Center for Studying Health System Change

Cleveland's Locally Based Health Care Organizations Gain Market Power, Excess Capacity Increases

News Releases
January 12, 1999

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ASHINGTON, D.C. -- Over the last two years, Cleveland’s prominent locally-based health care organizations have reasserted their dominance, gained market share and expanded high end specialty services as the threat of for-profits subsided in the market, according to a Community Report released today by Health System Change (HSC).

The Cleveland Community Report, "Local Organizations Retain Market Dominance," highlights the key changes in the Cleveland heath care market since 1996 as well as Cleveland-specific data from HSC’s household, physician and employer surveys. Cleveland is one of 12 communities that HSC researchers are tracking intensively over time to understand how health care changes are affecting consumers.

In 1996, local experts predicted that the entry of two for-profit hospital chains and the announced merger between Columbia/HCA and the local Blues plan would begin to squeeze out excess capacity. However, the for-profit hospital systems were unable to gain market leverage and the merger failed. At the same time, locally based organizations moved aggressively to build their market power through affiliations and acquisitions. Rather than reducing excess capacity, local organizations have expanded it by propping up otherwise vulnerable institutions and adding more specialty services. The expiration of Ohio’s certificate-of-need legislation has also contributed to furthering excess capacity.

"Cleveland is a market where troubles for Columbia/HCA enabled local organizations to increase control," said Paul B. Ginsburg, President of HSC. "Cleveland’s leading organizations have achieved this by consolidating and expanding services, particularly at the community hospital level. These service expansions do not bode well for costs and may even negatively affect quality."

Cleveland plans have also been in a premium war, driven in part by the strategy of the former Blues plan, Medical Mutual, to maintain market share through aggressive pricing. This has allowed Cleveland consumers to enjoy flat or declining premiums over the last two years. As a result, there has been little private sector demand for more highly managed insurance products.

However, public managed care programs have grown dramatically. Enrollment in Medicaid managed care in Cuyahoga County has risen from 54 percent to 88 percent of beneficiaries since 1996, and Medicare managed care penetration has increased form 8 percent to 21 percent.

"HSC’s Community Report gives local decision makers an important perspective on what has and has not changed in the Cleveland market over the last two years, and should alert policy makers to the potential downsides of the market’s increased over capacity," stated Joseph Davis, President, Medimetrix.

Research for the Community Report is conducted as part of HSC’s Community Tracking Study (CTS) which involves tracking 60 communities to understand the effects of health system change on consumers through bi-annual surveys. Cleveland is one of 12 communities that is being studied more intensively to understand how local market factors affect change.

Health System Change - an independent research organization funded exclusively by The Robert Wood Johnson Foundation - provides objective, timely analyses about changes in the nation’s health care system and their impact on consumers to private and public decision makers. Health System Change, based in Washington, D.C., is affiliated with Mathematica Policy Research.