Albuquerque has always stood in the shadow cast by its windswept plateaus and technicolor mountains. Even though it is more than five times the size of any other municipality in New Mexico, the city barely rates a mention in most travel guides. And when it is mentioned, the city is usually described as a way station between points north or south.
But when it comes to healthcare, Albuquerque is the center of intense interest. Although it has a population of about 385,000, it is home to four health systems and nine acute-care hospitals, most of which have been around for decades. That's in contrast to the rest of the state, where virtually every other privately owned hospital is the only local provider.
Most observers agree that Albuquerque's hospitals and health systems will remain fiercely competitive for a long time-thanks in part to the pending opening of the controversial $45 million Heart Hospital of New Mexico later this year. The hospital is under construction near downtown.
Yet Albuquerque is not mired in the fee-for-service past that often defines isolated cities. If anything, it has one of the most advanced managed-care markets in the country, with penetration of about 70%, although there is little capitation.
Average lengths of stay and the ratio of inpatient beds to population in the city's hospitals are far lower than the national average (See chart, this page). Occupancy rates, meanwhile, are very high: According to SMG Marketing Group, a Chicago-based healthcare information and marketing consulting company, the average occupancy in the city is at 63.7%, compared with the national average of 52%.
With limited resources and a relatively poor population, Albuquerque has always had to adapt. "It's culturally open; things happen here," says Stephen McKernan, chief executive officer of 263-bed University Hospital, which is owned and operated by the University of New Mexico.
Tough market. Albuquerque was a dusty outpost until World War II, when the Manhattan Project at nearby Los Alamos and other projects for testing nuclear weapons fueled rapid growth. A series of defense spending booms and busts over the last half century have forced the city, including its healthcare sector, to adjust quickly to change, he adds.
Such a challenging environment is what lured Steve Smith to jump ship in 1992 from FHP International Corp., a Fountain Valley, Calif.-based HMO, to take an executive position at St. Joseph Healthcare System, a subsidiary of Denver-based Catholic Health Initiatives, which operates four hospitals in Albuquerque. "This is a good laboratory" that has a more defined market than Los Angeles does, he says. "It was very obvious that this would be a professionally challenging environment."
Those challenges include a high rate of poverty and uninsured, a relatively unhealthy population and a slow transition to capitated risk.
Smith was named St. Joseph's CEO in 1996. Last summer, he pushed the system into becoming the first in the country to apply for and get a waiver from HCFA to operate a Medicare provider-sponsored organization (July 27, 1998, p. 8).
In January HCFA granted the three-year license for the St. Joseph PSO, called St. Joseph MedicarePlus, which was scheduled to begin coverage March 1. It will operate in New Mexico's Bernalillo, Sandoval, Torrance and Valencia counties, which have 89,500 eligible Medicare beneficiaries. Under the 1997 law that created the Medicare+Choice menu of options, hospitals and their physicians can market services through PSOs directly to seniors, bypassing HMOs and other health plans.
"It makes sense, given that (Medicare) reimbursements here are among the lowest in the country," Smith says of the PSO. Three of New Mexico's counties were at the rock-bottom rate of $376 per month per beneficiary in 1998, while the rest received $20 to $25 more, compared with the national average of $484 in 1998.
Potential money-saving innovations like the PSO are musts for Albuquerque: Aside from the few blocks of trendy shops and cafes near the university, the bulk of the city is an austere sprawl that suggests patients dig deep for copayments.
Indeed, New Mexico is one of the most difficult healthcare delivery environments in the country. It has among the nation's lowest per capita incomes, with 22% of its 1.8 million residents-along with 31% of its children-living at or below the poverty level, according to U.S. Census Bureau figures.
Only half the state's employers, which are dominated by small businesses, offer healthcare insurance, according to Maureen Boshier, president of the New Mexico Hospitals and Health Systems Association.
A state-run program to help small businesses provide affordable health insurance coverage has proved a bust, with only a few thousand enrollees to date, she adds. The environment is so difficult that a proposal for a single-payer system, which is all but dead in the rest of the country, is regularly broached by members of the state Legislature. Nothing substantive has ever been signed into law, however.
Watching costs. Nevertheless, Albuquerque has it better than the rest of the state does. Being home to most of the state's large employers means 60% of the city's residents are insured, according to census figures. But employers are thrifty concerns such as Sandia National Laboratories, the U.S. military, the local school district and, most recently, Intel Corp., which built a $1 billion microchip factory in a nearby suburb. Thus, Albuquerque has long had to deal with cost controls.
