Ballad Health Relies on Partnerships to Excel With Difficult Payer Mix

https://www.healthleadersmedia.com/finance/ballad-health-relies-partnerships-excel-difficult-payer-mix?spMailingID=15495934&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1621203648&spReportId=MTYyMTIwMzY0OAS2

Ballad CFO Lynn Krutak said the health system faces significant financial challenges but has the discipline and leadership to navigate obstacles ahead.


KEY TAKEAWAYS

CFO Lynn Krutak said the system’s most significant challenge is its payer mix.

Luckily, she says, Virginia’s decision to expand Medicaid will help somewhat in terms of recouping from years of cuts.

Ballad Health also has a $308 million, 10-year spending plan in the works.

Last year, Mountain States Health Alliance (MSHA) and Wellmont Health System, merged to form Ballad Health. The fact that the two rural systems merged was not typical because it formed under a certificate of public advantage (COPA).

This legal agreement governs the merger through joint oversight from both the state of Tennessee and Virginia and also includes “enforceable commitments” to invest in population health, expand patient access, and boost research and education opportunities.

According to the Millbak Memorial Fund, the COPA acts as a “state-monitored monopoly—or a public utility model of healthcare delivery.”

Related: Ballad Health Launches Changes Across Newly Merged Hospital Network

Lynn Krutak, who served as CFO for both MSHA and its corporate parent Blue Ridge Medical Management, was elevated as CFO at Ballad Health. In an interview with HealthLeaders, Krutak emphasized how she implemented effective cost-cutting strategies within a challenging payer mix and low-wage index area.

This transcript has been lightly edited for brevity and clarity.

HealthLeaders: Can you describe the challenges and opportunities for Ballad Health in its provider market?

Krutak: The majority of our hospitals are either in southwest Virginia or northeast Tennessee, so we have high-use rates. From the payer standpoint, as more people move into managed Medicare and managed Medicaid, we know those use rates are going to fall.

Our population growth is flat to even declining; a lot of our counties in southwest Virginia are coal counties that have been hit hard by the [employment] reductions. So, with the use-rates decline, population decline, and the reimbursement decline that we’re all faced with, we know that there are going to be issues going forward.

As far as our payer mix, we’re heavily governmental. Over 70% of our payer mix is Medicare, Medicaid, or self-pay. We can continue to see the payer mix decline as well. We are also faced with high-deductible health plans out there now, with the patient portion of those deductibles being so high our bad debt has increased over 30%.

Fortunately, Virginia has implemented a Medicaid expansion program, so we will get some relief. However, we’ve had years of ACA cuts and this is a small portion. With the cuts that we’ve had versus what we’re going to gain back from Medicaid expansion, we’ll still be in the red.

Our wage index with Medicare is another hurdle we have. We are in the fourth-lowest wage index area in the country; we’re getting about half of what other [systems] are getting. We’ve done a good job of controlling our costs because we have to.

We’re excited about the potential with some of the things that we’re going to be able to do as a merged organization. We have $308 million in spending commitments over the next 10 years, but we have about twice as much in estimated savings. We’ve been able to achieve a lot of that already and we’re working hard on our continued integration.

This merger’s unique and what we’re going to be able to do is take costs out of the system, as far as redundant and duplicative costs go, and then reinvest them back.

HL: Can you describe some initiatives Ballad is looking to pursue in the next few years?

Krutak: As far as the labor costs, we’ve done a great job controlling our labor by not using contract labor for nursing. During the nursing shortage, other systems were using contract labor, it was something that MSHA did not have to do.

We have East Tennessee State University right in our backyard in Johnson City, where we work with them to develop nursing programs and offer scholarships to students in return for a work commitment.

Of the investments through COPA, where we have committed $308 million over a 10-year period, [is] $75 million is going to common health issues facing children. We’ve made a commitment to bring on specialists—specifically pediatrics—and be able to keep these patients and their families in the region and not have to send them elsewhere.

We’ve also committed $140 million to mental health, addiction, or rural health [initiatives] with $85 million going to behavioral health. That’s an issue for our service area in northeast Tennessee and southwest Virginia.

