Across the street from Buckingham Palace Garden and an ocean from its Ohio headquarters, the Cleveland Clinic is betting nearly $ 1 billion that Europeans will adopt a hospital run by one of America’s leading health systems .
Cleveland Clinic London, due to open later this year for outpatient visits and in 2022 for overnight stays, will primarily offer elective surgeries and other treatments for the heart, brain, joints and digestive system. The London strategy seeks to attract a wealthy, privately insured population: American expatriates, Europeans drawn to the clinic’s reputation, and some Brits who are happy to pay. The hospital will not offer less financially rewarding businesses such as emergency medical services.
“There are very few people in the world who would not choose Cleveland Clinic as their healthcare provider,” said CEO Tomislav Mihaljevic.
With domestic revenues stagnating or declining, about three dozen of America’s elite hospitals and health systems are eagerly seeking patients and insurers who can pay high prices to ensure their financial success.
For years, a handful of hospitals have worked with foreign companies or provided counseling services in places like Dubai, where Western health care was scarce and money was abundant. Now, like the clinic, some are taking greater risks – and potentially greater financial rewards.
But these forays abroad raise the question of why American nonprofit health systems that pay little or no taxes in their hometowns have such bare commercial ventures overseas. Most US hospitals are tax exempt because they provide charity and other services to their communities. Nonprofit hospitals routinely advertise these posts, although studies have shown that they often account for less than the tax breaks.
Despite their tax designation, nonprofit hospitals are just as aggressive as commercial hospitals when it comes to dominating their health care markets and getting prices as high as possible from private insurers. Although they don’t pay dividends, some nonprofits make large surpluses most years, even though more and more patients are covered by Medicare and Medicaid, the U.S. government’s insurance programs for the elderly, disabled, and poor that pay less than commercial insurance.
The Cleveland Clinic, one of the richest, posted an 11% margin for the first three months of this year and paid Mihaljevic $ 3.3 million in 2019, the most recently published salary.
The benefits of international expansion for their local communities are small. Going overseas does not provide Americans with the benefits, direct or residual, of local investments, such as construction and healthcare jobs. Even if overseas hospitals contribute to the bottom line, the profits that go home are minimal, according to the few financial documents and tax returns that give details of the operations.
“It’s at least a distraction from the local mission,” said Paul Levy, a former executive director of Beth Israel Deaconess Medical Center in Boston and now consultant. “People get into it at the beginning and think it’s easy money. The investment bankers get involved because they get the funding and the senior faculty comes along and says, “This is great; that means that I can go to Italy for two years “- and there is no real business plan.”
There are financial risks. For example, the Cleveland Clinic has warned bondholders that their performance could suffer if their London project doesn’t start as planned. There are also risks to a system’s reputation if a foreign company goes wrong.
Financial experts are dampening expectations that the operation of foreign hospitals will have a major impact on a system’s bottom line. “Although they are fine, they are small hospitals – they are never part of the bigger picture,” said Olga Beck, senior director at Fitch Ratings. “It helps [the US operations] because it gives a global name and presence in other markets. “
Hospital managers say their overseas activities provide an additional source of income, increase stability and benefit the care of their home patients.
“As we travel to different areas around the world, we learn and continuously improve for all of our patients,” said Brian Donley, chief executive of Cleveland Clinic London. He said the clinic had learned from UK practices, more efficient ways to sterilize surgical instruments and perform x-rays.
One of the oldest foreign companies is the organ transplant program that the not-for-profit system UPMC, based in Pittsburgh in the Italian city of Palermo, has been running since 1997, when Sicily’s government and Italian insurers realized that it would be cheaper to do these procedures there than to keep patients in the Send to USA. Since then, UPMC’s Palermo facility has performed more than 2,300 transplants.
On this first expansion, the US hospital offered a highly specialized type of surgery that UPMC is known for – that was not available locally. But UPMC, one of the most entrepreneurial US healthcare systems, didn’t stop there. UPMC has a cancer center in Ireland and provides concussions in sports medicine clinics. As of 2018, the system has acquired hospitals in Waterford, Clane and Kilkenny. They are mostly staffed by independent Irish doctors, but UPMC regularly sends its leading US specialists to provide their expertise, said Wendy Zellner, a UPMC spokeswoman.
UPMC has company in Ireland: In 2019, Bon Secours Mercy Health, a Roman Catholic system, merged with a local Catholic system with five hospitals.
Over the past two decades UPMC has advised and advised in 15 countries but decided to limit its engagement to four: Italy, Ireland, China and Kazakhstan, where UPMC is helping a university set up a medical teaching hospital. Charles Bogosta, President of UPMC International, said UPMC wants to focus its efforts where it is confident of improving the quality of care, building UPMC’s reputation and generating higher profit margins than its US hospitals.
UPMC officials said the economy is cheap overseas because the labor force is cheaper and the patient mix is heavily geared towards those with commercial insurance who pays better than government programs.
“What we’ve been doing overseas has been really helping to achieve what everyone in the US is trying to do, which is diversifying sources of income,” said Bogosta.
Even so, this additional income remains a small part of UPMC’s income. The overseas healthcare system hospital business generated gross revenues of $ 96 million in 2019, or 1% of UPMC’s total hospital revenues of $ 9.3 billion, according to a KHN analysis of a UPMC financial disclosure. Since that number is before considering the cost of running the hospitals, taxes, and other expenses, the actual profits the overseas hospitals may bring back to Pittsburgh are much less.
In Ireland, where companies are required to disclose audited financial statements, UPMC Investments Ltd, an umbrella group that owns the Waterford hospital operations and property, reported net profits of approximately half a million US dollars in 2019 on gross sales of more than 47 million US dollars -Dollar.
In an email, Zellner said that the Ireland Declarations “do not reflect the entirety of the picture in Ireland or internationally, where our results are far better than these documents suggest”. UPMC declined to provide more detailed financial information.
But foreign ventures can fail. “These partnerships, as Hopkins learned, can turn into nightmares,” Steven Thompson wrote in a 2012 article for the Harvard Business Review describing his observations as the founder and first director of Johns Hopkins Medicine International, a for-profit jointly owned company from Johns Hopkins Medicine and Johns Hopkins University.
Cleveland Clinic London is unusual in that US healthcare systems rarely build a hospital overseas without a local partner from the ground up. The clinic took this more cautious approach with Cleveland Clinic Abu Dhabi, a 364-bed hospital owned by the Mubadala investment company, which manages the clinic. It also has a consulting practice helping a Singapore healthcare company build a hospital in Shanghai.
Foreign companies turn to the clinic because it has limited growth opportunities in Ohio, where the population is slowly growing and aging, meaning more patients are leaving high-paying commercial insurers for less-paying Medicare. The clinic has expanded in Florida and acquired five hospitals to take advantage of the population growth and wealthier patients there.
The London project will have 184 beds and eight operating rooms. Donley said it was mostly staffed by British doctors, including those who also work for the NHS.
“The clinic has a long track record of executing its strategies,” said Lisa Martin, an analyst with the credit rating agency Moody’s Investors Service. “The London project is of course the greatest undertaking and the greatest financial risk that you have taken abroad.”
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health topics. Together with Policy Analysis and Polling, KHN is one of the three major operational programs of the KFF (Kaiser Family Foundation). KFF is a not-for-profit foundation that provides health information to the nation