Innovation in delivery, logistics and wellness powers a vast economic engine
By Michael P. Muldoon, PHP
For Market Review of Greater Louisville
and Southern Indiana (a publication of The Lane Report)
Kentucky’s vibrant health care sector is a national leader in front-line care delivery, innovation and health care logistics, and Louisville’s role is increasingly gaining notice, even internationally. The Health Enterprises Network (HEN), based in Louisville, serves a 27-county region and constitutes a sort of commercial connective tissue within this vast, dynamic economic engine.
Diverse in nature, health-related organizations within HEN take on many forms, from CPA firms providing medical practice CPT consultation, to subacute hospitals, to manufacturers of medical devices, to national leading health law firms, to weight loss clinics. HEN works to build a lively health economy and foster a culture of health. Entrepreneurs find the region an exciting laboratory for new wellness initiatives.
Companies want to locate where services such as retail and health care are readily available, and health care is an infrastructure industry that attracts and supports other industry. The innovation within the health care sector itself spurs economic development.
Louisville is heralded as the area’s largest health care employer. In 2012, of the 25 largest Louisville employers, 12 are health-related (in 2007 the number was 10). Of the six Kentucky Fortune 500 companies, three are in health care, and two – Humana and Kindred Healthcare – are headquartered in Louisville. In 2011, Humana revenue increased to $37 billion, and Kindred revenue was up to $5.5 billion.
Workforce
Some 62,000 work for the top 12 health care employers in Louisville alone. KentuckianaWorks, which administers federal, state and local workforce development funding for the region, has identified 16 rival cities that the Louisville area competes against. Louisville showed strength particularly in the long-term care industry, placing second in both revenues per capita as well as payroll per capita.
Since 2000, Louisville has landed the headquarters of PharMerica Corp., an institutional pharmacy services company, and other health-related corporations, including Recover-Care, Healthland and Achieve. Humana’s Louisville employment jumped from 4,000 to well over 11,000 since 2000. Employment has surged at Norton, Louisville’s largest health care provider, from 5,000 more than a decade earlier.
ZirMed, whose software helps providers get paid quickly and accurately, has grown from 30 employees in 2004 to over 300 today. The company moved into a new 12-story headquarters downtown in 2009.
In Southern Indiana – part of the HEN service area – an increase in health care jobs was the only significant positive change from data gathered between 2008 and 2009. All other business sectors were flat or decreased; health care gained 692 jobs while manufacturing lost 4,558 jobs.
Also the state tax climate (corporate income, individual income, sales, and property and unemployment insurance taxes) has improved, moving up 14 spots from 34th best in the nation to 20th.
Merge, merge, merge
“Merger” is certainly not a new health care procedure and certainly not new to Kentucky. For example, in the 1990s, Sts. Mary & Elizabeth formerly operated as part of Caritas Health Services, whose Nelson County-based parent, the Sisters of Charity of Nazareth Health System, became part of the Denver-based Catholic Health Initiatives. Jewish Hospital Health care Services merged with Caritas in 2005, leaving Jewish with 25 percent ownership.
But “merger” has taken on a new face due to additional market demands. “Population health management” – the latest vogue in innovative health care delivery – aims to improve the health outcomes of an entire population, largely using intervention and prevention strategies that are not something an individual hospital can tackle. As physicians and hospitals prepare to take on more responsibility and risk, they soon take ownership of the population health management traditionally led by payers, aka the insurers.
This is one big reason health care organizations are forming alliances and clinical relationships covering widening geographies. True, the federal Patient Protection and Affordable Care Act (ACA) will lead to more patients having insurance. Medicaid and Medicare provider payments will be reduced, while disproportionate share funds (DISH) payments will sunset and – even with the ACA in place – many will remain uninsured. Reimbursement is declining, and more emphasis will be placed on keeping people healthy, not just treating them when they are sick.
In January 2012, Catholic Health Initiative (CHI) merged Saint Joseph Health System with Jewish Hospital & St. Mary’s Health care to form KentuckyOne Health, claiming the title of the largest health care system in the state. CHI brings strong capital investment. Since the formation of the St. Joseph system, CHI has invested $560 million. Most recently, the joint-operating agreement among the University of Louisville, University Medical Center and KentuckyOne announced in December 2012 will result in a $1.39 billion investment.
KentuckyOne now operates in nearly 200 locations statewide.
