As large hospitals and healthcare systems in Georgia expand their service market to capture new patients and compete for managed-care contracts, smaller hospitals in rural areas are becoming squeezed by their stronger and richer competitors.
To capture or retain managed-care contracts, hospitals nationwide are forming integrated delivery systems by purchasing or contracting with group practices, home health agencies and other nonacute-care providers. Their purpose is to offer geographic and service coverage to employers and payers.
But in states such as Georgia with high proportions of small and rural hospitals, the frenzied drive by systems to gain geographic coverage is a concern among small hospitals, said John Ortiz, a partner with the Atlanta office of Andersen Healthcare.
Of Georgia's 157 acute-care hospitals, 62 have fewer than 100 beds, and 88, or 56%, are considered nonmetropolitan, according to the Georgia Hospital Association. There are 74 state and local government hospitals, 49 public hospitals and 34 for-profit hospitals in the state, the GHA said.
Columbia/HCA Healthcare Corp.'s growing clout in Georgia also is driving some of the large not-for-profit hospitals such as Northeast Georgia Medical Center, Gainesville, and Phoebe Putney Memorial Hospital, Albany, into expanding their markets and services to compete for managed-care contracts.
As a result, smaller hospitals are becoming unintended victims, Ortiz said. Columbia operates a statewide network of 19 hospitals, five surgical centers and 10 primary-care centers. Columbia officials said the for-profit chain plans to acquire another five to seven hospitals over the next year along with expanding its home-care and outpatient services.
The targeting of smaller facilities is "a hospital-driven initiative to try and prevent Columbia from gaining market share," Ortiz said. "It's not market-driven by employers demanding lower costs. These smaller hospitals are the victim of circumstances and not of the marketplace (changing to managed care)."
Even though Georgia's 12% managed-care enrollment is low compared with 20% nationally, experts predict it will grow to 15% by the year 2000. But in the 18-county Atlanta metropolitan area, HMOs have enrolled nearly 30% of the 3 million population.
To give public hospitals a greater ability to compete in larger geographic markets, the GHA supports elimination of the state's Hospital Authority Act. The law limits the ability of public hospitals to compete in other counties and borrow money for expansion.
But several executives of small hospitals say their facilities can't compete when larger hospitals move in to establish beachheads through physician clinic acquisitions.
"We don't have the cash to compete against the larger hospitals for market share," said Richard Wallace, administrator of 26-bed Rabun County Memorial Hospital in Clayton, Ga. "As the bigger hospitals expand, they're taking business away from smaller hospitals."
Last year, Wallace said Rabun County trustees explored the possibility of selling the hospital or merging with another facility. The board nixed the idea, opting instead to build up its primary-care patient base. Rabun competes in Clayton with two hospitals managed by Quorum Health Group, Brentwood, Tenn.
As 418-bed Phoebe Putney creates its integrated delivery network in south central Georgia by opening or purchasing clinics in nearby counties, smaller hospitals operating in those surrounding counties worry about losing patients, said several of the hospital administrators.
In Tifton, 181-bed Tift General Hospital filed a lawsuit against Phoebe Putney to stop it from gaining a foothold in Tifton County by funding the purchase of the 11-member Tifton Medical Clinic, said William Richardson, Tift General's administrator.
The lawsuit contends Phoebe Putney is prohibited from competing outside its county without the permission of the local hospital under Georgia's Hospital Authority Act.
"(Phoebe Putney) unilaterally affiliated with the clinic," Richardson said. "We got outbidded. The strategy I don't fault; that's America. But I fault the method. (Phoebe Putney) didn't talk with us about a joint venture arrangement (with the clinic). They just moved in."
Richardson said Phoebe Putney gained 11 physicians but lost support from the remaining 59 members of Tift General's medical staff. "They all signed a petition opposing Phoebe," he said.
Phoebe Putney spokesman Geoffrey Norwood said the hospital wants to include Tift General and other smaller area hospitals in its managed-care contracts.
"We don't want to take over small hospitals," he said. "Our tactic has been to work with the smaller hospitals with our (physician-hospital organization) and in our managed-care agreements."
But Richardson said Phoebe Putney has it backwards.
"(Phoebe Putney) assaults a community first and then asks you to work with them in managed-care contracting later," he said. "They acquire clinics for leverage (in contract negotiations). That's what they did here."
Earlier this year, Tift General joined three other area hospitals to form South Georgia Health Partners to compete with the managed-care network Phoebe Putney is crafting, Richardson said (April 1, p. 22).
"Even though (Phoebe Putney) is 40 to 50 miles away, they could negatively impact smaller hospitals," Richardson said. "South Georgia will minimize that impact. If Phoebe wants to contract with (South Georgia) for tertiary care, that's fine. We don't need to sign with them for secondary care."
