Richmond remembers well the battles between the North and the South that ravaged the Virginia countryside more than 130 years ago.
En route to the erstwhile Confederate capital, signs along Interstate 95 mark the Stonewall Jackson Shrine and the timeworn fortifications that held back the Yankees for years before the end of the war in 1865.
Richmond's healthcare market today offers some parallels to the city's rich history. The James River divides the city into a predominantly not-for-profit north side and a mainly for-profit south side. And people tend to identify strongly with one side or the other.
"Sometimes I think people would rather die than go to the other side of the river for care," says Brooke Taylor, vice president for media relations at Richmond-based Trigon Blue Cross and Blue Shield, the state's largest insurer.
And it's not just the type of hospital that's determined by location. It's also the character of the patient care.
Richardson Grinnan, M.D., Trigon's senior vice president for quality improvement, says that south of the river, physicians tend to practice according to the primary-care model. The docs focus on prevention and treat patients themselves unless specialty care is absolutely necessary.
In the north, however, physicians tend to follow a more traditional model. They focus on internal medicine and are quicker to refer patients to specialists, Grinnan says.
"The primary-care and referral base is really determined by the river," Grinnan says.
Clash of the titans. Richmond, now the seat of Virginia's government, is booming, with a metropolitan-area population of more than 800,000. Its role as a capital city for healthcare providers is booming too.
Healthcare has contributed to the area's growing economy, with Columbia/HCA Healthcare Corp. and Bon Secours Health System among Richmond's top 10 employers.
The greater Richmond market includes 15 hospitals, six of them for-profit, six not-for-profit and three government-operated. Their average total profit margin is 8.6%, which is 25% higher than the national average, according to data from SMG Marketing Group, a Chicago-based healthcare information and marketing consulting company.
Richmond has more healthcare facilities owned by corporate organizations, including not-for-profit chains, than the nationwide average, according to SMG. Some 80% of Richmond's community hospitals are owned by corporations, compared with 43% nationwide (See chart, p. 72).
Four health plans-Aetna U.S. Healthcare, Cigna HealthCare, Trigon and UnitedHealth Group-rule the HMO and PPO markets.
Nashville-based Columbia and Marriottsville, Md.-based Bon Secours both have Richmond roots that reach back more than 30 years.
Johnston-Willis Hospital in Richmond was one of Hospital Corporation of America's first acquisitions in 1968. In the early 1970s, HCA built two new facilities, Chippenham Medical Center and Henrico Doctors' Hospital.
Columbia, which acquired HCA in 1994, now owns and operates five hospitals in greater Richmond, including the city's first, Retreat Hospital.
At a time when the company is the target of federal investigations and has had to confront waves of negative publicity, Columbia doesn't hesitate to boast of Richmond as one of its success stories.
After Columbia Chairman and Chief Executive Officer Thomas Frist Jr. took the reins at the company in 1997, he chose Richmond as the site of his speech describing his first 100 days at the helm. And in 1994, the company named local family physician Frank Royal as one of its directors.
"One of the reasons (Richmond is so important to Columbia) is that there's a tight geography at work in the market," says Marilyn Tavenner, president of Columbia's Richmond operation. "Here we have a strong marketplace, whereas some of the other markets lack that kind of presence."
Bon Secours, a Roman Catholic chain, also considers Richmond one of its crown jewels. As testimony to that, Bon Secours elevated Christopher Carney, then head of Bon Secours' Richmond operation, to be the company's CEO two years ago.
"I think it's because we have such a critical mass of facilities here," says Sister Joanne Lappetito, Bon Secours' senior vice president for sponsorship in Richmond.
Bon Secours began operating in Richmond in 1966, when it opened St. Mary's Hospital, the city's first Catholic healthcare facility.
Bon Secours, which has 17 hospitals and other facilities in six states, has seen its largest growth in Virginia, with more patients served and more facilities. The system has seven hospitals in the state, including four in Richmond.
Further growth is expected through Bon Secours' planned acquisition of Franciscan Health Partnership, a nine-hospital system based in Albany, N.Y. That deal was announced publicly last week (May 3, p. 4).
"We've almost got a health system here," says John Simpson, who holds Carney's old job as senior vice president of operations for Bon Secours in Richmond. "We come closer to it here than we do in any other market. We're not only wide in our integration, but deep, too."
The third party. Forty years ago, Medical College of Virginia Hospitals at Virginia Commonwealth University was the city's dominant force in healthcare. Most physicians needed a faculty appointment at the state-run school to be able to practice in town. Their only other option was to buy into one of a few, small physician-owned facilities.
