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![]() ![]() Local Organizations Retain Market Dominance:Cleveland, OhioCommunity Report No. 02
After an active period of deal making, focus now seems to have shifted to internal organizational issues. Key changes shaping the health system today include the following:
Threat to Local Entities Subsides
In the hospital sector, the market entry of two for-profit hospital chains - Columbia/HCA and Primary Health Systems (PHS)- prodded the two leading not-for-profit provider systems to increase their market share through acquisitions and affiliations. While competition in the hospital sector has intensified, several institutions continue to offer forums for collaboration, including Clevelands hospital association and Cleveland Health Quality Choice (CHQC), a communitywide quality initiative. The anticipated merger between Blue Cross and Blue Shield of Ohio and Columbia/HCA was expected to have a profound impact on the market. However, the proposed merger fell apart in March 1997, the same month that the national Blue Cross and Blue Shield Association stripped the insurance plan of its Blues trademark. The former Blues plan, renamed Medical Mutual of Ohio, reported a $95 million loss for 1996. But, since 1997, Medical Mutual has rallied successfully, maintaining its market share, key partnerships and its position as the dominant local plan. To do so, Medical Mutual reportedly has pursued an aggressive pricing policy. In addition, the plan has made changes in key leadership positions, promoting staff and hiring back former employees. Medical Mutual also has maintained its close relationship with the Chamber of Commerces small-business purchasing group and has successfully renegotiated its contract with the Cleveland Clinic. The plans ability to retain its market position during the last two years appears to be further evidence of the importance of relationships and local identity in the Cleveland health care market. Its success was enhanced by the fact that Anthem, the Indianapolis-based plan that acquired the Blues trademark in the market, has not increased its share as anticipated.
Market Concentration Increasing
Since HSCs 1996 site visit, the Cleveland Clinic merged with the four-hospital Meridia Health System and the two-hospital Fairview Health System. It has also acquired Health Hill Hospital, a pediatric facility. At the same time, the Cleveland Clinic continues to build its Cleveland Health Network (CHN), which includes nine owned and 16 affiliated hospitals brought together under a super physician-hospital organization (PHO). To date, CHN has reportedly negotiated 40 contracts with 20 payers. Most physicians who are not affiliated with one of the major hospital systems in the market remain in small groups. These physicians seem anxious about their futures and apprehensive about the increasing consolidation and influence of the hospital sector. Yet, there is little evidence of physician efforts to organize separately from hospitals. There are a few independent physician organizations, including multispecialty group practices, but none is seen as a major market force organizing physicians. Change may be on the horizon, however. At least two physician practice management companies have entered the market and may serve as potential future organizers for physicians. While the two local not-for-profit hospital systems have grown, the two for-profit systems - Caritas, the partnership of Columbia/HCA and Sisters of Charity, and PHS - have suffered a loss of market position in the last two years. Initially, Columbia/HCA attempted to develop a statewide provider presence just as the Cleveland Clinic and UHHS were expanding their influence in the local market. More recently, Columbia/HCA has been preoccupied with its national crisis and the failure of its planned merger with Blue Cross and Blue Shield of Ohio. Meanwhile, PHS has been distracted by the financially troubled Mount Sinai Medical Center. Saddled with a large debt, the system has struggled to retain patients, while a number of its physicians have moved to UHHS and other hospitals. Despite some concerns voiced in 1996, however, there are no reports that these for-profit systems have reduced their charity care. Both systems serve large numbers of low-income patients, and, in spite of their difficulties, apparently have continued to provide charity care for these patients at a relatively constant level. At the same time, MetroHealth, Cuyahoga Countys public hospital, continues to be the leading provider of charity care and Medicaid services. The hospital maintains a close relationship with the Cleveland Clinic, participating as a lead member of CHN.
