Butler Memorial Hospital Tower entrance. Butler Eagle file photo

Western Pennsylvania hospitals have continued to open new beds, despite data indicating the region has been overbedded for years, an expense some experts say ultimately drives up the cost of health care.

Defying a national trend of hospital closures that have especially stung in rural areas, hospitals in the region licensed 229 new beds between 2017 and 2021, according to business consultant Compass Lexecon. All but three of those new beds came from five hospitals that Allegheny Health Network opened in the Pittsburgh area during the four-year period.

There’s no simple metric for determining the right number of hospital beds needed in a given region, and many administrators have been loath to shutter units at their institutions for various reasons, but researchers in this case pointed to data showing plenty of empty beds as backing up their argument that the region has too many.

The issue may become front and center as community hospitals continue to face COVID-19 related financial strains. The five-hospital Independence Health System, for example, is struggling under a 12-month loss from operations that totaled $79.3 million in June, partly blamed on inflated labor costs related to the pandemic.

For the three months ending Sept. 30, the occupancy rate at the health system's subsidiary Butler Health System was 51%. BHS partner Greensburg-based Excela Health, operator of three hospitals, did not disclose hospital census figures in its latest financial report.

The 29 counties of Western Pennsylvania “still remain an overbedded health care market for inpatient services since 2017,” according to Compass Lexecon. The report does not specify the number of hospital beds needed to serve the region.

“Hospitals must maintain some flexibility in capacity to meet unexpected peaks in demand,” according to the study, which suggested low hospital occupancy rates was an indication there are too many beds in Western Pennsylvania.

The Washington, D.C.-based consultant did not return calls for comment.

Reducing the number of hospital beds, especially in rural areas, is not the answer, Hospital and Healthsystem Association of Pennsylvania spokesman Chris Daley said in a prepared statement.

“Hospitals in rural areas often serve smaller populations, but remain vital local resources,” he wrote. “While their overall occupancy rates may be lower than in more populated areas, they are crucial to meeting local needs.”

Harold Miller, president and CEO of Pittsburgh-based consultant Center for Healthcare Quality & Payment Reform, disputed the significance of inpatient bed counts.

“It tells you something about the physical plant capacity to be able to handle patients,” he said. “But it's not all that relevant for anyone anymore.”

Economists say unnecessary duplication of medical services and equipment is a cost ultimately borne by the consumer in the form of higher health insurance premiums.

The Compass Lexecon report suggests the Pittsburgh region's excess bed capacity may have come at the expense of smaller hospitals, rather than those owned by the region's two big health care systems, Allegheny Health Network and UPMC.

In 2021, all hospitals except ones owned by AHN and UPMC had occupancy rates below the region's average of 62.5%, according to the report. That's far below the 80% to 85% occupancy rate considered full capacity, the report found.

AHN's hospital occupancy rate in the region was 62.6% that year, which compared to 77.1% for UPMC hospitals, according to the report. Community hospital occupancy rates for the same year were generally lower.

In 2017, AHN officials said its health system's expansion was about “putting the right kind of beds in the right places” while anticipating rising demand for medical care at AHN.

Adding new inpatient beds defies an accelerating shift in medicine to do medical procedures without an overnight hospital stay.

Hip and knee replacement surgery — which once required several days in the hospital, for example — is increasingly being done as same-day surgery. That shrinks hospital revenue because Medicare and insurer payments to hospitals for outpatient care are lower than for inpatient procedures.

The Compass Lexecon study, which the Pennsylvania Insurance Department released in December, was commissioned by the state as part of ongoing monitoring of insurer Highmark's acquisition of Allegheny Health Network in 2013.

Daley, the hospital association spokesman, said hospitals must be prepared for unexpected increases in the number of patients seeking care.

“Hospitals must remain flexible to accommodate unforeseen surges in demand and rising patient acuity,” he wrote. “This flexibility ensures communities have access to critical care when they need it most.”