Center for Studying Health System Change

he intense rivalry between Greenville Hospital System and St. Francis affects all aspects of health care delivery in Greenville. The actions of these two systems are propelling efforts to form regional hospital alliances and establish stronger ties between hospital and physician services. The region’s only large physician group practice, Carolina Multispecialty Associates, is another major force, and its strength is thought to be growing. In contrast, Greenville’s HMOs have low enrollment and limited market power. In addition, Greenville’s new provider-sponsored networks, particularly the HealthFirst HMO/PPO owned by the AGS partner hospitals, may substantially affect the distribution of managed care market share.

PROVIDER ORGANIZATIONS

Greenville County’s market is dominated by Greenville Hospital System, a state-chartered, not-for-profit organization with an 800-bed teaching and research hospital, a 60-bed children’s hospital, two small community hospitals outside Greenville and several specialty hospitals and outpatient urgent care centers. Its principal competitor, St. Francis Health System, has a 257-bed main campus in Greenville and a new 50-bed women’s hospital. The intense competition between Greenville Hospital System and St. Francis reportedly is driven by personal animosity between their leaders and has been played out repeatedly in the local news media.

For example, in 1992, Greenville Hospital System opposed St. Francis’s plans to build a new women’s hospital and lobbied against its CON application. When a CON was granted, Greenville Hospital System purchased land around the women’s hospital site to block future expansion. More recently, Greenville Hospital System negotiated with several health plans to be their exclusive hospital provider in Greenville, reportedly using its open-heart surgery capacity as a bargaining chip. In response, St. Francis purchased billboard ads criticizing Blue Cross for its deal with Greenville Health System and urging people to call the Blue Cross CEO. Rancor between the two systems intensified when St. Francis assumed a leading role in opposing the AGS merger.

Relationships among hospital systems outside Greenville County are more collegial. In Spartanburg County, the Spartanburg Regional Healthcare System has a 588-bed medical center with a range of services (including open-heart surgery), and a small hospital outside Spartanburg. The 225-bed Mary Black Memorial Hospital is near Spartanburg Regional in Spartanburg. Formerly a not-for-profit hospital, Mary Black Memorial was recently purchased by the Quorum Health Group, a national, for-profit hospital management company. Some respondents believe this acquisition will increase competition in Spartanburg. The 587-bed Anderson Area Medical Center is the sole hospital serving Anderson County.

The proposed AGS merger launched a trend toward regional provider affiliations. Although the merger was blocked, the participants jointly own the HealthFirst HMO/PPO and are discussing other activities, such as joint purchasing of supplies. In response to the proposed merger, St. Francis and Mary Black Memorial formed Community Health Partner-ship, a network of nine upstate hospitals and affiliated PHOs, to contract with regional employers.

Most Greenville physicians practice in solo or small-group practices. Physicians generally are not aligned with a single hospital unless they are salaried employees. Most doctors admit to both Greenville Hospital System and St. Francis. Greenville’s only large organized group practice, Carolina Multispecialty Associates, is a professional association of 30 upstate practices. Its 80 physician partners are split between primary care and specialty physicians. In addition, 130 specialists work closely with Carolina Multispecialty. Respondents said Carolina Multispecialty is ahead of other area providers in its capability for managing patient care and the financial risk associated with capitated contracts. Its competitive assets include strong leadership, tight organization, a large number of primary care physicians, extensive coverage of most specialty services and a good reputation, according to these respondents. Carolina Multispecialty has not announced any risk contracts, although it is in discussions with several HMOs.

Hospital systems have taken the first steps to align themselves more closely with physicians in preparation for future managed care contracts. About half of Greenville County’s primary care physicians reportedly are salaried employees of one of three entities: Partners in Health, a network of 70 primary care physicians employed by Greenville Hospital System; St. Francis, which employs about 40 primary care physicians; and Carolina Multispecialty Associates. In addition, Greenville Hospital System established the Upstate PHO as its primary managed care contracting vehicle. St. Francis established the Optimum Health Partners PHO and Optimum Physician Services, a for-profit management services organization. Because there are few HMO contracts in Greenville, PHOs have a relatively small volume of patients, and many of the salaried primary care physicians are free to refer patients to the hospital of their choice. However, the hospital systems consider these physician networks to be the core of their future capitated contracting networks.

