While managed care is stimulating the growth of multihospital healthcare systems, integration of clinical services might not be necessary for every developing organization, a new study suggests.
"High levels of integration and tight organizational structures might not be needed," said Roice Luke, director of Virginia Commonwealth University's Williamson Institute, which conducted the study. Systems "may want to integrate and develop tight organizational structures. The question is whether integration is needed to compete."
In a two-year study, Luke and his associates have documented the growth of urban multihospital systems and the impact managed-care firms and healthcare business coalitions have had on their development.
Since 1992, local hospital systems have increased 18% to 475 in 1995, compared with 402 in 1992. A local hospital system is defined as a system that operates at least one hospital in an urban area and another within 60 miles of the flagship facility (March 9, 1992, p. 26).
Over the last couple of years, however, another type of organization-called the strategic hospital alliance by Luke-has emerged.
There are 440 of these alliances, which are defined as "two or more hospitals located in the same urban market that have formed into local systems and/or networks for the purpose of competing collectively for managed-care contracts."
Of the 2,743 acute-care hospitals in urban markets, 54%, or 1,478, have joined strategic alliances, the study said. Some 55% of the alliances are under single ownership, such as 17-hospital Allina Health System, Minneapolis, and 45% are composed of multiple owners such as 12-hospital CareFirst Health Network, Tampa, Fla.
The CareFirst type of strategic alliance is more loosely organized, managed and governed than local systems or the single ownership model, which Luke calls "firms." The multiple-ownership model, called "virtual firms," also could be described as healthcare networks, alliances or partnerships tied together through legal agreements or contracts, Luke said.
"The hospital community assumes the new three-legged stool (consolidation, integration and tight organizational structure) is essential for competition," Luke said. "But we have seen the markets and the data that tell us (strategic alliances) may survive for a long time."
Some large markets have multiple strategic alliances with five or more hospitals within each network. For example, Los Angeles has seven strategic alliances, and Chicago, Detroit and New York each have five.
Twelve alliances have 10 or more hospitals within them. For example, Health Midwest Alliance operates 14 hospitals in the Kansas City area, and Mount Sinai Health Systems operates 13 hospitals in New York.
Columbia/HCA Healthcare Corp. operates two strategic alliances with more than 15 hospitals in each. Those alliances are in Tampa-St. Petersburg, with 16 hospitals, and Houston, with 15 hospitals.
The Williamson researchers also developed a new methodology for determining market concentration. Using a formula that incorporates the market concentration of hospital-based networks, physician groups, HMOs and business coalitions, researchers have assigned market concentration indexes to the 325 standard metropolitan statistical areas. MSAs are population centers defined by the federal government for statistical use.
The top 10 large markets as measured by the concentration index are Minneapolis-St. Paul, San Diego, Sacramento, Oakland, Denver, Milwaukee, Boston, Houston, Anaheim/Orange County and Los Angeles/Long Beach, the study said.
The study also estimated there are 150 business coalitions nationwide, and 33% of them are in Florida, Michigan, New York, Ohio and Washington. Most markets with business coalitions are heavily penetrated by strategic alliances, Luke said.