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![]() ![]() Market Concentration Increases but Power Held in Check:Lansing, MichiganCommunity Report No. 05 ![]()
In 1996, there was tension among these major actors. Purchasers were exerting pressure to lower health care costs, and a proposed merger of a local hospital with Columbia/HCA was widely divisive. Key developments since 1996 include:
Recent Hospital Mergers Intensify Competition
Sparrow-St. Lawrence Merger
St. Lawrences strengths-behavioral health and aging services and its west side location - complemented Sparrows services and geographic market. The Sparrow-St. Lawrence merger was predicted in 1996 and is widely viewed as successful. Most St. Lawrence physicians reportedly have moved to Sparrow, where many already had privileges, although some chose to practice with the competing hospital system, IRMC. St. Lawrence has closed its inpatient medical and surgical services, but still operates an emergency room and maintains beds for psychiatric, substance abuse and hospice services. Community inpatient capacity is now somewhat stretched, and both Sparrow and IRMC have had to close their emergency rooms to nontrauma cases at different times because their inpatient beds were full. However, hospital respondents claim that reduced capacity has lowered costs for inpatient care.
IRMC-McLaren Merger
While the Capital Area Health Alliance (CAHA), which at the time represented primarily the business community, initially supported the deal, four key market leaders - the United Auto Workers (UAW) and later General Motors (GM), Sparrow and Blue Cross and Blue Shield of Michigan (BCBSM) - opposed it. There was significant press coverage and public concern about the potential impact of this merger on IRMCs accountability to the community. Ultimately, the state Attorney General sued, and a Michigan state court ruled that it was illegal to comingle assets from a not-for-profit and a for-profit entity, thus preventing the merger as structured from proceeding. BCBSM reportedly suggested several alternative partners for IRMC, including the not-for-profit McLaren, which was trying to develop a regional presence and which offered access to capital for IRMC. An affiliation agreement was reached in 1997 that made IRMC a wholly owned subsidiary of McLaren. Community response to this relationship has been favorable. IRMC has since improved its financial performance, increased market share and made significant capital improvements. Since the mergers, competition between the two hospital systems has reportedly increased, even though both are operating at high occupancy levels because of reduced hospital capacity overall. Physicians report increased hospital efforts to align them to one hospital or the other through physician-hospital organizations. This trend may intensify if the hospital systems move forward with plans to develop exclusive products. Currently, both systems are exploring this option. The Sparrow-owned Physicians Health Plan (PHP) is considering offering Sparrow-only products, and McLaren is working on developing an exclusive network product through an arrangement with BCBSM.
Physician Efforts to Exert Power Resisted
In 1997, the Thoracic Cardiovascular Institute (TCI), a group of thoracic and vascular surgeons and cardiologists, negotiated a contract with Blue Care Network (BCN) to be the exclusive provider of cardiovascular care under a capitated arrangement. This would have given TCI significant control over payment for these services, putting the hospitals and supporting specialists in the position of negotiating rates with TCI rather than BCN. Sparrow and a group of competing specialists reportedly fought the deal, and new management at BCN withdrew from the contract. Had the contract gone through as originally structured it would have been the first of its type in the Lansing market. Against a backdrop of these unsuccessful entrepreneurial ventures, physicians are adopting a defensive strategy of consolidating into larger group practices in an effort to counteract growing polarization of the market around the two hospital systems. To ensure continued patient flow if more exclusive network arrangements take hold, physicians want to have colleagues in their practices who can admit patients to both hospitals. As one physician said, "I could wake up tomorrow and find that Michigan State University [MSU] has shifted its entire enrollment to a different plan and that I have lost half my patients."
New PPO Gains Market Share
Early indications are that Community Blue will further bolster BCBSMs position in the Lansing market. It is taking business away from PHP and the Blues own HMO subsidiary, BCN. Community Blue premiums are below BCBSMs traditional and HMO products, and in 1998, MSU converted all of its non-Medicare enrollment in its Blues traditional and HMO plans to Community Blue. PHP lost enrollment to Community Blue as well, and was forced to lower its rates to remain competitive. Several other purchasers, including the Chamber of Commerce - the exclusive sponsor of Blues products for small employers - have converted to Community Blue. As a result of the success of Community Blue, BCBSM has been able to convert large blocks of business to the lower hospital rates without negotiating with the hospitals. Because they are receiving less money for the same population, hospitals are seeking recourse through the state hospital association.
