Joining Forces to Shape the Future
Piedmont Triad market profile
The Piedmont Triad, one of the state’s more mature managed care markets, is experiencing more than its share of mergers, alignments and affiliations by key providers bent on cutting costs and beefing up their bargaining power with payors.
HMO penetration has grown by about 5 percent to a 31.6 percent penetration into the under-65 market, while the PPO market share dropped nearly 7 percent to 48.3 percent, according to data compiled by Harkey & Associates, Inc., a research firm that tracks managed care activity. As the HMOs gain market share, the area medical community hopes that by joining forces, they can participate more effectively in determining the direction their industry takes.
“What we’re really looking at is a way to bring physicians and hospitals together to shape the future of health care,” says Margaret Ann Bunce, director of contracting and business development for Novant Health, the owner of Forsyth Memorial Hospital, Medical Park and Davie County Hospital, in Winston-Salem.
Novant Health—formerly Carolina Medicorp, Inc.—is involved in one of the most interesting recent developments in the Piedmont Triad market: The health care system completed a merger with Charlotte-based Presbyterian Healthcare System in the summer of 1997, forming the new company called Novant Health.
The idea for Novant Health emerged from a series of meetings between CEOs of Presbyterian Healthcare System and Carolina Medicorp, Inc., that began in December 1996. “The vision is to link providers in strategic markets that could not only span North Carolina, but parts of South Carolina, Virginia and Tennessee as well,” Bunce says. “We will work very closely with physicians and involve them in the governance and management of Novant to change the system from one that treats illness to one that is focused on prevention and on improving the health of communities.”
Bowman Gray/Baptist Hospital Medical Center in Winston-Salem is also involved in a strategy to link health care systems throughout the state. Bowman Gray/Baptist, Carolinas HealthCare System in Charlotte, UNC Health Care System in Chapel Hill and University Health Systems of Eastern Carolina in Greenville have formed an alliance of their four tertiary care health systems. Currently, they are in the final stages of forming a separate business entity.
Informally called “The Alignment Group,” the four health care systems share similar goals and philosophies. Three of the four organizations are affiliated with medical schools, and Carolinas HealthCare System offers hospital-based physician residency programs in cooperation with UNC. The health care systems are discussing ways to coordinate their marketing efforts, lab services, managed care products, hospital management services, physician groups, information systems and educational programs. Collectively, the group has part ownership in seven different managed care products and affiliate hospitals in North Carolina, South Carolina and Virginia.
“By aligning physicians, hospitals and other affiliates, our group will provide an organized system of high quality, cost-effective health care,” says G. Douglas Atkinson, associate dean and vice president of networks at Bowman Gray/Baptist. “We have a long track record of working with community hospitals, and we see the alignment as the next generation of evolving relationships with each other and our affiliates.
In Greensboro, consolidation of health care services is happening on a more local level at a slightly slower pace. The proposed merger between Wesley Long Community Hospital and Moses Cone Health System—combining Moses H. Cone Memorial Hospital, the Women’s Hospital of Greensboro, Wesley Long Community Hospital and a wide range of outpatient facilities—involves competing hospitals in the same service area. Thus the hospitals sought federal approval, foregoing the alternative of securing a Certificate of Public Advantage from the state.
“From the federal perspective, once you’re approved, the federal government has no continuing interest in monitoring organizational performance,” explains James Roskelly, vice president of corporate planning and development for Moses Cone. “Under a Certificate of Public Advantage, the state is allowed to take over what would be a federal authority by virtue of their continuing monitoring. Our board chose the option of seeking federal approval.”
Roskelly says he hopes to have the merger approved by the federal government by the end of July. Should the government oppose the merger on antitrust grounds, the process could take much longer to complete. If the merger is completed, savings during the first five years are projected to total $53.6 million in capital equipment expenditures, operating expenses and labor. Annual savings of $13.7 million are projected beginning in the sixth year.
