Health Care Projects
Project: Virginia Health Care Buyer Articles
Client: Bull's Eye Publishing
Service provided: Writing
 River Makes for Divided Market
Richmond Market Profile
The Richmond region’s managed care market is typical of most markets its size—relatively mature with sufficient population to attract plenty of competition. The market’s distinguishing feature is its geography. More influential than any strategic business moves and counter-moves by key players is the James River, which effectively divides the market in half and keeps people from traveling across it to receive health care.
“The James River is a psychological barrier for many people,” says Chuck Stark, CEO and regional vice president for HealthSouth Medical Center. Stark and many other observers of the market say that Richmond is more like two self-contained communities on either side of the river. Residents have little reason to shop for products and services across the James River when they can find all they need on their own side.
The Cost-Benefits Balancing Act
Richmond is home to many Fortune 500 and Fortune 1,000 company headquarters. The city’s top 10 private employers include Philip Morris USA, Capital One Financial, Circuit City Stores and both of the city’s large health care systems—HCA Richmond Hospitals and Bon Secours Richmond Health System. In addition, Richmond has major pharmaceutical manufacturing and research facilities, chemical and fibers manufacturing, an array of service providers and the microelectronics firms. This type of employer market has proved to be fertile ground for managed care.
Richmond has a very tight labor market. With the market approaching full employment, many employers are reluctant to reduce benefits for fear they will lose employees—even though the employers are watching their health care costs steadily rise. Instead, says Barbara Bailey, a Richmond-based health care consultant with William M. Mercer, employers are controlling costs by tinkering with benefits design and packaging. “Our clients are asking us to work on their contribution strategies,” Bailey says. “If they want to pass along a cost increase to employees, we advise them to consider offering a new benefit along with it.”
In their attempts m appeal to “the new generation of employee,” Bailey says employers are adding such options as vision benefits and dependent care spending accounts while building in more flexibility and choice. Many are opting for three-tiered co-pays for prescription drugs to boost employees’ share of the cost of higher-priced pharmaceuticals.
There has been a bit of upheaval in the managed care market for employers and employees. In Fall 1999, Aetna U.S. Healthcare surprised the Richmond health care community when, after several months of talks, it broke off negotiations with the Bon Secours Richmond Health System, excluding the system’s four hospitals and other facilities from its network. Soon after, 52 primary care physicians employed by Bon Secours’ physician and outpatient services division withdrew from the Aetna network, effective January 1, 2000.
In a news release dated November 8, 1999, Bon Secours predicted, “A large number of workers are expected to switch health plans to maintain access to Bon Secours facilities and its network of Virginia HealthSource affiliated physicians.”
Despite the uproar, Aetna’s cessation of negotiations with Bon Secours proved to be something of a nonevent in the community. “It’s not as much of an issue as we thought it would be, and not as much as I think Bon Secours hoped it would be,” says Bailey. “National employers hate to cancel Aetna totally just because of Richmond. They’re not happy about the situation with Bon Secours, but they’re not all leaving Aetna because of it. Most offer other options that include Bon Secours.”
Paul J. Stone, Jr., a benefits consultant with Group Insurance Concepts of Virginia, says he has had one client switch from Aetna to another carrier, but the exclusion of Bon Secours from the network was only one factor. “The employer got what they considered to be an out-of-whack price increase of around 22 percent at renewal,” he says. “That plus losing Bon Secours meant they had to go somewhere else.”
It may be too early to tell how many employers will ultimately switch health plans, but as of February 2000, Aetna had counted fewer than 500 members lost because of dropping Bon Secours from its network. “That’s 500 out of a base of 140,000 in Richmond,” says Rich Hogue, Aetna’s senior network manager for southern Virginia.
Hogue maintains that the Bon Secours exclusion is not permanent. “We tried very hard to bring Bon Secours into the network,” Hogue says. “We’d like to have them back. There’s nothing in our contract with Columbia that precludes Bon Secours from coming back in. The door is still open.”
Health Plans Offer Cost Control Measures
HMOs have found a great deal of success in the Richmond Region. Total HMO penetration for all members including Medicare and Medicaid is approximately 42 percent, while HMO penetration among commercial employers is approximately 50 percent, according to National Research Corporation’s (NRC) Healthcare Market Guide Study 1999. PPO penetration is less, with a total penetration of approximately 23 percent and a commercial market penetration of about 27 percent. POS penetration for all members is about 4 percent, approximately 5 percent for commercial employers. The market’s leading managed care plans in terms of covered lives are Trigon Blue Cross Blue Shield, Cigna HealthCare of Virginia, Aetna U.S. Healthcare and UnitedHealthcare of Virginia.
With approximately one-third of the market share in its licensed service area, Trigon is also the largest health care insurance company in Virginia. As of February 2000, Trigon covered 42,950 people in indemnity plans, 153,665 members in its HealthKeepers HMO and 186,070 in its KeyCare PPO in the Richmond market.
Throughout Virginia, Trigon’s HMO commercial enrollment grew 13 percent last year, while KeyCare PPO membership increased 27 percent. Trigon’s numbers are in sharp contrast to national surveys, such as Mercer’s National Survey of Employer-sponsored Health Plans, which show HMO enrollment as flat and PPO enrollment with a growth of 3 percent.
Brooke Taylor, vice president of corporate communications for Trigon, attributes the growth to the breadth, depth and stability of Trigon’s provider networks and the company’s pricing strategies. “We’ve seen a lot of irrational pricing in the past several years,” observes Taylor, “but we’ve tried to stick to the actuarial realities and price our plans right every time. As a result, our customers haven’t seen the substantial average premium increases some of the other companies have had to impose.”
By implementing provider contracts based on fee schedules rather than discounts off charges for outpatient procedures, Trigon has further stabilized costs. “Paying a set fee gives us more predictability,” explains Taylor. “Combined with our range of products and service enhancements, this makes Trigon a good value for customers.”
Employers are “looking for a company that can provide health benefits solutions,” says Greg Bowman, president and general manager for Cigna HealthCare of Virginia. “We’re able to offer myriad solutions, depending on the customer’s need.” As of January 2000, Cigna’s Richmond-area enrollment stood at approximately 149,000 for its HMO, POS and Medicare products.
In competing for new business, Bowman says a particular strength is Cigna’s ability to offer HMO products nationwide. The company has also resisted the temptation to lower prices in order to gain market share. “From the outset, we’ve priced our product fairly to reflect medical costs,” he says. Cigna has both capitated and fee-for-service contracts with physicians, with per diems and case rates predominant in its contracts with hospitals.
Aetna U.S. Healthcare continues to integrate its recent acquisitions of NYLCare Health Plans and Prudential Health Care Plan into its operations, converting members to products from the Aetna portfolio at renewal time, resolving service problems and negotiating new provider contracts.
“The transition is going as expected,” notes Mark Sucoloski, district manager for southern Virginia. “We’re going through the process very deliberately”
Aetna is introducing EZLink to the Richmond market, an Internet-based system allowing employers to administer benefits plans online using direct, real-time access to Aetna’s information systems. “Employers are looking for ways to streamline their benefits administration,” notes Hogue. “EZLink enables them to improve efficiency and reduce costs.”
UnitedHealthcare of Virginia, Inc., markets HMO, POS and PPO plans in the Richmond area, offering a broad network of physicians and hospitals. Members covered by UnitedHealthcare’s open access plans are not required m designate a primary care physician and may go directly to specialists without a referral.
