Center for Studying Health System Change

he majority of Miami health care organizations are owned by for-profit national companies whose strategies often are driven from regional offices that have a focus somewhat broader than Dade County. These strategies may not take into account the character of the Miami community. Their influence is tempered by powerful not-for-profit, locally based institutions. The buying and selling of organizations dominates the environment, reflecting a strategy used by for-profit and not-for-profit entities. Hospitals have consolidated into three major health systems, leaving the future of the independent hospitals open to question. Consolidation has not yet resulted in any substantial decrease in capacity. Pressures from overcapacity and health plan demands for reductions in cost appear to be important factors underlying organizational change.

The strategies of hospitals, health systems and health plans are focused on increasing market share.

• Two hospital efforts at plan ownership have emerged.

• Hospitals, hospital systems and plans are looking for ways to organize physicians to control referrals and insured lives.

• The emergence of new physician organizations appears likely in the near future.

Health plans have few barriers to entry and so they continue to enter and exit the market. Changes in Medicaid contracting with health plans will likely bring new players into the market, shifting the balance of business among the already large number of plans.

PROVIDER ORGANIZATIONS

Most organizational change among providers has centered on ownership. Other types of change are emerging slowly, such as efforts to take on risk and manage care.

Hospitals

Three major hospital systems in Dade County include 15 of the area’s 24 acute care hospitals. Columbia/HCA owns five hospitals, has been in the market for the longest period of time and has a major presence in the state. Prior to the recent Tenet/OrNda merger, Columbia/ HCA was by far the largest of the systems, and its acquisition of Columbia Cedars Hospital provided it with a strong tertiary facility. The combined Tenet/OrNda now owns six, primarily community, hospitals. The local not-for-profit Baptist Health Systems owns four hospitals in the South Dade market.

The configuration of the hospital systems is relatively recent: The Baptist system formed over the past year; the new Tenet/OrNda merged system developed over the last few months; and Columbia/ HCA is continuing to purchase providers in the area. This pattern of rapid acquisition and system building reflects recent strategies to gain market power. Systems are just beginning to address more specific operational strategies to achieve some level of administrative, financial and clinical integration.

Columbia/HCA, a national for-profit hospital chain based in Nashville, Tennessee, has been in Florida since 1989 and now owns 55 of the state’s 225 hospitals. Its Dade County, hospitals are part of Columbia’s South Florida region that also includes Broward and Palm Beach counties. Columbia/HCA is a major player in the market, accounting for 22 percent of the acute care beds in the county.¹⁸ The Columbia/HCA hospitals in Dade County include two hospitals in downtown Miami, where most of the area’s tertiary facilities are located, Columbia Miami Heart Institute and Columbia Cedars Medical Center. Both hospitals provide a wide array of tertiary services and compete heavily with two independent tertiary facilities: Mount Sinai and Jackson Memorial. Cedars is also a major teaching facility for the University of Miami Medical School. The other three hospitals in the system are community hospitals, located in the southern and northern suburbs. Managed care contracting, marketing, home care and financial and administrative functions are handled at the South Florida regional level.

The Tenet/OrNda merger, in process at the time of the site visit, merges two for-profit, national corporations into a single entity whose combined area revenues will be close to those of the local Columbia/HCA region. Their combined network of Dade County hospitals will include three from the OrNda system: Parkway Regional Medical Center, Golden Glades Regional Medical Center and Coral Gables, and three from Tenet: Hialeah Hospital, Palmetto General and the recent acquisition of Northshore Medical Center, formerly a not-for-profit. Of these, only Northshore can be considered a tertiary facility. Tenet/OrNda hospitals are primarily outside the downtown Miami area, in the northern and southern parts of the county. The new system represents 19 percent of the acute care beds in the county.¹⁹

Baptist Health Systems dominates the South Dade area. Its hospitals, Baptist Hospital, South Miami Hospital and Homestead Hospital, contain most of the beds in this area. A fourth hospital, Mariners Hospital, is located in Monroe County. The merger of Mercy Hospital into the Baptist Systems is expected to further solidify the systems’ position and help expand coverage in the Hispanic community, a niche for Mercy. Homestead, previously a city-owned facility, is located in a large rural section of South Dade, is the only facility in over a 20-mile radius and serves a large indigent population. Homestead Hospital works closely with Community Health Initiative of South Dade, a community health center, and admits some of its patients. The Baptist systems also owns diagnostic centers, home health agencies and physician practices, and has partial ownership of a health plan. The systems’ dominance in South Dade gives it leverage with managed care companies that need to cover that geographic area.

