Whether you drive Boston's billboard bedecked highways, stroll the taxi cluttered avenues or hop the "T"-the popular public transit system-there's no escaping the ads for managed-care plans.
HMOs rule in Boston. In particular, a triad of managed-care biggies-Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim Health Care and Tufts Health Plan-has dominated the HMO market for years.
But for years, high healthcare costs and the liberal use of hospitals have characterized Boston much more than other U.S. markets, even as HMOs marched toward 50% penetration.
The influences on high provider utilization are still strong and resist the brake of managed care. "I don't see costs going down," says Dale Lodge, senior vice president for health services contracting at the Massachusetts Blues.
Other influential managed-care players such as Harvard Pilgrim and Tufts don't necessarily see higher utilization and costs as bad. Rather, they say those factors are in sync with a market where a craving for consumer choice and a tradition of teaching hospitals have combined to keep service, rather than cost, as the prime competitive consideration.
Indeed, the managed care that has evolved in the shadow of half a dozen renowned academic medical centers is not the cost-crunching, pinch-the-providers brand that has seized sections of California and has been expected in other markets that have nearly 50% HMO penetration.
If you blend statistics from SMG Marketing Group, a Chicago-based healthcare information and marketing consulting group, with comments from prominent healthcare players, you see this picture:
Despite some progress, hospital costs per patient day remain 40% higher than the national average, and other measures of utilization are similarly high. Yet HMOs with substantial market share generally have kept hard-nosed demands for cost containment to a minimum.
Provider costs have contributed to premiums that are nearly $100 higher for family coverage than the national average. But business hasn't revolted. In fact, HMOs recently passed along an increase in state-mandated payments for uncompensated care, with little squawking from employers.
Providers have assumed increasing liability for delivering care based on capitation. But that doesn't mean HMOs are rushing to hand off the risk. In fact, the leading HMOs are looking before leaping into capitated contracts, sometimes delaying deals with willing providers deemed not yet up to the task.
"We're continually trying to ratchet down the percentage of the dollar spent on inpatient care, but we're trying to be very careful how we do that," says Allan Greenberg, president and chief executive officer at Harvard Pilgrim.
Providers profess to be on the same wavelength. "We want the plans engaged with us to make this a success," says Sandra Fenwick, the executive in charge of developing a risk-bearing provider network for CareGroup, one of several regional healthcare systems coming to prominence.
"It's not a nasty, antagonistic set of relationships at this point," she says.
Equilibrium altered. But the relationships between HMOs and providers have changed, and observers say the change dates to 1994, when the city's two biggest academic and research hospitals decided to partner in the market's first alliance.
Appropriately called Partners HealthCare System, the union of Massachusetts General Hospital and Brigham and Women's Hospital responded to the call for downsizing and consolidation of expenses in a market in which 30% to 40% of acute-care beds were projected to be closed during the next five years, says Samuel Thier, system president and CEO.
But critics say the move has worked too well, instituting a model of provider clout that preserves service levels-and the resulting expenses (See related story, p. 58).
"Premiums are much higher than they should be, and oligopolies are developing on the provider side," says the Blues' Lodge.
Partners has added several other geographically strategic hospitals and built a primary-care network of 900 physicians, a figure that represents 90% of the system's goal of 1,000 doctors by 2000.
Striving to catch up is CareGroup, formed in late 1996 by the merger of the parent companies of Beth Israel Hospital and adjacent Deaconess Hospital in Boston. Since July 1997, CareGroup has nurtured its own provider network, which now includes 640 primary-care physicians.
Putting its best physician foot forward is Lahey Clinic, a suburban multispecialty group practice with a tertiary hospital as part of a doctor-directed medical complex. Lahey recently ended a fling in New Hampshire and has been forging a Massachusetts presence and primary-care expansion through deals with providers and HMOs.
Also bidding for influence in eastern Massachusetts is Lifespan, a regional healthcare system network based in Providence, R.I. It's forming a network around New England Medical Center, the tertiary facility it acquired in November 1997.
Caritas Christi, a system sponsored by the Boston Archdiocese, added several hospitals in the past year and provides the area's Catholic healthcare presence.
A 1996 merger of Boston City Hospital and the adjacent teaching hospital of Boston University has struggled to maintain its market share after a politically charged consolidation intended to keep both facilities afloat.