The Virginia Multispecialty Services Organization, a provider sponsored network based in Richmond, has teamed with Virginia-Carolina Managed Care, Inc., (VICARS) to create a fully insured plan for employers. Early in 2000, the group began offering VICARS Plus through an association with Frontier and Risk Capital. “We’re a local plan targeting local companies,” says Bruce Donald, COO of VMSO. As of February 2000, VICARS Plus had 250 enrollees.
The VMSO/VICARE network has more than 2,000 physicians and nearly 30 hospitals and markets to employers from the Richmond Region to the Hampton Roads Region and south into northeastern North Carolina. As the group continues to market VICARS Plus, Donald says he hopes to identify and work with other local and regional networks. “Until now, managed care has been price-driven,” he observes. “The model that has to evolve will be driven by utilization management. As that happens, offering local utilization management will be a real competitive strength.”
A relative newcomer to the Richmond market is Charlottesville-based QualChoice of Virginia Health Plan. “We do have a presence in the Richmond marketplace—one of the most highly penetrated managed care markets in Virginia,” says Liz Nottingham, senior provider relations representative. “We currently have 1,353 physicians participating throughout the tri-cities area and include the major hospital systems.”
Providers Draw Lines in the Sand
The James River’s impact on the Richmond health care market is perhaps best illustrated by the two largest health care systems serving the area—Bon Secours and HCA. Bon Secours is part of an international, not-for-profit, Catholic sponsored health care ministry. HCA is a national, for-profit hospital chain. All four Bon Secours hospitals are north of the river, while HCA, which operates five hospitals in the Richmond area, dominates the southside.
“The James River feels like the Great Wall,” says Lori Kaczmarek, vice president of managed care for Bon Secours. “Two suburban communities have developed, one on each side, and there’s a very strong tendency to stay on your side. Columbia has effectively leveraged its geographic monopoly in its negotiations with health plans because the plans know they have to have southside hospitals in their networks to be able to market their products.”
Bon Secours plans to break HCA’s southside monopoly with its new 130-bed St. Francis Medical Center to be built on a 40- to 50-acre tract near the Powhite Parkway and Route 288—south of the James River. In December 1999, Bon Secours received conditional approval from the Commonwealth’s health commissioner to transfer beds from its downtown Stuart Circle Hospital to the new facility. Construction on the hospital and its adjacent medical office buildings is scheduled to begin in Spring 2001. Bon Secours expects to finish the $69.5 million project in two years. Swart Circle is now a short-stay surgical, diagnostic and urgent care facility.
HCA has responded to Bon Secours’ planned entry into its territory by challenging the state’s approval of transferring Stuart Circle beds. “The application fails to meet state standards,” maintains Mark Foust, director of communications for HCA. “The Certificate of Public Need standards were designed to prevent building a new hospital where beds aren’t needed. Based on the numbers, the situation here doesn’t rise to the threshold of need.”
While HCA awaits a court ruling on its challenge, Bon Secours is proceeding with its plans for St. Francis. “There was so much at stake to win the Certificate of Public Need,” says James M. Goss, vice president of public relations for Bon Secours Richmond. “Across the board, on average, our prices are 20 to 25 percent lower than HCA’s. We believe St. Francis is going to lower health care costs in this market by $14 million a year.”
While Bon Secours and HCA duke it out, other Richmond-area hospitals are working on their own situations.
The primary teaching facility for Virginia Commonwealth University, Medical College of Virginia Hospitals (MCV) also operates outpatient facilities on both sides of the James River in downtown Richmond. With a full-time faculty of 650 physicians and about 600 residents, the hospital draws patients from throughout the region to more than 100 specialty clinics and patient care centers.
MCV shares the state’s total market with the University of Virginia, according to Carl R. Fischer, CEO. “The two of us have divided up the state,” he says, describing MCV’s primary service area as extending north to Fredericksburg, east to Virginia Beach and south of Richmond to the North Carolina border.
For the past five years, MCV has contained costs by reducing staff through attrition and retirement. This year, for the first time, MCV had to lay off about 50 people to reach its staff reduction goal of 220 positions. “We don’t see much opportunity for further reductions,” Fischer says, explaining that the staff cuts have not had a negative impact on quality of care. “We’ve been careful in that regard. It helps that our census has reduced as the length of stay has gone down, with a corresponding growth on the outpatient side.”
MCV has contracts with virtually all the managed care plans operating in the area, negotiated by a managed care department serving the hospital and its physician group. Like most teaching hospitals, Fischer says MCV’s costs are higher than other hospitals, a fact many managed care companies seem to disregard. “When we sit down to negotiate with managed care plans, they want the lowest inpatient rates in town,” Fischer says. “Nobody wants to recognize academic medical centers are different. They want to pay us below cost. We’re just about breaking even now, but a lot of academic medical centers are having serious problems because of that.”
Since its full renovation and name change in 1997, downtown’s Capitol Medical Center has evolved into “a great little hospital,” says Lori Snavely, director of marketing and business development. Capitol has spacious, all-private rooms and staffs 133 of its 179 licensed beds. As downtown revitalization continues, Capitol is leveraging the convenience of its location for city dwellers as well as employees working downtown. “Our tagline is, `We care for the city,’ and we try to show that in every way we can,” she says.
Capitol is a relative newcomer to managed care. “In 1997, we had zero percent managed care,” says Timothy Fritts, vice president of managed care and physician services. “In three years, that has increased to 28 percent of our revenue.”
HealthSouth Medical Center, an acute care hospital in Richmond’s far West End, serves Henrico, Goochland and Hanover counties. The facility is one of five acute care hospitals in the international HealthSouth system, the nation’s largest owner of freestanding physical therapy and rehabilitation facilities. “HealthSouth got its start in rehabilitation,” says Chuck Stark, CEO. “This was an orthopedic specialty hospital when we bought it in 1992. We’ve made it into a multispecialty hospital, but we still have centers of excellence in orthopedics.” HealthSouth also focuses on occupational health and has six area facilities to serve employers.
As part of Aetna’s provider network, HealthSouth has experienced an increase in volume since the first of the year when the Bon Secours hospitals were excluded. “There is most definitely a difference since the first of the year,” Stark says. “It’s still early, but we’re already seeing a marked increase in Aetna referrals.”
Cost-containment and annual admissions growth averaging five percent over the past four years have kept not-for-profit Southside Regional Medical Center in Petersburg financially sound, says Don Haraway, senior vice president of finance. However, “The continued shift to managed care is impacting the hospital’s bottom line,” he adds.
Most of Petersburg’s family practitioners admit exclusively to Southside Regional, but the hospital is excluded from two national plan networks for some or all of its services. While the hospital is part of Aetna’s network, its contract with Prudential ended December 1, 1999, after contract negotiations failed. “We’d had a contract with them since they started here in the 1980s,” says Haraway. “They wanted to pay us substantially less than the other managed care plans, so we were not successful in reaching an agreement.” Until all Prudential members have completed the transition to comparable Aetna products, the hospital will remain outside their provider network.
Southside Regional is also not in the Cigna network for outpatient diagnostic radiology services. “When local practitioners want a patient to have an x-ray, they have to schedule it at John Randolph (one of the HCA hospitals), and the patient is put to the inconvenience of traveling to Hopewell,” Haraway says.
According to Cigna officials, the decision to exclude Southside Regional and other not-for-profit hospitals was made on the basis of cost and quality issues. “After a lengthy request-for-proposal process in mid-1997, we embarked on an exclusive contract for outpatient diagnostic radiology services with HCA to maximize the quality of services for our members while maintaining reasonable and affordable premium levels,” Bowman says.
