ealth care delivery in Indianapolis is dominated by several large, not-for-profit, locally based health care systems created by the hospitals. These systems serve distinct but somewhat overlapping geographic market areas or population subgroups within Indianapolis. They offer health plans, either by themselves or in partnership with other systems, and they own or have close collaborative relationships with physician practices. For-profit hospital systems play a minor role in the Indianapolis market, but they have been aggressively seeking to expand that role. There has been considerable jockeying for position among the health care systems, resulting in a successful merger between two large systems and another failed merger attempt.

PROVIDER ORGANIZATIONS

Indianapolis hospital-based health care delivery systems include:

In addition, two for-profit hospitals are located in central Indianapolis: Columbia Women’s Hospital, a 132-bed facility owned by Columbia/HCA Healthcare Corporation, and Winona Memorial Hospital, a 170-bed facility owned by OrNda Health Corporation.

The Methodist Health Group includes Methodist Hospital of Indiana, one of the largest hospitals in the country, with more than 900 beds. Although the hospital is centrally located, it has established 17 outpatient and ambulatory surgical centers in Indianapolis’s suburbs to expand its service area and referral base. It has clinical affiliations with hospitals in surrounding communities and joint ventures with other hospitals in the metropolitan area. Methodist Health Group owns and manages a physician-hospital organization (PHO), a network of five community health centers called HealthNet and an IPA-model HMO, M-Plan. In early 1997, it completed a merger with Indiana University Medical Center (IUMC) to form the Clarian Health System. IUMC includes the 380-bed University Hospital and Outpatient Center, a specialized adult hospital, and the 230-bed James Whitcomb Riley Memorial Hospital, a highly regarded comprehensive pediatric inpatient facility that serves the entire state.

St. Vincent’s Hospital and Health Care Center is owned by the Catholic Daughters of Charity National Health System in St. Louis, Missouri. It consists of three hospitals in the Indianapolis area, St. Vincent’s, Mercy and Mt. Carmel; a network of primary care physician practices; and a PHO. It owns 25 percent of Sagamore Health Network, which offers PPO and HMO products, and 50 percent of Cooperative Managed Care Services, which provides administrative and clinical management services. St. Vincent’s has two large cardiology groups on its campus and joint ventures in catheterization laboratories with each group. These groups reportedly are responsible -- directly or indirectly -- for approximately 50 percent of St. Vincent’s revenues.

St. Francis Hospital is owned by the Catholic Sisters of St. Francis Health Services, based in Mishawaka, Indiana. St. Francis has 428 beds at its main Indianapolis campus and 78 beds at its south side campus, where it provides primarily outpatient services. It is also a part owner of Sagamore Health Network and a 50 percent owner of Cooperative Managed Care Services. It owns and manages primary care physician practices and owns the St. Francis Health Network PHO, with 75 primary care physicians and 350 specialists.

Community Hospitals of Indianapolis is a four-hospital, locally owned system with approximately 1,200 beds. In addition to inpatient facilities and specialty treatment centers, Community owns physician practices and Indiana ProHealth, which functions as a PHO. Indiana ProHealth contracts with payers and offers a PPO product that now has approximately 150,000 covered lives.

Suburban Hospitals, Inc., is a more loosely organized provider system consisting of 10 hospitals. This 10-year-old alliance was created to bolster its members’ negotiating power with insurers. Suburban Health Organization, an offshoot of Suburban Hospitals, was created in the early 1990s to serve as a PHO for the alliance’s participating hospitals.

Wishard Hospital, with 311 beds, is Indianapolis’s public hospital. It is operated by the Marion County Health and Hospital Corporation, an independent municipal corporation that is funded in part by its own tax district. Clinical services at Wishard are provided under contract with the University of Indiana School of Medicine. Wishard manages six community clinics and is the principal provider of indigent care in the city.

