National Firms Dominate Phoenix Health Care Market

Media Advisories
February 2001

FURTHER INFORMATION, CONTACT:
Alwyn Cassil: 202/264-3484 or
Richard Sorian: 202/484-3475

ooming population growth has led many Phoenix hospitals to affiliate with national firms to obtain capital to expand, with national firms now controlling 70 percent of the market’s inpatient beds, according to a new Community Report from the Center for Studying Health System Change (HSC). Phoenix is one of 12 communities across the country tracked intensively by HSC researchers through site visits and surveys.

While hospitals have gained clout in health plan negotiations by carving out geographic niches that make them essential to plans’ provider networks, physicians increasingly are striking out on their own, investing time and money developing outpatient surgery centers and specialty hospitals. These new ventures threaten to cut into profitable hospital services such as cardiac care, jeopardizing hospitals’ ability to cross-subsidize emergency care and other less profitable services. Other key findings of the report, Rapid Population Growth Attracts National Firms, which is based on HSC’s third visit to Phoenix, include:

• Hospitals’ increased clout has weakened health plans’ negotiating power and ability to hold down costs. Physicians increasingly are refusing to enter into capitation and other risk-bearing contracts with health plans. To restore profitability, health plans have increased premiums and recently started to exit unprofitable lines of business, including Medicare.
• Two of nine health plans have left Medicare+Choice, while others are charging premiums for the first time or reducing benefits, leaving seniors with fewer choices and higher costs.
• Most large employers have absorbed higher premiums, sheltering consumers from increases, but some small employers have switched plans or dropped coverage. This trend has serious implications in a market where more than 25 percent of people already lack insurance, one of the highest rates in the country.
• Voters forced the hand of the state legislature to deal with the problem of the uninsured by passing a ballot initiative to expand Medicaid coverage, approximated anywhere from 130,000 to 180,000 people.

All of these developments raise important questions about the future of Phoenix’s health care market. How will hospitals respond to the growing competitive threat of physician-owned specialty facilities? Will employers shift the cost of premium increases to employees or drop coverage? Will seniors return to traditional Medicare? Will the safety net continue to meet the needs of the high number of uninsured people?

HSC researchers are available to discuss the findings and put them into a national context. To arrange interviews, please contact HSC Public Affairs. The new report is based on a September 2000 site visit and interviews with more than 85 Phoenix health care leaders, representing providers, plans, employers and consumers.