Today, unlike its two larger competitors, MCV says it's facing financial struggles.
While MCV reported a profit in 1997, earning $15.9 million on revenues of $643.9 million, the school is warning that profits like that are quickly dissipating.
Two Columbia hospitals, Retreat and John Randolph, lost a combined $2 million in fiscal 1997, but the company's three other facilities in the area raked in a total of $78 million in after-tax profits, according to the Central Virginia Health Planning Agency, a regional offshoot of the state health department.
Bon Secours' four hospitals reported a total of $22.5 million in net income, according to the agency.
MCV's downtown complex includes the medical school, a heart center, a cancer center, an outpatient surgery facility, laboratory facilities, research space and the historic lecture hall known as the Egyptian Building because of its unique architecture.
Compared with its neighbors, MCV bears the brunt of the charity-care burden, spending 6.6% of its gross revenues on the indigent. That's more than twice what any other individual hospital in the area spends, according to state data.
Charity care is the sore spot, says Carl Fischer, MCV's CEO. The academic medical center carries nearly one-third of the indigent patient load, providing a total of nearly $100 million in uncompensated care.
"We've always had a shortfall," Fischer says. "We used to be able to shift the cost (to private payers), but we can't do that anymore with managed care. None of the health plans want to recognize that we're a teaching hospital and we have the school and the indigents to support."
The hospital system's officials have already tried to eliminate some costs, trimming about 1,000 positions in the past few years and asking the state Legislature to toss them a bone. This year lawmakers responded with a $7.5 million subsidy, which the governor might double. But it's not enough, Fischer says.
Karen Cameron, executive director of the regional planning agency, agrees that MCV is carrying an unfair share of the uninsured business. She says she believes area hospitals generally are making more in profits but providing less charity care.
"(Area) hospitals' average operating margin was almost 8% in fiscal 1997," Cameron says. "With healthy financial margins, most of the region's acute-care hospitals have the capacity to contribute significantly to improving access to healthcare services and the health status of the region's residents."
For example, in fiscal 1996, Bon Secours St. Mary's Hospital provided charity care worth 1.4% of its gross revenues, but in 1997 that amount dipped to 1%. And at Columbia's Retreat Hospital, charity care dropped from 0.5% of gross revenues in fiscal 1996 to zero the year after, according to the regional agency.
Meanwhile, MCV is still searching for an ideal business partner. Exercising the autonomy it won from the state three years ago, MCV has flirted with both the for-profit and the not-for-profit sectors.
In 1996, MCV was talking with Columbia about a possible joint venture. When those talks collapsed, the organization formed a loose alliance with Bon Secours. In addition, MCV has teaching relationships with both systems.
MCV is careful to remain neutral and give itself room to work with either Bon Secours or Columbia, as appropriate.
"We try to take advantage of opportunities," Fischer says.
But the academic powerhouse can't help but criticize its neighbors' slow exodus from downtown Richmond, where MCV is located.
"It's more convenient for people (living in the suburbs) to go to hospitals in the suburbs," says Joseph Teefey, MCV's vice president for provider and governmental insurance. "They've got easy access, easy parking. And that hurts MCV.
"Word is that one of the smaller hospitals downtown will close within months or will turn into an outpatient center. A lot of smaller hospitals are going to do different things. But MCV will be here forever," Teefey says.
The fight over physicians. Richmond's health systems for years have competed for physicians.
With the state's largest medical school in town, it has never been difficult for local hospitals to find well-trained staff. More than 50% of MCV's graduates stay in Virginia, says Hermes Kontos, M.D., Virginia Commonwealth University's vice president for health sciences and dean of the medical school.
The trouble was retaining them, with Bon Secours, Columbia and MCV all battling for the best and the brightest.
"There's always been a food fight for physicians," says John Daniel III, M.D., a member of Virginia Physicians, a 75-physician group practice in Richmond. "It's who can give the best lunches or breakfasts. But what it's really about is . . . making it as smooth as possible for physicians to admit patients."
Columbia's Tavenner agrees. Instead of gobbling up physician groups, she says, Columbia wants to use its resources to make practicing medicine at its hospitals easier for doctors harried by the pressures of managed care.
Bon Secours is working toward the same goal. The system formed the Central Virginia Healthcare Network, whose board is doctor-controlled, with Southside Regional Medical Center in Petersburg, just south of Richmond, and the University of Virginia Health System in Charlottesville, about 70 miles to the northwest.
