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Perched on farms and open space along Interstate 55, huge billboards tout the services of Cape Girardeau’s billion-dollar health care industry.

Two rival hospitals, St. Francis Medical Center and Southeast Hospital, brag about gleaming buildings, robotic surgery systems, electrophysiology labs for heart care, and cancer treatment centers.

What remains unsaid is the price tag. The nonprofit hospitals’ charges are much higher than in other parts of Missouri — certain surgeries can even cost twice as much as those in the St. Louis area.

Cape Girardeau, the largest medical community between Memphis and St. Louis, offers a glimpse into the nation’s health care problems. Competition can spark innovation and improve quality of care, but it can also lead to costs that spiral out of control. The federal Medicare system, private insurers and self-insured employers often foot the bills.

For at least a decade, the crosstown rivals have engaged in a costly race to build new facilities, invest in leading edge technologies, buy new equipment, recruit physicians and offer new services.

Rather than reducing charges as a way to lure patients, the hospitals instead have undertaken fierce advertising campaigns, and end up spending more on marketing than on medical care for the needy, called charity care. In the case of St. Francis, the hospital spent more than four times as much on advertising and promotions as it did on charity care in fiscal 2011.

With patients unable or unwilling to travel to St. Louis, there has not been enough price competition between the two local hospitals to hold costs down in this captive market, said Mary Dunn, a former executive director of the Southeast Missouri Business Group on Health Inc. The now-defunct nonprofit group tried unsuccessfully in the 1990s to lower Cape Girardeau’s medical bills.

“It’s outrageous. ... A lot of that money could be spent on reducing costs,” Dunn said. “Everybody has to do some marketing, but to what extent?”

EXPENSIVE MEDICINE

Average charges for several surgical procedures at the Cape Girardeau hospitals are significantly higher than at other Missouri hospitals, including those in the St. Louis area, according to the American Hospital Directory.

The survey reveals that the average charge for orthopedic surgery at similar-sized St. Alexius Hospital in south St. Louis is $46,340, compared with $76,976 at Southeast and $78,853 at St. Francis. In contrast, Barnes-Jewish Hospital has the St. Louis area’s highest average charge for orthopedic surgery: $53,390.

Hospital executives blame economies of scale, which can be tough to find in rural areas.

“When you deploy capital, it’s always easier in a high-density market,” said Wayne Smith, president and chief executive of Southeast Health, a nonprofit system that operates the 266-bed Southeast Hospital in Cape Girardeau.

The medical centers also say they face a big challenge: serving a widely dispersed rural population with high levels of poverty and ill health.

Cape Girardeau, the home of Southeast Missouri State University, has about 40,000 residents. But the city’s health systems claim to serve about 750,000 people in a five-state region that includes southeastern Missouri, southwestern Illinois, western Kentucky, northeastern Arkansas and western Tennessee.

Many people in the region are poor and uninsured. In Pemiscot County, in the Missouri Bootheel, a little more than an hour south of Cape Girardeau, the median household income over the last five years averaged $28,798, according to census data. That’s compared with $43,122 in the Cape Girardeau area and $54,149 in St. Louis.

Similar to conditions in inner cities, many residents of these rural areas have one or more chronic illnesses linked to poor diet, sedentary lifestyles and heavy smoking, said Steven C. Bjelich, chief executive of St. Francis Healthcare System, which operates a 280-bed hospital in Cape Girardeau.

“We serve some of the poorest counties in Missouri and Illinois,” he said. “We have a very high incidence of everything from diabetes to cancer in this region. We are in a medically underserved area.”

Still, Cape Girardeau’s average surgery charges are far higher than in other small, geographically isolated cities, such as Paducah, Ky., which is about 50 miles away, as well as other small Midwest cities, such as Fort Smith, Ark., and Salina, Kan.

For example, cardiovascular surgeries at St. Francis and Southeast cost 60 percent and 65 percent more, respectively, than the average at the 285-bed Lourdes Hospital in Paducah.

Smith, who moved from St. Francis two years ago to the top job at Southeast Health, recognizes the problem. He says his hospital has embraced a new mission: lowering costs and passing along some of the savings to consumers.

In September, Southeast sharply reduced the cost of its imaging services, in part by closing down one of its MRI centers.

ARMS RACE

Cape Girardeau’s hospitals considered a merger in the mid-1990s, but antitrust regulators and larger employers blocked that effort for fear it would stifle competition.

But merger opponents did not reckon that increased competition between the two would lead to greater investments in hospital infrastructure and higher consumer costs.

In the late 1990s, babies were born at Southeast Hospital in a ward that had little privacy, and hundreds of premature babies were sent to St. Louis. In 2001, St. Francis re-entered obstetrics after a 35-year absence, building state-of-the-art birthing rooms and, later, a neonatal intensive care unit. Once St. Francis built new postpartum rooms, Southeast followed — triggering a medical arms race.

In the past decade, Cape Girardeau’s hospitals have collectively spent more than $250 million on capital improvements. If one hospital added a service, the other hospital felt compelled to follow.

