Case Study

Health System Change in Phoenix, Arizona

Round One Site Visit

Case Study
September 1997
Jon B. Christianson, Robert E. Mechanic, Robert F. St. Peter, Srija Srinivasan

Rapid

, geographically dispersed population growth during the past three decades distinguishes Phoenix from most other large metropolitan areas in the United States and has had a significant impact on its health care delivery system. This growth has attracted several national, for-profit health care firms to the Phoenix area. However, most local hospital-based health systems have retained their independence, partly because of their strength in geographic sub-markets, where population growth has buffered them against the effects of lower per capita use of inpatient services. These local systems have attempted to solidify their dominance in these sub-markets by developing physician-hospital organizations (PHOs) with their medical staffs, which they have leveraged with varying degrees of success in their negotiations with managed care plans.

In contrast, for-profit, national firms dominate the health plan market for commercial and Medicare enrollees in Phoenix. Some of these firms have been in the Phoenix market for many years, while others entered recently by acquiring health plans that were started by local providers. HMOs currently enroll almost 30 percent of the total population in Phoenix, including 100 percent of the Medicaid population.¹ Competition for Medicare enrollees has been particularly intense, and favorable Medicare reimbursement rates for risk contractors apparently have helped attract national managed care firms to the Phoenix market.

The most significant changes in the Phoenix health care market revolve around the organization of physicians. Until recently, the majority of physicians were in solo or small-group practices, but they increasingly are seeking new affiliations to negotiate managed care contracts. In addition to participating in PHOs, some specialists are forming specialty networks and pursuing capitated contracts with HMOs. Finally, a small but growing number of primary care practices are being purchased by national, for-profit physician management companies or other organizations.

Private sector purchasers, for the most part, have not played an influential role in shaping Phoenix’s health care market, nor have other community organizations consistently exercised leadership in the health care arena. Health plans compete primarily on price for commercial enrollees and on benefits for Medicare enrollees. Little public information is available that compares health plans or health care systems in terms of patient outcomes or satisfaction.

At the state level, public policy has focused on the development and operations of the Arizona Health Care Cost Containment System (AHCCCS), Arizona’s alternative to traditional Medicaid. Launched in 1982, AHCCCS contracts with prepaid health plans through a competitive bidding process to serve low-income enrollees. These plans, in turn, contract with most of Phoenix’s physicians and hospitals, providing access to "mainstream" providers for their enrollees.

At the local level, the deteriorating financial condition of the county hospital and its associated service delivery system is the dominant health policy issue. A proposal to privatize the county system as a solution to that problem has sparked intense public debate. Because eligibility requirements for AHCCCS are relatively strict, the county system is a critical safety net provider, and its failure could have a major impact on access to care for the uninsured.