Until recently, managed care in Alaska seemed like a contradiction in terms.
The absence of competition in a state where a handful of providers serve scattered populations over vast geographical areas was thought to make managed care unworkable in the state.
But Alaska's providers are being warned that competition is on its way. "The only hospital in town" may find itself competing with facilities hundreds of miles away once insurers decide to fly patients elsewhere because it's cheaper, said Susan Palmer Terry, a consultant to the state Department of Health and Human Services.
There's a significant difference in the cost of some procedures in Juneau compared with Portland, Ore., and Seattle, said James Hickey, vice president of marketing for Aetna Health Plans in Seattle. Insurers note the pressure from employers to reduce healthcare costs in Alaska is significant. "One of the problems is that it's a small community (of providers) up there," Mr. Hickey said.
Aetna, Alaska's largest health insurer, is "trying to do (managed care) in a true partnership basis, not cram it down their throats," Mr. Hickey said.
In Anchorage, Aetna, which has a PPO arrangement with 341-bed Providence Hospital, is "very close" to having a PPO established with physicians by Jan. 1, Mr. Hickey said. The insurer plans to set up PPOs in Fairbanks and Juneau next, and to eventually expand statewide, he said.
Flying patients to cities where costs are lower "may be the next step if we're not successful with our networks," he said.
Managed care has taken hold across the country and will reach Alaska because payers are insisting on the availability of the same services at current costs, or even less. "Just because it's a longer flight doesn't mean it won't get here," Ronald A. Spaeth, president of Highland Park (Ill.) Hospital, told the annual meeting of Alaska State Hospital and Nursing Home Association executives in September.
Many Alaskan employers require utilization controls such as pre-admission review and mandatory second opinions to contain costs. Although there are no HMOs serving Alaska's 600,000 residents, some observers believe capitation is inevitable. The practice will begin in the Medicaid program.
Within the next 18 months, the DHHS is planning to begin capitation of its Medicaid system with the mental health program, Commissioner Margaret Lowe told MODERN HEALTHCARE. Since that program involves a relatively small population, "it's a good place to start," she said.
But capitation in the commercial marketplace is another story. Even in Valdez, where people work for large oil companies, employers and insurers have not yet broached the issue of capitation, said Dan Mohler, administrator of 15-bed Valdez Community Hospital, which is owned by the Lutheran Health Systems. Lutheran Health manages several hospitals in Alaska.
"We haven't talked to the Valdez people yet," Aetna's Mr. Hickey said.
Added Mr. Mohler, "We have three or four documents (from insurers) asking for discounts, but there are so few people involved. And when I ask them, `What can you do for us?' they say, `We'll give you our business.' Well, we already have their business. So I'm going a little slow on that (discounting)."
The Teamsters union sent a request to several LHS hospitals asking for "a PPO type of contract, and we expect more (such requests) to come through," Mr. Mohler said. "Our approach will be to look at this as a group of LHS hospitals."
Nevertheless, an essential ingredient of managed care is native to Alaska: integration of services. To ensure care for their remote populations, communities long have nurtured affiliations among providers to create a continuum of care. And more affiliations are envisioned.
"I'm no longer the administrator of Ketchikan General Hospital/Island View Manor," said Ed Mahn, the hospital's CEO. "I am, instead, chief executive officer of a regional integrated healthcare system."
Mr. Mahn, who also is the new chairman of the Alaska State Hospital and Nursing Home Association, oversees a system that comprises a hospital employing 13 physicians, a nursing home and a home healthcare agency.
The changing needs of the state's communities "will require hospital and nursing home administrators to consider themselves leaders in healthcare systems, rather than just leaders of facilities," he said. Depending on the community, that system may include long-term care, home care, mental health services, public healthcare and acute care.
Many of the state's remote communities have created cost-conscious systems that are fully responsive to local needs (See related story, this page).
Three separate systems.Full systemwide integration of healthcare services in Alaska, however, is a distant goal because the state's population is served by three separate delivery systems: community hospitals; federally funded Indian Health Service hospitals and clinics that serve Alaska natives and American Indians-16% of the state's population; and Department of Veterans Affairs hospitals. Some 40% of Alaskans are covered by at least one of the federal programs-Medicaid, Medicare, IHS and the military (See chart, p. 62).
In some communities or regions, separate delivery systems result in duplication of facilities while at the same time leaving gaps in needed services for each patient group. In Sitka and Anchorage, one IHS and one community hospital serve separate populations. Likewise, in Juneau, Fairbanks and other areas, community hospitals and IHS clinics serve separate patient groups.
In places like Kotzebue, a town in rural northwest Alaska with a population of 2,900, IHS hospitals are the only show in town. In Kotzebue, the IHS has almost finished building a new $67 million, 17-bed hospital that will serve only native Alaskans, said Jay Farmwald, chief of planning, design and construction for IHS in Alaska.
Although several of the state's separately funded facilities serve a mixed population to some extent, they each remain primarily dedicated to one patient group.
