Growing
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By
Megan Flaherty When it comes to health care, California is becoming a land of giants. Shaken by the cost-cutting of managed care, healthcare leaders have discovered that strength and clout often have their roots in size. But the big players have different philosophies and strategies that shape the state’s healthcare landscape. Given the financial incentives of the ’90s, the growth of large systems was inevitable. Large multi-hospital systems are better equipped to respond to the tumultuous healthcare marketplace than stand-alone hospitals, experts say. Giants are more able to stay afloat financially amid declining Medicare reimbursements, a challenging managed care environment, and patterns of surplus capacity, for example. They have more clout in bargaining with managed care organizations. Large systems can also negotiate better deals on equipment and supplies because they buy in bulk and can increase efficiency and cut costs through streamlined management structures and shared information systems and expertise, experts say. And large systems have more access to the money needed for seismic retrofitting required by the state. However, bigger isn’t automatically better. It’s too early to predict what long-term effect consolidations will have on the stability of the industry, the quality of patient care, and employee satisfaction, experts warn. “Nobody is sure whether this strategy is the right one,” said Paul Torrens, MD, MPH, professor of health services for the UCLA School of Public Health and director of the UCLA Center for Health Services Management. Although hospitals could theoretically become stronger and offer higher-quality care to patients through shared medical expertise, “we have a lot of examples of mergers or affiliations that aren’t working all that well,” Torrens said. For example, a hospital system that expands haphazardly without integrating management and information systems is no better off than a hospital operating alone. “It’s easy to make the deal, but it’s hard to make the deal work,” he said. “The bottom line is that consolidation is a mixed bag,” said Linda B. Miller, president of Volunteer Trustees in Washington, a national organization representing the governing boards of nonprofit hospitals. “It’s certainly a trend. Health care is a trend-laden industry, and there is a very strong instinct to jump on the bandwagon.” Among nonprofit organizations, there isn’t evidence so far that consolidations harm communities, she said. A common fear is that consolidations result in staff reductions, Miller said. In fact, cost-cutting across the entire hospital industry is what’s forcing staff reductions, even at locally controlled hospitals, Miller said. Consolidations have been a key strategy for California’s healthcare giants, including national for-profits Tenet Healthcare Corp. and Columbia/HCA Healthcare Corp. Multi-state nonprofit Catholic Healthcare West (CHW) and Northern California nonprofit Sutter Health have also been consolidating. Kaiser Permanente, a major player in California and other states, is a nonprofit HMO and hospital system that has long operated its own huge network of facilities in the state. Tenet: strategic growth
Since its formation in 1995, Santa Barbara-based Tenet has grown from
around 50 hospitals to 130. According to Harry Andersen, Tenet’s
senior director of corporate communications, two key mergers fueled
the growth. When National Medical Enterprises Inc. and American Medical
International merged in 1995, the new company was christened Tenet.
(The National Medical Enterprises name was abandoned because that
company was accused of Medicare fraud.) In 1997 Tenet merged with
OrNda HealthCorp. “Our core business is operating in major markets where we can be a major competitor,” Andersen said. “We’re going to continue to look at acquisitions, but we’ll do so strategically.” Tenet will primarily look at acquisitions that would “fill in a piece of a puzzle in a certain area for us, or where we can instantly be a competitor in a major market,” he said. Last November, Tenet demonstrated its strategy of becoming an instant competitor when it acquired eight hospitals in Philadelphia that were part of the bankrupt Allegheny Health, Education, and Research Foundation. Besides its Southern California and Philadelphia facilities, Tenet has a major presence in New Orleans, South Florida, Houston, Dallas, and a few other large metropolitan areas. Tenet and Columbia often buy facilities in poor communities with high Medi-Cal populations that other systems may not want, said Wanda J. Jones, president of New Century Healthcare Institute in San Francisco, which conducts research and development in healthcare delivery. “They make their first few years of profit [with a new acquisition] off increased efficiency,” Jones said. “They collapse the management structure from four or five layers to two or three. They integrate systems and put into place national purchasing arrangements and information systems.” For-profit companies often don’t waste any time shaking things up. They will make personnel decisions the week after an acquisition and execute the changes in the following week, Jones said. On the other hand, nonprofit systems sometimes take years to make layoffs and will look for ways to “soften the blow,” Jones said. Columbia: reversing course Nashville, Tenn.-based Columbia has undergone a dramatic restructuring since it was embroiled in scandal in 1997. Although it’s still the largest for-profit hospital chain in the country, the company has recently spun off or sold more than 100 hospitals. Columbia now operates fewer than 300 hospitals in 32 states, as well as many outpatient surgery centers. (In California, Columbia now operates 11 hospitals and 13 outpatient surgery centers.) The company has almost completely shed its home care agencies, where much of the Medicare fraud Columbia was accused of perpetrating is alleged to have occurred. Also, federal reimbursements of home health care have declined sharply.
After the board of directors voted to remove the previous CEO in the
wake of fraud accusations, Thomas Frist, MD, took over as chair and
CEO of Columbia in July 1997 and immediately made major changes, said
company spokesperson Jeff Prescott. “Rather than continuing the
hectic pace of growth, we slowed down. [Frist] said we should take
a deep breath and focus on our core services,” Prescott said.
