Center for Studying Health System Change

n contrast to the central role played by health care institutions and the business community, government policy and regulation does not appear to be a primary force for change in the Cleveland area. In general, Ohio’s regulation of the health care industry is characterized as market friendly, and powerful Cleveland-based carriers and providers are perceived as having great influence in the state capital. As noted, the state’s CON program is being phased out, which will diminish the local health systems agency’s influence on health planning. The state has laid a foundation of basic consumer insurance protections that includes restrictions on premium levels and guaranteed issue for the individual market. A statewide quality assurance initiative features new monitoring and enforcement powers for the state health department. The state has also established new solvency provisions for providers accepting risk. The State Department of Insurance rejected the proposed acquisition of Ohio Blue Cross & Blue Shield by Columbia/HCA as unfair to the policyholders and not in the public interest.¹² No major changes in state health policy are anticipated in the near future.

The transition to mandatory Medicaid managed care in Cuyahoga County holds the largest potential impact for the Cleveland area. This policy took effect in July 1996 for Aid to Families with Dependent Children (AFDC) eligibles (none of the other four counties in this area was subject to the July 1996 deadline). Enrollment, contracting and claims administration will be managed at the state level. Two local health plans dominated the Medicaid managed care market in Cleveland prior to this change, although they may be challenged by national organizations that are entering the Cleveland Medicaid market. It is interesting to note that most respondents do not expect providers to be significantly affected by these changes. They anticipate that patients will continue to be loyal to their traditional Medicaid providers, and they assume that these providers will be part of every Medicaid managed care plan’s network.

Cleveland has a relatively strong safety net and indigent care system centered around the MetroHealth system and its clinics. Financing for safety net and public health functions is primarily county-based. The county subsidy to MetroHealth, the Cleveland public hospital, is approximately $15 million annually, generated through taxes and administered by the county commissioners. In addition, state and federal Medicaid funds from the disproportionate share program have helped subsidize care for the uninsured. The future of MetroHealth, which now operates three of the four community health clinics formerly run by the city health department, is viewed as quite positive. There is concern, however, that MetroHealth will have to shoulder more of the safety net burden it historically shared with not-for-profit hospitals, such as St. Vincent’s Charity Hospital, which is now operated in a joint venture by Columbia/HCA, and Mount Sinai Hospital, now owned by Primary Health Systems.

The community health centers report that they are serving an increasing proportion of the uninsured and are implementing strategies to accommodate Medicaid managed care. For example, the oldest and largest community health center in the area, the Cleveland Neighborhood Health Services, Inc., developed a health maintenance organization (HMO) in the late 1980s that enables it to serve a growing share of Medicaid managed care patients. Other community health centers vary in their ability to contract with managed care organizations. They describe worsening financial pressures on their organizations, which they attribute primarily to serving more uninsured persons.

Public health agencies focus on population-based health activities, including immunization, epidemiology and environmental health. They typically provide little in the way of personal medical services and are supported by per capita taxes and user fees. The one notable exception is the Lorain County Health Department, which spends about 40 percent of its budget on direct care, primarily on the uninsured and underinsured. Lorain County had operated a successful home care program, which is now being supplanted by competing hospital and proprietary agency programs.

PURCHASING

The largest employers in the Cleveland area are the federal government, Ford Motor Company, the Catholic Diocese of Cleveland, the Cleveland Board of Education, the Cuyahoga County government and the Cleveland Clinic Foundation. These and other government, manufacturing and health care employers, along with a heavily unionized work force, have the potential to exert considerable influence through their health care purchasing activities.

Private Purchasing

So far, employers appear to have gotten what they want in terms of cost and quality. Employers have been highly sensitive to price differences. They have not had to demand premium discounts and price reductions, which have been initiated by plans (and, in turn, by providers) seeking to secure or expand their market share. Employers have shown little allegiance to specific plans and products, and appear to be jumping from plan to plan in response to lower prices. Because most plans use similarly configured, broad, overlapping provider networks, purchasers are able to get the networks they want without penalty for switching plans. With a few important exceptions, they have not pressed to increase managed care, nor have they made differentiation of quality a major aspect of their purchasing decisions. Despite purchasers’ initiative in founding the Cleveland Health Quality Choice (CHQC) program, quality still appears to be defined principally by the reputation of the large physician and hospital systems. Purchasers and plans generally agree on which providers are considered high quality, based on history, community reputation, personal experience and their CHQC rankings.

Cleveland Health Quality Choice is a notable feature of the Cleveland health system. Established in 1988 as one of the first community-wide quality initiatives in the country, CHQC profiles participating hospitals along six dimensions, and reports the results to the public semiannually. The program was originally sponsored by the business community and was subsequently adopted by the hospital and physician communities, partly in anticipation that businesses might selectively contract with providers based on their participation and ranking in CHQC. The Greater Cleveland Hospital Association has played a central institutional role in the program, and all of Cleveland’s hospitals were participating in mid-1996. The Health Action Council of Northeast Ohio, a coalition of more than 140 businesses representing some 350,000 covered lives, helped found CHQC and remains a key backer.

So far, CHQC appears to have had less effect on purchasers’ decisions than on hospitals’ concern for their internal practices and their reputations. Several hospitals reported instances in which they publicized good performance, debated the CHQC methodology when they felt it penalized them unfairly or used the results to guide internal quality improvement programs. The program has not been without controversy, most of which has centered on whether CHQC adequately adjusts for the severity of illness in patients seen by tertiary referral centers. However, the CHQC initiative is unusual in its public reporting of results and the collaboration of purchasers and providers sponsoring it.

Despite lengthy discussion, it remains unclear whether employers will actually use CHQC data in their purchasing decisions. Even employers that have taken a more active and directive role in health care purchasing have made only limited use of quality data. