Rumblings of a managed-care-induced shakeout are passing through the Hampton Roads area of southeastern Virginia.
Systems have been trying to shore up their influence in the area, and independent hospitals have been looking for partners or strengthening their own operations.
"What we're seeing is a lot of activity in the marketplace driven primarily by an increased growth in managed care," observed Karen Corrigan, vice president of Norfolk-based Sentara Health System. "We're beginning to experience a situation where independent hospitals are asking questions about their future."
Hampton Roads is about 70 miles southeast of Richmond, the state capital. With 1.5 million residents, the Hampton Roads area is one of the major geographic centers of Virginia, which has a population of 6 million. The cities of Chesapeake, Norfolk, Portsmouth, Suffolk and Virginia Beach make up what is called South Hampton Roads. The greater Hampton Roads area stretches to Virginia's nearby peninsula to include Hampton, Newport News and Williamsburg.
Currently, 26 hospitals and medical centers serve those eight cities. Of those providers, six operate independently and five are run by the state or federal government. The rest are divided among several national and regional systems. The major managed-care players in Hampton Roads include Sentara, Cigna HealthCare, Trigon Blue Cross and Blue Shield of Virginia and Tidewater Health Care.
About 25% of the population of Hampton Roads receives health coverage through CHAMPUS-the Civilian Health and Medical Program of the Uniformed Services-or other military programs, Corrigan said. Another 30% of the population is enrolled in an HMO, according to Corrigan, and this percentage is expected to grow. HMO penetration in Richmond, for example, already has reached 41% of those with commercial health insurance, according to the American Association of Health Plans.
Sentara, a not-for-profit regional system, has the strongest ownership presence in Hampton Roads with four hospitals. In addition, it recently formed a shared-equity partnership with Williamsburg Community Hospital (May 13, p. 21).
Corrigan said Sentara plans to continue evaluating partnerships with other hospitals in the region. Sentara also will continue to promote its own managed-care products, she said. Currently, Sentara has about 235,000 enrollees in its managed-care programs.
"Managed care is growing in the area, and it presents a business opportunity," she said. "The bottom line is that we have more capacity than demand for hospital beds."
Meanwhile, Bon Secours Health System, a not-for-profit national system based in Marriottsville, Md., has been making inroads.
Bon Secours Maryview Health Corp. in Portsmouth recently acquired not-for-profit Portsmouth General Hospital from Tidewater Health Care, based in Virginia Beach. Terms of the agreement were not disclosed.
Bon Secours Maryview operates the only other community hospital in Portsmouth-Maryview Medical Center. H. Wayne Jones, executive vice president, administrator and interim chief executive officer of Bon Secours Maryview, said Bon Secours plans to gradually consolidate the two not-for-profit facilities over the next 18 months. Certain outpatient and emergency services will remain at Portsmouth General until at least the year 2000 and "as long as there is a community need," he said.
In a prepared statement, Tidewater administrators blamed new technology, pressures from managed care and reductions in government reimbursements for a steady decline in revenues at both hospitals.
In 1994, Portsmouth General reported a net loss of $5,094 on total revenues of $43 million, according to the 1995 Commercial Diversification Survey published by the Virginia Health Services Cost Review Council. A year before, Portsmouth General reported net income of $238,000 on total revenues of $72 million. Maryview Medical Center earned net income of $3 million on total revenues of $82 million in 1994, according to the survey. In 1993, Maryview reported a $1 million loss on total revenues of $151 million.
Hopes are high that the new arrangement will result in a more efficient distribution of resources.
"We were the only logical partner for Portsmouth," Jones said. "We're in a position to integrate services, reduce costs and achieve economies of scale."
Bon Secours also has signed a letter of intent with Mary Immaculate Hospital in Newport News to operate the not-for-profit hospital as a joint venture. Mary Immaculate is sponsored by the Bernardine Franciscan Sisters.
Mary Immaculate is attracted to the deal, according to a prepared statement, because a link with Bon Secours would allow it to keep its not-for-profit status and benefit from the system's purchasing network.
Hampton Roads also has caught the attention of Columbia/HCA Healthcare Corp., a Nashville, Tenn.-based hospital giant. Columbia already owns four hospitals in Richmond but has not been able to get a toehold in Hampton Roads.
Negotiations between Columbia and not-for-profit Riverside Health System, based in Newport News, have been extended for another 90 days, according to a spokesman for Riverside.
The two systems have been talking about establishing some form of nonequity collaboration for the past several months (April 22, p. 8).
An agreement would give Columbia access to managed-care services and products in the state through Riverside's 1993 joint venture with Trigon. It also would provide a link to one of the most profitable medical centers in Hampton Roads. In 1994, Riverside Regional Medical Center in Newport News earned $20 million on total revenues of $178 million.
Area administrators are not surprised at Columbia's efforts.
"This is one of the few population centers directly adjacent to an area where they are strong that they don't have a presence," said William C. Giermak, president of Obici Health System, which operates Louise Obici Memorial Hospital in Suffolk. "There's a quarter of the entire population of Virginia here, and Columbia doesn't have a presence."
In light of Columbia's overtures and managed care's emergence, independent hospitals in Hampton Roads such as Obici Memorial are trying to strengthen their own positions.
Giermak said Obici Health System was recently formed to serve as the umbrella for the hospital and its related healthcare facilities.
"We decided to develop our own local health system in our rural area of Hampton Roads," he said. "If down the road, there was a formal contact for an affiliation, we would be operating from a position of strength."
Likewise, Donald S. Buckley, president of Chesapeake General Hospital, said he is focusing his efforts on crafting a strong physician-hospital organization with his doctors.
"By centralizing our medical community we will be able to maintain our autonomy," he said. "It's all contingent on the continued support and alignment of the physicians with the hospital. It will provide us with better armor from what may occur with these other activities in the area."
Buckley said that while the hospital has arrangements under which it shares laboratory, laundry and other services with hospitals in the area, he does not anticipate a more formal affiliation or merger in the near future. In 1994, Chesapeake General earned net income of $9 million on total revenues of $100 million, according to the diversification survey.
"We've been able to be financially sound," he said. "And we don't want to lose our local autonomy."