Meanwhile, UK Health care at the University of Kentucky in Lexington has formed alliances all over the state by expanding advanced subspecialty care and improving the availability of quality care to rural hospitals and clinic sites. Two years ago UK entered into a large partnership with Norton Healthcare of Louisville that formalized the two organizations’ ongoing alliance in clinical programs, workforce, education and research.
Improving access to capital, upgrading services and saving money are also motivating factors for conjoined efforts. Louisville-based Baptist Health acquired Pattie A. Clay Regional Medical Center in Richmond and Regional Medical Center in Madisonville, the latter the 410-bed flagship of the Trover Health System. Trover’s management said its decision to enter “the partnership is directly driven by health reform and changes in medicine.” Baptist Health now owns eight hospitals and manages two, with the result that one of every six inpatients in Kentucky receive care at some Baptist hospital.
In November 2012, Norton and Southern Indiana’s Clark Memorial Hospital started their strategic partnership. Kindred, which owns and operates major hospitals outside Kentucky, has fully integrated the business of RehabCare Group. In September 2012, Kindred bought IntegraCare Holdings, a home-health and hospice services provider. Also, Hosparus has grown substantially, becoming one of the largest hospices in the region.
Not only have hospitals merged, but KentuckyOne is a majority owner of a surgery center, with the downtown Premier Surgery Center of Louisville and Dupont’s SurgeCenter of Louisville– owned by local physicians and managed by Surgical Care Affiliates of Birmingham, Ala. Recently, University of Louisville Physicians (ULP) joined researchers and teachers into the largest, multispecialty physician practice in Louisville, covering more than 78 specialties.
And with the many mergers, new construction continues unabated. In late 2012, Norton Healthcare broke ground on the future home of its Norton’s Women’s Hospital and Kosair Children’s Hospital. Before that, Norton opened the new Norton Brownsboro Hospital. Norton is planning new doctors’ buildings in Okolona in southern Louisville Metro and in Shepherdsville in Bullitt County.
Baptist opened three Baptist Express Care clinics in Walmart stores. Jewish opened large medical centers in Dupont, Shepherdsville and more recently in northeast Louisville. UofL Nucleus, which focuses on life science business development, will open its first $18 million building this year to merge and leverage area talent at what eventually is to be a nine-acre research park.
Not only have institutions merged, but the merging of clinical functions – such as behavioral with physical health – has become key, and Kentucky is leading the way nationally. Again, cost pressures have forced such clinical collaboration. One example occurred in August 2012 when Norton Healthcare acquired LIFESCAN Louisville, an outpatient diagnostic imaging center. 
Kentucky also is a national leader in accountable care organization (ACO) development. Norton Healthcare and Humana are one of only five national ACO pilot sites and the only one in Kentucky to study the ACO model through the Brookings-Dartmouth pilot project. Humana has worked with Brookings-Dartmouth since 2008, exploring ACO and bundled payment models. Providers are realizing that to stay competitive, they need to have a hand in health care delivery and health care financing – possibly through launching their own insurance plan. Baptist Health has long had Bluegrass Family Health, which is based in Lexington.
Health benefit companies now being a direct provider of primary care head the continuing list of mergers. The Humana-CareSource alliance was established in early 2012 to directly serve both the Medicare and Medicaid populations. In late 2012, Humana agreed to purchase Florida-based Metropolitan Health Networks and MCCI holdings, benefit coordinators for both Medicare Advantage and Medicaid. Earlier in 2012, Humana purchased the San Jose, Calif.-based Certify Data Systems, a health information exchanged technology firm. In 2010, Humana paid $805 million for Texas-based Concentra, which has more than 300 front-line care medical care centers in 42 states. And Wellpoint (Anthem) closed its $4.46 billion acquisition of the managed care company Amerigroup in December 2012.
On the state-public side of the equation, the merger of all Medicaid programs into managed care has been a strong, innovative approach to better manage tax dollars. For well over a decade, Louisville-based Passport has been a strikingly successful, nationally recognized model of Medicaid managed care and one of the few provider-owned plans in the United States.
The state’s need to truly “manage the care” for Medicaid now has been replicated throughout the state. In 2011, additional new contractors were added: Humana, WellCare and Coventry. (Centene entered the state but left.) These new large national contractors for managed care have brought numerous high-level jobs to Kentucky. And as ACA implementation is predicted to expand Medicaid roles, especially in Kentucky where 14.4 percent are uninsured, boom times are here for data management companies. Kentucky has been approved for $60 million in federal grants to implement Medicaid and exchange systems. So the money is here to seek technology and expertise.
