HEALTHCARE IS LOOKING GOOD IN SALT LAKE CITY: HOSPITALS, DOCS ARE EFFICIENT, RESIDENTS ARE HEALTHYFOR NOW
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June 21, 1999 01:00 AM

HEALTHCARE IS LOOKING GOOD IN SALT LAKE CITY: HOSPITALS, DOCS ARE EFFICIENT, RESIDENTS ARE HEALTHYFOR NOW

Ron Shinkman
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    Mention Salt Lake City and most people probably don't think of excitement. But the city's natural beauty eliminates any possible boredom. On a chilly spring day, for instance, a glimpse from the spotless downtown sidewalks offers a stunning view of the snow-capped Wasatch Mountains peeking between office towers.

    The way the mountains loom over Salt Lake City's skyline reflects the way the Church of Jesus Christ of Latter-day Saints influences the region's lifestyle-and its healthcare delivery. The Mormon Church, headquartered in Salt Lake City, is the sixth-largest religious body in the nation and the 11th-largest in the world. Intermountain Health Care-which the church spun off in the mid-1970s-owns three of Salt Lake City's 12 hospitals. The system owns 24 hospitals statewide with a total of 2,700 beds. Although the church does not directly run Intermountain, many prominent Mormons serve on its board and in its executive suite.

    A quick glance at Intermountain's annual report shows its facilities snaking through the Wasatch Front, where the vast majority of the state's 2.1 million residents reside.

    In all, Intermountain controls half of Utah's healthcare market share, on both the provider and payer sides, through its dominant but currently unprofitable IHC Health Plans HMO and PPO, which have nearly 500,000 enrollees combined.

    In addition, about 80% of the state's 3,000 doctors are members of Intermountain's provider panel. Combined, its two largest competitors-Blue Cross and Blue Shield of Utah, with about 120,000 enrollees, and United Healthcare of Utah, with about 90,000-have less than half the enrollment of IHC.

    With that type of clout, Intermountain overshadows its competitors on the provider side. Rivals include Columbia/HCA Healthcare Corp., with one hospital in town and seven statewide; Paracelsus Healthcare Corp., with two hospitals in Salt Lake City and four statewide; and the University of Utah, with a 380-bed hospital and a neuropsychiatric facility in Salt Lake City. The Shriners also operate a 57-bed children's hospital, and the Department of Veterans Affairs runs a 180-bed facility in Salt Lake City.

    Health services employ some 37,000 in Salt Lake City, about 9% of its work force, according to the U.S. Census Bureau.

    "Everyone else's strategy needs to take Intermountain into account," says Christine St. Andre, executive director at 380-bed University of Utah Hospitals and Clinics in Salt Lake City.

    Although Intermountain and the university system have operated joint ventures for cardiac procedures, Intermountain usually refers its health plan enrollees to its own hospitals, company officials say.

    While this locks out many potential patients from its competitors, some contend it helps build healthier relationships with other payers.

    "Many of those (health plans) that are not IHC have a favorable relationship with us, and we work at capacity as a result," says John Hanshaw, chief executive officer at Columbia's 205-bed St. Mark's Hospital in Salt Lake City. Indeed, the facility's market share for admissions has risen to 16% in 1998 from 10.8% in 1994, according to figures compiled by the state.

    Intermountain CEO William Nelson views the dynamic simply: "The healthcare providers who have come into the market in recent years have not done as good a job as the local players, because they don't have a regional focus."

    Nelson adds that Intermountain's market share hasn't changed in 25 years. "There's no rapacious growth on our part," he says.

    However, Intermountain unveiled plans in May to spend up to $300 million on a new hospital slated to open in 2004 in the southeastern suburb of Murray. It also has begun work to refurbish or build new facilities in Heber City, Ogden and Provo and to serve the surging suburban population.

    Analysis of the Salt Lake market suggests the city's hospitals are efficient. According to SMG Marketing Group, a Chicago-based healthcare information and marketing consulting firm, the average inpatient length of stay at a Salt Lake City hospital is 4.9 days, compared with 5.3 days nationwide. And patient days average 682 per 1,000 admissions, compared with 1,018 days for hospitals nationwide.

    "Great credit must be given to physicians who have practiced medicine here very conservatively," says Richard Kinnersley, president at the Utah Hospitals and Health Systems Association. He says Utah doctors practice cost-efficiently because of their local medical education rather than managed-care pressures.

    Young and healthy. It also helps that a sizable segment of Salt Lake City residents is young-about 60% are under 40-and can rival marathon runners in overall health. Mormon tenets discourage smoking, drinking and consuming caffeine. The health benefits of such moral rectitude are borne out in the annual state-by-state health rankings compiled by Minneapolis-based insurance research firm ReliaStar. Utah consistently has had the fewest smokers and cancer cases. It had the lowest risk for heart disease in the country in 1998 and was among the five states with the lowest total mortality, infant mortality and premature death.

    Intermountain's Nelson notes one black mark on Utah's health checklist: The state has the highest per-capita consumption of ice cream in the country. "From a health perspective, it can't be helping all that much," he says.

    But the butterfat content of residents' diets is the least of the challenges Salt Lake City providers face.

    A serious problem is the growing number of uninsured. Although Kinnersley estimates that only 10% of city residents are uninsured-vs. about 15% nationwide-he says the number is growing. That may be reflected by a 22% increase in charity care at Intermountain's facilities last year to 59,954 cases from 48,816 cases in 1997.