Finally, we have $8 million set for clinical effectiveness and patient engagement mainly related to health information exchange. Wellmont was on Epic, MSHA was on Cerner, so we agreed to convert the whole system to Epic, which will happen in April 2020.

HL: How is Ballad best positioned to navigate the direction healthcare is going while still providing the best quality service to its patients?

Krutak: We’ve been working with our state representatives to craft a fair wage index bill, where Ballad would get some relief and revamp how those calculations are done. In other words, you would not be penalized if you do a good job controlling your costs.

Our CEO, Alan Levine was secretary of health in Florida and secretary of health in Louisiana. We have Tony Keck, who is the executive vice president of our development, innovation, and population health improvement, who was secretary of health in South Carolina. We have a lot of insight on the [governmental] side of things from them.

We’re positioning ourselves to take costs out of the system but also to switch over from fee-for-service plans to looking at risk-based contracts. How do we get paid more for showing better patient outcomes? We’re looking over the next five years to transition into more of that than your traditional payments.

HL: What advice would you give to CFOs from rural systems to make the most of what are sometimes challenging financial situations?

Krutak: As a result of the merger, I’m relieved that we’re going to be able to have these savings to reinvest in rural areas. The largest issue we face with the payer mix shift is that it’s hard to get physicians in rural areas.

My advice to them is just make sure that you are controlling your costs as much as you possibly can and look to partner with other systems that may be near you that could provide physician-sharing arrangements.

For the reimbursement side, it’s always actively looking at how you’re being paid and what you’re being paid. Work with your government officials and partner with your hospital associations, to say, ‘Hey, if we’re going to continue to keep these rural hospitals and provide access, then there’s going to have to be changes as far as how that reimbursement is calculated and how those facilities are compensated.’

On the cost side, make sure that that you’ve situated yourself appropriately and then as things transition to outpatient, be sure the investments that you’re making are being made in the right places.

 

 

 

 

Verity Health’s Deep-Pocketed Savior Failed. Here’s Why.

https://www.healthleadersmedia.com/strategy/verity-healths-deep-pocketed-savior-failed-heres-why

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An ambitious plan to save troubled Verity Health System ended in bankruptcy. Hospital CEOs should see Verity as confirming a trend.

The recent bankruptcy announcement by Verity Health System should worry CEOs and boards at hospitals all over the country that share some of the same characteristics, because they could be the next to fall, one analyst says.

The financial troubles of Verity are part of a trend in healthcare, and the health system’s experience shows that the dramatic arrival of a savior with deep pockets doesn’t guarantee organizational health and stability.

Verity operates six nonprofit hospitals in California, and citing growing losses and debts for the facilities, it filed for bankruptcy. The hospitals will remain open during the bankruptcy, Verity said.

The bankruptcy filing is a public failure for biotech billionaire Patrick Soon-Shiong, MD, a physician and entrepreneur whose privately owned umbrella company NantWorks in 2017 acquired Integrity Healthcare, the company that manages the Verity health system. Soon-Shiong said at the time that his goal was to revitalize the hospitals and improve the care they provided to mostly lower-income neighborhoods.


Though a surgeon and entrepreneur, Soon-Shiong had never operated hospitals before, as reported by STAT. The Verity system’s woes apparently were more than he could fix, with more than $1 billion of debt from bonds and unfunded pension liabilities.

The Verity CEO said at the time Soon-Shiong entered the picture that the system also needed cash to make seismic repairs to aging facilities and also needed hundreds of millions of dollars’  worth of new equipment such as imaging machines and neonatal intensive care units.

A Definite Trend

Verity’s overall experience is part of a trend in U.S. hospitals, says Ilyse Homer, JD, a partner at the Berger Singerman law firm with experience in hospital bankruptcies.

“There are hospitals all over the country that are not dissimilar in what happened to Verity—large debt, an aging infrastructure, an inability to negotiate contracts,” Homer says. “They have trouble with maintaining pensions and that is very typical in filings in other districts. There are some commonalities throughout the industry, and I can’t say I’m surprised that Verity came to this.”

Nantworks provided more than $300 million in unsecured and secured loans and investments, the Los Angeles Times reported. The money went to operational costs, pension obligations, and capital improvements, and only a third of it was secured by property.

The management company deferred most of the $60 million in management fees Verity was expected to pay over the last year.