“It’s sort of like keeping up with the Joneses,” said Jim Limbaugh, Southeast’s executive vice president. “One hospital would buy one red wagon, and the other hospital would buy two. Then you wake up one day and say, ‘Oh my, we might have priced ourselves out of the market.’ ”

In November, St. Francis broke ground on a $127 million project to build a new patient tower with private rooms and improve other facilities. In 2011, it opened an $84 million center for heart and cancer patients, featuring a CyberKnife robotic radio-surgery system for removing tumors.

Last year, Southeast announced its plan to purchase a 50-bed hospital in Dexter, Mo. In 2011, Southeast opened a $33 million cancer center.

St. Francis’ Bjelich acknowledged the downside of such a rivalry.

“Healthy competition will improve outcomes and improve access but will not do anything to reduce the cost of health care,” he said.

ADVERTISING WARS

To compete for patients, both hospitals spend far more money on advertising than many hospitals in the St. Louis area.

With net revenue of $423 million, St. Francis spent about $11.5 million on “advertising and promotion” in fiscal year 2011, according to the center’s IRS Form 990. It spent $2.7 million on charity care.

The medical center’s ad budget amounts to nearly $46,000 per licensed hospital bed a year, or $130 a day per bed.

With net revenue of $331 million, Southeast listed advertising and promotion expenses of $2.8 million in 2010, according to its IRS Form 990, the latest tax filing available. It spent $2.5 million on charity care that same year.

BJC Healthcare, whose flagship is Barnes-Jewish Hospital in St. Louis, reported net revenue of about $3.5 billion and only $13.4 million on advertising and promotion spending for its network of 13 hospitals in Missouri and Illinois in 2010, according to its Form 990 tax filings.

Meanwhile, BJC provided $63 million in charity care that same year, according to the St. Louis Area Business Health Coalition.

Traditionally, hospitals have had little incentive to lower their charges. The federal Medicare system, private insurers and self-insured employers have often footed the bills, regardless of a hospital’s high charges. Hospitals have been reimbursed for the volume of procedures performed, rather than the outcomes achieved.

Those dynamics appear to be changing as Medicare and private insurers institute programs and revise contracts to push hospitals to provide cost-effective, quality care.

Still, insurers are reluctant to discuss Cape Girardeau’s high medical charges.

Insurance from Anthem Blue Cross and Blue Shield in Missouri is accepted by both Southeast and St. Francis. Anthem president Steve Martenet declined to comment.

St. Francis is considered “out of network” by United Healthcare, the nation’s largest insurer, but its coverage is accepted by Southeast.

Steve Walli, president of United Healthcare–Missouri and the River Valley, confirmed that insurance industry data show that hospital and outpatient charges are much higher in Cape Girardeau than other parts of Missouri.

“We’re working very closely with Southeast Health, our partner in Cape Girardeau, to collaborate on things like performance-based contracting, data sharing to improve clinical outcomes, and disease management,” he said.

LOWERING COSTS

Southeast’s Smith said the health system was “on a march” to attack medical costs. “Everything we do goes through the filter of highest quality at the lowest cost close to home,” he said.

Southeast has reduced its marketing budget by almost 25 percent and has saved millions of dollars by partnering with other medical providers to build an electronic records storage center in Sikeston, Mo., he said.

Smith said the hospital is developing business relationships in rural areas so that patients can receive medical care, including preventative care, close to home.

“I’m focusing on how can we make it better for patients in Dexter, Doniphan or other rural markets,” he said.

He said physicians must recognize the business ramifications of their clinical decisions. “It has taken a lot of work over the last year to get people aligned around that change,” he said.

St. Francis’ Bjelich said the hospital’s physicians were encouraged to focus on delivering quality medicine — and leave billing matters to the health system.

To reduce costs, he said, the hospital is working to eliminate wasteful tests and procedures, making certain that MRIs and other radiological imaging tests are done right the first time, and ensuring that patients have strong primary care so they stay healthy.

“We’re going to have a real demand for services, yet the reimbursement is not keeping up with the demand,” Bjelich said. “So we need to provide care in a preventative fashion and to be proactive ... with follow-up care.”

The high cost of medical care in Cape Girardeau isn’t a recent phenomenon. Area employers have long recognized the area’s high medical costs and tried unsuccessfully to tame prices.

In 1991, area business leaders founded the Southeast Missouri Business Group on Health, whose avowed purpose was to seek “quality, competitive healthcare.” The group included representatives from Cape Girardeau’s largest employers, such as Procter & Gamble.

“Physicians made a lot of money in Cape Girardeau for a long time because the choices (for patients) were not there and the doctors could charge what they wanted to charge,” said Dunn, the nonprofit’s former director. “Rather than building and building and building, why weren’t the hospitals creating more small clinics in the rural areas?”

In the mid-1990s, Procter & Gamble encouraged its employees to drive to St. Louis to save medical costs, Dunn and others said.

Some of the larger self-insured companies signed contracts with a network of Humana physicians to bypass the high cost of Cape Girardeau hospitals.

For a short time, the companies saved money on reduced health claims, Dunn said. But workers who could not obtain in-network care from area physicians complained of the inconvenience of driving to St. Louis for doctor visits. So the employers backed off.

Despite its efforts to cut costs, Dunn’s group eventually dissolved in 2007, state records show.

“I guess a community gets what it deserves,” Dunn said.


EDITOR'S NOTE: This story was updated to correct the year that both hospitals opened new cancer centers and the year Southeast announced plans to acquire the Dexter hospital.