    Aftermath of price war. One of the drivers may be financial fallout from a price war among insurers in the mid-1990s. It caused double-digit premium increases the past two years, with increases for small groups nearing 20%. Given the large numbers of small employers in Utah, finding coverage for all the city's working adults and their families has proved difficult, Kinnersley says.

    An insurance product for small employers failed miserably several years ago. It was underwritten by a Robert Wood Johnson Foundation grant and managed by Intermountain. "Even with a 50% premium subsidy, we couldn't give it away. My own conclusion is we can't afford health insurance at any cost," Kinnersley says.

    A new coalition of most area providers-called the Salt Lake Valley Healthcare Coverage Coalition-is now studying the city's uninsured to determine the options, Kinnersley adds.

    Intermountain also plans to roll out a new tightly controlled insurance product in July aimed at the small-group market with premiums 10% to 15% below those of other IHC plans. Nelson predicts as many as 30,000 people will enroll in the plan, to be called IHC Med.

    "We're acting in response to all of the concerns, and we believe it will fill a spot among our products," Nelson says.

    Meanwhile, providers must battle the slow but inexorable change in Salt Lake City's population. While still 90% Caucasian and nearly 70% Mormon, the city's population of about 850,000 is becoming more integrated, adding health risk-takers, such as smokers and those with more sedentary lifestyles. Most observers say the influx so far hasn't significantly affected healthcare delivery. But they agree that steady population growth during the past decade-to 2.1 million in 1998 from 1.7 million in 1990-has pressured providers to build new facilities in the burgeoning suburbs southwest of downtown.

    University of Utah Hospitals and Clinics, with a 95% occupancy rate, a 7% increase in admissions since 1994 and no other acute-care facilities, seems to be feeling the pinch the most.

    "We have a strategic need for a second academic community hospital, and we need to get it either through joint venture, acquisition or building," says Patrick Thompson, CEO at University Health Network, the university's clinic network.

    University officials say they have spoken with Paracelsus about reopening the former 117-bed South Salt Lake Hospital, which Paracelsus closed in June 1997. Although FHP International, which was acquired by Santa Ana, Calif.-based PacifiCare Health Systems in 1996, had built the property only a few years before, it was located in the wrong part of town, Kinnersley says. Paracelsus officials declined comment.

    Although Houston-based Paracelsus has operated in Utah only since 1996, it entered the state with a flourish, buying the FHP property at nearly the same time it purchased 104-bed Pioneer Valley Hospital in West Valley City from Healthtrust and 126-bed Davis Hospital and Medical Center in Layton from Columbia. Those two were among several hospitals Healthtrust and Columbia were required to sell to gain government approval for their 1995 merger. The Federal Trade Commission ordered the sales because of antitrust concerns.

    Paracelsus then merged with Champion Healthcare, which had acquired two other properties, 50-bed Jordan Valley Hospital in West Jordan, which Columbia agreed to divest as part of its agreement with the FTC, and 200-bed Salt Lake Regional Medical Center, which Healthtrust agreed to divest as part of a separate antitrust agreement.

    The Internal Revenue Service late last year challenged IHC Health Plans' tax-exemption, claiming it operates as a for-profit business. Intermountain is in talks with the IRS regarding its status.

    The federal government's close look at Salt Lake City's healthcare ventures has inadvertently stifled some attempts at consolidation, some providers say.

    "If you look at the market share movement since the divestitures, Intermountain has grown, Columbia and University have stayed pretty close to even, and Paracelsus has declined," says Columbia's Hanshaw. "There probably needs to be more market consolidation, but the FTC divestiture has had a (discouraging) effect on that."

    Partly as a result, much of the recent growth among Salt Lake City's providers has been internal. Last year, University spent $35 million to buy five clinics and lease two others from MedPartners, PacifiCare Health Systems and other companies. Aside from extending its reach into the southwest suburbs and along the Wasatch Front, the deal built up University's slim roster of primary-care physicians from 25 to more than 100, vastly improving its managed-care capabilities.

    "We needed to be able to get people in to see doctors when they needed to be seen," St. Andre says. "We were at risk for attracting a less-healthy population otherwise."

    Although Intermountain is flush with cash-it posted operating income of $95 million last year and $43 million in 1997 from its provider operations-its payer business lost $6.7 million in 1998 on revenues of $534 million. The company attributed the problem mostly to low reimbursements from the Medicare risk market, which caused cumulative losses of $11.5 million going back to mid-1997.

    Nelson blames Utah's reimbursement rates, among the lowest in the country. Reimbursements average about $250 per month for a recent retiree in Salt Lake City, compared with more than $560 per month for that same retiree in Miami. "We could thrive on Florida's rates, but we can't make it on what they're paying us here," he says. Intermountain exited the Medicare risk market at the end of 1998.

    PacifiCare-the state's only other Medicare risk provider-exited the Utah market entirely at the beginning of the year, selling its business to a group of private investors.

    Meanwhile, mounting losses helped force Paracelsus to close 117-bed South Salt Lake Hospital in 1997. Admissions at its two other Salt Lake City properties-Salt Lake Regional and Pioneer Valley-have slumped in recent years, according to figures from the state.

    Although Kinnersley says the absence of hospitals in the southwestern and southern parts of town will remain a concern, problems should be kept in check by the combination of Intermountain's planned Murray hospital and the way the city's physicians practice.

    "We have a healthy populace and doctors that practice very conservative medicine, and that goes a long way," he says.

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