Smaller community hospitals in the Piedmont Triad area are adopting more of a wait-and-see approach regarding joining either Novant or The Alignment Group. For Lexington Memorial, the value of remaining independent currently outweighs the benefits of any sort of exclusive affiliation with a provider network, according to John H. Cashion, president of Lexington Memorial. “Financial vulnerability is what stirs most
weak-sister hospitals into some sort of alliance relationship,” he says. “We still have a lot of money in the bank—enough to support our operations for a number of years in the future.”
Lacking the financial incentive, Cashion says the hospital board has decided to remain independent. “If we aren’t already staked out, we represent future value to all of them,” he explains. “The biggest concern Forsyth or Baptist might have is that we might make a commitment to the other one, so as long as they can help us remain independent, they will. Right now, if we called either for assistance, they’d be more than willing to help us.”
“We get approached by just about everybody who wants to do business in Alamance County,” says Bob Byrd, vice president of strategic management for Alamance Regional Medical Center, which was the result of the 1986 merger of two full-service hospitals and the first merger of its kind in North Carolina. But because of the hospital’s location, Byrd is particularly reluctant to enter into any sort of exclusive agreement with either of the emerging regional groups.
“We’re situated smack in the middle of the Piedmont Triad and the Triangle,” Byrd explained. “There are referral relationships established in all directions, with Duke and UNC to the east and Moses Cone to the west. For us to align ourselves with one system on an exclusive basis would mean we’re going to interrupt a lot of established relationships and fragment the care. So our strategy now is to avoid aligning ourselves exclusively with any one group for the purpose of managed care contracts.”
For High Point Regional Health System, formal affiliation to accommodate managed care is nothing new. The health system is already part of the 10-hospital North Carolina Health Network, formed in October 1995 to negotiate statewide and regional contracts, and improve medical management. Carolina Medicorp, Moses Cone, Presbyterian and University Health Systems of Eastern Carolina were among the cofounders of the network.
High Point Regional is also part of the Triad Health Alliance, along with Moses Cone and Carolina Medicorp. PHOs from the three organizations—Carolina Medicorp’s Carolina Health System, Moses Cone’s Greensboro Health Network and the High Point Health Network—formed the Triad Managed Care Organization to do area-wide risk contracting with HMOs. “The Triad Managed Care Organization is essentially a super-PHO looking at managed care contracting,” according to Darrell Deaton, High Point Regional’s vice president of planning. Deaton says the three PHOs combined represent about 1,000 physicians in 10 counties. Besides operating Advanced Home Care, one of the Southeast’s largest home care agencies, and a joint laundry, the Triad Health Alliance just opened a new reference laboratory near the regional airport. Deaton says the new lab will save the three Triad Health Alliance participants $6 million per year. Currently, the alliance is working with vendors to purchase a managed care information system to provide the three hospitals with the data they need for managing the medical and financial risks of capitated contracting.
While the managed care industry appears to be moving toward consolidation, and the regional provider networks stand ready to negotiate multi-state contracts, many managed care contracts will continue to be negotiated with individual providers on a local basis.
“It’s somewhat premature to predict, but we anticipate some contracting with individual health systems or PHOs will be done at the state or regional level and some at the local level,” Bunce says. “We recognize that market variation exists, and we have to look at what makes sense in a particular market.”
Whether or not many statewide and regional contracts materialize, Bunce believes that by joining forces with other leading providers, Piedmont Triad providers can gain more of the clout needed to determine the future of health care. “As a regional nonprofit health system, Novant will enable providers throughout the region to keep health care local and to create exciting opportunities to improve the health of the people we serve,” she explains. “That’s what we are all about.”
Keeping health care local is also an important part of The Alignment Group’s mission. “Our alliance will not only allow us to offer a new level of health care innovations to the region,” Atkinson says, “but will also allow us to help the community hospitals offer the best possible care close to home for the patients and family members.”
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