Hospitals across the country are blaming managed care for their precarious financial positions, forcing them to fire workers, cut services and seek merger partners to gain market share and become more cost efficient.
While hospitals nationwide are banding together to fight managed care, the 495 acute-care and specialty hospitals in Texas have been particularly successful at it.
In Texas hospitals are riding the back of the managed-care industry by linking in greater numbers. At the same time, physicians are hamstringing HMOs by pushing a variety of anti-managed-care bills in the state Legislature.
The consequence? Texas hospitals are enjoying record profits while HMOs there are losing hundreds of millions of dollars. It's a situation to be envied by suffering providers everywhere.
Perhaps most telling is the fact that the Texas Hospital Association isn't crying about hospital closures anymore. In the 1980s, Texas typically led the nation in the number of facilities that had stopped providing acute-care services. And the THA made sure everyone knew it and knew that payers, particularly, Medicare and Medicaid, were to blame.
Last year, nine Texas hospitals closed, but the THA made no announcement. That compares with 16 closures in 1990.
Nor did the THA announce that the state's hospitals posted an aggregate profit margin of 11.4% in 1996. Although the margin dipped to 9.4% in 1997, it was still one-third higher than the aggregate profit margin for hospitals nationwide.
Tough times for HMOs HMOs, meanwhile, are on a downswing.
Thirty-two of the 51 HMOs operating in Texas lost money last year, according to the state insurance department. Overall, HMOs have been losing money there for the past three years.
Several recently announced mergers may create hospital mega-systems that will turn up the heat even higher. HMOs will have fewer hospitals to play off one another for discounts, and hospitals with large market shares will be better able to bargain for favorable rates.
In Dallas, a merger announced late last month between Texas Health Resources and Baylor Health Care System would create a 23-hospital network with $3.4 billion in assets.
Together, the systems have a 40% share of acute-care, nongovernmental beds in Dallas and Fort Worth.
A smaller partnership in southeast Texas would create a 12-hospital system stretching from Houston to the Louisiana border. That system, linking Houston's Memorial Hermann Health System with Beaumont's Baptist Healthcare System, would have more than $1 billion in assets.
Dan Wilford, president and chief executive officer of Memorial Hermann, said that market clout is key to getting managed-care contracts. With 20% of the beds in Houston, his system already can do business with managed-care plans largely on its own terms.
What about consumers? Consolidation creates potential benefits for consumers, said Marianne Fazen, executive director of the Dallas/Fort Worth Business Group on Health, which represents health benefits managers for some of the area's largest employers. Those rewards include better geographic access and possible improvements in quality and data reporting.
But large deals between hospitals are also worrisome.
"The whole purpose of consolidation is to obtain greater market leverage in managed-care contracts, better market share, control of a greater network," she said.
If hospitals force HMOs to concede to higher reimbursement rates, HMOs may pass those increases to consumers through higher premiums, said Pat Feyen, president and CEO of 207,000-enrollee PacifiCare of Texas.
But Feyen added that higher prices may be warranted.
"Those (hospitals) that bring better value (through consolidation) ought to get paid more," he said.
Historically, however, HMOs in Texas have kept prices low to lasso more market share, said Richard Willis, executive director of Humana's Austin region.
The 206,000-enrollee Humana Health Plan of Texas lost $4.3 million on revenues of $326 million in the first three quarters of 1998.
"The competition (among HMOs) probably generated premiums that couldn't sustain the benefits that were being offered," he said.
`Friendly competition.' In contrast, hospitals in Texas tend to view each other as partners.
Ron Anderson, M.D., president and CEO of 691-bed Parkland Health and Hospital System, Dallas, said that his system is negotiating a long-term lease with nearby St. Paul Hospital. The 308-bed facility is co-sponsored by Texas Health Resources and St. Louis-based Daughters of Charity National Health System. Anderson hopes to sign the deal before the THR/Baylor merger is completed.
"They (the proposed Southwest Health System) want to see us strong," he said.