Most physicians in Indianapolis are in small, single-specialty groups that are closely aligned with these large health care systems. PHOs are important mechanisms for accomplishing these alignments. These PHOs include primary care practices owned by the systems, as well as other primary care and specialist physicians on the medical staffs of sponsoring health systems. Respondents reported that area residents have strong loyalties to specific health care systems and their associated physicians, and generally believe that these systems deliver high-quality care.

ORGANIZATIONAL CHANGE: PROVIDERS

The large hospital-driven systems are engaged in horizontal and vertical integration activities within Indianapolis and statewide. The most dramatic example of horizontal integration was the recently completed merger of Methodist Health Group and IUMC to form the Clarian Health System. Once combined, the new entity’s inpatient facilities reportedly will make it the second-largest hospital in the country, with the capacity to provide virtually every type of medical service. Participants said the merger was spurred by the opportunity for organizational efficiencies and the ability to offer geographically broad but administratively integrated managed care products. Some respondents predicted that the inclusion of James Whitcomb Riley Memorial Hospital as a provider of pediatric inpatient services will enhance Clarian’s attractiveness to purchasers and managed care plans. Other respondents described the Methodist/ IUMC deal as a competitive response to the proposed merger between St. Vincent’s and Community Hospitals, a union that ultimately did not take place.

The widespread perception is that merger and realignment activities among the health care systems in Indianapolis are not finished. For example, some respondents viewed St. Vincent’s and St. Francis as potential merger partners, because they are already collaborating on a variety of joint ventures and serve different geographic areas. Several respondents believe Community Hospitals is open to merger or affiliation discussions, although it recently declined an offer to affiliate with Columbia/HCA.

Virtually all the large health systems in Indianapolis are pursuing horizontal collaborations with hospitals outside the metropolitan area, primarily through contractual relationships. St. Vincent’s is creating networks with smaller regional hospitals and their affiliated physicians to solidify its referral base; Clarian has an affiliation with Health Indiana, a group of five hospitals located throughout the state; and Community Hospitals has joined with nine hospital systems, including Suburban Hospitals, in a statewide HMO called Healthpoint. St. Francis has affiliations with other hospitals in the state through its parent organization, and the four Catholic orders operating hospitals in the state are discussing the possibility of collaborating in a hospital network. These four orders already jointly sponsor Sagamore Health Network.

The hospital systems also have been pursuing vertical integration opportunities with physicians, mainly by purchasing primary care practices and by develop- ing PHOs, in anticipation of intensified managed care activity. Competition for primary care practices intensified in 1992, when St. Vincent’s became very active in this arena, launching what several respondents described as a "bidding war." By 1996, most primary care practices in the area were owned by health care systems, cardiology practices or American Health Network, a physician network sponsored by Anthem.

PHOs allow health care systems to integrate both primary care and specialty physicians for the purpose of contracting with managed care plans or directly with employers. PHOs seek full-risk contracts with HMOs and assume responsibility for managing care delivery and information systems. In addition, some health systems have formed HMOs, using their own hospital medical staffs and primary care practices they acquired to serve as the core of their provider networks.

Although the bulk of provider integration activity in Indianapolis has been driven by large health systems, physicians and insurers have initiated a few attempts at horizontal integration. For example, in addition to American Health Network, Anthem has created a multispecialty physician network called SpecialMed, which accepts capitated payments from health plans and capitates specialty practices in its network. On the other hand, the two largest cardiology groups in Indianapolis are pursuing a different physician integration model, without direct sponsorship from a health system or insurer. One of the groups, Nasser, Smith and Pinkerton Cardiology, is attempting to build a multispecialty group and has purchased primary care physician practices throughout Indiana to solidify its referral base.