Nine independent hospitals operate in the market, including two major teaching facilities -- Jackson Memorial Hospital, the public hospital and major teaching facility of the University of Miami Medical School, and Mount Sinai. The other unaffiliated hospitals are primarily community hospitals, some of which have specific geographic or ethnic niches. The unaffiliated hospitals have a variety of arrangements with the three health systems, and some are actively negotiating more formal affiliations.

Consolidation of the hospital systems is expected to significantly increase competition among them. Each system is pursuing different strategies to ensure a strong presence in the market. Baptist Health Systems is currently dominant in South Dade, where Tenet/OrNda and Columbia/HCA have some presence. Baptist is continuing to pursue acquisitions and affiliations to enhance its position. The system is also developing more comprehensive pediatric services to capture more business and reduce referrals out of its system to Miami Children’s Hospital or Jackson Memorial. This strategy includes an expanded pediatric emergency facility and the opening of a neonatal intensive care unit.

Both Columbia and the new Tenet/OrNda systems have some weaknesses in terms of services and market coverage and are looking to further acquisitions and affiliations to address them. The Columbia system does not have pediatric services or transplants in its current network, and an affiliation with Jackson Memorial Hospital would enable Columbia to fill gaps in services. Tenet/OrNda has only limited tertiary services, and some believe it needs a "star" to compete effectively with both Columbia and Baptist. An interesting recent development is the announcement of plans by the Tenet/OrNda and Baptist systems to develop a joint arrangement to compete with Columbia/HCA for risk-based managed care contracts in the broader three-county market. This arrangement is based on Baptist’s South Dade presence and the Tenet/OrNda, North Dade, Broward and Palm Beach hospitals.

At the same time, increasing pressure by health plans on hospitals to reduce costs continues to have an impact on hospital and system actions. Some respondents suggest that hospital rates are now lower than in some post-acute care facilities. Financial viability may dictate the need for increased emphasis on cost reduction efforts. For example, when the OrNda System purchased Golden Glades Regional Medical Center, the obstetric facilities were moved from Golden Glades to Parkway Regional Medical Center to centralize previously duplicative services. In addition, pre-merger, OrNda was moving toward consolidating departments and administrators across hospitals in Dade County.

Little reduction of bed capacity and few hospital closures have resulted from the number of hospital acquisitions, despite the large oversupply of beds in the area. One reduction was the result of Columbia/HCA merging two of its hospitals, Columbia Heart Institute and St. Francis Hospital, and eliminating 250 beds. Reportedly, Mount Sinai and Miami Heart were the beneficiaries of additional patient volume as a result. Other hospitals have tried to transfer licensed beds from acute to post-acute status but have met with some resistance by the state and its certificate-of-need (CON) process.

Several key hospitals among the remaining independents are considering relationships with the systems, including potential mergers or other formalized relationships. These include: Jackson Memorial (which is the only source of a variety of tertiary services); Mount Sinai (which has the greatest volume of adult open-heart surgery and adult cardiac catherizations); and to some extent, Pan American Hospital because of its special niche in the Cuban community.

Affiliation decisions by Jackson or Mount Sinai or both could considerably alter the current market position of the three hospital systems. Jackson Memorial Hospital is of special importance to the community because it is the county hospital and the sole hospital receiving funding for indigent care from a county tax assessment. In addition, its extensive tertiary services are provided to the nonindigent populations of South Florida, the rest of the state and internationally to South and Central America. This broad reach of the service area is attributed to some unique tertiary services and the reputation of some of the physicians and facilities. The Public Health Trust that governs the hospital also operates a large number of ambulatory clinics on the Jackson Memorial Hospital campus and at other sites, and owns a health plan, JMH Health Plan, two nursing homes and a home health agency. It is the primary teaching hospital and ambulatory care system for the University of Miami Medical School. Jackson Memorial is a high-cost facility, due in part to its emphasis on highly specialized services, its case mix and its use of the University of Miami Medical Group.

With a total of 707 beds, Mount Sinai Medical Center is the largest private, not-for-profit hospital in South Florida. It also has a teaching relationship with the University of Miami Medical School. Mount Sinai is Jackson Memorial’s major competitor in providing open-heart surgery and cancer treatment. Mount Sinai is already engaged in active discussions regarding its future and has made selective arrangements in areas such as cancer services.

Physicians

Physicians in the area are reportedly worried about the changes they perceive in the market and the decreasing numbers of patients in their practices. Physician practices are primarily solo or small groups, with some larger single-specialty groups, often organized on an informal basis. A number of physicians report that they are considering moving to different organizational structures but have taken very little action. The major exceptions include the Cuban physicians and the University of Miami Medical Group, both of whom have established organizations. The Cuban physicians were directly involved in the establishment of one of the early HMOs, CAC/Ramsey, now owned by United HealthCare.

