Center for Studying Health System Change

ealth system change in Greenville has been driven primarily by competition among health care providers and plans rather than pressure from purchasers or public policy makers. External forces have affected Greenville’s health system only marginally.

PUBLIC POLICY

South Carolina does not have a tradition of activism or innovation in health policy. However, in 1994, the state submitted a Section 1115 waiver application to the federal government to enroll all Medicaid recipients in managed care and to expand coverage to 250,000 uninsured residents below the poverty line. The state’s waiver proposal for the Palmetto Health Initiative was approved by the federal Health Care Financing Administration but never implemented. According to the legislature and the new governor elected in November 1994, more time was needed to develop structural and provider support for managed care.

Since then, South Carolina has embarked on several more modest health care initiatives. For example, the "Partnerships for Healthy Children" proposal, slated to begin in the fall of 1997, would raise Medicaid eligibility to 133 percent of poverty for all children age 18 and under, adding about 50,000 to the Medicaid rolls. The state has enacted limits on rate variation for experience and health status among individuals and small groups, guaranteed issue for small-group insurance and a minimum loss ratio provision for the individual insurance market. In addition, South Carolina has enacted several laws to regulate managed care, including an "any willing pharmacist" law and a law that requires HMOs to base their beneficiary copayments and deductibles on the payment rates they negotiate with providers.

With two important exceptions, public policy has played a limited role in the Greenville health care market. The most prominent local public policy issue was the proposed AGS merger, which was debated by local politicians and regularly discussed by the news media. The other major public policy issue focuses on the state certificate-of-need (CON) process and its impact on provider competition.

In 1995, Greenville Hospital System, Spartanburg Regional Medical Center and the Anderson Area Medical Center proposed to merge into a single system spanning the three major counties in the Greenville MSA. The AGS merger would have created the largest hospital system in South Carolina, with annual revenues in excess of $1 billion and more than 75 percent of the area’s inpatient volume. Supporters argued that the merger would create a system of sufficient scale to negotiate successfully with managed care plans, make needed investments in administrative and information systems and coordinate services effectively across the five-county region. Opponents argued that the merger would create a health care monopoly controlled by Greenville Hospital System. They also expressed concern that Greenville Hospital System, which serves the local community, would be controlled by a board with out-of-area representation.

The St. Francis Health System launched a marketing campaign against the merger and supported anti-merger groups such as the Coalition for Quality Health Care. The Greenville County Council ultimately decided to place the merger on a public referendum because Greenville Hospital System is considered a publicly chartered institution. On November 5, 1996, Greenville County voters rejected the proposed merger.

The state CON process also affects competition in the Greenville market. Respondents said that it is becoming increasingly important for hospitals to offer a full range of services in order to win managed care contracts. Greenville Hospital System is the only hospital in Greenville County that is licensed to provide open-heart surgery services. St. Francis officials claim that Greenville Hospital System has leveraged that monopoly to persuade Blue Cross and Healthsource to contract exclusively with it. The St. Francis PPO contracts with St. Joseph’s Hospital in Atlanta for open-heart surgery and claims that Greenville Hospital System will not provide it with discounts comparable to what other payers receive.

St. Francis has considered opening a competing open-heart surgery program, but needs state CON approval to go forward. This poses an important policy question. Approval of St. Francis’s CON request would establish St. Francis as a full-service alternative to Greenville Hospital System and diminish concerns about a Greenville Hospital System monopoly. However, many respondents believe the new program would create unnecessary service capacity. Some residents reportedly would support a compromise that would ensure St. Francis appropriate access to Greenville Hospital System’s open-heart services, eliminating the competitive rationale for new service capacity. It is unclear whether public or private organizations in Greenville will be able to accomplish this arrangement.

PURCHASING

Greenville’s employers were not described as a major force for health care system change. Many large employers have operations across the Greenville region, and these employers typically self-insure. Those that offer managed care options prefer HMOs or PPOs with broad provider networks. Major Greenville employers include BMW of North America, Michelin Tire Company, Kemet Electronics and the state of South Carolina. The health care industry is also a major employer: Greenville Hospital System is the second-largest employer in Greenville County, with more than 6,000 employees, and Spartanburg Regional and Anderson Medical are the largest employers in their respective counties. The benefits packages offered by these systems generally establish their own facilities as preferred providers. Greenville also has many small employers. In contrast to larger companies, these organizations are highly sensitive to premium costs and commonly use brokers to purchase their health benefits.

Employers have not promoted managed care options. Some employer representatives say their employees distrust managed care and dislike its limits on individual choice. Several employers also cited historical problems with HMOs, including Maxicare’s bankruptcy and Companion Health Care’s financial difficulties and subsequent rate hikes during the 1980s. Large employers generally view local health care costs as reasonable compared with those in other markets -- another reason for their lack of interest in managed care. Respondents noted that many employers in Greenville have increased employee cost sharing to help control health benefits spending; this is consistent with national trends. However, many HMO benefit packages in Greenville reportedly include 10 or 20 percent coinsurance for hospitalization coverage, representing a substantially higher share of costs than the fixed copayments associated with HMO benefit packages. Although employers say that quality is important to them, as a practical matter, those interviewed rarely looked beyond accreditation by the National Committee on Quality Assurance and board certification for physicians. There is little organized employer activity around health care issues in Greenville. One group meets informally to discuss health benefits and other related issues through the Chamber of Commerce, but its primary function is communication, rather than purchasing.

The state is one of the region’s largest employers and provides coverage for nearly 61,000 Greenville-area workers and their dependents. Nevertheless, the state reportedly exerts limited influence as a purchaser of health services.¹³ Approximately 90 percent of the state’s covered lives in Greenville are in a self-insured PPO administered by Blue Cross, and most of the remaining 10 percent are in the Healthsource or Companion HMOs.

Similarly, the state Medicaid agency is not considered an assertive purchaser, even though it provides coverage for more than 65,000 Greenville residents.¹⁴ Lack of action on the Palmetto Health Initiative has left a voluntary Medicaid managed care program that enrolls only about 1,000 Medicaid recipients in HMOs on a statewide basis. The HMO option is not offered to Greenville residents.