Health System Change in Little Rock, Arkansas

Round One Site Visit

Case Study
July 1997
Loel S. Solomon, Robin K. Omata, Robert F. St. Peter

ittle Rock is on the brink of significant health system change. While established insurers and providers are looking for new ways to control health care costs, national health care companies are entering the market and seeking to unseat the dominant local players by driving down health care spending. Despite the increasing pace of change, however, Little Rock-based nonprofit providers exercise significant control over a system that continues to be characterized by the prevalence of fee-for-service payments, significant levels of excess capacity and limited enrollment in managed care plans.

Perhaps the most potent force in the market today is the recent alliance between two established, home-grown institutions: Little Rock-based Baptist Health, the largest hospital system in central Arkansas, and Blue Cross and Blue Shield of Arkansas (BCBSA), which covers close to half of all commercially insured lives in the metropolitan area. These entities joined forces in 1994 to form the area’s most highly subscribed HMO. Baptist Health is also the preferred hospital provider for BCBSA’s sizable PPO business, a business that stands to gain from the insurer’s successful bid for the newly combined state employee and public teacher pool.

Significant changes are unfolding in the way health services are organized and paid for in Little Rock as well as in the locus of control of key entities in Little Rock’s health care sector. Over the last several years, the dominance of the local institutions has been challenged by the market entry of several national health care companies seeking to build market share by taming what many informants perceive to be high and rising health care costs. The 1994 merger of health care giants Columbia and HCA brought under their control Doctor’s Hospital, a medium-size institution located in the heart of Little Rock’s medical-industrial complex.

Shortly after, Columbia/HCA purchased the biggest group practice in town, a move that reportedly set off a spate of physician practice acquisitions by the two major locally owned hospitals. In February 1997, Columbia/HCA acquired a smaller community hospital south of town, adding yet another institution to the company’s portfolio in central Arkansas. All eyes are also on the Arkansas Heart Hospital, an institution being built by MedCath, a Charlotte-based health care company, which opened its doors in early 1997 and is positioning itself to lure lucrative cardiology patients away from several other area hospitals.

National health insurance companies are also a growing presence in the Little Rock market. These companies include New Hampshire-based Healthsource¹; Prudential, an Atlanta-based concern; and United HealthCare, a Minneapolis-based company that owns the most rapidly growing HMO product in the area. At the same time, respondents say that intensifying competition for covered lives and employers’ sensitivity to health insurance premiums have contributed to a recent decline in the rate of premium growth.

These dynamics have led to a profusion of provider profiling activities, something that distinguishes Little Rock from other markets with moderate levels of HMO penetration and a fee-for-service-dominated payment system. While most profiling initiatives are being used to encourage increased efficiency through provider education, a growing number of health plans in Little Rock are using profiling data to adjust physician payment rates. Little Rock’s leading HMO also plans to use its profiling system to select its network physicians based on analysis of those providers’ utilization patterns. However, plan officials are reportedly considering suspending further implementation of that profiling initiative due to resistance of local doctors.

In light of these activities, Little Rock physicians are beginning to organize into independent practice associations (IPAs) and other types of organizations, a trend that marks a shift from a market previously dominated by small-group and solo-physician practices.

It is difficult to predict the course of these changes or the likely impact of change on cost and quality of and access to care. Despite respondents’ concern about high health care costs, many also expressed concern over the prospect of reduced provider choice and the influence of managed care companies over physician decision making. And, while the entry of national health care companies was not considered to be a major issue, their influence may be approaching a critical point, leading to a bigger impact on the local marketplace and an intensified public discussion about the future of Little Rock’s health care system.