Center for Studying Health System Change

ignificant changes are underway in the organization of key health care functions in the Syracuse metropolitan area. Historically, Syracuse’s four general hospitals and the SUNY medical school have dominated the system, in a comfortable relationship with traditional fee-for-service insurers, mainly Blue Cross/Blue Shield. Doctors typically have been organized in solo practices or small groups aligned with one or two hospitals,¹² and are often on the faculty of the SUNY Health Sciences Center. Over the years, the four hospitals were responsible for the joint development of an ambulatory care center, a nursing home and the area’s first prepaid health plan. Nearly all health care organizations were locally owned and administered not-for-profit entities, except for the public SUNY Health Sciences Center.

A growing suburban population, the threat of reduced reimbursement from the new rate negotiation system and the entry of new managed care organizations have accelerated changes in the delivery and insurance sectors. Notable developments include the creation of integrated multispecialty clinic facilities, establishment of PHOs and MSOs to facilitate managed care contracting for physicians and hospitals, purchase of physician practices by hospitals and movement toward more exclusive relationships among doctors, hospitals and health plans.

PROVIDERS

Four Syracuse-based hospitals, all with deep local roots, are key to the area’s health system.

Crouse-Irving Memorial Hospital, with 513 beds, is located downtown, directly adjacent to the SUNY Health Sciences Center and its 350-bed University Hospital. Crouse-Irving Memorial was established 30 years ago through the merger of Syracuse Memorial Hospital and Crouse Hospital. It is a major teaching hospital, and is known for its neonatal and ambulatory surgery programs.

Next door, connected by a bridge, is the SUNY Health Sciences Center, a major academic medical center and tertiary care provider known for its trauma unit and a wide range of subspecialty services, including neurology and endocrinology. It is also a major provider of the region’s uncompensated care.

St. Joseph’s Health System, located north of downtown Syracuse, is owned by the local Franciscan order. The 431-bed facility is recognized as a premier "heart" center in central New York. It offers a major open-heart program and a family practice residency program.

Community General Hospital has 356 beds and is located south of the city. It is known as a strong community hospital with a favorable payer mix.

These four institutions have made up the core of the region’s health care system for years. In addition, there are five community hospitals in the outlying counties:

• Auburn Memorial Hospital, with 306 beds, in Cayuga County;

• Madison County’s 84-bed Community Memorial and 263-bed Oneida Health-care Center; and

• Oswego County’s 67-bed Albert Lindley Lee Memorial Hospital and 202-bed Oswego Hospital.

Physicians generally have been organized in solo practices or small groups. Specialists outnumber primary care physicians by significantly more than the national average.¹³ This is not surprising, given the presence of the SUNY Health Sciences Center and the tendency of physicians to remain in the area after training.

Hospitals and physicians are experimenting with tighter links in preparation for managed care. At the same time, new entrepreneurial physician-driven organizations are starting to emerge.

In the last five years, each of the four Syracuse hospitals has developed a PHO or comparable arrangement with its medical staff. These PHOs are designed to serve as vehicles for managed care contracting, but none currently has the authority to bind its members in contract negotiations. The most integrated of these arrangements appears to be the Crouse-Irving Memorial PHO, in which financial risk is shared for selected procedures.

To "lock in" referral networks and secure patient volume, hospitals have been aggressively purchasing primary care and multispecialty group practices. St. Joseph’s and Crouse-Irving Memorial each has acquired about a dozen practices, and Community General has added three. But there has been a downside to this activity, according to respondents from some hospitals and independent practices, who say that the productivity of purchased practices has declined because of loss of physicians’ financial incentives and less effective management.

Hospitals have also tried to cement referral relations with community physicians by offering to provide management support services, such as billing, clinical records management, benefits administration and office space. In a few instances, providers have linked with organizations that provide other levels of care. Community hospitals outside Syracuse own or manage home health agencies, and a major long-term care institution has been pursuing an exclusive contract with an acute care hospital.