Don't tread on me. Like California, Massachusetts got into managed care early. But local resistance to being told what to do and where to go has engineered a much different approach by HMOs.
Rooted in the original HMO concepts of the 1970s, pioneers worked to control costs and maintain clinical quality by building on selective contracting and closed provider networks.
Harvard Community Health Plan, which began operations in 1969, steadily grew during the next quarter century to more than 500,000 enrollees on the strength of a staff-model organization of neighborhood clinics and tight ties with a few hospitals.
Harvard Community's chief rival, the Massachusetts Blues, established its own network of 10 health centers as a key part of its healthcare delivery.
But when other competitors such as Tufts and Pilgrim Health Care advanced in the 1980s through looser and broader physician networks, employers and their workers gravitated to options that offered more choice. "Selective networks did not fly," says Lodge.
Harvard Community broadened its choice by developing a group practice division. Then it merged with Pilgrim in 1995 to form Harvard Pilgrim, with a combined 900,000 enrollees in Massachusetts and surrounding New England.
A year later Harvard Pilgrim reorganized its 14 Boston-area health centers into an autonomous multispecialty group practice.
Late last year the Blues sold its health center division to MedPartners, a Birmingham, Ala.-based manager of physician practices.
Because broad choice is extremely important to health plans, "virtually every provider has a contract with every plan," says Fenwick of CareGroup.
So much for controlling provider costs by the threat of exclusion.
Coercion doesn't work much better, adds Nancy Leaming, Tufts president and chief operating officer. Instead, a well-entrenched "participatory culture" takes a more benign approach to utilization review, using decentralized provider decisionmaking instead of 800 numbers, she says.
A California-based HMO, PacifiCare Health Systems, ran smack into that culture four years ago when it sought to establish its Secure Horizons Medicare risk program under the Tufts umbrella in a franchise-style deal.
PacifiCare found its scrutiny of utilization did not transfer well from the West Coast to the Bay State, Leaming says. Retooled for the prevailing sensitivity to provider concerns, Secure Horizons now leads the budding Medicare HMO market with 69,000 enrollees, according to Tufts' 1997 annual report.
Not-for-profits dominate. The participatory culture is a legacy of managed care's provider origins in Massachusetts, says Harvard Pilgrim's Greenberg.
The No. 1 HMO in the state and a regional power, Harvard Pilgrim traces its roots to the dean of Harvard Medical School and a group of physician colleagues who formed Harvard Community Health Plan as a new model of delivery and financing.
One of those colleagues, Richard Nesson, M.D., became president of Brigham and Women's Hospital and subsequently the first CEO of Partners HealthCare System.
Ten years after Harvard Community's founding, Tufts got off to a similar start as a physician cooperative conceived by the dean of Tufts University School of Medicine.
Of the three not-for-profit HMO leaders, the Blues has been the most strident in campaigning for provider cost constraints-while trying to dig out of a hole that bottomed out with a $97 million net loss in 1996.
Despite the natural tension of payer-provider relationships, "fundamentally we have sort of the same core purpose," says Greenberg. Though each side needs enough money to get by, "there's not a sense of someone ripping off the other one," he says.
The cooperative climate has not been hospitable to commercial HMOs that are accustomed to dominating elsewhere.
Of the commercial competitors operating in the Boston area and other parts of the state, Aetna U.S. Healthcare mustered 84,000 enrollees by the end of 1997, followed by Kaiser Foundation Health Plan of Massachusetts with 45,000 and United HealthCare of New England with 43,000, according to the Massachusetts Division of Insurance.
By contrast, Harvard Pilgrim had 935,000 enrollees in Massachusetts, 1.2 million including surrounding states.
The Blues had 564,000 enrollees in its HMO Blue plan; Tufts was a step behind and gaining, with 558,000 enrollees in Massachusetts and 900,000 total enrollees in New England. The Blues' total insured enrollment was 1.8 million.
Statewide, the not-for-profit triad's combined 2.1 million HMO enrollees represented 78% of the 2.6 million total enrollment reported by the state.
Leaders of those HMOs say they fend off competition from national managed-care companies by pledging a bigger army of providers.
Competitors can offer lower premiums but can't offer coverage of all providers, says George Moran, Tufts' executive vice president.
Employers also are looking more at quality these days because they're trying to attract a work force in a strong local economy, Moran says.