Oversupply of physicians, particularly specialists, contributes to physician concerns. Originally attracted to Dade County by the large Medicare population, the climate and major population growth, physicians must increasingly compete for patients. To capture volume, physicians are signing up with every plan they can. Some physician respondents report growing dissatisfaction with low rates and increasing health plan intervention in the practice of medicine. Respondents further indicate that specialists, in particular, are seeing incomes decrease and some are leaving the area or retiring.

Physicians remaining in the area are exploring ways to organize, including single- and multispecialty group arrangements. Some are selling their practices to physician management groups and hospital systems. While many view the goal of physician organization as creating networks of physicians and an organizational capacity to contract directly with health plans and take on risk, there is little evidence that this is occurring. One recent tri-county area attempt to start a physician-owned HMO was unable to raise the financing needed and is now planning to use its 1,000 physician-member network to develop a large multispecialty IPA to contract with HMOs. Currently the group, Primus Health Care of Aventura, is only offering its members discounts on malpractice insurance.

The largest practice group in the county is the 600-member faculty of the University of Miami, the University of Miami Medical Group (UMMG). University of Miami Medical Group handles contracting for most of its clinical faculty, although some specialty groups do their own contracting. UMMG has negotiated rates with health plans for primary care and specialty services. The faculty practice plan receives the payment, and pays the physicians a percentage, generally in the form of a modified fee schedule for specialty physicians and a capitated amount for office services of primary care physicians. Several UM subspecialty groups are doing their own contracting with other hospitals and plans apart from arrangements made by UMMG.

Physician-Hospital Strategies

The hospital systems and the larger hospitals have been more aggressive in developing physician-based strategies to capture market share, although some are still in the early stages. Strategies include limited purchasing of physician practices and, more recently, development of PHOs and management service organization (MSO)-like organizations, assistance to physicians in forming IPAs and participation in the development of several managed care products. Hospitals and hospital systems base their strategies on their experience and their relationships with physicians.

Over the years, a group of hospitals has worked together with its physicians to develop various organizations that could help them compete more effectively. Baptist, Hialeah, Mercy, Mount Sinai, Northshore and Miami Children’s hospitals joined together in the early 1990s to develop strategies to take on risk. Each of their physician-hospital organizations came together to form a super-PHO called the Dimension PHO. Two products were established: a PPO, and an HMO with John Alden Insurance Company as a partner. Dimension PPO is a highly successful product with an enrollment of more than 250,000. The HMO product, the Neighborhood Health Partnership, was developed as a 50/50 partnership between the Dimension PHO and John Alden. An existing HMO license held by Mount Sinai was transferred to this plan. Of the original six hospitals, Miami Children’s dropped out of this arrangement because it was unwilling to accept risk for pediatric patients. Both Dimension organizations continue, although some of the participating hospitals have changed ownership and the Baptist Health Systems was formed. Effects of these ownership changes on participating members, who now include the Baptist Health Systems and Tenet/OrNda (as the new owner of Northshore), and their independent activities are unclear.

Baptist Health Systems is pursuing additional strategies to align with physicians and take on risk. DadeWell is a new 700-person IPA being created by independent physicians as a 50/50 joint venture with the Baptist system. The goal is to create an integrated delivery system between the hospital system and the physician organization that can enter into full-risk managed care arrangements and can coordinate all components of health care delivery. Baptist expects to see greater contracting opportunities under the DadeWell arrangement.

Columbia/HCA’s strategy to address relationships with physicians centers on development of a strong PHO, One Source Health System. Participating physicians are primarily those with admitting privileges at one or more Columbia/HCA hospitals. Exceptions are made when there is a need to expand a network for contracting. One Source is responsible for coordinating the marketing to health plans and self-insured employers on behalf of its participating physicians and the Columbia system. The system currently has risk contracts in addition to a variety of capitation, fee-for-service and exclusive provider organization contracts; it also contracts directly with employers.

Most of the independent unaffiliated hospitals have either physician organizations or PHOs, but few actually contract with plans. A major exception is the Pan American Hospital PHO, which contracts with CAC/ Ramsay Health Plan and takes full-risk contracts. Pan American has also established an MSO to handle a variety of administrative and care management functions.

HEALTH PLANS

Many health plans compete in the Miami area, but none dominates. The high level of HMO enrollment reported by a regional research group includes 33 percent of the commercial market, 38 percent of Medicare beneficiaries and 24 percent of people on Medicaid. The same research group indicates that 33 percent of commercial coverage is through PPOs.²⁰ The magnitude of managed care penetration has grabbed the attention of many national and regional plans. Competition varies by type of payer. In the Medicare market, competition is based primarily on offering some special benefit packages and ensuring a large and accessible network. In the commercial market and with the 1997 Medicaid contracts, price is the major competitive factor. In general, plans have benefited from high Medicare rates to support the lower rates they must offer to employers to be competitive. Competition is described by many as cutthroat and may contribute to the precarious financial position of some plans.