Home-Grown Plans Dominant in Central Region
Central Virginia Market Profile
In an area steeped in the history of Thomas Jefferson and the beauty of the Blue Ridge Mountains, the Central Region’s small cities and rural counties have remained inwardly focused when it comes to health care. Strong local plans with ties to providers in three of the region’s largest cities—Charlottesville, Lynchburg and Danville—join Trigon Blue Cross Blue Shield as the largest managed care players in the market
“To some extent, the Lynchburg market is essentially closed to all but Trigon and the local plans,” says Buck Bradley, a broker and president of Bradley & Associates in Lynchburg. “Charlottesville and Danville have some additional choices. But about the only thing we can show employers in Lynchburg—especially for groups of 50 or smaller—are Trigon and Piedmont Community Health Plan. Both are good, but we can offer a lot more choices outside the area.”
Limited Choices for Employers
Most Central Region employers are prospering in a strong economy, and parts of the region are experiencing unemployment rates that are better than the national average of 4.5 and the Commonwealth average of 2.8. As of January 2000, 1.6 percent of Charlottesville’s work force was unemployed, and Lynchburg’s unemployment rate was 1.7 percent. In contrast, unemployment in Danville stood at 5.1 percent.
Depending on an employer’s particular situation, some are shifting more of the cost of benefits onto employees, while others are creating richer benefits packages. “We’re seeing a lot of employers who have not previously had their employees contribute now start picking up some of the premium costs,” Bradley says. “There also increasing deductibles and co-pays as well.”
However, he continues, “Some employers have said they don’t want to tamper with their benefits because they want to attract and retain employees. In some of the very labor-intensive industries, we’ve had employers actually increase coverage and add benefits like dental or vision plans. They want to make sure they don’t lose key employees because they feel losing even one or two would cost them far more than what they could save by reducing benefits.”
“We’re trying to be the best employer around,” says David E. Miller, CFO for L.A. Lacy, a Charlottesville-based plumbing contractor with 140 employees. “The company pays 60 percent of medical plan premiums for employees with fewer than five years of service, and after five years, we pay 100 percent for the employee and a percentage for dependent coverage. The longer you’re here, the more we pay”
During his 10 years with the company, Miller says L.A. Lacy has switched its medical insurance carrier several times due to service issues and skyrocketing premiums. “We were with Blue Cross Blue Shield and then went to Mamsi, then to QualChoice and then back to Trigon,” he says. “We are currently happy with Trigon, but we wish there were more alternatives. It would probably help keep prices competitive.”
Employers in Lynchburg joined physicians, hospital administrators and insurers in 1989 to form a coalition to focus on workers’ compensation issues. The Lynchburg Health Care Coalition now meets quarterly, appointing task teams to address health care issues as they come up. “We’ve just formed a team to look at employees whose doctors give them written excuses when they miss work,” says John Gray, human resources manager of Weyerhaeuser Company. Gray co-chairs the coalition’s workers’ compensation task team, which he says is now in “maintenance mode” after doing most of the difficult problem solving in the early 1990s.
These days, Gray says the coalition is focusing more on continuing education of its members and on promoting wellness. “We have educational meetings and share information in local seminars and mailings—any way we can get health care information to the community,” he says.
Regional Health Plans Offer Comprehensive Coverage
PPO plans are beating out HMO plans for business in the Central Region. Total HMO penetration for all members including Medicare and Medicaid is approximately 20 percent, while HMO penetration among commercial employers is approximately 27 percent, according to National Research Corporation’s (NRC) Healthcare Market Guide Study 1999. Total PPO penetration is around 30 percent, and commercial market penetration is approximately 35 percent. POS penetration for all members is approximately four percent and approximately six percent for commercial employers.
The region’s managed care market has three hometown favorites with strong ties to local health care systems: QualChoice of Virginia Health Plan, based in Charlottesville, Piedmont Community Health Plan, based in Lynchburg, and Gateway Health Alliance, based in Danville. Trigon, with between 25 percent and 31 percent of the market, has members throughout the region, and Cigna HealthCare of Virginia, Mamsi, UnitedHealthcare of Virginia and Aetna U.S. Healthcare compete for the remaining market share. Community Health by Optima, which is partnered with Martha Jefferson Health Services, is a fairly new player in the Charlottesville market.
QualChoice is the managed care leader in terms of covered lives in the Charlottesville market. The University of Virginia and the UVa Health Services Foundation created QualChoice in 1995 and co-own about 95 percent of its shares. The remaining shares are owned by Martha Jefferson.
The best-selling QualChoice product is its triple-option POS plan, which offers three combinations of copayments and deductibles with varying levels of choice. “QualChoice saw substantial improvement to its operating margins in 1999 and approached break even,” says Marty D’Erasmo, president and CEO. “We anticipate a profit in 2000.”
Since joining QualChoice in October 1998, D’Erasmo has implemented a number of changes that are stemming the flow of red ink. “One thing that has made a difference is just paying attention to the details of running the business—especially underwriting and actuarial realities,” she says, citing pricing appropriately to reflect the benefit and more aggressive vendor contracting as additional factors.
QualChoice is actively marketing throughout its service area. “QualChoice is evaluating opportunities for expansion into new markets,” says Kathy Terribile, senior vice-president of sales and marketing. “We are focusing our efforts in areas contiguous to our current service area. That focus supports our current clients and provides opportunities for new memberships.”
Lynchburg’s Centra Health, in conjunction with Integrated Health Care, an organization of more than 250 Lynchburg-area physicians, created Piedmont Community Health Plan in 1994. Other Lynchburg players are Trigon, Cigna and Mamsi. “UnitedHealthcare is just now trying to enter the marketplace,” says Marijo Lecker, vice president of Centra Health. “They have to have a provider network to sell business, yet it’s difficult for us to know what volume of business we’re looking at when we can’t predict membership.”
Cheryl Midkiff, director of marketing for Piedmont Community Health Plan, reports total membership of 34,500 as of February 2000, including about 5,600 members of fully insured plans marketed through its licensed HMO subsidiary, Piedmont Community HealthCare.
Midkiff cites Piedmont’s Lynchburg roots as a primary competitive advantage. “Being a local plan, we’re easily accessible,” she says. “When our customers have a problem, they can stop by the office and we can go talk to the decision-makers. We’re not a huge operation, either, so employers can deal with the same people.”
Although Midkiff encounters employers based outside Lynchburg who prefer to insure all employees under a single statewide or national plan, a number of local groups contract with Piedmont independent of other company locations. “We have quite a few who split out pieces of their plan for the employees who are here,” she says. “In some cases we have set up groups of four or five on a fully insured arrangement”
Danville’s local managed care market contender is Gateway Health Alliance, a PHO co-owned by Danville Regional Health System and the Danville area physicians. Gateway works with many self-funded employers on a direct contract basis, as well as fully insured clients through its partnership with Southern Health Services, a Richmond-based insurer licensed to operate in Gateway’s service area.
“Gateway has changed a lot in the last couple of years,” says Brett Jackson, executive director. “We did away with gatekeepers at the beginning of 1999. We still structure benefits to encourage members to see primary care physicians first, but we decided any savings that came with requiring referrals didn’t offset the pain it caused members and providers.”
The 176 employees of Shorewood Packaging have been members of Gateway Health Alliance since July 1999. “It’s still sort of new,” says LeaAnn Grogan, human resource specialist. “Gateway is still working to get more providers in the network, and that will give us more choices, but we’re happy with the ones we’ve worked with so far.”
As of March 2000, Gateway had 17,500 members, including about 13,000 whose medical care and utilization review the PHO manages on behalf of the payer. Other members simply access the provider network through Gateway’s PPO.