The dominant three HMOs have racked up honor after honor in national publications such as Newsweek, USA Today and U.S. News and World Report, which annually compile lists of the top HMOs in the nation.
Finally, both Harvard Pilgrim and Tufts say their premiums in 1998 are the same as or lower than they were in 1994.
With all those selling points in front of employers during contracting decisions, Moran says, "the natural question is, why change?"
The cost consequences. In the coming year or two, the question may evolve into, Is the care worth the high premiums? The winning enrollment formula in the Boston market has maintained some of the highest insurance costs, provider overhead and utilization levels in the nation, according to SMG.
Though the ratio of hospital beds per 1,000 population is the same in Boston as in the rest of the nation, acute-care facilities averaged more than 9,000 annual admissions in 1996, 60% more than the national average, and 1,218 patient days per 1,000 population, 17% higher than nationwide.
Yet the area's hospitals averaged an 11.6% operating loss, compared with 1.4% for all U.S. hospitals. Total profit margin averaged 2.6% compared with 6.2% nationwide.
HMOs serving the Boston metropolitan statistical area collected $166 a month per enrollee in 1997, 18% more than the national average. But as a group they paid out more of that premium for medical expenses and ended up with a net loss.
"We spend all the money we receive, and there's not a lot left for the bottom line," says Greenberg.
Harvard Pilgrim eked out a $1.5 million net profit on $2.3 billion in total revenues in 1997. A $24 million operating loss was barely covered by $25 million in nonoperating revenues.
The HMO did much better in 1996, with an $18 million net profit, but the margin still amounted to less than 1%. By contrast, it earned $42.5 million, a 2.3% margin, in 1995; its 1994 net profit was $57 million, or 3.2%.
Tufts has held steady the past two years during a period of rapid enrollment growth, earning $15 million, or 1.3% on $1.2 billion in revenues in 1997, and $13 million, or 1.5% on $865 million in revenues in 1996.
The Blues bounced back from the 1996 free fall to earn $12.7 million in 1997, partly as a result of shedding unprofitable contracts. Its HMO Blue plan lost 44,000 enrollees but achieved a net gain of $51 million.
Taming expenses, expectations. With HMOs' finances sliding during fierce price competition, something had to give. After enjoying flat premiums for several years, employers reported premium increases ranging from 4.5% to 6.3% this year, according to the Massachusetts Healthcare Purchaser Group, an employer coalition.
Through August, premium increases in Tufts' 1998 contracts with Massachusetts employers averaged 4.1%, says spokeswoman Catherine Brady.
Contracts at Harvard Pilgrim have been trending 6% higher than a year ago, though individual employer rates vary according to prior claims and utilization, says spokeswoman Patti Embry-Tautenhan.
Despite the increases, Greenberg says, there hasn't been a big backlash from purchasers, who've recognized some of the cost pressures on HMOs.
Yet the market leaders can't assume employers will keep going along with premium increases, says the Blues' Lodge. At some point, especially if the economy falters, employers may be ready to trade lower costs for narrower choice, he says. "Do we slit our own throat by driving the premiums higher and opening up the door for some competitor to come in?"
Some of the pressure on premiums stems from extensive benefits in the Boston area, some of them mandated by the state Legislature through the years, says Jon Kingsdale, Tufts' senior vice president for planning and development.
For example, Massachusetts requires HMOs to provide unlimited coverage of prescription drugs, whose costs have soared during the past year.
The state also mandates coverage of behavioral health, birth control and infertility treatments, benefits that many other markets are still wrangling over.
A highly unionized Boston-area work force accustomed to rich benefits and accommodated by state lawmakers adds up to a higher base level of expenses than in other parts of the country, Kingsdale says.
In such a climate, the premise that healthcare costs are high compared with national averages may not be the right one, Greenberg says. Rather, the focus could be on whether costs are appropriate given the expectations of service and choice locally.
The participatory culture is about to take another turn, however, to substantially share the risks of medical care in an attempt to tame costs.
"Harvard Pilgrim and provider systems are together trying to devise strategies and payment arrangements whereby their goals are aligned," Greenberg says. The same provider systems are engineering similar deals with other leading HMOs.
"The hospitals have room for improvement," Lodge maintains. "Change doesn't occur until medical (payment) amounts drop and people know they have to change."