The state needs "coordination of this fragmented*.*.*.*hodgepodge of services. We can't really call it a system," Ms. Lowe told the state hospital association leaders meeting in Dutch Harbor. At 35 years old, "we're a very young state that has a long way to go to build an infrastructure," Ms. Lowe said.
In June, outgoing Gov. Walter Hickel established the Health Care Reform Work Group to develop a framework for evaluating healthcare reform proposals for the state. In September, the group recommended, among other things, that any reform proposals must consider "integration strategies to maximize resources and minimize duplication in financing, payment and service delivery systems," according to the group's report to the governor.
"Integration would tend to increase coverage, access and benefits, requiring less new infrastructure development" than other methods, the report said. "Integration will require fundamental policy changes at the funding source level," it said.
Statements like that reinforce the belief of many Alaskans that integration of the state's healthcare delivery could best be achieved through a single-payer arrangement. Early next year, state Senate Democratic Leader Jim Duncan is expected to submit single-payer legislation. Since the plan would expand eligibility for Medicaid and eliminate out-of-pocket costs for Medicare recipients- bringing in $117 million in increased federal funds-it would require federal waivers.
Mr. Duncan commissioned a study, released in June, that showed a single-payer system would save the state $202 million in 1995 and a total of more than $3 billion by the year 2000.
Support from hospitals.Members of the state's hospital association have voiced support for full funding of IHS, VA, military, Medicare and Medicaid programs and indicated support for a true single-payer system that includes all government programs along with private health insurance in one payment system, said Harlan Knudson, the association's president.
Another of the working group's recommendations is that DHHS develop a central health data collection system. But the three separate delivery systems present a problem in this area as well. DHHS oversees only half of the state's providers and must rely on the voluntary cooperation of IHS and VA hospitals to provide the needed information for the database, said Brad Whistler, a DHHS health planner.
Although individual hospitals have attempted to integrate these separate delivery systems by extending care to all populations, "I think we're still a ways from integration," Mr. Whistler said. For example, IHS hospitals are looking for more private-pay patients, he said. But federal beneficiaries are leery of their hospitals serving other populations because the federal hospitals already aren't funded at a level that allows them to give the beneficiaries all the services they need, he said.
For example, the southeast Alaska town of Sitka, population 9,000, has two general acute-care hospitals, one operated by the local government and the other by the IHS. Both of the facilities are underutilized. Nevertheless, hospital administrators in Sitka considering possible integration of services several years ago were met with a backlash from patients. Beneficiaries of the federal programs feared losing more services, and the non-native users realized that the smaller community hospital would likely be absorbed by the native hospital if there was integration, Mr. Whistler said. "Politically, it's not close to happening" in Sitka, he said.
Elsewhere, integration efforts are ongoing, spurred by the threat of competition. IHS hospitals are seeking beneficiaries with private insurance, and community hospitals are beginning to market to the native population.
"Everyone's open-minded and ready for integration," said Kathe Boucha-Roberts, director of affiliations at Providence Hospital in Anchorage, a city that accounts for almost half of Alaska's population.
Anchorage also has an IHS hospital-the Alaska Native Medical Center-and is the site of 238-bed Alaska Regional Hospital, which is owned by the healthcare giant Columbia/HCA Healthcare Corp. Breaking down barriers.Ms.
Boucha-Roberts is seeking affiliations with rural community hospitals and clinics and communicating with native corporations about what kind of healthcare services they might need. "We would immediately contract with them or develop services to support their needs," she said.
Twelve "native corporations" across Alaska are responsible for the development and operation of healthcare delivery systems within their service areas.
"The division (between community and IHS hospitals) comes more from the funding sources than from attitudes," Ms. Boucha-Roberts said. "I'm finding that when I'm communicating with people and discussing their needs, they are willing to think together and plan together. Some of the barriers have to do with the funding sources that divide people. That doesn't mean we can't overcome them.
"What we're finding is that our employees are comfortable integrating more than we are now, and the native community is comfortable coming here, so we're not finding any kind of social barriers," she said. "Many of the people in the native community have employment that now provides their health plan, and many qualify for Medicaid. They are choosing to purchase healthcare outside the Indian healthcare system. They began to come to us by choice, without our marketing. That raised our consciousness as to what is happening in this community."
The IHS patients are saying the Indian healthcare system "is impersonal, as are many government institutions," Ms. Boucha-Roberts said. "They're looking for more personalized care, such as the family-centered birthing services" offered at Providence Hospital, she said.
Meanwhile, Anchorage's 40-year-old IHS hospital is being replaced by a new $167 million facility. Providence has "an opportunity to assist with the services that they will not be providing," she said. The IHS plans to move patients into the new Alaska Native Medical Center by late December 1996, Mr. Farmwald said.
At the same time, "there is also some potential" that the new IHS hospital will be overbuilt, Ms. Boucha-Roberts said. "They could market the vacancy to the general population, and people will know they can receive care from the federal institution." The IHS hospital has not marketed to the general population before "because they're overwhelmed with caring for Indians," she said.
