Center for Studying Health System Change

he Lansing market is in the midst of major changes that are likely to set the path for its future. The consensus is that current events are leading to further consolidation and will ultimately improve the future viability of providers, especially hospitals, in this market. These changes are also expected to influence purchasers’ and consumers’ cost, quality and access objectives, but how this will be achieved remains unclear. In the past, the Lansing market has been locally owned and controlled, with a great deal of informal decision making based on long-standing relationships. In the midst of organizational changes, the market’s major purchasers are emerging as a dominant force, citing concerns about cost and quality of health care as major issues they wish to address aggressively. Access is viewed as an important value with responsibilities currently shared among public and private providers.

The anticipation of changes resulting from decisions about ownership of MC² and the final outcome of the planned Sparrow/St. Lawrence merger make up one major area to track. While final decisions will most directly affect whether Lansing becomes a two-hospital system market, the nature and form of the resulting entities will define a number of other aspects of the market and the nature of the competition that is likely to ensue. Among the concerns will be the relationships these two hospital systems have with other area hospitals, with physicians and with health plans. While specialists currently tend to affiliate with multiple hospitals and plans, the intensity with which the two hospital systems compete may increase pressure for exclusivity and an increased role for existing PHOs. On the other hand, physicians may begin developing more of their own organizations rather than becoming part of a hospital system. The directions are currently not clear.

On the plan side, the affiliation and ownership relationships that currently exist are also likely to change. Whether these changes will result in opportunities for the non-local plans or strengthen the existing locally based plans remains to be seen. Equally important will be the effects that plan affiliations will have on the nature of plan and hospital competition and the potential changes in the nature of plan networks, including exclusivity in the networks and the impact of Sparrow’s participation strategies with plans other than its own. While there is little capitation in the market currently outside of primary care, plans are expected to move more rapidly to capitation and risk arrangements. The resulting impact on premiums and product differentiation will be important to track and will affect relative success in the marketplace. The effects on employers, especially small ones in this market, will need to be monitored as well to determine the extent to which potentially more affordable options are available.

Community accountability continues to be a significant issue in this market with both public and private initiatives underway to ensure it is sustained. The community is concerned that providers will not be able to meet all the service demands of indigent patients and for those employed in smaller firms who may no longer be able to afford insurance coverage. The ICHD recently initiated a study to better identify the extent of loss of insurance, and another county-funded study assessed the current contributions of the major hospitals to meeting needs of the uninsured and indigent. The issues to track involve how these data will be used, what approach will be implemented and who will take responsibility for ensuring that these issues are addressed.

Efforts to study and report on hospital costs represent a first step in increasing awareness of high-cost institutions. While from a local planning perspective the area remains overbedded, current planned consolidations are expected to reduce the number of beds by as much as 25 percent. The hospitals are also engaged in major strategies to shift services from inpatient to outpatient sites. Finally, costs are being addressed by providers in negotiations of provider and plan rates. Quality concerns are just now being raised, with no consensus on the quality of the current system and plans to monitor and influence quality not yet determined. Until cost is addressed to the satisfaction of the purchasers, it is likely that quality issues will continue to play a secondary role.

Continuing efforts to ensure community accountability will likely be a hallmark of this market, with anticipated leadership by the purchasers and unions and a continuing role by the ICHD. Areas to track will include the organizational nature of community accountability efforts, the scope of activities and the nature of participation by various sectors of the community. While the Lansing market is undergoing many changes, it is expected that a continuing strong focus on community accountability will be the basis for ensuring that access to care and the cost and quality of that care are monitored, and that these concerns are addressed by the local community.

A final area to track is potential state and local policy change on the delivery and financing of services for the uninsured. Several proposals are being debated and developed, including a managed care system for the uninsured to address potential effects of the expansion of Medicaid managed care and welfare reform and a community-wide effort to involve the hospital systems and business in ensuring access for the uninsured as a "community value." Community efforts may also intensify depending on the final results of hospital consolidation activities.