Center for Studying Health System Change

hough still dominated by local institutions and a fee-for-service system of provider reimbursement, Little Rock’s health care system has been marked by significant changes over the last several years. Most of these changes are due to the increased degree of alignment among hospitals and health plans in the area, the market entry of powerful national health care companies, including Columbia/HCA and United HealthCare, and local employers’ sensitivity to premium hikes.

Respondents report an array of perceived changes resulting from these and other market influences. Views of recent changes in insurance premiums were mixed. Some respondents report a slowdown in the rate of cost growth while others assert that premium levels are starting to rise again, especially for small businesses. Some attributed recent premium increases to an attempt by local health plans to recoup operating losses incurred over the last several years during intense price competition. Others suggested that higher premium costs reflect diminished private sector restraint in light of the demise of government health care reform. Another impact of market change is a reported decline in the number of people covered by health insurance due to a reduction in employer-sponsored coverage for workers and their dependents.

Respondents also said that problems with access to primary care leads many uninsured Little Rock residents to seek basic medical care in hospital emergency rooms. The majority of Little Rock’s insured population, however, was said to be highly satisfied with quality of care as well as increased provider choice through POS plans and managed care products that do not restrict referrals to physicians within a network.

Looking forward, the pace of change in Little Rock is likely to increase. A harbinger of this change includes HMOs’ use of physician profiling and consumer satisfaction reports to adjust provider reimbursement and the development of physician-sponsored IPAs and other group-practice arrangements in response to the prospect of declining physician income and reduced clinical autonomy.

Several activities bear watching as the future unfolds:

• Several new entities stand to increase their influence over the next few years. These players include the Arkansas Heart Hospital, whose success will be determined, at least in the short run, by its ability to attract Medicare patients from other area hospitals since most managed care members in Little Rock are enrolled in health plans that have competing hospitals as equity partners. Columbia/HCA also bears watching, because it has announced its intention to become a dominant force in Little Rock’s hospital sector. What remains unclear at this point is whether public sentiment will tolerate Columbia/HCA’s acquisition of another area hospital, particularly one of the large, nonprofit hospitals that it appears to have targeted. United and Healthsource may also be poised to increase their market presence. According to respondents, however, tension between Healthsource and St. Vincent’s may weaken those organizations.

• The implementation and impact of profiling initiatives now being fielded by Health Advantage and other health plans deserves watching. On one hand, these initiatives have the potential to move Little Rock beyond a largely unmanaged fee-for-service system, thereby bringing down health care costs and potentially altering both individual clinical decisions and dominant patterns of physician practice. It remains to be seen, however, how widely these systems will be adopted and whether they will be implemented without substantial compromise in order to gain the support of participating providers. Indeed, these efforts could cause a physician backlash as indicated by Health Advantage’s reported reconsideration of its profiling initiative and the emergence of IPAs and other types of physician practice arrangements. Moreover, a majority of Little Rock residents are still enrolled in traditional health plans and PPOs, which exercise little oversight or influence over physician practice.

• Another development to monitor is the ability of BCBSA, Healthsource and other insurers to move more of their providers into capitated arrangements. While the bulk of Little Rock’s health care payments remain discounted fee-for-service, growing HMO enrollment could increase health plans’ leverage over providers who remain resistant to capitation. The leading edge of this trend may be the growth of Medicare HMOs, especially if enrollment in these plans is stimulated by federal Medicare reforms, as many predict. A move to capitation could also be stimulated, perhaps paradoxically, by successful adoption of the physician profiling initiative described above. For example, linking fee levels to utilization could reduce physician income to the point where local providers would be less resistant to capitated payments.

• Finally, as the future unfolds, Little Rock’s patchwork system for providing health care to indigent patients is likely to be buffeted by a number of forces. First, increased competition in the hospital sector could cause hospitals to be less willing to provide charity care in their emergency rooms and outpatient facilities. This situation could be exacerbated by the tenuous competitive position of University Hospital, especially if further Medicaid spending cuts are made. An increase in the number of uninsured brought about by a slowdown in the region’s economic growth could challenge existing agreements among institutions currently shouldering the indigent care burden.

According to one analyst, the picture in regard to this last issue may be quite bleak. After a long stint of high economic growth, Arkansas as a whole experienced a sharp economic decline in early 1996, leading to a drop in employment during the second quarter of that year and several layoff announcements. Economic hardships were a factor, particularly in the state’s manufacturing sector, which traditionally is more likely to offer health benefits than other sectors of the economy.²⁴ On the other hand, successful implementation of the ARKids program could ease the financial strain on University Hospital and other major providers of charity care.

For all these reasons, health system change in the Little Rock metropolitan area bears watching. While the future is hard to predict, it will likely not be placid.