"If we don't plan collaboratively, we can become competitors by accident," she said.
The IHS also is planning to replace and expand both a clinic on the remote Pribilof island of St. Paul-about 880 miles west of Anchorage in the Bering Sea-and a hospital in the far northern city of Barrow. Officials hope the new facilities will serve both native and non-native patients, Mr. Farmwald said.
Although Congress passed special legislation in 1983 to permit construction of a clinic serving everyone on St. Paul, additional legislation will be required to allow the $100 million hospital in Barrow to serve non-natives, he said.
In Barrow, the project would be a joint effort with the state or the borough of North Slope, he said.
Such joint facilities could be a harbinger of further integration in Alaska. Otherwise, in many communities, "what you wind up with is an IHS hospital and a lot of private facilities scattered around town," Mr. Farmwald said.
Despite turf issues in Juneau, "we're talking (and) taking the lead" in attempts to integrate services with local agencies so that a patient can move through a seamless system, said Robert Valliant, administrator of 56-bed Bartlett Memorial Hospital in Juneau, which is owned by Quorum Health Resources.
Mr. Valliant envisions integration as a large grouping of providers falling under one umbrella. "Somewhere there has to be the authority to manage the continuum," he said. Mr. Valliant and the facility's board thought that should be the hospital, which has been trying to form an integrated system for two years.
"There's a lot of fear. We're a large organization with a lot of money," Mr. Valliant said. "The agencies (such as local mental health clinics and home-care providers) fear they're going to be gobbled up."
Yet, integration of community providers is absolutely essential, because the integrated IHS system is increasingly competing for non-native patients, such as those covered by the Civilian Health and Medical Program of the Uniformed Services, he said.
"Indian hospitals are very nice. They can renovate a facility with a government appropriation. Indian clinics have hurt business at community hospitals," Mr. Valliant said. "A parallel system is duplicative and takes away a large amount of the population."
Executives at Indian facilities seem to understand those objections. "In some communities, the IHS is seen as a competitor that's better funded than community hospitals," Christine Decourtney, health planner at Bristol Bay Area Health Corp., a native corporation that operates Kanakanak Hospital in the southwestern town of Dillingham, population 2,100. "Instead of trying to compete on quality, there's some blame being placed" by the community hospital, she said.
But, she added, the company has a good working relationship with Providence Hospital in Anchorage. "We reach out for those services that we can't provide."
For example, Kanakanak Hospital, the only facility in Dillingham, provides basic care for natives and non-natives. But since there aren't enough IHS specialist physicians at Kanakanak to treat non-natives, the facility is contracting with private specialists in Anchorage, she said.
"Eventually someone will do what the Indian hospitals are doing," Mr. Valliant said. "The native hospitals control physicians and other providers either by employing them or contracting with them," he said. Based on the amount of federal funding allocated to the native health corporations that run the IHS hospitals, "physicians decide how many ultrasounds a woman will have. That's managed care, and it's been going on" in the IHS system for years, he said.
Bartlett Memorial employs only seven of the 61 physicians on staff, but Mr. Valliant sees "a new breed" of physician coming to Alaska that will be more willing to work for a hospital employer.
If managed care comes in the form of the state and other employers shopping for contracts, the IHS system will have an unfair advantage over community hospitals because it is already integrated. "I would have to put together a doctor network" to compete, Mr. Valliant said.
The answer to the fragmented delivery system is for one entity to run the entire system-perhaps a state agency or a hospital-based umbrella organization, he said. "If you want to control the cost in the system, you have to control all the providers."
A boost for competition.A development that will speed systemwide integration and may spur competition among community providers, observers believe, is what is known as compacting. Under compacting, beginning in 1995, federal money to operate IHS hospitals will go directly to the native corporations to spend as they see fit.
Under compacting, instead of the native corporations receiving federal funds earmarked for specific purposes, the corporations and some individual tribes will receive lump-sum allocations they can spend at their discretion. That will allow Indian facilities the flexibility to contract for services with community providers.
"The IHS hospitals can act more as businesses and choose the best person to provide the services that are needed. It will make the IHS hospitals-if they are interested in continuing to provide those services-be more responsive," Ms. Decourtney said.
Compacting, or self-governance, was sought by tribal organizations nationally, but elsewhere in the United States tribal organizations competed among themselves for the 30 compacts allowed under a pilot program approved by Congress. In a development unique to Alaska, native health corporations banded together to form one compact with the federal government to provide healthcare to Native Alaskans. Even though managed care is still more idea than reality, hospital administrators already are making the mental leap from capitation to becoming insurers. The 13 physicians employed by Ketchikan General Hospital "are more than willing to accept capitation, but we're not ready for it yet," said Mr. Mahn, the hospital's CEO. He said he would rather capitate through direct contracting with employers, eliminating the insurance company. "It doesn't take a rocket scientist to figure that out."
Mr. Valliant agreed: "I'm seriously thinking about starting an insurance company. If you're going to be at risk anyway, you might as well be at risk."