Industry Ripe for Restructuring

Some criticism has been directed at financial decisions by Soon-Shiong’s team, such as providing millions of dollars to health IT vendor Allscripts rather than spending that money on capital improvements. Soon-Shiong has a financial stake in Allscripts. Fully implementing a new Allscripts health IT system could cost from $20 million to more than $100 million, according to estimates from different sources, as reported by POLITICO.

Even without any questions over Soon-Shiong’s strategy, saving Verity would have been a tall order for any investor, Homer says. The challenges were so great that it might have been too late to simply infuse cash and hope for the best, she says.

Once a hospital or system becomes weak in so many areas, it is hard to recover and gain strength again, Homer says.

“What happened to Verity is happening, to some extent, to a significant number of hospitals in the country. They have costs that are rising faster than revenues, and they’re being downgraded by financial analysts,” Homer says. Moody’s recently downgraded the entire hospital sector to negative, which suggests that there could be more bankruptcy in the future, she says.

“I absolutely expect to see more of this down the road,” Homer says.

Big Promises Are Tempting

The healthcare industry, in general, is in flux and the insurance industry uncertainty plays a part in that, Homer says. Struggling hospitals and systems are looking for ways to survive and the siren song of a billionaire like Soon-Shiong can be irresistible.

“I think this case shows that while you will have individuals and groups that want to come in and save or fix these hospitals, particularly nonprofits, it’s not necessarily as easy as adding a flush of cash when you have all these other issues that aren’t going away,” Homer says.

Healthcare CEOs should look at Verity for lessons in how much financial pressures can mount up, Homer says.

“My hope would be that they are looking at these issues as early as possible – renegotiating contracts, upgrading systems, ensuring pensions are funded – before they get to a crisis point,” Homer says. “Clearly this case is a reminder that this can happen, this can be the end result for your hospital system. [CEOS] need to be cautious and act on these issues before they get so far that even a huge influx of cash won’t solve their problems.”

 

 

KPC Health Wins Approval to Buy Verity Health Hospitals

https://www.healthleadersmedia.com/finance/kpc-health-wins-approval-buy-verity-health-hospitals?spMailingID=15496817&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1621210213&spReportId=MTYyMTIxMDIxMwS2

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A federal bankruptcy judge approved KPC Health’s $610 million bid Wednesday afternoon.


KEY TAKEAWAYS

KPC Health is adding four Verity Health-owned hospitals to its growing collection of nonprofit hospitals.

Dr. Kali P. Chaudhuri, chairman of KPC Health, referred to the ruling as an “Important milestone” for the company.

The court-approved deal now goes before California Attorney General Xavier Becerra, who attempted to block the sale of two Verity Health hospitals in January.

KPC Health, a Santa Ana, California-based healthcare company, announced Wednesday that a federal bankruptcy judge approved the $610 million purchase of four hospitals owned by financially-troubled Verity Health System.

KPC Health will take ownership of St. Francis Medical Center, St. Vincent Medical Center, Seton Medical Center, and Seton Coastside in Moss Beach. The company also acquired St. Vincent Dialysis Center as part of the deal.

The deal is the latest development in Verity Health’s ongoing bankruptcy proceedings, which began in August 2018.

“Today marks an important milestone for KPC Heath’s bid to acquire four Verity Health hospitals,” Dr. Kali P. Chaudhuri, chairman of KPC Health, said in a statement. “We look forward to working with Verity Health on a successful acquisition and welcoming these important community hospitals into our integrated healthcare system.”

The acquisition of four Verity Health hospitals adds to KPC Health’s seven acute care hospitals in southern California as well as seven long-term acute care hospitals and two skilled nursing facilities in multiple states.

Verity Health’s board of directors approved the deal on April 15. Due to no other bid exceeding KPC Health’s $610 million bid, no auction was required for the four Verity Health hospitals. 

The next step will be submitting the purchase to California Attorney General Xavier Becerra, who has already been involved in handling the sale of two Verity Health hospitals earlier this year.

In January, Becerra blocked the $235 million sale of two hospitals owned by Verity Health, O’Connor and Saint Louise hospitals, to Santa Clara County. 