There has been no consolidation among hospitals yet, despite repeated speculation about mergers or alliances among Syracuse institutions or between Syracuse and outlying community hospitals. Proposals for a dedicated children’s hospital service and a merger between University Hospital and Crouse-Irving Memorial fell through. Informal bilateral hospital discussions are reportedly underway again. Physician groups have not consolidated much either.

The physician sector has witnessed an interesting development with the appearance of entre- preneurial physician-directed and physician-owned ventures. One such entity is AJM Management Services, the corporate parent of North Medical Family Physicians. Located in the suburbs north of Syracuse, this system includes a large multispecialty group practice that is licensed to bear risk as an HMO (in anticipation of future managed care activity), physician office suites and lab facilities, practice management services and urgent care and high-volume ambulatory surgery facilities. Hospitals have dismissed AJM as a minimal competitive threat. However, that company’s attempt to establish a second such facility in another location was hotly contested by one of the hospitals, which filed a competing CON application.

INSURERS AND HEALTH PLANS

The insurance market in the Syracuse metropolitan area is still heavily fee-for-service and local. Blue Cross/Blue Shield of Central New York is the principal carrier; Aetna, Cigna and MetraHealth also play a role. In the self-insured market, two multistate third-party administrators (TPAs) that are headquartered locally -- POMPCO and Risk Management Service Company (RMSCO) -- control the bulk of the business; Blue Cross/Blue Shield recently introduced its own TPA product.

Managed care penetration has been modest, reflecting limited purchaser pressure and price competition until recently. PPOs are not a force because they have been barred from negotiating discounts with hospitals -- a prohibition that ended with the reform of New York’s rate-setting law. More than 16 percent of the population is enrolled in an HMO, compared with a U.S. average of close to 18 percent and a 24 percent average for large metropolitan areas.¹⁴ Managed care’s increasing price competitiveness is now beginning to erode fee-for-service plan enrollment. There is also some speculation that New York State’s 1992 small-group insurance reforms, which required guaranteed issue and community rating in the small-group market, may have increased the cost of indemnity insurance.

HMOs in this area typically have been local "home-grown" plans, but outside organizations have now entered the market. The HMO with the longest history is PHP, which also has the largest share of HMO enrollees. PHP was established in 1972 by the four Syracuse hospitals and subsequently became an independent entity. In addition, there are two local IPA-model plans: HMO-CNY, a joint venture between PHP and the four-county medical society, and Patient’s Choice, which was also sponsored by the medical society in 1985 and was acquired by HealthSource, a national HMO, in 1994.

The entry of HealthSource into the local market was followed by the expansion of the Utica-based, not-for-profit Mohawk Valley Plan into the Syracuse area, and the arrival of for-profit MetraHealth. The most recent national entrants are for-profit U.S. Healthcare and not-for-profit Kaiser Permanente, neither of which has made significant inroads in the Syracuse area market to date. At the same time, local plans are working to develop broader regional ties, spurred in part by the Central New York Purchasing Coalition’s activities on behalf of large employers and the regional employment base maintained by many area companies.

Although HMO influence in the Syracuse area is growing, it remains quite limited. There is little capitation of providers; of the six HMOs that operate in the Syracuse metropolitan area, only one offers a capitated group practice model. The remainder are IPA-model entities that pay for care on a discounted fee-for-service basis.

Provider networks are typically large, loose and overlapping, reflecting purchasers’ preferences. (The Purchasing Coalition’s managed care request for proposals reportedly sought plans with broad, open panels that include most hospitals and a wide array of physicians.) Each HMO contracts with 60 percent to 80 percent of Onondaga County’’s specialists. A smaller proportion of the region’s primary care physicians are under contract with each HMO, but they frequently contract with multiple HMOs.¹⁵ At this point, no commercial HMO has an exclusive hospital contract.

PHP is unusual for the Syracuse area in that it contracts with each physician-hospital organization, as well as University Hospital and its faculty practice plan, but it locks enrollees into their chosen primary care practitioner’s referral network. In addition, PHP’s wholly owned, 70-member multispecialty group practice, which refers 40 percent of its inpatient care to a single hospital, is one of PHP’s principal networks.