"We have a sophisticated primary-care network," says Simpson, adding that while many primary-care physicians are on salary, specialists are not.
Area physicians do recognize that there is strength in numbers. Daniel says he knows of very few small practices or solo practitioners in the market. The largest group practice is MCV Physicians, with 550 doctors.
While the spirit of competition among physicians lives on, doctors are feeling a renewed spirit of cooperation in fighting the common enemy: managed care.
"Now in the last year or so, there's more of a desire to work together to accomplish goals, the goals being to form more effective networks as far as health plans are concerned," says Donald Sitz, president and CEO of Virginia Multispecialty Services, a group of 450 specialists.
Other physicians have decided to embrace the enemy. The Medical Society of Virginia, based in Richmond, owns 49% of UnitedHealth's 64,000-enrollee HMO in the market.
Managed care comes alive. "When managed care first came to town, they would negotiate with you just to get in the market," Bon Secours' Simpson says. "But then they began to see certain losses and did some consolidating. Negotiations are getting more and more difficult every year."
Managed-care penetration in the market, now at about 35%, stands to increase even more since the state completed moving all Medicaid recipients into HMOs as of April 1. Hospitals, especially MCV, say that will squeeze their resources even more.
"In the last two or three years, we've made major concessions to managed-care companies, and we're beginning to see that we're unable to make any more," Columbia's Tavenner says.
Negotiations aren't challenging just for hospitals, says Fred Bilbray, vice president for integrated health systems at the Trigon Blues, which has $2.1 billion in annual revenues.
"When you're trying to keep everyone in a network, the process can be difficult," Bilbray says. "People feel very strongly about their hospitals and their doctors. You start getting into a box."
Inclusion is the name of the game in putting together a managed-care network, insurers say.
"People like choice, and they get it," says Greg Bowman, president and general manager of Cigna HealthCare of Virginia, which has a 32% share of Richmond's HMO market. "In the Richmond area, we have 14 hospitals, 480 primary-care physicians and 1,570 specialists (in the Cigna network). That's pretty broad."
Increased competition among the area's HMOs has led to reduced profitability, with 75% of the state's HMOs posting a net loss vs. only 48% in 1995, according to the regional health planning agency.
Managed-care growth is expected to come from Medicare HMOs. Trigon is already dipping its toe into those waters with a small, 2,200-enrollee plan. Medicare does about $3.5 billion worth of business a year in Virginia alone.
"We have a really strong Medicare supplement population here now, so we do see (managed care) as an opportunity," Trigon's Taylor says.
Likewise, Cigna is committed to growing its Medicare-risk product, which boasts 10,000 enrollees. Nationwide, Cigna has Medicare HMOs in 23 markets.
"That's where our strength is," Bowman says. "We have a good game plan in place to be successful."
'Unique' competition. Five years ago, both Bon Secours and Columbia began buying binges that gave them, collectively, the lion's share of Richmond's hospitals.
And by the end of its acquisition run, Bon Secours had added three hospitals and owned 30 physician practices and dozens of service sites.
In the same period, rival Columbia added two hospitals and an outpatient center.
Columbia has taken on more of a defensive position rather than an offensive posture in the two years following disclosure of a nationwide federal probe into possible Medicare fraud at the company. Instead of gobbling up new properties, Columbia is focusing on improving and strengthening its existing operations, Tavenner says.
Columbia's Richmond hospitals are not involved in either the civil or criminal investigations of the chain, Tavenner says.
The next step for Columbia, Tavenner says, is using its acute-care presence to forge a stronger network of clinics and outpatient centers.
"There's no doubt we're going to have to look at clinical services and ask, 'Are we providing the right amount?' " she says. "I think we'll continue to build ourselves as a market system."
And that's the front line of today's competition with Bon Secours, local observers say, with Richmond's blooming suburbs as the battleground.
"It's a unique competitive environment because the for-profits and the not-for-profits are so strong," Bon Secours' Simpson says. "Each of us is getting into new markets, like ambulatory care."
Bon Secours has seized the opportunity to move into Columbia's traditional stronghold on Richmond's south suburbs.
Last year, the company opened an outpatient surgery center in south suburban Chester as a joint venture with MCV and independent Southside Regional in Petersburg. The Catholic chain also owns St. Mary's Outpatient Center in suburban Chesterfield County.
"That kind of competition, overall, is good," says MCV's Fischer. "Columbia has a stranglehold on the area south of the river, and you will see some more efforts to break that up."