Despite the sale being approved by the U.S. Bankruptcy Court in December, Becerra argued that the County had not agreed to specific conditions related to the deal.

At the end of January, a federal bankruptcy judge denied Becerra’s motion to block the sale, stating that he did not have the authority to regulate the sale. A scheduled federal hearing on Becerra’s motion to block was cancelled in mid-February and the sale closed on March 1.

 

 

Megamergers Take Center Stage in M&A Activity

https://www.healthleadersmedia.com/strategy/megamergers-take-center-stage-ma-activity

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Despite continued and sometimes unsettling M&A activity in the industry, the fundamental mission of healthcare has not changed.


KEY TAKEAWAYS

73% of healthcare executive respondents will be exploring potential M&A deals during the next 12–18 months, according to a new HealthLeaders survey.

The recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation.

Merger, acquisition, and partnership (M&A) activity within the healthcare industry shows no sign of diminishing, with nearly all indicators pointing to continued consolidation, according to a 2019 HealthLeaders Mergers, Acquisitions, and Partnerships Survey. The fundamental need for greater scale, geographic coverage, and increased integration remains unchanged for providers, and this will sustain M&A activity for years to come.

Evidence of the M&A trend’s resiliency is found throughout the HealthLeaders survey. For example, 91% of respondents expect their organizations’ M&A activity to increase (68%) or remain the same (23%) within the next three years, an indication of the trend’s depth. Note that only 1% of respondents expect this activity to decrease.

Likewise, 38% of respondents say that their organization’s M&A plans for the next 12–18 months consist of exploring potential deals, up six percentage points over last year’s survey, and another 35% say that their M&A plans consist of both exploring potential deals and completing deals underway. This means that nearly three-quarters (73%) of respondents will be exploring potential deals during this period.


Megamergers and industry impact

While steady healthcare industry M&A activity has been with us for some time, a series of new and rumored megamergers and partnerships is capturing the headlines these days. This recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation, one that will likely alter the landscape in unanticipated ways.

The majority of respondents in our survey say that they expect significant industry impact from these megamergers, led by CVS Health’s merger with Aetna (68%), Walmart’s potential deal with Humana (57%), and Amazon’s partnership with JPMorgan Chase and Berkshire Hathaway (49%). While information regarding the latter two developments is still in short supply, respondents see the potential for large-scale impact.

Faced with such far-reaching and transformative new relationships, what are healthcare providers to do? As things currently stand, even the largest health systems lack the scale to negotiate on equal footing with most insurers, and these new hybrid organizations combine scale, technology, and innovative structures.

However, there is no need for providers to panic—these megamergers are still in the early stages of implementation, and the fundamental mission of healthcare has not changed.

“I don’t think people fully understand the real business purpose of this type of activity yet, or what these organizations are trying to get out of their connections,” says Kevin Brown, president and CEO of Piedmont Healthcare, a Georgia-based nonprofit health system with 11 hospitals and nearly 600 locations. “Time will tell regarding the impact they will have on the industry landscape and its different segments.”

“I haven’t spent a lot of time thinking or worrying about these new developments. Generally, I spend my time thinking about what we are doing on a day-to-day basis as an organization to fulfill our mission and take care of the communities we serve. I’m certainly aware of these developments, but it’s important not to get distracted from our core purpose,” Brown says.

 

 

California Appellate Decision Limits Hospital’s Options For Exclusive Contracts

https://files.constantcontact.com/508de6cb001/d3180be0-b816-4328-86e7-74776fe15b8a.pdf

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On February 4, 2019, the California Court of Appeal affirmed a judgment awarding plaintiff, Dr. Kenneth Economy, substantial damages for his suspension and subsequent termination of his staff privileges at defendant Sutter East Bay Hospitals. The Court of Appeal held that, because Dr. Economy’s termination, even though done under the provisions of an exclusive contract, was based on “medical disciplinary cause or reason,” he was entitled to prior notice and a hearing in accordance with Business and Professions Code section 809 et seq. This decision flies in the face of the underlying premise for exclusive contracts: the ability for a hospital to enter into a contractual arrangement that allows it to set superior metrics in exchange for exclusive rights to provide services. Clinical issues have long been mandated to be within the purview of the medical staff but exclusive contracting gives hospitals the ability to contract for higher standards of quality of care. The severity of the Economy decision calls into question the accepted approach to exclusive contracts.

