Health care to expand, consolidate

January 02, 1994|By Patricia Meisol | Patricia Meisol,Staff Writer

Health care in 1994 will continue to be a major growth industry in Maryland, but it will be marked by consolidation and experimentation. For much of the year, experts say, health care providers will try to sort out who to associate with in networks or systems that can deliver care less expensively.

"It'll be like a junior high school dance, where you're not sure who your partners are and you're not sure even whether you want to be with them, but you sort of know you should be," said Gerald F. Anderson, professor and director of the center for hospital finance and management at the Johns Hopkins School of Hygiene and Public Health.

He said the hospital industry will undergo consolidation and only slight employment growth while home health, physician groups and outpatient services will grow far more quickly.

After 1994 and through the end of the decade, the outlook is far more gloomy, he and others say, since the only way to cut costs is to lay off people. Cutbacks are more likely as Maryland moves toward lower-cost outpatient services. The cost of health care, meanwhile, will remain stable or increase slightly after a steady decline in growth rates.

The drastic drop in the growth of surgical procedures this year, to 2 percent from the usual 6 to 7 percent, is unlikely to recur, and surgery centers and alternative delivery sites will gain more share of the hospital's cases, said Eugene Melnitchenko, senior vice president of Legg Mason Wood Walker Inc.

He said the difficult period of the past year and a half -- the worst he's seen in 30 years of watching health care companies -- is over. If enacted, the national health care plan that has been proposed by President Clinton would increase demand for services, including at hospitals. The exception is biotechnology, Mr. Melnitchenko said, which could be hard hit by price control proposals.

For health maintenance organizations and other forms of managed care, the outlook is better than ever. But competition remains fierce.

"The issue of health care reform at the state and federal levels has made more people more aware of managed care," said Alan J. Silverstone, senior vice president of Kaiser Permanente Health Plan's Mid-Atlantic States region, which covers 319,625 people.

He also said a new state law aimed at making health insurance more affordable for small businesses could have a positive impact, "because more people will be insured and managed care will get its fair share," he said.

For the first time, Kaiser said, it will consider using facilities owned by outsiders to capture some of the expected growth. Until now, it has distinguished itself by building its own clinics and hiring its own doctors.

Long-term health care -- nursing homes, home health, subacute and rehabilitation services -- could be the fastest-growing segment of the health care industry. Like the hospital industry, in which seven major companies merged into three in the past four months, it is expected to experience major consolidation.

Of the 20 existing major U.S. companies, maybe half will be left by the end of 1994, predicted Robert N. Elkins, president and chief executive officer of Integrated Health Services Inc. in Owings Mills. His company doubled in size this year through acquisitions and projects earnings of $1.70 a share in 1994, up from $1.30 this year.

And doctor companies are expected to take root and could change all the equations.

Groups of 300 and 400 physicians, mostly based at hospitals, already are forming. The question is whether managed-care companies, with their insurance and information functions, will prevail over hospitals and physicians groups in the new delivery systems.

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