In all three Central Region markets, Trigon has approximately 155,000 covered lives in the Central Region in its HealthKeepers HMO and KeyCare PPO. “We have a very strong presence wherever we are, and we had a very good year last year,” says Brooke Taylor, vice president of corporate communications. “Statewide, our commercial enrollment in HealthKeepers grew more than 12 percent and our KeyCare PPO grew 27 percent”
Trigon’s provider network includes all acute care hospitals in the Central Region and most of the primary care physicians and specialists. “With stable networks throughout Virginia, Trigon is the one to count on for product choice and competitive prices,” Taylor says. “In Charlottesville, for example, we offer both HMO and traditional plans, along with our popular KeyCare PPO.”
Area Hospitals Excel
The Central Region’s leading provider, Charlottesville’s University of Virginia Medical Center, recently distinguished itself for the second consecutive year by qualifying for the 1999 “100 Top Hospitals” list, the annual survey released by HCIA and William M. Mercer.
Earlier in the year, UVa made HCIA’s new “100 Top Cardiovascular Hospitals” list identifying the best-performing hospitals in coronary artery bypass graft surgeries and coronary angioplasty procedures. The listed hospitals had significantly lower mortality and complication rates than the national peer group and average per-case costs $3,000 lower than the group average.
A value improvement program launched six years ago to focus more on patient satisfaction and quality may well be the single most important factor in the Medical Center’s growing national reputation. Recently, the program’s emphasis has shifted to performance enhancement. In August 1999, UVa hired consultants to help identify ways to improve the system’s annual financial position by at least $40 million by 2003. In February 2000, multi-disciplinary teams began developing strategies to enhance revenues and reduce expenses.
For the past eight years, Milton Dunlap has negotiated UVa’s contracts with service providers and plans. Currently he and his staff of four preside over more than 50 managed care agreements, including a number of carve-out contracts for transplants.
“We do all of our contracting in coordination with our practice group of about 600 doctors—the Health Services Foundation,” Dunlap says. “It’s a separate corporation, but neither of us will go forward without the other.”
Dunlap says that while payers are “frequently looking for substantial rate concessions” in contract negotiations, consumers’ insistence on choice has tempered plans’ bargaining style. “Plans have tended to back off on the exclusive contracts with hard steerage because people don’t want to be told they have to use a certain doctor or hospital,” he observes. “As a result, plans aren’t quite as aggressive in negotiating rates. Most of them realize it’s important to have UVa on board, so we end up finding that balance where we’re both content to go forward.”
Martha Jefferson Hospital, also in Charlottesville, has developed a loyal following among patients by emphasizing personal attention. To accommodate the community’s dual hospital preferences, the 180-bed Martha Jefferson offers a number of services also available at UVa, and some physicians have privileges at both hospitals. UVa and Martha Jefferson also jointly own and operate a heart catheterization lab at the smaller facility.
Through the Martha Jefferson PHO, the hospital and its physicians have direct contracts with a number of area employers as well as provider relationships with all major managed care plans serving the Charlottesville market. Formed nearly a decade ago, the organization transformed itself into a for-profit PHO in 1996.
Lynchburg’s Centra Health is a not-for-profit organization that includes Lynchburg General Hospital and Virginia Baptist Hospital as well as primary care practices in surrounding communities, health care clinics, a nursing center, a counseling center and a diagnostic lab. The health system works closely with area physicians and with members of the Lynchburg Health Care Coalition to address community health care concerns as they arise. Currently, Centra Health staff members are working with the coalition on equipping employer locations with automatic external defibrillators (AEDs).
“We’ve been encouraging coalition members to purchase AEDs and get training on how to use them,” Lecker says. “That’s just one example of how the coalition has evolved from its initial cost review orientation to more of a focus on wellness and, in this case, on quicker reactions to medical emergencies.”
Centra Health also supports the coalition by presenting educational programs at meetings. Most recently, Centra presented a program on Virginia’s Children’s Health Insurance Act. “There’s money available to cover more children who might not have third-party insurance coverage,” explains Lecker. “We did a presentation to die coalition and asked them let their employees know this money is available and how to apply for it.”
In Danville, the Danville Regional Health System operates Danville Regional Medical Center. The system also includes a primary care network, an occupational health program, a nursing home, independent and assisted living facilities and behavioral health services.
Brad Sexauer, the system’s vice president of planning and marketing, says the 16-doctor primary care network is the system’s response to a shortage of primary care physicians in the Danville area. “We saw this need in the community, and we decided the only way it was going to be met was for us to offer an employment option because that is what many primary care physicians were requesting,” he explains, adding that the system operates its physician practices at a loss. “At this point we feel pretty good about our supply of primary care physicians.”
Sexauer says the Danville Regional Health System is part of several managed care networks, but “we don’t sign all the managed care contracts that are sent to us. We sign the ones that make sense for us—the ones that will bring us additional new business and reasonable discounts that are in line with our other contracts.”
East of Danville, at the region’s southeastern tip, Greensville Memorial Hospital in Emporia is operated by Community Health Systems, based in Brentwood, Tenn. The company owns or leases about 50 hospitals in 20 states.
While operating Greensville Memorial under the lease, Community Health Systems will invest between $3 5 and $40 million in a new facility to replace the current hospital. The new facility will be built at the intersection of Highways 58 and 301, a half-mile from I-95, on property adjoining the current hospital grounds.
Gene Faile, CEO since May 1999 says the hospital has asked for 104 beds in its December 1999 application for a Certificate of Public Need (CON). “Our vision is to become a medical center—perhaps, even a regional medical center—so people will no longer have to travel out of our area for services we can perform,” Faile says.
Soon after joining Greensville Memorial, Faile says he visited area employers “to find out what they’re looking for from their health care provider.” Most told the new hospital CEO that their top priority is excellent emergency care, followed by local access to more specialists. While waiting for state CON approval, Faile is overseeing renovations in the current hospital’s emergency and obstetrics departments. “We’re not investing a lot in this physical plant, but we are going to spend up to $9 million on new medical equipment and furnishings we can take with us to the new hospital,” he explains.
The hospital is also recruiting new doctors to the community and helping them establish practices. So far, a family practitioner, an obstetrician and a pediatrician have agreed to open new practices by midsummer in Emporia. “We’ll be recruiting other specialists as we identify services we want to offer here,” says Faile. “With the addition of the many new physicians we will be bringing to the area along with the building of a new regional medical center, the future of health care delivery in south-side Virginia is very bright.”
Keeping the Cost-Quality Balance
Central Virginia Market Profile
For decades, community leaders throughout the Central Region have demonstrated their ability to maintain the cost-quality balance exceptionally well without the pressures of heavy managed care market penetration. Although the approaches are varied, common sense and collaboration are themes interwoven throughout all the Central Region’s success stories.
Cooperation Instead of Competition
The University of Virginia Medical Center (UVa) in Charlottesville, which had its share of negative publicity during the past year, also had an excellent achievement. The medical center was ranked one of 1998’s “100 Top Hospitals” in the sixth annual survey list released by HCIA, Inc., and William M. Mercer, Inc. It was the only major teaching hospital of the South’s 15 to make the list. This distinction was out of a total of 3,258 hospitals evaluated nationwide by researchers for quality of care and cost efficiency.
UVa began laying groundwork for these results decades ago, but a value improvement program launched five years ago may well have been the strategy that pushed the medical center to Top 100 status.
“Fifteen years ago, teaching and research were our highest priorities, and patient care was third on the list,” observes Maureen Wellen, UVa’s director of marketing and communications. “But the value improvement program made us focus more on patient satisfaction and quality, and that helped us realize patient care needed to be number one.”