HEALTH PLANS

No single plan, or small group of plans, dominates the health plan market in Indianapolis. This market has accepted PPO-based managed care, but responddents estimated that HMO penetra- tion rates were only 15 to 20 percent of the employed group market. The Indianapolis market has accepted PPOs, but respondents estimated that relatively low penetration levels reflect in part the lack of strong employer interest in HMOs. In addition, several negative local experiences with HMOs during the 1980s may have reduced employers’ interest in them. For example, Anthem’s Key Health Plan had 160,000 enrollees in 1988, but has only 18,000 in Indianapolis today. It reportedly underpriced its product, incurring substantial operating losses. Subsequent large rate increases caused employers to drop the plan. The bankruptcy of Maxicare during the mid-1980s also raised concerns among local employers about the quality of HMO management.

Anthem, Inc., formerly the Associated Group, is the largest insurance carrier in the Indianapolis market. It began as Blue Cross and Blue Shield of Indiana, and then acquired the Blues of Kentucky and Community Mutual Insurance of Ohio. Anthem is now apparently attempting to make the transition from a regional to a national health insurer and has explored mergers with Blues plans in Connecticut, New Jersey and Delaware, although only the Connecticut merger remains a possibility at present. Anthem has developed two local physician networks: American Health Network, consisting of 274 primary care physicians who are joint network owners, and SpecialMed, a multispecialty IPA with more than 500 physician members. Most Anthem enrollees in Indianapolis are in indemnity or PPO products. Anthem’s two HMO products, Key Health Plan and Anthem Health of Indiana, are relatively small, with a combined statewide enrollment of approximately 60,000.9

The local Maxicare HMO survived Maxicare’s bankruptcy proceedings of the 1980s, and now has approximately 70,000 commercial enrollees in Indianapolis, along with about 3,000 Medicare members.10 Maxicare, a for-profit, IPA-model plan, recently was approved as a Medicaid managed care contractor in central Indiana. For inpatient care, it contracts primarily with Community Hospitals, St. Vincent’s and St. Francis. Methodist Hospital is not included in its network.

The remaining significant health plans in Indianapolis are owned or sponsored by health systems. M-Plan, owned by Methodist Health Group, is an IPA-model HMO with a statewide service area. It has approximately 120,000 members state-wide and recently added a Medicare product that attracted about 4,000 enrollees.11 Most Indianapolis hospitals, with the exception of Community Hospitals, are offered as part of M-Plan’s provider network.

Sagamore Health Network is a for-profit organization jointly owned by four Catholic hospital systems that operate in Indiana. It offers HMO and PPO products, and reportedly has more than 600,000 enrollees, with approximately 150,000 enrollees in Indianapolis, almost all in its PPO product. Sagamore contracts with more than 100 hospitals statewide for its PPO product, but does not include Community Hospitals in its inpatient provider network.

The newest plan in the market is Healthpoint, which began enrollment in March 1997. It is a provider-sponsored network-model HMO owned by hospitals throughout the state. In Indianapolis, Community Hospitals and Suburban Hospitals are owners, with participation in the network by their respective PHOs.

Many of the major HMOs have global capitation contracts with the PHOs owned by the health systems, although the number of individuals served under these contracts represent only a small proportion of Indianapolis’s total population. Global capitation rates, which cover all inpatient and outpatient care, are reportedly about 90 percent of the HMO’s premium. Under these contracts, HMOs are responsible for marketing and administration, while PHOs are responsible for care management and utilization review. The HMOs offer different management services to PHOs, based on each PHO’s capabilities.

Capitated payments to providers, as well as PPO and HMO premiums, have all been relatively stable during the past few years. However, Anthem recently announced a plan to reduce its fee-for-service payments dramatically. It is unclear whether it will be able to carry out this plan in the face of provider opposition.

ORGANIZATIONAL CHANGE: HEALTH PLANS

Two trends have characterized the Indianapolis health plan market during the 1990s: expansion of provider networks in response to the perceived desires of purchasers, and an increase in the number and types of products offered by health plans. The networking and consolidation activities involving health care systems and physicians have not been evident to the same degree in the health plan market. There is a widespread perception, however, that the configuration of the Indianapolis health plan market could change considerably during the next five years if:

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