Several major trends are gaining momentum as physicians, hospitals and insurance companies position themselves to take advantage of the untapped potential of managed care.
As managed care puts a squeeze on providers' incomes, more physicians are banding together in large groups to guarantee referrals and build market share. This growing willingness by physicians to consolidate has spawned a buyers' market. That's because physicians represent more than $150 billion in revenues-19% of the healthcare budget. In addition, they control more than $500 billion in referral revenues.
As a result, more insurers will try to tap this revenue stream and move into direct delivery of healthcare by acquiring hospitals and physicians' practices. Such national companies as Aetna, Cigna and Prudential, and such regional companies as Foundation Health Corp., Sacramento; FHP International, Fountain Valley, Calif.; and Healthsource, Concord, N.H.; are among the insurers that already employ physicians, own or operate hospitals or organize managed care on a local level.
Chattanooga, Tenn.-based Provident Life & Accident Insurance Co. plans to have HMOs operating in South Carolina and Tennessee by mid-1994 and in Georgia and North Carolina soon after.
Also hastening the rise of integrated healthcare delivery systems are physician practice management companies such as Pacific Physicians Services, Redlands, Calif., which acquires or manages prepaid medical group practices in Arizona and California. Other companies pursuing similar growth strategies include PhyCor, Nashville, Tenn.; and Coastal Health Care Group, Durham, N.C.
Healthcare reform also may mean increased volume for hospitals if more health plans are able to reach residents who lack health coverage. In addition, small plans that have longstanding ties with local payers may have an edge over many of their larger rivals when it comes to price and service. If so, larger plans that have enjoyed higher margins in the past will have to find other ways to increase revenues to offset shrinking profits per enrollee. That would mean more consolidation is likely among HMOs.
However, consolidation could spell trouble for some hospitals and physician groups planning to develop their own integrated delivery systems. Even so, experts predict that within 12 months as many as two out of three hospitals will have formed cooperative ventures with physician groups.
Many of these arrangements are likely to fail, however, unless the hospitals and physician groups learn how to distribute revenues equitably and handle the financial risks of managed care.
Healthcare reform also may give loosely organized medical networks and PPOs new leases on life. Under President Clinton's revised healthcare reform package, hospitals and physicians would participate in point-of-service plans through managed-care organizations that would ensure consumers' choice of providers and other alternatives to HMO-type coverage. That means many hospitals probably could contract with managed-care purchasers-public or private-much as they do today without being forced to join an exclusive network to stay in business.
The managed-care industry would prefer a voluntary point-of-service option. Such mechanisms, which enable consumers to choose non-network physicians at a higher out-of-pocket cost, increase administrative expenses and premiums and may reduce quality of care.
"Consolidation into integrated delivery systems is occurring on a variety of levels and is being led by either HMOs, physicians or hospitals."
-Thomas E. Hodapp,
healthcare investment analyst,
Robertson Stephens & Co.,
"I don't think the distinction of cost over quality is a good one. It's used by people who don't want to tackle the cost issue (long term)."
-Thomas O. Pyle,
"HMOs are improving in measures of patient satisfaction and quality. They're responding to the wishes of consumers. Our advantages have become apparent."
-Karen M. Ignagni,
Group Health Association of America,