A plan by three of the largest not-for-profit hospitals in Dallas to combine some services indicates that managed care and discounting pressures could finally start taking their toll on the market.
Earlier this month, executives of Baylor University Medical Center, Presbyterian Health Care System and Methodist Hospitals of Dallas said they are negotiating to form an alliance to help their facilities compete for managed-care contracts (Aug. 8, p. 6).
The Dallas/Fort Worth area has been late to move to the consolidation and managed-care contracting that is rocking many metropolitan markets. However, that appears to be changing quickly, a development that could affect the traditionally healthy bottom lines of many Dallas-area hospitals.
For example, in 1993, Baylor re- ported net income of $25.7 million on net patient revenues of $381.4 million, according to HCIA, a Baltimore-based health-care information company.
Although Presbyterian Hospital's 1993 figures were not available, the northern Dallas facility in 1992 recorded a total profit margin of 19.6%, and net income of $52.3 million on net patient revenues of $254.5 million, HCIA said.
Methodist Medical Center, the least profitable of the three, still managed a total profit margin of 5.6% in 1993 with net income of $7 million on net patient revenues of $124 million, according to HCIA.
Baylor and Methodist Medical Center reported total profit margins above the national average of 4.6% in 1993, according to HCIA.
A three-way merger "hasn't been a discussion point at this time," said Douglas Hawthorne, Presbyterian's president and chief executive officer. If the systems were to merge, they would control 2,600 acute-care beds and be the nation's 30th-largest multihospital system, according to MODERN HEALTHCARE's Multi-unit Providers Survey (May 23, p. 36).
Mr. Hawthorne said executives are discussing combining medical management and developing a common information system. The hospitals have been assessing the possible antitrust implications of their efforts.
The Dallas/Fort Worth market, with a population of 3 million, has seen few mergers. However, earlier this month, Columbia/HCA Healthcare Corp. completed the purchase of Saint Joseph Hospital in Fort Worth, and executives are planning to combine its services with Columbia/HCA's other Fort Worth hospital, Medical Plaza.
Columbia/HCA, which has seven hospitals in the Dallas/Fort Worth area, is expected to be aggressive in the market, and Dallas providers are feeling the looming presence of Harris Methodist Health Plan, a 175,000-enrollee HMO owned by Harris Methodist Fort Worth, that city's largest hospital.
Although Harris' HMO in the past has concentrated on the Fort Worth market, "we are ready to focus on Dallas," said Don Hamlin, the system's managing director for financing. The HMO also is among the first to apply for a Medicare HMO license in the Dallas/Fort Worth area. Those HMOs are expected to begin operating in January.
Meanwhile, another HMO operator, Kaiser Permanente, is reviewing bids from four systems for the $45 million worth of inpatient care it finances annually in the area.
The Oakland, Calif.-based company has 125,000 enrollees in the Dallas/Fort Worth area and has used Medical City Dallas, a Columbia/HCA facility, for most of its inpatient care for the past 15 years. Methodist in Dallas and Harris Methodist Fort Worth also provide some inpatient services to Kaiser enrollees.
Although Kaiser has paid hospitals on a per-diem basis in the past, it wants to change that this year.
"A per-diem contract actually encourages hospital inefficiency. If a patient needs a test today or tomorrow, it's in the hospital's best interest to do the test tomorrow because they can get an extra per diem," said James Donovan, Kaiser's regional medical facilities manager.
Kaiser is considering proposals from four bidders-a Columbia/HCA and Cook-Fort Worth Children's Medical Center system, a Harris-led system, a National Medical Enterprises/John Peter Smith Hospital system (Fort Worth), and an All Saints Episcopal Hospital of Fort Worth-led system.