Wellen says by reorganizing into service centers, the Medical Center transformed physician and staff working relationships while streamlining patient care. “By organizing doctors and support people around a disease, we really, truly have made health care an interdisciplinary team effort,” she explains.
In addition to its traditional clinical departments, the Medical Center created Specialty Care Service Centers for cancer, heart disease, kidney disease, psychiatric diseases and organ transplants. The Children’s Medical Center specializes in pediatrics, and the Women’s Place concentrates its resources on women’s health.
“Organizing the Specialty Care Service Centers really broke down traditional barriers and allowed us to think more systematically about patients and their diseases,” Wellen says. “Having physicians and hospital staff together in one building has also provided many more opportunities to talk to each other, and that improved communication has promoted a new level of cooperation that is very beneficial to our patients.”
The Charlottesville region is served by two distinct types of hospitals that provide services in an environment of cooperation and healthy competition.
Martha Jefferson Hospital has developed a loyal following among patients by emphasizing personal attention. “Our size allows us to focus on service issues,” explains Elliot Kuida, vice president of managed care.
To accommodate the community’s dual hospital preferences, Martha Jefferson offers a number of services also available at University of Virginia. Many University of Virginia physicians have privileges at both the Medical Center and Martha Jefferson, and the two hospitals jointly own and operate a heart catheterization lab at the community hospital.
“For many people, there does seem to be a strong preference for one institution or the other, and that has led to some overlap,” says Kuida. “We don’t plan to offer the highly specialized services you find at the Medical Center, but we will continue to give our community a choice of hospitals for the health care services they need.”
Through the Martha Jefferson physician hospital organization (PHO), the hospital and its physicians have direct contracts with a number of area employers, as well as provider relationships with all major managed care plans serving the Charlottesville market. Formed nearly a decade ago, the organization transformed itself into a for-profit PHO in 1996.
“We realized we were moving toward a more risk-based environment, and we wanted to make sure we had the appropriate vehicle to negotiate capitated contracts and other forms of risk-sharing arrangements,” explains Kuida.
Keeping an Eye Toward Community Interests
Lynchburg’s tradition of managed care dates back to the early 1970s when the city’s two hospitals—270-bed Lynchburg General Hospital and 388-bed Virginia Baptist Hospital—began a voluntary effort of cooperation. To avoid duplication of services, Lynchburg General has evolved into a critical care hospital, offering emergency services, intensive care, cardiology, orthopedics, neurology and neurosurgery services. Baptist focused its resources on women’s and children’s services, outpatient surgery, oncology and mental health services. Baptist is opening a new ambulatory surgery center and comprehensive birthing center in June.
In 1986, the two hospitals merged to form Centra Health, a not-for-profit organization that also operates primary care practices in surrounding communities, health care clinics, a nursing center, a counseling center and a diagnostic lab. With Integrated Health Care, Inc., Centra created Piedmont Community Health Plan in 1994.
That spirit of cooperation has paid off in Lynchburg. During 1998, Lynchburg was cited by the “Dartmouth Atlas of Health Care” as having the lowest cost in the nation in Medicare spending per patient. Lynchburg spent $2,887, compared to a national average of $4,878, per non-HMO Medicare enrollee.
“We have extremely low costs while maintaining high quality,” says Marijo Lecker, vice president for Centra Health. “It’s really the history of the Lynchburg marketplace. The high level of cooperation, the merger and consolidation of services at the two hospitals, physicians who practice very good medicine—it’s really just doing the right thing.”
Three years after the merger, several Lynchburg-area employers decided to form the Lynchburg Health Care Coalition to help control health care costs, inviting physicians, hospital administrators and insurers to participate as voting members. This was a move employers in just about any other community would see as fraternizing with the enemy. At first, there was some venting of frustrations by all constituents, but before long, constructive problem-solving began, according to John Gray, area human resource and quality manager for Weyerhaeuser Company.
Early on, the coalition focused on workers’ compensation issues and determined that most problems were rooted in poor communication among physicians, hospitals, employers and insurers. Together, coalition members hammered out simple, workable solutions. The group asked employers and physician practices each to designate a workers’ compensation contact to handle questions about injured employees’ cases. The coalition also developed a form that virtually all Lynchburg area doctors now use to advise employers on precisely what limits the doctors recommend for injured employees returning to work.
Area employers use standard Workplace Profile forms to help health care providers understand their working conditions and workers’ compensation policies. Copies of completed forms from about 50 employers are on file in physicians’ offices and at the hospital emergency department.
“The forms were a major breakthrough in communication between businesses and the medical community,” Gray recalls.
Gray, an executive board member of the coalition, has co-chaired the Workers’ Compensation Task Team since 1989. That year, Weyerhaeuser’s workers’ compensation costs totaled $105,000. By 1990, the total dropped to $66,000, and then it dropped to $5,000 in 1991. In the seven years since, Weyerhaeuser’s workers’ compensation costs have averaged $23,430—78 percent less than the beginning total. “Weyerhaeuser has not experienced a lost-time accident since 1991, working in excess of two million labor hours,” Gray says.
Reduced workers’ compensation costs are not the only evidence of Lynchburg’s progressive approach to managing health care quality and costs.
Alan Wood, president and CEO of Piedmont Community Health Plan, reports that the PHO has 30,000 covered lives as of the first quarter in 1999, the result of continuing stable growth accompanied by improved cost efficiency and utilization. Although he expects the growth to continue, Wood says, “It’s never been our intention to expand geographically beyond the Lynchburg area. The only time we’ve done that is when an employer has employees in neighboring communities.”
The PHO, which contracts directly with self-insured employers, recently received an HMO license and added a fully insured product. “We’re going open access within the next few months and getting a good response from the community,” Wood notes.
As for Piedmont’s future, Wood expects the growth to continue, along with further improvements in quality and cost efficiency. “As well as we’ve done, we know we can do better,” he says.
In Danville, the Danville Regional Health System just completed a construction project, with further investments “already in the pipeline,” according to Brad Sexauer, the system’s vice president of planning and marketing. On the drawing board are plans to renovate and expand facilities for women’s and children’s services and to add a new med-surge unit on top of an existing structure. “We had the foundation built to accommodate two additional floors,” he notes. Additional long-term plans call for expanded ambulatory care services.
Pittsylvania, Henry and Halifax county employers contract with Danville Regional Medical Center through its 125-member PHO, the Gateway Health Alliance. Through a partnership with Southern Health Services, Inc., a Richmond-based insurer licensed to operate in the system’s service area, Gateway offers HMO, POS, PPO and regular indemnity products.
East of Danville, at the region’s southeastern tip, Greensville Memorial Hospital in Emporia just signed a five-year, $8 million operating lease with for-profit Community Health Systems, based in Brentwood, Tenn. The company owns about 45 hospitals in 18 states, including Russell County Medical Center in Lebanon.
While operating Greensville Memorial under the lease, Community Health Systems will invest in a new facility to replace the current hospital, which was built in 1960 and expanded several times over the years.
Ed Harrell, president of Greensville Memorial’s board, says the hospital negotiated the sale with Community Health Systems because all but one other potential buyer “seemed to be more interested in our becoming a referral center than in helping us attract specialists and improve our physical plant.” Community Health Systems and Greensville Memorial finalized the deal in March 1999.
Home Grown HMO Market
The total market penetration for HMOs in the Central Region is approximately 25 percent, 31 percent for the commercial market, according to National Research Corporation’s Healthcare Market Guide Study 1998. PPOs have approximately 33 percent of the total market and 40 percent of the commercial market.
