Center for Studying Health System Change

Adaptation And Survival Strategies

he providers and health plans most involved with the delivery of care for the poor typically developed strategies to respond to a number of interacting changes. These responses varied considerably from proactive, entrepreneurial approaches that accepted the reality of the change and seized associated opportunities, to reactive or passive wait-and-worry approaches. Our discussion here focuses on the more proactive strategies encountered.

Public and Teaching Hospital-Based Health Systems

The public and teaching hospital-based health systems typically had greater resources for strategic market responses than did other health care organizations, particularly community health centers. Their responses included broad organizational changes, specific competitive tactics and movement into broader health systems, including development of their own health plans.

One response typically taken by these large hospitals was fundamental organizational change, namely mergers or other alliances and formation of health systems. Quite apart from their mission as providers of care for the poor, these organizations were seeking increased market share and positioning themselves to be essential providers for health plans in their regions. In this regard, two examples stand out. In the Cleveland market, as noted, the public hospital system, MetroHealth, built a network by assuming responsibility for operation of the local health department’s clinics, by joining with the powerful Cleveland Clinic in a very extensive managed care contracting network (the Cleveland Health Network), and by taking operational responsibility for emergency and neonatal services at other hospital systems. In the Boston area, Boston City Hospital merged with Boston University Medical Center to create the new integrated Boston Medical Center, which in turn linked with a network of community health centers.

Some public and teaching hospitals were taking other competitive steps: improving their capabilities and performance, highlighting specialized services or reconnecting with their local communities. Hospitals in Phoenix and Miami invested in information systems. University of Arkansas Hospital added a new ambulatory care wing to attract private pay patients to dispel the impression that it was solely a safety net institution. The public hospital in Indianapolis undertook a major internal re-engineering that included physical plant upgrades, service improvements and retraining staff in customer service. Institutions in Orange County, Miami, Seattle and Lansing emphasized their tertiary and other specialized services as essential to health plans’ networks. Based on community assessment, a public hospital in Boston concluded that African American males were not seeking care, so they conducted outreach to this population and found a new source of paying clients.

Public institutions in Phoenix and Miami developed health plans for Medicaid managed care and for their own employees as well. These plans are relatively small, and the parent institutions continue to contract with other plans. The public hospital in Indianapolis joined with other hospitals to form an HMO. One of the most intriguing developments is experimentation with managed care approaches to the indigent uninsured. Public hospitals in Indianapolis and Boston are putting in place programs that enroll uninsured persons in a service that includes an assigned primary care practitioner or medical home to coordinate their care.

The impact of these strategies is not yet clear. Despite all of this activity to secure their future, many of these hospitals were still identified as vulnerable to cost pressures and reduced revenues, particularly those in Orange County, Phoenix, Little Rock, Syracuse, Boston and Newark. At the same time, public or teaching hospitals in Seattle, Indianapolis, Cleveland and Miami were singled out as strongly positioned institutions.

Community Hospitals

Mission-oriented community hospitals play an important role in care for the poor in several sites, often in support of a dominant public or teaching institution caring for this population. While there was concern in many sites about whether these institutions could or would sustain their commitment to the poor in an increasingly competitive environment, there were also some instances in which providers expanded activities for the poor and uninsured.

In Cleveland, where the public MetroHealth system is the central resource for the poor, three religious-affiliated institutions that had traditionally been considered indigent care providers all entered partnerships with national for-profit hospital companies in order to survive financially. There was concern whether they would continue their indigent care role in the future, though each had committed to this in the terms of its new affiliation, and what that might mean for MetroHealth. The reverse was true in Phoenix. There, several non-profit hospitals that carry a substantial burden of care for the poor were concerned that the public hospital’s future might involve a further shift of its indigent role to their institutions. Similarly, most community hospitals in Syracuse share the burden of care for the poor with the major university hospital; there was concern that the demise of state hospital rate-setting might threaten this collaboration.

Religious-affiliated hospitals in Little Rock and Indianapolis opened indigent care clinics. In Seattle, a Catholic hospital system thas been a provider of care for the poor for more than 140 years continues to share the burden for indigent care with most other area hospitals.

Community Health Centers and Local Health Departments

CHCs, with far smaller resources than hospitals, were active in pursuing survival strategies. Their efforts typically built on their historic role in primary care for the poor and uninsured, and usually involved collective action, locally or statewide, in response to Medicaid managed care. CHCs in Seattle, Boston and Miami established or participated in Medicaid managed care plans also sponsored by groups of CHCs. Some of these, for example, in Seattle, were sizable entities in the local market.

In one strategy, emerging most clearly in Boston, individual CHCs affiliated with multiple networks or health plans. These CHCs faced conflicting demands for exclusivity, putting them at odds with their desire to belong to multiple networks. The CHCs had originally come together some time ago to form their own health plan. Over time, the best interests of their health plan often conflicted with their best interests as distinct community-based providers. Participation in their own health plan also contributed to the CHCs becoming more sophisticated negotiators, with the capability to negotiate effectively with competing health plans.

In Miami, a group of CHCs and mental health centers formed a provider network to obtain economies of scale by sharing services, joint purchasing, contracting with health plans and forming a management services organization. It hired chiefs of obstetrics and pediatrics for the network to help attract patients and contracts and solidify admitting privileges to hospitals. Two other area CHCs did not participate in this network, resulting in some of the same tensions experienced by CHCs in Boston. Another joint effort was being developed in the area: a Medicaid health plan for CHCs to be implemented in Central Florida, but including one Miami area CHC.

Despite all this activity, community health centers were consistently identified as vulnerable to the changing environment. CHCs in Miami and Newark reported closing some sites, and those in Indianapolis and Syracuse were also seen as at-risk. Several CHCs reported limiting access to growing demand from uninsured patients.

Local health departments in many communities were moving out of direct personal medical services and returning to traditional public health functions. In one site, the public health agency was a notably proactive player in health system changes. In Lansing, the Ingham County Health Department provided a good deal of outpatient care to the poor, leasing space from one of the area hospitals with subsidies from hospitals to operate clinics. This health department actively negotiated with managed care plans, and helped keep attention on hospitals sharing provision of care for the poor. It has been exploring pooling of funds by the three major hospitals to develop a managed care approach to indigent care.

Medicaid Health Plans

Medicaid managed care plans were becoming important organizations in many sites, particularly those where mandatory Medicaid managed care has been instituted. Many of these are smaller, indigenous plans that were formed by or worked closely with traditional providers serving the poor. State and local programs gave preferences to traditional providers of Medicaid and indigent care in several sites. In Seattle, for example, the state granted extra credit in its selective contracting program to plans that include these providers.

In Orange County, the single county-wide contracting entity, CalOPTIMA, favored the safety net providers in several ways: accepting physician-hospital consortiums, not just HMOs, as contractors, which enabled many providers to participate; capping enrollment at 30,000 members per plan, thus broadening opportunities for traditional providers; requiring inclusion of a sub-set of safety net providers in each plan; and favoring traditional providers in auto-assigning recipients who do not designate a primary care provider.

Still, as noted, Medicaid managed care plans have clearly expanded the choice of providers at the expense of hospitals and community health centers that traditionally served these patients. In areas like Orange County and Phoenix, managed care plans are also credited with decreasing inappropriate use of emergency rooms, improving continuity of care and improving preventive care by linking Medicaid beneficiaries to primary care physicians.