Health care providers' consolidation likely to continue Managed care will foster new alliances

January 18, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

The new year is likely to see more consolidation of health care providers -- and more scrambling by regulators and consumers to keep up.

Already, a number of hospitals acknowledge they are in talks that could lead to mergers or acquisitions in 1998. And others aren't admitting it -- but are talking anyway.

And late last month, regulators approved a proposal from the Maryland and District of Columbia Blue Cross plans to combine their operations.

Not only are hospitals talking to other hospitals, nursing homes to other nursing homes and doctors to other doctors, but different groups are talking to each other as the industry moves toward "integrated delivery systems."

Facing smaller fee-for-service reimbursements, providers are trying to form larger groups, giving them enough patients to get and manage contracts in which they assume insurance risk. They negotiate flat rates per month or per case, and stand to profit as they get more efficient. And increasingly, they look to manage different levels of care so patients can be moved to the least expensive settings.

"You're going to see all kinds of cross-pollination -- hospitals, nursing homes, outpatient clinics, ambulance service," predicted Louis G. Grimmel, chief executive officer of Lorien Health Systems, a nursing home operator. "What you've seen so far is just the tip of the iceberg."

The movement of the state Medicaid system into managed care in 1997 fostered several alliances, and new federal legislation allowing hospitals and other providers to function like HMOs for Medicare contracts should foster more, according to people in the industry.

And another new federal program to care for children who are uninsured could be yet another reason for providers to organize themselves in larger systems. The shape of the program in Maryland will be determined over the next few months. The Glendening administration has proposed extending Medicaid to cover 60,000 pregnant women and uninsured children (costing about $30 million a year in state funds and about $50 million in federal money) but others are pushing programs based on private insurance.

Thus far, savings resulting from hospital mergers have come from consolidating management and gaining purchasing power. But, this year, "you may begin to see actual integration of services," said Calvin Pierson, president of the Maryland Hospital Association.

That could mean hospitals and other systems might eliminate certain services in some hospitals and concentrate them in others, said T. Michael Preston, executive director of the Medical and Chirurgical Faculty of Maryland, the state medical society. "You'll see use of the facilities begin to change," Preston said. "There hasn't been too much of that yet."

As systems look for cost efficiencies, there's also a growing emphasis on "disease management," providing early and effective treatment that can reduce costs later.

"The challenge is: How do you go about managing the care?" said John Colmers, executive director of the state's Health Care Access and Cost Commission. Doctor and hospital groups, he said, are increasingly developing and adopting treatment protocols specifying how to deal with certain conditions rather than depending on individual judgments by physicians.

Besides continuing combinations among providers, some are expecting mergers and acquisitions among the managed-care companies themselves. "HMOs will continue to shrink in number, and consolidate into regional and national operations," predicted Pierson. The number of HMOs with significant operations in Maryland has gone from about 25 to about 15, he says.

While managed care has transformed the marketplace, the HMOs find themselves struggling with rising medical costs and slim profit margins, leading to the highest premium increases in several years.

HMOs are also looking to counter "the symbolic politics of drive-through mastectomies," said Thomas Oliver, who teaches health policy at the Johns Hopkins University School of Public Health. Seeking to soften their image, the HMOs are offering more "open access" products and making more of their performance date public.

L That may or may not be enough to head off government action.

One of the themes in the General Assembly session will be how HMOs can be held more accountable -- by beefing up the appeals process, making it easier to sue HMOs if they deny needed care or subjecting HMO medical directors to discipline.

Similar bills failed last year, but the medical society's Preston, for one, expects early passage, without much controversy, of an appeals process bill.

Another key health topic in the session is how the regulatory system needs to change to keep up with the changing marketplace.

"With the evolution of health care, we have to take a look and see if a lot of things we regulate still need to be done the same way," said Michael Busch, an Anne Arundel Democrat and chairman of the House Economic Matters Committee.

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