Entrepreneurship and jobs
Innovation and the entrepreneur are what will continue to drive the health care economy. In the past, the frequent absence of market pressure – and innovation – reduced the pressure for cost savings in health care. But times are different. The nationwide 2011 State of Entrepreneurship Index, a ranking that measures how states stack up with business formation and innovation, puts Kentucky at No. 24, which is up from No. 50 in 2008. Kentucky was among the top states for new startups formed in 2011. Overall from 2001 to 2010, Kentucky ranked fifth among all 50 states.
Kentucky is moving from an economy shaped largely by “foundation” industries to one based on the DNA of entrepreneurial enterprises. It is now a given that Louisville is a major entrepreneurial center; the verdict is in. And financially, the Louisville angel and venture capital scene looks healthy, with far more money available than five years ago despite a dismal national economy. Seed funds and private investment firms also are numerous.
Louisville’s Nucleus iHub space is reflective on the new co-working trend, allowing workers to access files from any place with an Internet connection. This entrepreneurial life sciences networking facility encourages more freelancing and more flexible working arrangements.
Today, Dataseam computers bring powerful computing capacity to the UofL James Graham Brown Cancer Center downtown, which boasts the nation’s largest pipeline of patient cancer drugs. The two largest biotech companies in the world – Amgen and Genentech (a subsidiary of Roche Group) – are well represented in Louisville. And thousands attend Idea Festival, the yearly gathering visionary intellectuals from around the globe to present, meet and share.
This kind of energy has lured companies to Louisville to incorporate technology into the senior market, for example. Meanwhile, Uof L’s Entrepreneurship MBA has been ranked first in the nation. Another excellent example of innovation is MedVenture Technology (now Helix Medical), which continues its leading strong growth with medical device manufacturing.
Wellness: Innovation counts
With Kentucky known for challenges in the personal health arena, the state has become a laboratory for new initiatives whether through volunteer programs, community outreach, employer sponsored or hospital wellness programs. Nationally, only 48 percent of employers incentivized the “at risk” to modify behavior; in Louisville, 62 percent do this.
In January 2012, Louisville was honored for strong efforts to combat youth obesity when it was one of six cities awarded the first Childhood Obesity Prevention Award at the U.S. Conference of Mayors. UofL was one of six nationwide recipients of the Oracle award for creating software to enable providers, patients and insurers regarding patient’s health status in a user-friendly format. In 2010, Louisville was awarded at $7.9 million prevention grant to promote healthy eating.
Sometimes innovation does not have to be elaborate to have an impact. Walmart introduced a Great for You icon to help customers quickly identify healthier food options in its supermarket sections. As part of the new arrangement, members of the HumanaVitality wellness program receive a 5 percent discount.
Institutional innovation has been strong. In July 2012, UK’s Chandler Medical Center was ranked the No. 1 hospital in Kentucky and was listed by US News & World Report as “high performing” in 10 specialty areas. UK physicians implanted one of the first total artificial hearts in Kentucky; fewer than 30 medical centers in the country are certified for such. Most striking, this hospital does not look or sound like a traditional hospital, seeking a “healing environment” though color, lighting, noise reduction and artwork.
And, the National Institutes of Health Nanomedicine Center, one of only eight such centers in the U.S., is moving to UK. In late 2011, UK became home to the new Center for Pharmaceutical Research and Innovation to better prepare UK to partner with the pharmaceutical industry.
In January 2012, the comprehensive Breast Cancer Center at the UK Markey Cancer Center commenced offering digital tomosynthesis, becoming the only medical center in Kentucky with the capability to 3D X-ray breast images for cancer screening.
From Kentucky’s first heart transplant and implanting the AbioCor artificial heart, UofL researchers continue to be on heart disease’s front lines. Dr. Roberto Bolli’s team continues to conduct NIH-funded stem cell research to regenerate dead heart muscle after a heart attack.
In December 2012, UK surgeons performed the first combined heart-lung transplant in Kentucky in 15 years.
There’s even innovation on the health care-social service side. Louisville’s very successful Supplies Over Seas (SOS) is one of only 15 medical surplus recycling organizations in the U.S.
