Executives of Sheridan Healthcare in Miami have found out the downside of former U.S. House Speaker Thomas "Tip" O'Neill's saying that "all politics is local."
Last year, Sheridan, a physician management company, negotiated and signed a preliminary agreement with San Juan Mayor Hector Luis Acevedo to privatize the city's public healthcare delivery system and provide capitated managed care to 110,000 Medicaid beneficiaries.
But after three months of wrangling with a highly politicized San Juan Municipal Assembly, Sheridan terminated the deal in February because the council wouldn't follow through on the mayor's agreement. The for-profit company owns and operates about 150 physician practices in South Florida and Tampa.
Sheridan found itself caught in the web of a heated gubernatorial campaign between Acevedo and Gov. Pedro Rosello, a physician who championed the healthcare reform legislation that was approved in 1993. Rosello is affiliated with the New Progressive Party, which controls the San Juan assembly. Acevedo is running for re-election on the Popular Party ticket.
"Nothing will get done in San Juan until after the election in November," said Norma Rivera-Rivera, director of services to providers and beneficiaries with the Puerto Rico Health Insurance Administration. The PRHIA is responsible for overseeing the privatization of the Medicaid program and monitoring healthcare quality in the U.S. commonwealth.
"There is some political play to undermine the (Medicaid managed-care) program," Rivera-Rivera said. "But (privatization) is going very well in the rural areas. Regardless of income or social standing, (Medicaid beneficiaries) have access to private facilities and can change their doctor or specialist. They have power they never had before."
Dennis Gates, Sheridan's chief financial officer, said the company was disappointed it couldn't get the San Juan assembly to give final approval on the deal. "There were political overtones, but it also had to do with economics," he said.
Under the contract, Sheridan was to have leased the city's 270-bed San Juan City Hospital, eight ambulatory facilities and a 190-bed extended-care facility for $1.5 million per year. The Medicaid contract was worth
$70 million in annual revenues, Gates said.
With the exception of San Juan, which is embroiled in gubernatorial politics, Puerto Rico is moving forward to privatize its $950 million annual Medicaid and public healthcare delivery system. Medicaid spending accounts for 20% of the commonwealth's annual budget.
With double-digit growth in Medicaid spending the past several years, the government wants to reduce expenditures, improve quality and access, officials said.
Puerto Rico is a mountainous island about 25% larger than Delaware. It's poor, with a per-capita annual income of $7,500, compared with $21,300 in the United States. Because of federal tax breaks, American pharmaceutical companies produce about half their prescription drugs on the island. Still, Puerto Rico's unemployment rate is 14%, compared with 5.1% in the states.
Twenty-four of the island's 56 acute-care hospitals are owned by for-profit chains, 16 are not-for-profit hospitals, 14 are public hospitals and two are U.S. government-owned.
As part of its privatization program, the Puerto Rican government has contracted with HMOs and insurance companies to provide capitated services to its 1.8 million Medicaid recipients, which account for half the island's 3.6 million population.
In six geographic regions, 1.1 million Medicaid beneficiaries are enrolled in managed-care programs through Physicians Corporation of America, Miami; United HealthCare Corp., Minneapolis; Triple-C, San Juan; and Blue Cross of Puerto Rico.
"It will take two or three more years before we can do better than break even," said Carlos Munoz, Triple-C president. "We are investing a lot of money ($4 million in 1995) to give this Medicaid population preventive care and educate them on health promotion. They didn't have much healthcare before, so we are having to spend a lot to catch up on their health."
Triple-C, which stands for Corporation for Coordinated Care, is the managed-care subsidiary of Blue Shield of Puerto Rico. Triple-C manages the care for 350,000 Medicaid patients in two regions. Some 42 hospitals and 500 primary-care physicians are under contract, Munoz said.
By 1998, Puerto Rico is expected to finish contracting with HMOs for its two remaining regions, which include the island's largest cities of San Juan, Bayamon, Ponce, Carolina and Mayaguez.
The Puerto Rican government also is seeking to lease or sell most of the 14 aging public hospitals to private hospitals, local officials said.
But healthcare analysts said the public hospitals have lost business as thousands of Medicaid patients are choosing the more modern and efficient private facilities. The effect is that the public hospitals have been devalued, experts said.
"The private hospitals are benefiting immensely from the privatization of the Medicaid program," said Paul Rizzo, a healthcare analyst with Standard & Poor's Corp., a New York-based credit rating agency. Munoz said private hospitals are either expanding their facilities to accommodate the increased demand or they are talking with government hospitals about acquisition or lease.
"The private hospitals are seeing a 25% to 30% increase in admissions and visits," Munoz said. "It has created some problems for the government because their hospitals have seen a reduction of use."
Rivera-Rivera said many of the public hospitals will most likely merge and consolidate with stronger private hospitals.
"This has forced (public hospitals) to evaluate themselves and improve their facilities to become more competitive," Rivera-Rivera said. "To survive they have to do a better job. People just love their new freedom of choice. They are getting care like dental services they never had before." Dental services now are part of negotiated benefit packages for Medicaid patients.
At Physicians Corporation of America, spokesman Peter Bernal said the HMO is responsible for about 200,000 covered lives in two regions. Because the company receives a monthly per-member fee from the government, it contracts on a capitated basis with about 17 hospitals and more than 1,000 physicians. The HMO declined to reveal financial details of its contract.
"We believe if we could manage within the parameters of the contracted benefits, we can come up with a small profit," Bernal said. "We are doing well and hope to expand our business in Puerto Rico."