Columbia is now focusing on cities where it already has a strong market
presence—like San Jose, where it controls more than 50 percent
of the beds—or on hospitals that are clear “market leaders”
in their areas. Many of Columbia’s rural hospitals were spun
off into a network called LifePoint; hospitals that weren’t defined
as clear market leaders became a system called Triad, Prescott said. Other hospital systems have learned lessons from Columbia, experts say. For example, Columbia undertook a “branding” campaign that included changing hospitals’ names in an effort to gain nationwide recognition among patients, said Larry Levitt, director of the California grants program for the Kaiser Family Foundation, a nonprofit group not affiliated with Kaiser Permanente. That strategy backfired, he said. “Branding in the hospital industry is not necessarily the right way to go, and things seem to be moving in the opposite direction,” Levitt said. “People still want to know their hospitals as local institutions instead of big national firms.” CHW: mission-driven Catholic Healthcare West, based in San Francisco, has made a major impact in California in a short time, experts say. The system, created in 1986, now includes 46 hospitals in California, one in Phoenix, and one in Las Vegas. In December 1998, CHW acquired UniHealth’s eight hospitals in Southern California. “When
you look at our growth and expansion, it’s primarily come about
because systems or communities have approached us,” said Anna
Mullins, DNSc, RN, senior vice president of operations for CHW. Currently,
CHW is considering growth in the three states in which it already
operates. “Our growth strategy is related to where we can be
of benefit to people,” Mullins said. “We look for partnerships
with organizations that share the same mission and values,” added
Linda Hunt, MS, RN, chief operating officer at CHW-owned St. Joseph’s
Hospital and Medical Center in Phoenix. CHW and other Catholic systems have come under fire recently for changing their acquired hospitals’ policies on reproductive health, Spetz said, limiting services like tubal ligation, abortion, and contraception. Such policies could potentially influence hospital board members and administrators when they’re deciding whether to join a Catholic system, she said. Sutter Health: regional leader Sutter Health, a secular nonprofit system based in Sacramento, owns 26 acute care hospitals in Northern California, extending from Santa Cruz and Merced counties in the south to the Oregon border. Sutter’s goal is “to preserve nonprofit healthcare,” said Tracy Murphy, Sutter’s director of communications and marketing. Sutter Health as it is known today is the result of a 1996 merger of the original Sacramento-based Sutter Health and a system of four major Bay Area medical centers. Since then, several other nonprofits have affiliated with Sutter, typically because they’re facing cost pressures, Murphy said. Future growth will be focused on Northern California, she said. “We call our philosophy ‘disciplined growth,’ ” Murphy said. “We evaluate if the hospital is a good fit with our organization, just like a local hospital will go through an evaluation process.” Since multi-hospital systems already have a strong foothold in the San Francisco Bay Area, the Sacramento area, and Southern California, the next major wave of hospital mergers and affiliations could occur in the smaller urban areas in the Central Valley, where Sutter already operates, Spetz predicts. “The Central Valley could prove to be the next battleground for ownership,” Spetz said. Some of the large systems may decide it’s not worth going to the Central Valley, she said. “But given the population growth, I would expect more activity in places like Modesto, Stockton, and Fresno.” Kaiser: staying the course
Oakland-based Kaiser Permanente has an extensive network of 27 hospitals
in California, but it’s also one of the largest managed care
organizations in the country. The fact that it’s a fully integrated
healthcare organization makes it much different from other hospital
chains. “Our goal is to keep members healthy. We focus more on
preventive care and keeping people out of the hospital” than
other hospital systems do, said Mary Ann Thode, JD, RN, senior vice
president and chief operating officer for Northern California. “A major concern for us is to try to regain financial stability so we can continue to provide good care for our members,” Thode said. “One of the things we think is key from a quality and cost perspective is to make sure care is delivered to our members within our own system whenever it’s possible.” For example, when Kaiser patients end up in another system’s emergency room, it’s important to bring them back into the Kaiser system as quickly as possible, Thode said. Any future growth within Kaiser would occur on the health plan side, by increasing membership in areas where the organization already has a presence or potentially by expanding to new areas, Thode said. However, “we’re not in an expansion mode right now. Our effort during this year has been to stabilize our operations,” she said. “It’s ‘stay the course’ for Kaiser,” Spetz said. If Kaiser did decide to build more hospitals down the road, the focus probably would be on areas where it insures people but doesn’t have its own facilities, Spetz said. But for now, Kaiser is “one of the biggest organizations in California, and they don’t need any new hospitals,” Spetz said. Looking forward Experts offer different predictions about the future of hospital chains in California. According to Jones, the “next round” of consolidations will be combine organizations that have already merged, as when UniHealth joined CHW. “Any system that is regional will attempt to be statewide and anything statewide will attempt to be multi-state,” she said. Levitt agrees that the hospital systems will continue to get bigger. “As health plans continue to merge, hospitals will feel pressure as well. But health services is still a very local business. Beyond a handful of large national [hospital] companies, there’s a whole host of regional players. I don’t see any signs of that going away.” |
