Charleston, S.C., where the Civil War began, is perhaps the clearest example of a hospital market that's polarized along ownership lines.
In 1992, the market sported nine independent hospitals, excluding the local Navy hospital. By the end of this year, the market likely will have divided into a 5-4 or 6-3 split, with the for-profit system holding the market-share edge in staffed beds.
The holdout in the Charleston market is 100-bed East Cooper Community Hospital in Mount Pleasant, S.C., a suburb just east of downtown Charleston.
East Cooper is a for-profit facility owned by Tenet Healthcare Corp., Santa Monica, Calif. Executives of East Cooper and Tenet declined to be interviewed, but other sources reported that the hospital is being courted by the market's two emerging systems.
The hospital is the only acute-care facility east of downtown, and its inclusion in a provider network would give that network geographic coverage most attractive to payers.
"We're in discussions with them, but there's no formal offer," said James Rogers, president and chief executive officer of 400-bed Roper Hospital in Charleston, the anchor of Lowcountry Health System, the market's not-for-profit partnership. "We have a strong and positive relationship with Tenet. They would prefer to be part of us, and we would love to have them become part of our system."
The other army in this scenario is Columbia/HCA Healthcare Corp., whose march into Charleston in February 1994 made longtime not-for-profit hospital rivals in town join forces quickly.
By virtue of its merger with Hospital Corporation of America, Columbia took control of two area hospitals: 282-bed Trident Regional Medical Center in North Charleston and 80-bed Summerville (S.C.) Medical Center, about 22 miles northwest of downtown Charleston.
"As we began to look at the Charleston market, we realized that we needed a downtown presence and access to a mix of services," said Frank DeMarco, president of Columbia's Carolinas division. Several downtown hospitals offered the geographic coverage and tertiary-care services Columbia needed to round out the network.
To hear Rogers tell it, Columbia approached Roper first.
"They came to us and said, `We'd love to have you in a 50-50 deal.' This was early 1994," Rogers said. "We said no. We've been here for 208 years, and we don't want history to remember us as the ones who sold out. That left Columbia to pursue" Medical Center of the Medical University of South Carolina. Reflecting the severity of its patient case mix and high cost structure, 582-bed MUSC is the highest-priced hospital in Charleston. In 1994, its gross revenues per adjusted admission were $16,747, according to the latest available data from HCIA, a Baltimore-based healthcare information company.
That's more than double the national median of $7,204 that year and the $7,745 median for South Carolina hospitals.
To hear DeMarco tell it, Columbia didn't want to cut a deal with Roper, or Roper's soon-to-be-partner, 214-bed Bon Secours-St. Francis Xavier Hospital, also downtown.
"Columbia and MUSC have a shared vision: `In order to be successful, we had to make major changes,'*" DeMarco said. "Roper and St. Francis are parochial. We talk about the future. They talk about the past."
Shortly after Roper rebuffed Columbia, it turned to St. Francis. In a pre-Columbia world, Roper and St. Francis were bitter enemies. The pair had just ended years of certificate-of-need-related litigation over which would get to build a satellite or replacement hospital in West Ashley, a growing Charleston suburb. St. Francis won and is scheduled to open a $43 million, 198-bed replacement hospital there this fall.
Four months after they announced their affiliation talks, Roper and St. Francis formed Lowcountry Health System. It brought together Roper, St. Francis and 104-bed Baker Hospital, which affiliated with Roper in 1992. Baker formally merged with Roper last year and became Roper Hospital North. And by the end of this year the two Ropers intend to complete a full-asset merger with St. Francis, which was the long-term goal of the original partnership.
"After the merger, we'll then turn to Tenet and sit down and talk about East Cooper," Rogers said.
Meanwhile, Columbia added its third Charleston-area hospital while it was working on its affiliation agreement with MUSC. By virtue of its April 1995 acquisition of Healthtrust, Columbia obtained 116-bed Colleton Regional Hospital in Walterboro, S.C., about 44 miles west of downtown Charleston.
MUSC came into the Columbia fold in February, when the two sides inked a deal that allows Columbia to lease the hospital from the university for $8 million a year. The deal is awaiting various state approvals. The MUSC deal also gave Columbia its fifth area hospital, 141-bed Charleston Memorial Hospital. The county-owned facility is managed by the university and later may be converted into a nonacute-care facility, DeMarco said.
Late last week, Roper threw a monkey wrench into the Columbia-MUSC deal by filing a complaint with the state, accusing MUSC of violating state law by allegedly not issuing a detailed request-for-proposals before cutting the deal with Columbia.
Assuming Roper's strategy fails, Columbia will control five of the area's nine hospitals and about 60% of its staffed beds. Lowcountry has three hospitals with about 35% of the beds. The swing hospital is East Cooper, with 5% of the beds.
Soon, payers and employers will be facing two distinct networks. "It will force payers to pick and choose because you can't contract with everybody," DeMarco said.
Having two distinct systems is good and bad news, said Ed Sellers, president and CEO of Blue Cross and Blue Shield of South Carolina.
At the moment, the plan operates a 54,000-enrollee PPO in Charleston that contracts with MUSC, Trident Regional, St. Francis and East Cooper. It also operates a 10,000-enrollee HMO in Charleston that contracts with all the hospitals in the market.
On the plus side, the intense competition between two systems should result in lower prices for higher quality care for the residents of the Charleston market, Sellers said. On the down side, the systems will be tougher negotiators because of their market power, and they'll be dealing from a position of strength through numbers, he said.
Sellers doesn't think there'll be a problem with overt or tacit collusion between the systems on prices or services, but that's something payers will have to monitor carefully.
"Five years of beating each other's brains in and then a phone call comes in the middle of the night (from one system to the other). That's when we'll start to worry," Sellers said.