Plans in the Miami area have mostly for-profit status, national or regional ownership and focus on Medicare and/or Medicaid. Twenty-three insuring organizations operate in Dade County including 17 licensed health plans. Indemnity products are offered, but cover a smaller percentage of the commercial market. In addition to HMO products, which predominate, PPO and POS products are offered by a subset of the plans. Of the 17 plans, 10 have either a statewide or national focus and include a number of publicly traded companies. Four of the 17 plans are not-for-profit, including two that are wholly or partially owned by hospitals. Many of the plans, including those that originally focused on Miami and Dade County, include broader market areas as part of their strategic development.

Some plans have specific market niches, either in terms of products or penetration of a specific payer group. Among the major plans are: Humana, with a sizable Medicare and commercial base; Blue Cross Blue Shield of Florida with products for all three payers; United HealthCare, also in all three markets as a result of recent acquisitions; Physician Corporation of America (PCA), the current major Medicaid plan; and AV-Med, which services the Medicare and commercial markets. Humana’s recently announced intention to purchase PCA will expand Humana’s operations into the Medicaid area and add a large number of insureds.

Among the four not-for-profit plans are two provider-owned plans: the Jackson Memorial Health Plan and Neighborhood Health Partnership (NHP). JMH Plan was established by the Public Health Trust in 1987 and has expanded primarily through acquisitions. It is still a relatively small plan, constrained somewhat by the high costs of Jackson Memorial Hospital and UMMG physicians, who make up the bulk of its network, and by administrative restrictions resulting from its being part of the Public Health Trust. NHP is a joint venture of the John Alden Insurance Company and the five-hospital Dimension PHO. Its primary membership is in Dade County and it offers Medicare, Medicaid and commercial products.

Even with a long history of HMOs, there is little differentiation of products, almost no exclusivity and limited capitation or full-risk contracting. Almost all HMOs are now IPA models, with the exception of the older staff-model CAC/Ramsey HMO, now part of United HealthCare. United has continued the CAC/Ramsey clinics, although the rest of the plan is an IPA model. All plans have relationships with multiple hospitals, specialty or subspecialty groups and independent physician practices in Dade, generally without distinct networks for different products. Differentiated networks are more likely for Medicaid, where plans try to contract with traditional Medicaid providers. Networks are rarely exclusive because plans and providers feel they would restrict contracting opportunities and be unattractive to purchasers. Even in those plans that are closely tied to specific providers, such as Neighborhood Health Partnership and the JMH Plan, competition forces them to develop broader networks. For example, while Neighborhood Health Partnership has a preferred but not exclusive relationship with the Dimension PHO, it must also selectively contract with providers outside of the Dimension PHO hospitals and physicians. Similarly, to ensure access to a variety of providers, as well as more competitive pricing, JMH must contract outside of Jackson Memorial and the University of Miami.

Health plans pay specialists on a largely discounted fee-for-service basis and may use a fixed rate of payment for primary care physicians, primarily covering office visits. A few exceptions to discounted fees can be found in the specialist and hospital arena, including the Dimension PHO arrangement and the Pan American Hospital arrangements with CAC/Ramsey (now United HealthCare). For example, Pan American accepts full risk for all services and, in turn, capitates both primary care and specialist physicians. Some movement toward capitated arrangements with specialists is also evident through plan contracts with IPAs and other specialty networks, which then pay the participating physicians on a discounted fee basis.

Respondents anticipate increasing consolidation in the plan market. Health plans continue to undergo ownership changes with a few recent notable entries and exits:

• United HealthCare made a major inroad to the market by purchasing and merging several plans.

• Health Systems International is entering the market through a merger with Foundation Health, a plan that entered the market through a health plan acquisition only two years ago.

• PacifiCare, which entered the Miami market in 1993 by purchasing another plan that was in receivership, is leaving Florida based on its analysis that remaining was not financially beneficial. The stiff competition for commercial lives has had a major impact on the size of PacifiCare’s membership, and cuts in Medicaid reimbursement have further decreased its revenues.

• Physician Corporation of America (PCA) has had its merger plans with Sierra, Inc., thwarted by the state. If the recent announcement of the intent to purchase PCA by Humana is executed, it will represent a major step in plan consolidation.

The expansion of Medicaid managed care will provide the impetus for change in plan behavior. The expected move of 400,000 Medicaid recipients into health plans will increase the current level of enrollment fourfold. The expansion of contract awards to 12 plans includes some that have not had a presence in the market before and will provide opportunities for many to expand membership significantly. Currently only one HMO, PCA, has more than 40,000 Medicaid enrollees.