Although the region has significant managed care penetration, it has not come in the form of large, national for-profit insurers. For example, QualChoice of Virginia—with more than 120,000 lives throughout the commonwealth—is the managed care leader in terms of covered lives in the Central Region. The University of Virginia and the University of Virginia Health Services Foundation created QualChoice in 1995 and co-own about 95 percent of its shares. Martha Jefferson Health Services owns the remaining QualChoice shares.
QualChoice enrollees typically give the plan a high satisfaction ranking, however, as a relative newcomer to the competitive managed care marketplace, QualChoice has yet to break even. In October 1998, the University’s Board of Visitors resolved to invest as much as $7 million in additional operating capital to keep the plan healthy until strategies implemented by its new president and CEO, Marty D’Erasmo, have time to work.
Since joining QualChoice last October, D’Erasmo has raised premiums that were originally set to obtain market share to levels more in line with the costs of services. She has also tightened internal cost controls and renegotiated a number of vendor contracts. D’Erasmo now expects QualChoice to break even before the end of the year. “I have every reason to believe we’re going to make it,” she says.
For-profit Trigon Blue Cross Blue Shield is a contender for the Central Region’s managed care business. As the commonwealth’s largest managed care company, Trigon has a substantial number of covered lives in the Central Region in its HealthKeepers HMO and its KeyCare PPO.
“HealthKeepers has done extremely well, especially in urban areas, and our PPO products are very popular, too,” notes Stacy Brinkley, Trigon’s vice president of market and product strategy. “People are interested in choice. That’s the key to making the product more palatable and people more willing to try it.”
The expectation is that more managed care players will move into Virginia’s Central Region. “It’s going to get pretty interesting over the next four or five years,” D’Erasmo says. She says she believes strongly in the principles underlying managed care and that these must include continuing collaboration.
“The only way managed care can ever work is if plans, physicians, consumers and employers recognize their common goals and needs and come together as a team,” D’Erasmo says. “`Win-win’ is a tired, overused phrase, but it’s the only real pathway to success through our incredibly complex health care maze.”
‘Pioneer’ Hospitals, Large Health Systems Strive to Stay Local
Southwest Virginia Market Profile
Managed care has yet to penetrate significantly beyond Virginia’s metropolitan areas to the state’s mostly rural Southwest Region. However, several managed care players are clearly interested in moving in, and as they do, the region’s oversupply of beds and higher-than-average hospitalization rates make further hospital affiliations seem almost inevitable.
Working to Stay Autonomous
Even though the courting of community hospitals by larger health systems continues, many in the Southwest Region are striving to remain independent. Marcus G. Kuhn, CEO of Twin County Regional Hospital in Galax, says his hospital remains independent for one reason—autonomy.
“Our objective is to remain independent because we see that as the best way to provide the services the community needs and keep local control,” Kuhn explains. “That’s also what the community wants.” But Kuhn admits that, “at this point, trying to stay independent is like being a pioneer.”
Like Twin County Regional, Johnston Memorial Hospital in Abingdon is also remaining independent. “Our board has evaluated all types of opportunities to merge and affiliate, and they’ve decided it was not in our best interest to do so,” says William D. Carmack, Johnston Memorial’s director of managed care.
Citing “loss of control” as the greatest disadvantage of the offers fielded so far, Carmack says, “It’s the intent of our board and medical staff to remain independent as long as it is economically feasible.”
As more managed care moves into the Southwest Region, hospitals looking to remain independent must work hard to improve efficiency and, as a result, quality.
“We’re finding quality doesn’t come from expending more resources to take care of people,” says John Kralovec, a principal and consultant with William M. Mercer, Inc., who heads an annual study of hospital cost efficiency and quality of care that serves as the basis for “100 Top Hospitals,” a list compiled annually for the past six years by Mercer and HCIA, Inc. “Quality is more a question of doing the right things, which leads to improvements in cost efficiency. You can’t unbundle the two.”
In rural areas, there is generally higher utilization of hospital services because of a lack of outpatient and ancillary services. The 1998 “Dartmouth Atlas of Health Care” found that the western-most portion of the Southwest Region stands out as the commonwealth’s most abundantly supplied with hospital beds. The western counties of the Southwest Region have 3.9 hospital beds per 1,000 residents. In comparison, the national average is 3.0 hospital beds per 1,000 residents.
Southwestern Virginians also occupy those hospital beds at a rate above commonwealth averages. Compared with 10 other Virginia referral regions, the Dartmouth Atlas reports the Southwest Region’s hospitalization rates rank first for seven of 12 ailments evaluated and above average in all 12 ailments.
“In Southwest Virginia, you’re dealing with geography, which we believe contributes to the higher number of beds and higher utilization,” says John Mitchell, vice president of marketing for Data Resource Management, a firm that maintains and analyzes health care databases. “A 20-mile drive in a mountainous region is like a 40- or 50-mile drive somewhere else, so what you see—and we’ve noted this in several studies—is when you’re dealing with a mountainous region, you tend to see these patterns of a few more beds and more utilization. There’s a tendency for providers to say, `let’s just keep the patient here for an extra day, that way we can save the patient the risk of going home too early, and if something does go wrong, they don’t have to fight that kind of geography to get back to the hospital.’ If you talk to hospital administrators and physicians in Southwest Virginia, you hear this referred to a lot.”
Still, in Southwest Virginia, as in regions throughout the country with higher-than-average hospitalization rates, there were no significant differences in Southwestern Virginians’ health or medical outcomes. “As a rule, the more managed care, the more aggressive hospitals have to be in improving their performance,” Kralovec says.
Managed Care Contenders
Currently, Virginia’s Southwest Region has the lowest managed care penetration rate in the commonwealth, according to National Research Corporation’s Healthcare Market Guide Study 1998. Total HMO penetration is approximately 19 percent, and commercial market penetration is about 26 percent. PPOs have approximately 36 percent of the total market and 48 percent of the commercial market.
In the Roanoke area, which is the region’s largest city, there is a fair number of managed care players. Six HMOs have established themselves: HealthKeepers, Inc., QualChoice of Virginia Health Plan, Heritage National Healthplan, Partners National Health Plans of North Carolina, MD, Individual Practice Association/Optimum Choice (MAMSI) and Southern Health Services, Inc.
“It’s going to take a little bit of time for people in this part of Virginia to move to managed care and be comfortable with that move,” says Carolyn H. Chrisman, COO of Carilion Health Plans (CHP). In addition to serving as a wholesaler of Carilion Health System services to other HMOs, CHP began offering its own HMO and POS health plans in the market as of January 1.
In marketing her new plans, Chrisman emphasizes local provider ownership. “Carilion is the only plan here owned by local providers, and I believe that makes a tremendous difference in the way decisions are made,” she says. “I believe it is better for the community for the decisions to be made locally. That’s how we differentiate ourselves.”
Winston-Salem, N.C.-based Partners, another relative newcomer to the Southwest Region managed care market, is also provider-owned. Stuart Veach, Partners’ vice-president, says that for now, the company has no plans to expand its Virginia marketing territory beyond the Southwest Region.
“We want to serve people close to the border,” Veach says. “We’ve got a good start there, and a very good network available.”
Based on his company’s successful track record in North Carolina, Veach says Partners brings managed care expertise to Virginia that will help providers improve patient care and efficiency.
“By knowing what works, we can help the medical community to benefit their patients,” he says. “We’re an agent of change in these newer markets, and that puts us in the forefront.”
Two Large Systems
On the Southwest Region’s eastern side, where managed care has the strongest presence, providers clearly see affiliation as the key to survival. Interweaving their way west from Roanoke, Carilion Health System and Columbia Healthcare of Southwest Virginia are the major forces.
After a 20-year relationship with Carilion Health System as a managed affiliate, Wythe County Community Hospital recently signed a new management contract by which Carilion will acquire 40 percent of hospital assets.
“We believed, from everything we saw in the environment, that the days of a stand-alone, rural community hospital were over with,” says Wythe County Community hospital CEO Larry Chewning. “We thought a minority asset sale would best solve the issues we were trying to deal with.”
Roanoke-based Carilion Health System owns or manages hospitals in Roanoke, Rocky Mount, Radford, Pearisburg, Tazewell, Wytheville and Marion, plus Carilion Bedford Memorial in the Central Region. Its Carilion Health Plan is the region’s first provider-owned managed care plan.
“We’re not an aggressive acquirer of hospitals,” says Bill Merkt, vice president of strategic planning for Carilion Health System. “Carilion is always interested in partnering with other non-profits that have the same mission and values we do.”
Smyth County Community Hospital is a recent addition to the Carilion system. The hospital’s board voted last September to enter a partnership with Carilion, which has agreed to invest $26 million in the hospital.
Carilion’s flagship, Roanoke Memorial Hospital, serves as a regional tertiary care facility for western Virginia. Carilion Roanoke Community Hospital near downtown is the region’s referral center for women’s and children’s health. At Carilion Giles Memorial Hospital in Pearisburg and the Carilion-managed affiliate, Tazewell Community Hospital, Carilion offers both inpatient and outpatient general medical and surgical care. In Radford, Carilion Saint Albans Hospital is the system’s psychiatric hospital.
In March, Carilion Radford Community Hospital moved patients from its former location, tucked away in a residential neighborhood near downtown Radford, to a new facility on a 112-acre site near Interstate 81.
Columbia/HCA Healthcare Corporation, the country’s largest for-profit hospital chain, manages five hospitals in the Southwest and Shenandoah Regions as Columbia Healthcare of Southwest Virginia. Its properties include Lewis-Gale Medical Center in Salem, the group’s tertiary care facility, Alleghany Regional Hospital in Low Moor, Clinch Valley Medical Center in Richlands, Montgomery Regional Hospital in Blacksburg and Pulaski Community Hospital in Pulaski. The company has no current plans to expand this market.
To ensure accessibility and control health care costs, the Columbia hospitals participate with a variety of managed care companies, says Carol Chappell, director of business development and marketing for Columbia Healthcare of Southwest Virginia. The company has no plans to develop a managed care plan of its own, offering instead a hospital and physician network that works with a variety of third party administrators.
“In this changing managed care environment, we’re finding that employers appreciate the flexibility of choosing their own plan administrator,” Chappell says. “Our physician and hospital network gives them access to quality care while letting them choose who manages that care.”
Chappell says a primary focus of the Columbia network has been to bring comprehensive services to the local communities, such as establishing oncology centers in both Salem and Pulaski. “By establishing high-level cancer and heart services in our non-urban hospitals, we can bring needed services closer to home for many people in Southwest Virginia,” she says.
Acquiring More Links to Health Systems’ Chains
Dominated by Carilion and Columbia, fewer than half the Southwest Region’s hospitals remain unattached. Hospital acquisitions in the region by two other large systems—Community Health Systems and Wellmont Health System—may signal more competition ahead.
Wellmont Health System, based in Kingsport, Tenn., began in 1996 with the merger of Bristol Regional and Holston Valley medical centers. Six months later, Lonesome Pine Hospital in Big Stone Gap completed its merger with the system.
Russell County Medical Center in Lebanon is the first Virginia hospital to become part of for-profit Community Health Systems’ chain of nearly 50 hospitals in 17 states. The company specializes in operating acute care hospitals in non-urban markets.
With the ink barely dry on its lease-purchase agreement with Greensville Memorial Hospital in Emporia, Community Health seems likely to pursue additional Virginia acquisitions.
“There are several candidates that come to mind throughout the state,” says Ken Hawkins, Community Health System’s vice president of acquisitions and development. “We like Virginia.”
Hawkins says he has a proposal in at one Virginia hospital—a response to the hospital’s request for proposals—among “a lot of things we’re doing” in the commonwealth. Unlike the “spoke and wheel” models some chains use to funnel patients from smaller community facilities to their flagship hospitals, Hawkins says Community Health provides the capital and support its community hospitals need to provide more and better services locally.
“Health care is a local issue, so we try to do everything we can to expand services, upgrade equipment and fund capital improvements to help our hospitals be the leading providers of care in their communities,” Hawkins says. If that’s the true focus, Hawkins may soon find himself making headway toward acquisitions with the region’s remaining independent pioneers.
Independents’ Initiatives Keep Region Ahead of the Curve
Shenandoah Region Market Profile
If you measure managed care by market penetration numbers, Virginia’s Shenandoah Region has far to go before catching up with the commonwealth’s major metropolitan areas. But in terms of the purported benefits of managed care—cost efficiency and quality of care—the region is well ahead of the curve.
Led by two independent hospitals in the heart of the valley—Augusta Medical Center in Fishersville and Rockingham Memorial Hospital in Harrisonburg—and Valley Health System to the north, the region’s providers have tackled cost and quality issues without waiting for the pressures of managed care to bear down.
Independent, Yet Cooperating
Hospitals in the Shenandoah Region have found that they can remain strong by staying independent, but not isolated. This strategy has proven so effective for Augusta Medical Center that the hospital made both the 1997 and the 1998 “100 Top Hospitals” list compiled annually for the past six years by HCIA, Inc., and William M. Mercer, Inc. The list recognizes 100 of the 3,258 American hospitals for delivering the highest quality and most cost-efficient medical care based on performance measures such as mortality rates, complications, length of stay, occupancy and productivity.
“In many cases, managed care has driven hospital performance,” says John Kralovec, a principal with Mercer who heads the study. “In other cases, it’s the vision and the strategy of the senior executive group. There isn’t a hospital executive out there today who isn’t acutely aware of the pressures on hospitals. The successful ones don’t wait to be pushed.”
Augusta CEO Richard H. Graham attributes his hospital’s Top 100 status to several key factors.
Physicians and hospital staff are cooperative and share a sincere interest in quality and cost control. The 255-bed facility, built in 1994, is designed to promote productivity and efficiency. In addition, he says, Augusta Health Care, Inc.—the parent company that operates the medical center and ancillary services—has focused its resources on its key competencies as a regional health care provider, leaving risk management to insurers. Augusta did organize a physician hospital organization (PHO) in 1996, but it is now integrating it back into the hospital.
“We may have won by not losing,” explains Graham. “We have tended to stick to what we know we do well, so we have not done a lot of the trendy things. We’ve taken a good bit of abuse from people who say we’re old fashioned, but that’s been our strategy. And it looks like, whether accidental or brilliant, it’s working.”
Like Augusta Health Care, Rockingham Memorial Hospital, which opened its new $27 million, 266-bed facility in August 1998, has remained independent and developed a vertically integrated delivery system to provide a continuum of care throughout its service area. Rockingham Memorial also participates in Valley Health Plan, a PHO it co-owns equally with member physicians.
“We’re able to make group contracts with insurers and third party administrators through Valley Health Plan and still remain independent,” notes Deborah York, Rockingham Memorial’s director of marketing. “As an independent hospital, we can focus on the specific needs of our community and work more collaboratively with local physicians and community agencies and organizations. In health care, there’s never a ‘never,’ but for now, our board is committed to remaining independent.”
Both Rockingham Memorial and Augusta Medical Center maintain close working relationships with the University of Virginia Medical Center—another Top 100 hospital—through their co-ownership of VaLiance Health, a limited liability corporation the three created in 1997 to help facilitate how the hospitals work together. Stonewall Jackson Hospital in Lexington joined VaLiance Health soon after the 138-bed hospital’s management contract with Carilion Health System ended in July 1998.
“The feeling was that Carilion represents more of a centralized approach, and the board wanted a more independent relationship,” says Robert E. Huch, Stonewall Jackson CEO, adding that his hospital remains part of the Carilion Health Plan provider network “VaLiance offers us opportunities to work together for the common good of our hospitals and our communities as four independent hospitals.”
Julie Jolly, CEO of VaLiance Health, says the group recently invited Page Memorial Hospital in Luray to participate for six months to give Page “an opportunity to understand what the organization is about without any commitment to join.”
Jolly says VaLiance has made a presentation to Bath County Community Hospital in Hot Springs and is revisiting its operating agreement to create an associate membership for smaller hospitals.
Jolly is also president of Shenandoah Shared Hospital Services, a not-for-profit hospital cooperative established in 1981 to give the region’s community hospitals access to high-cost technology and related services. Shenandoah Shared owns and operates both mobile and fixed diagnostic equipment and offers consulting services in clinical pharmacy, systems engineering and biomedical engineering.
Serving the Shenandoah region’s two northernmost counties along with eight other Northern Virginia counties, Valley Health System operates Winchester Medical Center, a regional referral hospital, Warren Memorial Hospital and War Memorial Hospital in Berkeley Springs, W. Va. As a member of Premier, a national alliance of more than 1,700 affiliated hospitals and health care institutions with $10 billion a year in group purchasing power, Valley Health System sponsors 11 hospitals.
“Our strategy through the years has been to make the small, independent hospitals as successful as possible,” says Lawrence K. Van Hoose, vice president of Valley Health System. “They handle the primary care, and we hope they’ll refer any tertiary care to our system.”
Changes in Provider-Owned Insurance Product
The Shenandoah Region has somewhat lagged behind other regions of Virginia as far as managed care penetration. The market penetration for HMOs in the Shenandoah Region is 24 percent for the total market and 30 percent for the commercial market, according to National Research Corporation’s Healthcare Market Guide Study 1998. PPO penetration is 34 percent for the total market and 41 percent for the commercial market.
Some of the leading insurers in the Shenandoah Region include UVa’s QualChoice, Mid-Atlantic Medical Services, Inc. (MAMSI), CIGNA HealthCare Mid-Atlantic, Inc., and NYLCare Health Plans of the MidAtlantic, Inc., which was purchased by Aetna U.S. Healthcare, Inc.
A provider-owned managed care product has undergone much change over the last year. In July 1998 CommunityHealth, the managed care insurance company created by Valley Health System and 15 other hospitals, hired Optima Health Plan, owned by Sentara Health Management and based in Virginia Beach, to provide management and consulting services. After a comprehensive review of their organization, CommunityHealth had begun looking for a partnership with another insurer. “They looked at two companies,” says Rick Mathewson, Sentara’s vice president of sales and marketing, “and as a result of negotiations over the late fall and early winter, they ultimately chose Sentara Health Management.”
Beginning on April 1, CommunityHealth ceded its fully insured PPO and POS policies to Optima. “We will administer those policies until their renewal dates, at which point we will offer those customers continuation of coverage with Optima,” Mathewson says. Optima will market the plans—which differ only slightly from the existing CommunityHealth products—under the name “CommunityHealth by Optima.”
“We see this merger as an enhancement of the insurance products CommunityHealth offers,” says Van Hoose, vice president of Valley Health System. Citing CommunityHealth’s 25,000 covered lives and Optima’s 280,000 covered lives, he adds, “It’s a plus for us because Optima is strong in the so-called `back room operations.’ They’ve been in business awhile, and they have a good track record.”
“We think this is a win-win for all parties,” Mathewson says. “CommunityHealth gets to take advantage of our administrative and health plan expertise, and we significantly expand our network for our customers in the Hampton Roads area who may have employees in other parts of the state. The customers win because they continue to have access to high-quality, local medical care management and networks.”
Mathewson says Optima’s distribution will continue to be through independent brokers, adding, “We hope we will be able to retain or enlarge the broker relationships CommunityHealth had forged in each of its markets. We think those brokers are the key to growth in their communities.”
In addition to PPO and POS products, Optima sells HMO, Medicare and Medicaid plans in the Hampton Roads market. For now, however, Mathewson says Optima plans to market only the PPO and POS products in CommunityHealth’s service area. “Our strategy is to provide products the markets want,” he explains. “That’s different from saying, ‘We’ve got an HMO and that’s what you want to buy.’ We want to be market driven.”
A Step Ahead
According to Kralovec, the next step in improving health care quality and cost efficiency over the next three to five years will involve more focus on clinical practices. “There are still huge, unexplainable variations in care, not only from region to region but within organizations as well,” says Kralovec.
Already a step ahead, Augusta Health Care is examining its clinical practices. “We’re trying to look both internally and externally for what the industry is now calling `best practices,’” Graham says. “Often, it’s just a matter of education. `Did you know drug A works as well as drug B and costs half as much?’ Asking those kinds of questions day to day makes physicians think about it so it becomes part of your culture.”
Adds Jolly, “We’re looking at clinical pathways and doing more clinical and home health bench-marking so we can measure our own practices against best practices.”
Providers in the Shenandoah Region believe that by providing the best, most efficient care and choosing their strategic partnerships carefully, community hospitals will remain viable well into the future. “Health care has traditionally been a local phenomenon, but these hospitals are going to have to look for regional partnerships,” Van Hoose says. “For years, futurists have said there are going to be four or five hospital systems in the United States, but I think there will always be independent community hospitals.”
Projects for Lexington Memorial Hospital
- 1988-1989, 1989-1990 and 1990-1991 annual reports
- "Health Care Connection" brochure
- Speakers Bureau brochure and speaker guide
- Visitor Information brochure
- Emergency Department brochure
- "Personal, Progressive Care" brochure
- "Advances in Gallbladder Surgery" brochure
- Lexington Memorial "Health Matters" newsletter for area employers
- News and feature releases
Other Health Care Related Brochures & Flyers
- Acadiana Hospitalist Services brochure and flyer
- Baron Vision Center flyer, print ad and Optical Plus flyers and folder
- Columbia Life Rehabilitation brochure
- Direct Vision Benefit brochure and flyer
- Healthshare Enterprise brochure
- Lexington Memorial Hospital brochures
- North Carolina Hospital Association Leaders Forum brochure and flyer
- Piedmont Home Care brochure
- Piedmont HomeHealth brochures
- Primavera Adult Day Health Care Center flyer
- West Coast Life Sciences flyers
Health Care Related News & Feature Articles
- Piedmont Triad Hospital Guide and Moses Cone Hospital Guide articles on home health care, durable medical goods, hospice and palliative care, adult day care services, assisted living, nursing centers
- Piedmont Triad Newcomer hospitals profile
- North Carolina Healthcare Buyer managed care market overviews for the Piedmont Triad, Triangle and Southeastern/Sandhills regions and "Choosing a Third-Party Administrator"
- Georgia Healthcare Buyer managed care market overviews for the Central, Southwestern and Western regions
- Virginia Healthcare Buyer managed care market overviews for Richmond and the Central, Shenandoah and Southwest regions
- South Carolina Healthcare Buyer article on choosing a third-party administrator
- Medical Life Publishing community hospitals article
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