Background

Dr. Economy was an anesthesiologist who had practiced at Sutter East Bay Hospital for 20 years. The hospital operated a “closed” anesthesiology department pursuant to a contract with the East Bay Anesthesiology Medical Group (“East Bay Group”). Under the contract, East Bay Group exclusively provided administrative and coverage services to the hospital’s anesthesiology departments. Importantly, the parties’ contract authorized the hospital to require that East Bay Group immediately remove from the schedule any physician whose actions jeopardized the quality of care provided to the hospital’s patients. In July 2011, Dr. Economy was found responsible for numerous violations that jeopardized patient safety. Consequently, the hospital’s peer review committee recommended to East Bay Group that Dr. Economy complete a continuing education course through the Physician Assessment and Clinical Education (“PACE”) program. Dr. Economy completed the PACE program. Despite this additional training, he was once again found to have performance issues related to clinical care. The hospital then asked East Bay Group to remove Dr. Economy from its schedule pursuant to the parties’ contract. East Bay Group complied and later terminated his employment. Dr. Economy filed suit against the hospital alleging, among other things, a violation of his right to notice and a hearing under Business and California Professions Code section 8091 as well as his common law right to fair procedure.

Trial Court Finds in Favor of Dr. Economy

The trial court found that the hospital’s action of removing Dr. Economy from the anesthesia schedule was indisputably based on a medical disciplinary cause or reason, which ultimately constituted a summary suspension of his right to exercise his privileges and use the hospital’s facilities. The trial court found that the hospital’s failure to provide Dr. Economy with notice of the charges against him and an opportunity for hearing amounted to a violation of Section 809.5, as well as his common law right to fair procedure. Although the trial court awarded Dr. Economy approximately $4 million in damages, it denied his request for attorney’s fees and costs as a prevailing party under Section 809.9.

Court of Appeal Upholds Trial Court Decision

On appeal, the hospital argued that East Bay Group was not a “peer review body” within the meaning of Section 805 and therefore Dr. Economy’s suspension and termination did not trigger a duty to file a report with the state licensing board or to provide a hearing mandated by such reportable actions, which hearings are triggered by medical staff actions. The hospital also argued, to no avail, that Dr. Economy was not entitled to notice and hearing because he was terminated by his employer, East Bay Group, rather than the hospital. The Court of Appeal was not persuaded by the hospital’s arguments and held that the hospital’s request that Dr. Economy be removed from its anesthesiology schedules was tantamount to a decision to suspend and ultimately revoke his privileges. Because the hospital’s contractual terms with East Bay Group prohibited anesthesiologists from performing services at the hospital if not employed or scheduled by the group, the hospital’s decision effectively terminated his right to exercise clinical privileges at the hospital. Under the hospital’s medical staff bylaws, such a decision could be made only by its medical executive committee (“MEC”) after the provision of notice and an opportunity for hearing before the peer review committee. In Economy, it was undisputed that the hospital did not provide notice or a hearing, nor did the MEC review Dr. Economy’s disciplinary action. The Court also concluded the hospital did not delegate its peer review duties to East Bay Group under the terms of their contract. Indeed, the Court specifically noted that the hospital’s medical staff bylaws did not require or authorize a closed department to conduct peer review in lieu of the procedures set forth in its bylaws. The Court further noted that there was no evidence that East Bay Group had any policies or procedures for the conduct of peer reviews. The Court of Appeal reasoned that the hospital was therefore the entity solely responsible for reviewing physician performance pursuant to the contractual relationship. Accordingly, its failure to provide Dr. Economy with notice and an opportunity for hearing was a violation of his statutory and common law rights to due process. The Court of Appeal held that the hospital’s request to remove Dr. Economy from East Bay Group’s anesthesia schedule ultimately constituted a summary suspension of his right to exercise his privileges—a deprivation which could only lawfully be undertaken by way of formal peer review in accordance with Sections 805 and 809.