To make itself more appealing to payers, Phoebe Putney has acquired eight primary-care clinics within a 55-mile radius of its hospital in Albany over the past five years, Norwood said.
Phoebe Putney also has created an as-yet unnamed managed-care network with 152-bed Sumter Regional Hospital, Americus, Ga., and 65-bed Crisp Regional Hospital, Cordele, Ga. Norwood said the acquisition of the Tifton clinic was made through the Affinity Health Group, a joint venture with physicians in which Phoebe Putney holds a 45% stake.
In an effort to expand its market to become more competitive with Columbia, Phoebe Putney in July also plans to open a rural health center in nearby Worth County. Columbia operates 145-bed Palmyra Medical Centers, which competes with Phoebe Putney in the Albany area. Columbia recently purchased an internal medicine practice in Worth County.
Loron Coxwell, administrator of 50-bed Worth County Hospital, Sylvester, said Phoebe Putney's health center threatens the small for-profit hospital.
"(Phoebe Putney) invited themselves here, and our position is the clinic isn't necessary. It will dilute the services we have to offer," Coxwell said. "They say they aren't after our patients. Only time will tell."
Norwood said Phoebe Putney only entered Worth County because Columbia purchased a clinic there.
"(Columbia) bought a physician practice there, so we committed to the area," he said. "We would have gone there anyway. It is an important referral area for us. Columbia's movement there was a catalyst for us."
Worth County Hospital is owned by seven-hospital Memorial Health Services, an Adel, Ga.-based for-profit rural hospital company. Memorial spokesman Wade Keck said a contract has been signed to sell the hospital to three-hospital Georgia Baptist Health System, Atlanta.
Earlier this year, Memorial Health's principal owner, Russell Acree, M.D., was convicted of exchanging narcotics for sex. He is serving a five-year prison sentence. Memorial also is negotiating the sale of five other hospitals to Community Care of America, a for-profit chain based in Naples, Fla. Keck declined to name the hospitals.
Keck said the sale of the hospitals has nothing to do with Acree's jail term. "It's a good time to sell," he said.
Meanwhile, in northern Georgia, 116-bed Chatuge Regional Hospital, Hiawassee, now faces direct competition from Northeast Georgia Medical Center, a 338-bed hospital nearly 50 miles to the south.
To expand its market reach, Northeast Georgia purchased Hiawassee Family Practice Group for $300,000. The three-physician group is adjacent to Chatuge Regional, said Thomas Edwards, Chatuge Regional's administrator.
"We made overtures to purchase the group, but the negotiations didn't go very far because our pie wasn't as sweet," Edwards said. Chatuge Regional, a former public hospital, was purchased in 1994 by five-hospital Southern Health Corp., a for-profit chain based in Atlanta.
Northeast Georgia has hired two additional internists to staff the clinic in Hiawassee, which is a 90-minute drive to Gainesville, Edwards said.
"Northeast has a clear strategy to market their product to managed care in a wide geographic market," Edwards said. "We haven't seen our admissions decrease, but we are concerned about the future."
Edwards said Northeast Georgia officials have assured him they are only interested in secondary and tertiary referrals from the area.
"But we already send those patients there," he said. "What else do they
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Georgia Continued from p. 81 want? When a competitor, a friendly competitor, comes in and puts a flag in your neighborhood, you become concerned about it."
LeTrell Simpson, a Northeast Georgia spokeswoman, said the hospital purchased the Hiawassee clinic to strengthen its presence in that region and to keep out other competitors.
"We believe it is (Northeast Georgia's) responsibility to assure....appropriate access points are conveniently located to patients, employers and health plans," Simpson said. The system's delivery network includes a tertiary hospital, primary-care clinics, and long-term-care, home-care, hospice and ambulatory-care sites.
Simpson said Northeast Georgia hopes to work with Chatuge Regional in its managed-care contracts with payers and employers.
Hospitals in Georgia also are in a frenzy about developing integrated delivery networks to prepare for an increasing number of managed-care patients, said Michelle Molden, vice president of planning and marketing for St. Joseph Health System in Atlanta.
"Smaller hospitals are looking for partners that enrich them, not compete with them," Molden said. "We don't want to build clinics in every community. We want to use our expertise to support these hospitals and give them access to capital to do joint building projects."
Georgia Baptist is one of those systems looking to provide assistance to smaller hospitals and become a statewide provider by the year 2000, said David Harrell, its president and CEO. The system operates three hospitals, four nursing homes and a 22-county home health agency.
"We have to be geographically disperse to be successful with employers and managed-care payers," Harrell said. "But we want to do it in a way that serves the local community and doesn't threaten their patient base."