Describing the relationship between their systems as "friendly competition," Anderson explained that Parkland would get exclusive rights to certain business from the new system.
"Baylor has decided that for managed Medicaid, Parkland will be their outlet," he said.
Medicaid beneficiaries in Dallas will be required to switch to managed-care plans this year as part of a statewide phase-in mandated by a 1995 state law.
A mergerlike partnership completed late last month between Houston-based Sisters of Charity Health Care System and San Antonio-based Incarnate Word Health System will put more pressure on health insurance companies.
Christus Health, a $3.4 billion multistate system, includes 19 acute-care and two specialty hospitals in Texas. Although those hospitals have little geographic overlap, the system as a whole will have more bargaining clout with health plans, as well as with other businesses, executives said.
Physicians weigh in. Hospital consolidation isn't the only way Texas has gained the upper hand with the managed-care industry.
Two years ago, the Texas Medical Association led a successful effort to pass a slew of patients' rights laws in the state Legislature.
Texas is now the only state that allows patients in employer-paid plans to sue their HMOs.
In the 1997 session, the Legislature also created a "prudent layperson" standard for emergency care, prohibited physician-contract gag clauses and required plans to tighten confidentiality.
The THA stayed neutral on the HMO liability legislation, said Joe DaSilva, senior vice president of public affairs for the association.
"It was clear that a number of our hospitals were involved in the managed-care business, and it was felt that extending liability would create problems," he said.
But member hospitals have not been adversely affected, he said.
"In many ways it has become a better delivery system because of the threat of the law," he said.
Officials in the health insurance industry, however, said the potential liability increases financial strain.
An activist state attorney general also has helped wrestle managed care to the ground.
Dan Morales, replaced this year by newly elected John Cornyn, blocked the proposed merger between Blue Cross and Blue Shield of Texas and its Illinois counterpart for almost three years before finally allowing it to proceed in 1998. And he twice sued Kaiser Foundation Health Plan of Texas for illegally delaying payment for emergency care. It's unclear whether Cornyn, a Republican, will follow in Morales' bootsteps.
Large physician groups are also taking managed care to task. Of the 550-member Dallas-based Genesis Physician Practice Association, 450 doctors did not renew their contracts with Aetna U.S. Healthcare late last year, charging the giant insurance company of withholding data necessary to manage their practices.
Regardless of what the data show, hospital executives say that they haven't beaten the managed-care industry yet.
Five-hospital Covenant Health System, formed last year in Lubbock, depends on managed-care contracts for 30% of its revenues. The five hospitals had combined revenues of $664.7 million in 1997.
"We have to pull every lever we can," against managed care, said Charley Trimble, Covenant's president and regional CEO, explaining one of the reasons for consolidation.
But, he said, even if the system is able to wrangle higher reimbursement in its managed-care contracts, the gains will be only short-term.
As large insurance companies like Aetna and Prudential come together, hospitals will find their market clout means less, said Charles Barnett, president and CEO of seven-hospital Seton Healthcare Network in Austin.
"They have attempted to get economies of scale, which means fewer regional people," and less ability for hospitals to negotiate directly with decisionmakers, he said.
Managed-care companies now try to assert financial control by delaying claims payments, Barnett said.
The THA is already tackling that problem. Disagreements with health insurance companies over what constitutes a complete claim can delay payment, often by months. The association is working on legislation to clarify the definition of clean claims.
Douglas Hawthorne, THR's president and CEO, said the merger with Baylor will result in greater control over managed care in more ways than pricing.
"We plan to work with them to create a single admission form and a single approval process for procedures," he said.
As the biggest hospital conglomeration in the Dallas-Fort Worth area, the system will have the clout to force managed-care plans to improve their coordination, he said.
The pending merger has also sparked organizational efforts by the 4,800 doctors affiliated with the two systems.
Peter Dysert, M.D., chairman of the medical board executive committee at Baylor's flagship hospital, has brought together about 100 doctors to lobby for physician interests.
On their agenda, Dysert said, is securing a management voice in the consolidated hospital and standardizing contracts and forms with managed-care payers.