$44 billion aging-care ‘cluster’
As a 78-million-strong generation heads into retirement, aging baby boomers are flooding the senior care market, creating a “silver tsunami” of demand for everything from assisted-living centers to devices that monitor vital signs remotely. In 2006, in part as a result of a detailed study by HEN, city leaders noticed Louisville could become an aging-care hub.
Louisville’s push to become a senior care leader is based on the economic theory called “clustering,” which occurs when a concentration of organizations that operate in the same sector in the same region enjoy competitive advantages, leading to more innovations and an environment that fosters startups. For the entire state, the senior population is expected to rise and level off by mid-century. In 2010, Kentucky had 552,674 residents who were 65 and older; the prediction for 2050: more than 1 million.
In 2010, cooperating with Nucleus, Signature Health care founded the International Center for Long-Term Care Innovation, a Louisville think tank and business accelerator for long-term care clients and that encourages access to research, startup funding and the ability to network with key players. Other local community efforts have included identifying aging-related research in universities and better indexing for companies seeking to collaborate with and learn from local researchers.
Wellness and aging-care companies in Louisville have total annual revenue of $44 billion and employ over 14,000 people. They constitute the largest such concentration of aging-care business in the world: Almost Family; Atria Senior Living Group; giant Humana and Anthem with their Medicare products; Fortune 500 subacute care operator Kindred; PharMerica; Elmcroft Senior Living; Trilogy Health Services; ResCare; Christian Care Communities; and Signature (which runs long-term care centers in seven states and moved its headquarters to Louisville from Florida two years ago).
These additional post-acute care companies have a presence in HEN’s service area: Genesis Health care; Brookdale Senior Living; Sun Healthcare Group; Sunrise Senior Living; RehabCare Group; Regency Hospital Co.; and Advocat. Another is Arcadia Communities, a diverse real estate company that owns and manages senior care facilities.
Because of this agglomeration of providers, payers, suppliers, non-profit organizations, educational/research institutions and benefit administrators, the region boasts top-tier talent and experience.
Also, Medicaid for long-term care is remarkably strong in Kentucky. A comparison of 50-state Medicaid spending (Kaiser, 2009) for all type of long-term care services shows Kentucky spends a higher percentage on nursing facilities than only three other states.
In November 2013, Louisville will host its first national innovation conference on aging care. And the Louisville Convention & Visitors Bureau continues to seek national and international aging care-related conferences. Geriatrics is a strong program at local schools. UofL’s vice chair for geriatric, Christian Davis Furman M.D., is the only Kentuckian selected to serve on CMS’ innovation advisors program.
UK’s Sanders-Brown Center on Aging, opened in 1979, continues as one of the nation’s 10 original Alzheimer’s Disease Centers.
Logistics and the health care impact
The striking growth of UPS Worldport at Louisville International Airport has been a catalyst for jobs in logistics and health-related enterprises such as medication or medical device handling. Many companies that flocked around UPS started with only a few employees then added more. That was the case with Genentech’s distribution center, which started with a staff of six in 2006. Later the site expanded to be the main U.S. distribution center for its parent company, Roche.
Education and diversity
Experts say the key to growth, the key to leadership and the key to economic prosperity is an educated workforce. An increase of over 8,000 young adults with bachelor’s degrees or higher between 2000 and 2010 propelled Louisville into first place in the rate of improvement among its peer cities. For the first time, Louisville produced and attracted similar numbers of educated young adults as perennial top-tier cities Charlotte, N.C., and Columbus, Ohio – a substantial accomplishment. Also statewide enrollment in Kentucky graduate programs increased steadily from 27,963 in 2009, to 29,016 in 2010.
At UofL, the fourth fastest-growing research university in the nation, $1.3 billion has been invested in campus and facility improvements since 2001. Aging is one of the university’s most prominent cross-disciplinary fields. UofL boasts over 120 researchers focused on health care, and eight of its schools have some emphasis on aging. In 1998, UofL filed for 151 patents; in 2012, 1,346 were filed. Also, public-private partnerships grow, with UofL’s School of Nursing, Trilogy, Elmcroft and Signature providing dollars to train nurse practioners with the geriatric population.
Finally, in late 2011, the Louisville Metro was ranked No. 7 in the top 10 fastest-growing Hispanic markets in the U.S., with 186 percent increase in 10 years.
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