"We were looking seriously at managed care in the 1980s," says James Hinton, the CEO of Presbyterian Healthcare Services. One of the city's smaller hospital operators two decades ago, Presbyterian is now the state's largest healthcare company, with eight hospitals, the state's largest HMO and control of nearly one-third of the New Mexico healthcare market. Its Presbyterian Health Plan, with 350,000 enrollees, was cobbled together by a series of acquisitions over the past decade, including the purchase of FHP's sizable New Mexico business from PacifiCare Health Systems in 1997.
"All these large accounts wanted a variety of health plans in order to give their employees a choice, and that got us all into a pricing competition for market share," says Martin Hickey, M.D., CEO of Lovelace Health System. Lovelace was once the biggest and most prestigious provider in town-the place where the first aspiring astronauts underwent batteries of tests in the 1950s. It has been a subsidiary of Cigna Health Plans since 1988 and has a hospital in Albuquerque and a statewide HMO with about 150,000 enrollees.
Because of the state's poor economy, New Mexico hospitals provided $58 million in charity care in 1997, representing a whopping 14% of total revenues. New Mexicans who live outside of Albuquerque often face long drives to the nearest hospital, and the city has historically helped provide care for such people.
The economic hardships faced by New Mexicans also boost their morbidity. According to a survey released last year by Minneapolis-based ReliaStar Financial Corp., the state ranked 42nd out of 50 states for public health services. It was dead last in prenatal care, with only 56.5% of mothers getting adequate care, compared with the national average of 74.7%. It was 47th in availability of healthcare insurance, with nearly 25% of the population uninsured. The state was 46th for the infectious disease rate, with 66.6 cases per 100,000 people, compared with a national average of 46.4 per 100,000.
"The state does not have the best educational system, and there are lots of guns around, and lots of poverty," says University Hospital's McKernan.
Although University Hospital regularly posted a surplus for much of the past two decades, it lost $6.5 million in fiscal 1998, primarily because reimbursement was cut about $6 million per year when New Mexico began enrolling Medicaid recipients into managed-care plans in 1997, McKernan says. The downturn in income has prompted the hospital to start its own insurance program for low-income residents who don't qualify for Medicaid, with a $5 copayment for those living below the poverty level and $10 for those living above it.
The heart of controversy. Meanwhile, the planned arrival in September of the 58-bed Heart Hospital of New Mexico, backed in part by Charlotte, N.C.-based MedCath, has riven the local healthcare community. Presbyterian, which runs Albuquerque's premier cardiac program, originally considered investing in MedCath's proposed hospital near downtown but subsequently withdrew, saying the for-profit venture was at odds with Presbyterian's mission.
Two physician groups involved in the project, New Mexico Heart Institute and Southwest Cardiology Associates, began referring patients exclusively to 228-bed St. Joseph Medical Center-the other HHNM partner.
Presbyterian's health plan eventually dropped provider contracts with NMHI and Southwest Cardiology, linking up instead with a cardiology group formed by Presbyterian's hospital system.That group eventually hired 10 physicians from its competitors and advertised the fact in an extensive billboard campaign. NMHI responded by sending letters to its 32,000 patients, blaming Presbyterian for the switch.
"I'm saddened about what the whole issue has done to the medical community," Hinton says. "But people understand what's behind this. The other parties (involved in the heart hospital) have a different set of values from us."
St. Joseph's Smith, who supports the new heart hospital, complimented Presbyterian for hiring the doctors, declaring "that's what makes America great." But he says Albuquerque has reached its capacity for delivering cardiac care. "This will prove a better mousetrap," he says of HHNM.
But others aren't so sure.
"It's interesting to watch this work, but when you split all the cardiac business up, will there be enough (heart patients) to go around?" asks McKernan.
"I have no idea how it's going to play out," adds the hospital association's Boshier.
Playing doctors against one another is nothing new in Albuquerque, and it may be taking its toll: The state lost 27 physicians per month last year, compared with 18 per month in 1997 and nine in 1996, according to the New Mexico Medical Society. High managed-care penetration is considered one factor, along with a 6% gross receipts tax that doctors must pay the state. Many doctors have moved to nearby Texas, where there is neither a gross receipts tax nor an income tax. "A lot of the market forces have caused local doctors to rethink their dedication," says Lovelace's Hickey.
Moreover, Albuquerque and the rest of New Mexico may be facing the toughest change of all. The market is switching gradually from a fee-for-service managed-care model to straight capitation.
That may force Albuquerque's providers to start working together on a large scale rather than adapting individually to market change.
"We are at a place where the next steps may be more refining what we have than creating something new," McKernan says. "We have to figure out how to deal with managed care at the next level."
"It's an uphill battle," adds St. Joseph's Smith.