMC and achieve higher profit margins than those of its American hospitals.
UPMC officials said economic conditions were favorable overseas, as the labor force is cheaper and the patient mix is heavily skewed towards those with commercial insurance, who pay better than those with commercial insurance. government programs.
“What we’ve been doing overseas has been very helpful in responding to what everyone is trying to do in the United States, which is to find diverse sources of income,” Bogosta said.
Even so, this additional income remains a small part of UPMC’s income. The foreign hospital activity of the health system generated gross revenues of $ 96 million, or 1% of UPMC’s total hospital revenues of $ 9.3 billion in 2019, according to KHN analysis of a financial disclosure of UPMC. Since this figure does not take into account the costs of running hospitals, taxes and other expenses, the actual profits that foreign hospitals could send back to Pittsburgh are much lower.
In Ireland, where companies are required to disclose audited financial statements, UPMC Investments Ltd, an umbrella group that owns the operation and ownership of Waterford Hospital, reported net profits of around half a million in 2019 on more than $ 47 million in gross revenue.
In an email, Zellner said the Irish statements “don’t give you the full picture in Ireland or internationally, where our results are much better than these documents suggest.” The UPMC declined to provide more detailed financial data.
But foreign companies can have hiccups. “These partnerships can turn into a nightmare, as Hopkins has learned,” Steven Thompson wrote in a 2012 Harvard Business Review article that described his observations as the founder and first CEO of Johns Hopkins Medicine International, a company jointly owned for-profit. by Johns Hopkins Medicine and Johns Hopkins University.
Cleveland Clinic London is unusual in that America’s healthcare systems rarely build an overseas hospital from scratch without a local partner. The clinic took this more conservative approach with the Cleveland Clinic Abu Dhabi, a 364-bed hospital owned by investment firm Mubadala that the clinic manages. He also has a consulting firm that is helping a Singapore healthcare company build a hospital in Shanghai.
Foreign companies are turning to the clinic because it has limited growth opportunities in Ohio, where the population is slowly growing and aging, meaning more patients are leaving well-paid commercial insurers for less well-paid Medicare. paid. The clinic expanded to Florida, acquiring five hospitals to take advantage of the growing population and wealthier patients there.
The London project will have 184 beds and eight operating theaters. Donley said it would be made up mostly of British doctors, including those who also work for the NHS.
“The clinic has a long history of implementing its strategies,” said Lisa Martin, analyst at rating agency Moody’s Investors Service. “The London project is obviously the biggest undertaking and the biggest financial risk they’ve taken abroad.”
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues. Along with policy analysis and polls, KHN is one of the three main operational programs of the KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization that provides information on health issues to the nation