Purchaser Alliance Regroups and Refocuses
As a result, CAHA nearly disbanded before reorganizing and changing its focus to public health goals, including promoting wellness and supporting universal access to health care. CAHA has expanded from 70 to 108 members and has given seats on its board to the Ingham County Health Department, health plans and unions. The state has pulled out of CAHA, and the three large employers are pursuing their cost and quality objectives apart from this venue, with the state and the university working together and GM working independently. One issue that all of the constituencies represented in CAHA can organize around is saving GM. According to news reports, the automobile company is considering whether to rebuild its outdated plants in Lansing or relocate them elsewhere. This decision puts at risk 13,000 GM jobs and an estimated 21,000 supporting jobs in Lansing. Demonstrating that Lansing is a good place to do business, which includes being a low-cost health care market, is a major element in the save-GM strategy.
Information Provides Mechanism for Accountability
In 1996, the three large employers had a number of initiatives underway to gather and compare information across hospitals through claims data analysis. These led to a reduction in hospital rates in Lansing and were the genesis of additional efforts to look at cost and quality indicators across the hospitals. Just after the 1996 site visit, the three large employers uncovered a substantial payment differential in what BCBSM paid the two hospital systems, with Sparrows rates significantly higher than those of IRMC. Public release of this information was controversial and led to a reduction in hospital reimbursement and premium levels for BCBSM across the market. Sparrow objected to the process and outcome of this effort and has become mistrustful of additional collaborative information initiatives. CAHAs subsequent effort to collect data on cost and quality heightened hospital concerns that the data could not be adequately risk-adjusted and represented only a limited patient base. As in many markets, providers are not convinced that cost and quality information can be conveyed fairly and accurately to the public. Since that time, the hospitals have begun to produce their own data using a medical record-based system instead of one that was claims-based, to improve data accuracy and allow for risk-adjustment. The three large employers and the hospitals have been sharing information among themselves, but are not releasing it to the public. No longer working together, each of the large purchasers is using data for its own purposes. The state and MSU have been analyzing claims data and are meeting with the hospitals individually to discuss the results; GM is using a health plan report card for internal scoring of plans, a system that may be adopted by Medicaid. But since these comparative data are no longer publicly available, smaller employers do not have access to them to inform their purchasing decisions. Efforts to release data have also been pursued for the noncommercial population. Shortly after HSCs first site visit, the Ingham County Health Department released data showing that the level of indigent care that IRMC was providing was low in proportion to its overall market share. The report sparked controversy and ongoing disagreement on the methodology for calculating more broadly how hospitals provide benefit to the community. This issue still has not been resolved locally.
Collaborative Community Efforts Led by Health Department
Key among these initiatives is the newly implemented Ingham Health Plan, a program to provide coverage for the uninsured. The program taps into federal Medicaid matching dollars, bringing $1.8 million of new funding into the community to provide coordinated preventive, primary, specialty and ancillary care to about 7,500 uninsured individuals with income levels up to 140 percent of poverty level. Although the program does not cover inpatient care, funding flows through the hospitals as a disproportionate share payment. However, Sparrow has elected not to participate, which has reduced access to federal funding and limited the programs capacity. According to the county health department, if Sparrow were to participate, the program would be able to get an additional $1.6 million in federal funding and extend coverage to 3,500 more individuals. To build on this program, the health department has also taken the lead in securing funding from The Robert Wood Johnson Foundation and the W. K. Kellogg Foundation for two initiatives to increase access to the uninsured. Access to Health will bring together local hospital systems, the business community, insurers and consumers to assess the needs of the uninsured and recommend ways to finance and deliver care to this population. Ingham Community Voices will provide funding to conduct outreach and develop an information system to support this effort.
Problems Looming for Mandatory Medicaid Managed Care
Specific issues that plans have encountered in the Medicaid market include:
The Medicaid contracts run through 1999, but the minority-owned Wellness Plan is experiencing severe difficulty, and PHP has indicated it may drop its Medicaid product if it operates at a loss. The state is working with The Wellness Plan to keep it operating. If these two plans pull out, it is unlikely that the state will have sufficient capacity to support Medicaid managed care in Ingham County.
Issues to Track
As the market continues to evolve, several key issues bear watching:
Lansing Compared to Other Communities HSC TracksLansing, the highest and lowest HSC study sites and metropolitan areas with over 200,000 population
+Site value is significantly different from the mean for metropolitan areas over 200,000
population.
The information in these graphs comes from the Household, Physician and Employer
Surveys conducted in 1996 and 1997 as part of HSCs Community Tracking Study. The
margins of error depend on the community and survey question and include +/- 2
percent to +/- 5 percent for the Household Survey, +/-3 percent to +/-9 percent
for the Physician Survey and +/-4 percent to +/-8 percent for the Employer Survey.
Background and Observations
Lansing Demographics
The Community Tracking Study, the major effort of HSC, tracks changes in the health system in 60 sites that are representative of the nation. Every two years, HSC conducts surveys in all 60 communities and site visits in the following 12 communities:
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