Note: This article is the first in a series of healthcare market profiles that MODERN HEALTHCARE will be featuring this year. Statistical support for the series is being supplied by SMG Marketing Group, a Chicago-based healthcare information and marketing consulting company.
To find out who's talking to whom in Cincinnati healthcare, one need only visit the daily lunch buffet at the Vernon Manor Hotel in the inner-city neighborhood known as Pill Hill.
There, employees of Cincinnati's two dominant health systems, the bulk of its acute-care facilities and its only medical school rub elbows over dishes such as homemade beef vegetable soup, baked cod and buttered corn.
Such coziness makes Cincinnati Ohio's big small town. Compared with Cleveland, its rough-and-tumble neighbor to the north, Cincinnati is insular, defined by a not-for-profit acute-care monopoly whose governing boards are dominated by local employers.
But change is afoot in the town known for a conservative style. The town that rejected avant-garde photographer Robert Mapplethorpe is embracing managed care. The HMO penetration rate is 30.5%, on par with the average for America's largest cities, according to Minneapolis-based InterStudy Publications.
Cincinnati is characterized by greater-than-average hospital consolidation and relatively low profit margins, according to data from SMG Marketing Group, a Chicago healthcare information and marketing consulting company (See charts, this page). Integration of medical groups and health plans with hospitals has not been a major trend.
Consolidation. Hospital consolidation began in earnest three years ago with the formation of two major systems, Health Alliance of Greater Cincinnati and TriHealth, which have a combined acute-care market share of about 43%.
Cincinnati-based Catholic Healthcare Partners, formerly Mercy Health System, has three hospitals in the area. Franciscan Health System of the Ohio Valley has two hospitals in Cincinnati and one in nearby Dayton.
Employer-driven efforts to improve cost and quality are turning up the heat on providers. There's also a growing threat of encroachment by for-profit competitors thanks in part to the coming demise of Ohio's certificate-of-need law. The acute-care CON ends in March.
In November, Health Alliance shut down Jewish Hospital, the first acute-care closure in the area that anyone can remember. That followed the controversial January 1997 privatization of University of Cincinnati Hospital by the five-hospital alliance, which still is defending a lawsuit filed by the city and a group of taxpayers who opposed the move.
Local hospitals and health systems announced nearly $150 million in cost reductions between October 1996 and October 1997, according to the Greater Cincinnati Health Council, which represents hospitals.
Keeping in harmony. Public battles, however, are unusual. Leaders prefer to strive for consensus and avoid controversy.
For example, employers were reluctant to jump into the strife surrounding the privatization of the now-renamed 418-bed University Hospital. Only after the city, unions and advocates for the uninsured whipped up opposition to privatizing did the 85-member Employer Health Care Alliance chime in with its support of the move. Even then, its statement was couched with reservations.
"I don't think any employer has taken the heavy hand and said, `This is how (consolidation) is going to be done,' " says Dennis Hicks, president of the employer alliance. "The idea is to have more of a collaborative approach, to work things out long-term."
In 1992 four large employers launched a study of quality of care at local hospitals similar to the groundbreaking Cleveland Health Quality Choice project that started in 1989. But unlike the Cleveland data, Cincinnati's results have never been released publicly.
That will change soon, according to the Greater Cincinnati Health Council. It took over the funding and operations in 1996 and hired software vendor MediQual Systems in Westborough, Mass.
The council plans to allow all employers to subscribe starting with 1997 data, which will be released in a few weeks. A limited amount of the data will be made public.
Sharron DiMario, executive director of the Employer Health Care Alliance, says there's been no pressure to make the data public in part because the hospitals do not exhibit wide variation in outcomes.
Collaboration. Sometimes the collaborative approach works well. For example, providers defused a potentially explosive issue in 1996 by working with city officials to devise voluntary standards for the use of unlicensed personnel, says Mary Yost, senior director of public affairs at the Ohio Hospital Association.
A new priority is cancer. Last year a not-for-profit community group called the Health Planning and Resource Development Association of the Central Ohio River Valley, or CORVA, published a detailed mapping study that documented Southwest Ohio's higher-than-average cancer rates.