INSURERS AND HEALTH PLANS

Managed care has been slow to arrive in Greenville. The area’s HMO penetration is about 12 percent,¹⁵ with virtually no enrollment reported in Medicare and Medicaid. Loosely structured PPO products are the preferred form of managed care among most employers. HMO penetration remains low because of the lack of aggressive employer purchasing, hospital consolidation that limits plans’ ability to negotiate discounts and the community’s general dislike of managed care constraints. But managed care organizations have shown increasing interest in Greenville, and 18 plans reportedly applied for South Carolina HMO licenses during the past year.

Blue Cross and Blue Shield (BCBS) of South Carolina, a mutual insurance company based in Columbia, historically has dominated South Carolina’s health insurance market. BCBS reportedly controls approximately 25 percent of the commercial market in the upstate region. Most of its enrollment is in the Preferred Personal Care PPO network. BCBS also owns Companion Health Care, one of the state’s oldest and largest IPA-model HMOs. It recently introduced a second HMO, Preferred Health, which offers a larger provider network and uses different information and reporting systems. The rationale behind this new product is two-fold: It will help BCBS shift its PPO accounts into an HMO product more easily and it will provide BCBS with another HMO to offer state employees. BCBS also has major national business lines in health care information processing, including contracts with the state Medicaid program, Medicare and CHAMPUS. Some observers questioned whether these national activities will distract BCBS from its efforts to "bring managed care to South Carolina."

Greenville’s HMO and PPO networks for the most part are broadly inclusive with respect to hospitals and physicians, with several important exceptions. About half of the 7,000 physicians who participate in the BCBS traditional statewide indemnity product are also in the Companion HMO, which was described as one of the narrowest HMO physician networks in the region. According to Blue Cross, the Companion network initially had substantially fewer physicians, but has broadened in response to customer demand.

Healthsource, the New Hampshire-based HMO chain with regional headquarters in Columbia, reportedly has more than 40,000 enrollees in the upstate region, as well as the largest HMO market share in the Greenville MSA. Several years ago, Healthsource acquired Provident, a PPO that historically serviced the local textile industry. Healthsource has tried to introduce those former Provident accounts to HMO products; however, Healthsource recently announced that it planned to be acquired by CIGNA.

A number of other managed care plans enroll fewer than 10,000 people in the Greenville region, including Aetna, Maxicare and Physician’s Health Plan, which is managed by United Healthcare of Minneapolis. Aetna, which recently merged with U.S. Healthcare, has been working to shift its predominantly PPO-based membership into HMO products. Maxicare is struggling to win back enrollment following its bankruptcy in the 1980s. Physician’s Health Plan was described as an "up-and-coming" plan, with an open access product that allows enrollees to get specialty care without referrals from a primary care gatekeeper.

The recent establishment of provider-sponsored health plans has created some concern among commercial managed care plans. HealthFirst has several PPO contracts and recently received an HMO license. It began marketing the HMO to employers in April 1997. St. Francis does not have have an insurance license, but offers its Optimum Care Network through a third-party administrator. Both systems plan to use these networks for direct contracts with employers and to compete with stand-alone managed care plans. Health plans are concerned that the owners of these provider-sponsored health plans, particularly Greenville Hospital System as the majority owner of HealthFirst, will use their hospital pricing policies to influence the HMO market to their advantage.

Interest among plans and providers in financial risk-sharing is increasing, but few such arrangements have actually been implemented. The Companion Health Care HMO capitates primary care services, but its market share is small and represents only a small portion of most physicians’ total compensation. Similarly, HMOs and PHOs, including St. Francis and Mary Black, are experimenting with global capitation contracts involving several thousand covered lives. On balance, however, most provider organizations are only beginning to develop the capabilities needed to manage large risk contracts.