The Court of Appeal further reasoned that if the hospital were permitted to contract with third-party employers such as East Bay Group, who could suspend and terminate a physician without complying with statutory due process requirements, then a hospital could essentially avoid compliance with such statutes altogether, which would be contrary to public policy. Although it found that Dr. Economy was entitled to notice and a hearing, the Court of Appeal denied his request for attorney’s fees and costs, finding that the hospital’s defense was not frivolous, unreasonable, without foundation, or asserted in bad faith.

Exclusive Contracting in the Wake of Economy

As the Court of Appeal acknowledged in footnote 3, “[h]ospitals often enter into closed or ‘exclusive contracts . . . with healthcare entity-based physicians such as pathologists, radiologists, and anesthesiologists, . . . for a variety of reasons including (1) improving the efficiency of the healthcare entity; (2) standardization of procedures; (3) securing greater patient satisfaction; (4) assuring the availability of specific services; (5) cost containment; and (6) improving the quality of care.’ (citing to Health Law Practice Guide (2018) Exclusive Contracts, § 2:24.)” However, the Court of Appeal in Economy clearly took issue with the means by which the hospital enforced the provisions of its contract with East Bay Group. It is unknown at this point whether this case will be appealed to the California Supreme Court. Certainly, there are numerous factual distinctions to be made when considering the ramifications of Economy and every situation would require a careful case by case analysis. However, if Economy stands, it will require careful analysis and should encourage hospitals to consider the parameters of their exclusive contract relationships, the terms of those contracts, and even reweigh the benefits of closed departments in connection with their specific circumstances. At the very least, it is apparent that in the wake of Economy a more conservative approach will be to defer clinical issues to the medical staff for any necessary determinations and action.

 

More on the employer health plan churn

https://www.axios.com/newsletters/axios-vitals-64abbaf8-c86f-4ac1-8561-525b0fd33c25.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

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A lot of readers gave us feedback on yesterday’s lead item about how millions of working Americans lose or change their employer health plans every month, usually through quitting a job or getting fired/laid off.

One point that came up several times: Employees who don’t leave their jobs sometimes have to switch to new health plans, Bob reports.

  • Larry Levitt of the Kaiser Family Foundation reminded us that 61% of companies that offer health benefits shopped around for new employee plans in 2018, and a quarter of them changed insurers, according to KFF’s annual employer survey.
  • Changing or cutting health benefits for current employees is no small matter — doing so was the driving force behind teachers striking in West Virginia last year.

The bottom line: Employer coverage changes all the time, both when people leave their jobs and when companies decide to tinker with their benefits packages.

 

 

 

7 hospital construction projects costing $300M or more

https://www.beckershospitalreview.com/facilities-management/7-hospital-construction-projects-costing-300m-or-more.html?origin=cfoe&utm_source=cfoe

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Below are seven hospitals or health systems that recently announced, started or completed construction projects worth more than $300 million in the last two months, reported by Becker’s Hospital Review.

1. MetroHealth breaks ground on 264-bed Cleveland hospital
MetroHealth System in Cleveland broke ground April 15 on an 11-story, 264-bed hospital, part of a $946 million revamp.

2. Mount Carmel to open $361M hospital April 28
Mount Carmel Health System in Columbus, Ohio, will open its $361 million, 210-bed replacement hospital April 28.

3. McLaren Health to close 2 hospitals, consolidate services at new $450M facility
McLaren Greater Lansing (Mich.) will shutter two hospitals in South Lansing when its new consolidated $450 million campus near Michigan State University opens.

4. UPMC starts constructing $400M rehab, vision facility
Pittsburgh-based UPMC Mercy broke ground March 14 on a nine-story rehabilitation and vision tower. It is expected to cost $400 million.

5. New York hospital plans $2B campus revamp
Northwell Health’s Lenox Hill Hospital in New York City is preparing a $2 billion revitalization that will include upgraded clinical areas and residential apartments.

6. Sutter opens 274-bed hospital in San Francisco
California Pacific Medical Center Van Ness Campus, an 11-story, 274-bed hospital owned by Sacramento, Calif.-based Sutter Health, opened in San Francisco March 2. The hospital project cost about $2.1 billion.

7. Penn Medicine alters design of $1.5B pavilion
The design team responsible for Philadelphia-based Hospital of the University of Pennsylvania’s $1.5 billion pavilion has changed its plans for the layout and shape of the building. It is expected to open in 2021.