Mergers Spur Expansion of High-End Medical Services
The Cleveland Clinic and UHHS are taking the lead in adding new services. The Cleveland Clinic is teaming up with Lake West Hospital to establish a heart clinic at Lake, and with Elyria Memorial Hospital for heart and urology services. According to some respondents, the Cleveland Clinic is also investing heavily in its pediatrics and oncology services, both long considered UHHS strengths. Meanwhile, UHHS is partnering with Southwest General Hospital to develop open heart surgery, pediatrics and cancer services, and with Lake Hospital for cancer services. Providers, it seems, have felt little pressure to consolidate their services. Instead, hospital mergers appear to have propped up otherwise vulnerable hospitals and contributed to the expansion of highly specialized services. The major provider systems view their investments in tertiary care services at owned and partner hospitals as a way to establish loyalty and referral relationships. Some respondents, particularly those in outlying communities, are pleased that specialized services are now available locally. Other respondents question whether this trend is in Clevelands best interest. They are concerned that expansion of highly specialized services may, over time, spread experience too thinly, diminish quality and increase costs. To date, the Cleveland Clinic and UHHS have not done much to integrate services across their facilities, although both have consolidated some administrative functions. The two multihospital systems have achieved powerful market positions by increasing their size. But facility integration is a difficult and contentious process that is more complicated than negotiating a merger or acquisition and is often delayed by "stand still" agreements written into merger contracts. In the case of the Cleveland Clinic, integration efforts highlight cultural differences between salaried multispecialty group practice physicians at the Cleveland Clinic and independent, entrepreneurial staff physicians at newly acquired hospitals.
Plans Face Stiff Price Competition
The relative stability of premiums may not be sustainable, and, in keeping with national trends, some predict an upturn for 1999. In Cleveland, health plans are trying to shift the focus of competition away from price to areas such as customer service and medical management. However, plans remain highly undifferentiated in the eyes of purchasers. Most plans share the same broad provider networks and are experiencing similar administrative problems. For example, several respondents report that plans are having difficulty paying providers in a timely manner, in part due to implementation of new information systems. Others note that plans patient information is often inaccurate, requiring providers to establish parallel information systems to manage patient care and insurance coverage.
Purchasers Seem Content with Status Quo
Purchasers have not stepped up their efforts to pursue direct contracting, although the Health Action Council (HAC) of Ohio, a coalition of more than 90 corporate members representing about 325,000 covered lives, has moved forward with its planned Centers of Excellence initiative. The HAC negotiated global fees for 22 procedures and conditions with five hospitals. Based on data from CHQC and other sources, HAC preselected certain area hospitals to apply for a Center of Excellence designation. Some community hospitals complained that this process was unfairly biased in favor of large academic hospitals. Five individual hospitals, including the Cleveland Clinic and University Hospital, eventually were selected for participation. So far, the initiative seems to have had little effect on local purchasing; only a handful of employers have signed on to purchase services through the program.
Medicaid Plans Face Low Rates and Declining Rolls
Several Medicaid plans are having financial difficulties, and some, including United HealthCare, have recently withdrawn from the Medicaid market. Two of the remaining plans, both locally managed insurers serving mostly Medicaid eligibles, reportedly are faltering as well. According to the Cleveland Plain Dealer, the 35,000 Medicaid enrollees in one of these plans, Personal Physician Care, will be disenrolled by the state, apparently in anticipation of the plans liquidation. Respondents differed in their assessment of why Medicaid plans are having financial difficulties. Some cited the decline in the states payment rates and increased competition among plans. Other observers believe that the rates are adequate and claim that inadequate management systems and poor infrastructure are to blame for plans losses. The number of Medicaid plans is expected to decline further as the state implements enrollment floors in each county. Under these new rules, only plans that enroll 10 percent or more of the eligible population will be allowed to contract with Medicaid. Disruption in health care services for Medicaid enrollees is not anticipated as a result of these changes. Most plans that contract with Medicaid to serve beneficiaries in Cleveland appear to include the same set of high-volume Medicaid providers in their networks.
Issues to Track
Cleveland Compared to Other Communities HSC TracksCleveland, the highest and lowest HSC study sites and metropolitan areas with over 200,000 population
+Site value is significantly different from the mean for metropolitan areas over 200,000
population.
The information in these graphs comes from the Household, Physician and Employer Surveys conducted in 1996 and 1997 as part of HSCs Community Tracking Study. The margins of error depend on the community and survey question and include +/- 2 percent to +/- 5 percent for the Household Survey, +/-3 percent to +/-9 percent for the Physician Survey and +/-4 percent to +/-8 percent for the Employer Survey.
Background and Observations
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