Center for Studying Health System Change

he Boston health care sector has undergone many organizational changes during the last few years. Five of the area’s major AMCs have been involved in mergers. Two of the three major insurers and health plans have merged with or been acquired by other health plans and all three have grown rapidly to become regional players. The physician community has also been affected by organizational change, with numerous primary care practices being purchased by AMCs and many others entering into new contractual arrangements with hospitals, AMCs, insurers and health plans.

AMC-BASED DELIVERY SYSTEMS

At the heart of many of these changes is the formation since 1994 of three large care delivery systems: Partners Health Care System, The Care Group and Boston Medical Center.

Partners Health Care System represents the union of the two largest and most prestigious Harvard-affiliated academic medical centers in the region, Brigham and Women’s Hospital and Massachusetts General Hospital, both recognized for their successful and financially lucrative clinical research programs.

The Care Group consists of Beth Israel Hospital and the five-hospital Pathway System (which includes Deaconess Hospital in Boston and four community hospitals), also highly regarded for their clinical expertise and viewed by many interviewees as a more efficient and patient-oriented system than Partners.

Boston Medical Center is a new corporate structure that brings together two financially weaker institutions with different capabilities and serving very different populations: Boston University Medical Center, which provides a full spectrum of primary, secondary and tertiary services to a predominantly suburban population, and the Boston City Hospital, a newly renovated facility, which, through its relationships with community health centers, plays an integral role in the community’s safety net. This last union has produced a system whose financial well-being is still uncertain and heavily dependent on continued public funding for care of the uninsured. Since the mid-1996 merger, there have been significant reductions in staff.

At the time of the site visit, one major academic medical center had been unsuccessful in finding a partner. New England Medical Center (NEMC), a teaching hospital affiliated with the Tufts Medical School, had held discussions with Partners Health Care System and Boston Medical Center, but neither had borne fruit. There was much speculation that NEMC might be acquired by Columbia/HCA, which recently became the first for-profit hospital system in the state through its purchase of MetroWest, a small suburban community hospital. This acquisition was a source of great anxiety among those who seek to preserve the community’s not-for-profit, local orientation. Subsequent to the site visit, NEMC announced it would affiliate with Lifespan, a Rhode Island-based not-for-profit health system.

As this initial phase of care delivery system consolidation draws to a close, two of the major systems, Partners and The Care Group, have shifted much of their focus toward geographic expansion through acquisition of or affiliation with community hospitals and physician practices. Partners, through its Partners Community Health Inc. (PCHI) division, reportedly has established relationships with at least 600 primary care physicians in surrounding areas, either by purchasing their practices directly or through contractual agreements that give PCHI the exclusive right to contract with managed care organizations on their behalf. The Care Group is pursuing a different strategy, extending its geographic reach to suburban areas and townships by entering into more loosely structured arrangements with community hospitals.

Building geographically expansive networks serves both short-term and long-term objectives for AMCs. One short-term rationale is to generate referrals for highly specialized and tertiary-level care. Despite wide recognition that reducing the community’s acute care bed capacity is necessary and inevitable, all AMCs are seeking to minimize downsizing at their own institutions by strengthening and maintaining existing referral sources and by expanding their service areas. The extent to which community-wide overcapacity will be reduced through hospital closures or conversion of inpatient capacity to ambulatory and sub-acute inpatient care remains unclear.

Between 1986 and 1995, 18 hospitals in Massachusetts were converted to rehabilitation, post-acute care and substance abuse facilities⁹ and speculation holds that others will follow. Some respondents contended that the closure or conversion of entire facilities would be preferable to partial reductions in capacity across many facilities. In this case, they said, less would be more: a leaner but stronger provider community capable of maintaining a full complement of clinical specialty and subspecialty programs with the breadth and depth to achieve economies of scale and superior clinical outcomes.

Building an expansive geographic network is also viewed by many as an essential first step for provider systems seeking to negotiate with insurers and health plans from a position of considerable strength. Specifically, respondents reported that a provider system’s bargaining position with health plans is greatly enhanced by a network with a broad geographic reach (i.e., the ability to provide access to large numbers of insureds) and the inclusion of key AMCs and hospitals with strong reputations (i.e., brand-name recognition in the marketplace). It was perceived that insurers and health plans would be unable to exclude such indispensable provider networks from their product offerings in a market such as Boston, where consumers place a high value on having broad choice of providers and are accustomed to having access to the world’s leading medical institutions.

In their quest for greater geographic presence and expansive networks, the AMC systems are walking a tightrope between short-term objectives and long-term strategic positioning. Although AMCs generally described their efforts to work with hospitals and providers outside the city’s core as collaborative, many outlying providers described the AMCs as heavy-handed. Immediate efforts to attract patients from outlying areas through the purchase of or affiliation with community-based hospitals and primary care physician practices must be balanced against the desire to build lasting network relationships. In many communities, local hospitals provide needed geographic access to services, and may also serve as a vehicle for AMCs to develop formal or informal ties to medical staff in individual or small-group practice.

Respondents also pointed out that as some AMC-based systems assume greater responsibility for managing populations under capitated arrangements, they begin to view community hospitals less as competing inpatient facilities and more as efficient, low-cost providers offering geographically accessible services. Consistent with this perspective of community hospitals as long-term strategic partners, some respondents described a new ethic of returning patients to the referring provider with a handshake and a thank you note.

The AMC systems also must tread lightly to avoid raising concerns among insurers and managed care plans that these organized care delivery systems eventually might pursue direct contracting with employers or offer competing managed care products. For example, some eyebrows were raised by the actions of Partners, which is attempting to secure exclusive contracts with many primary care physician practices in its network. Both Partners and The Care Group are investing in the development of quality and utilization management functions and information systems that are necessary to manage financial risk and ensure quality.

The ultimate success of the AMCs’ strategies of network-building and geographic expansion is still uncertain. These systems face a good deal of resistance and competition in parts of the state outside the inner core -- a situation that is likely to intensify. A sizable number of strong community hospitals have chosen not to align closely with an AMC system, and some consideration reportedly is being given to forming an integrated system of leading community hospitals.

The Boston-based systems also face considerable competition from provider-sponsored systems headquartered further northeast and on the South Shore, including the Lahey Hitchcock Clinic, which was formed by the 1994 merger of Lahey Clinic in Burlington, Mass., and the Hitchcock Clinic in Nashua, N.H. This system consists of two large multispecialty clinics, 25 group practices ranging in size from 4 to 20 physicians, a 400-bed hospital, five smaller clinics and a newly formed network of primary care physicians who work in independent or small-group practices. On a smaller scale but with growth potential is the Goddard Medical Group, consisting of 85 physicians based in Brockton, Mass., and serving the South Shore.

It is also unclear how successful the Boston-based provider systems will be in their efforts to assume greater degrees of financial risk and establish care management systems to manage this risk effectively. Capitation payments to these systems are limited at this time, and in spite of the significant network-building activities to date, it is questionable whether any one major provider system has established the internal care management systems needed to monitor and control costs and quality for a defined population.