The study prompted the launch of a task force of health planners, employers and providers to step up prevention programs. The task force also is lobbying for the designation of University Hospital's Barrett Cancer Center as a comprehensive cancer center, which would draw federal research money.
For-profit specter. Historically, for-profit companies have skipped over Cincinnati, despite the presence of two for-profit hospital companies in Cleveland. Columbia/HCA Healthcare Corp., which proclaimed its intent to blanket the state three years ago soon after launching a joint venture with Sisters of Charity of St. Augustine in northern Ohio, never did make it to Cincinnati. The company has been building a joint venture ambulatory surgery center with Cincinnati's Deaconess Hospital and local doctors. However, the future of the project is uncertain, and neither Columbia nor the hospital would comment on its status.
But last year, Ohio completed the phase-out of CONs. Specialty companies that could cherry-pick profitable services have set their sights on the state.
The latest scare came in January, when Charlotte, N.C.-based MedCath announced it was entering a joint venture with Franciscan Health System of Ohio Valley and local physicians to build a heart hospital in Dayton, just an hour's drive away.
Also on the for-profit front, doctors are leveraging their interests against hospitals'. TriHealth, the area's second-largest system, recently sold part of its interest in a dialysis center that was built as a joint venture with physicians when the doctors threatened to build a competing center with a for-profit company. TriHealth now owns a minority interest in the center, which is managed by the for-profit specialty company.
A number of joint venture outpatient surgery centers between doctors and hospitals are under way with more expected to come, and long-term-care provider Vencor recently announced it would open a facility in the market.
Low-margin town. Still, many wonder just how much profit there is to be squeezed from Cincinnati's healthcare system, where profit margins always have been low. According to SMG, average hospital profit margins in Cincinnati are nearly two percentage points lower than the national average. The gap is twice as large for operating margins.
"We are blessed with good hospitals and relatively moderate costs," says Hicks of the Employer Health Care Alliance. "I think there's going to be a healthy skepticism . . . about (for-profits) coming in."
The threat of for-profit competition, however, is motivating some providers to bring their costs under control, partly through consolidation. Talks are under way between Franciscan and TriHealth. Also, the Health Alliance is negotiating with Fort Hamilton-Hughes Memorial Hospital in Hamilton, Ohio.
The closure of Jewish Hospital resulted in a net reduction of 350 beds, given the transfer of 100 beds to a suburban location. Also, TriHealth is reducing licensed beds and closing an emergency room at Bethesda Oak Hospital on Pill Hill.
Hospitals also are assisting and partnering with a number of strong physician groups that have formed in the market.
A few hospitals have chosen to stand alone. Notably, Children's Hospital Medical Center broke off talks with its counterpart in nearby Dayton.
Geographic challenge. One potential hurdle for local health systems is the fact that the market extends into Indiana and Kentucky. The Health Alliance and Catholic Healthcare Partners have forged ties to Kentucky hospitals. However, TriHealth President and Chief Executive Officer Thomas Wilburn says his system cannot effectively operate a corporate health program in Kentucky because of that state's CON laws. Kentucky is a critical market. Between 1990 and 1996, the Kentucky counties of Boone and Grant posted the strongest population gains in the area, with increases of more than 20%.
Yet some consumers are skeptical about the pace of efforts to reduce excess capacity, particularly in the core Pill Hill area.
Occupancy of licensed beds fell to 41.5% in 1995 from 55.6% in 1991, the latest year for which statistics were available from the state, according to CORVA.
Providers have taken issue with the accuracy of the numbers, though. Just last month, the extent of overbedding was called into question during an unusual flu outbreak that filled several hospitals to capacity.
A January 1997 survey commissioned by Health Alliance showed two-thirds of the public views partnerships of hospitals as positive, and more than half of respondents think partnerships will increase quality. However, only one in three believed partnerships would reduce costs.
Providers insist they are achieving cost controls.
Health Alliance President and CEO Jack Cook says University Hospital has shed its reputation as a high-cost provider. Five years ago, only 5% of people enrolled in HMOs had access to all five hospitals that now belong to the Health Alliance. Now, 64% do, according to alliance officials.
Says Cook: "I don't think you can find a city more advanced in the Midwest as far as how we're getting paid and the pace of change."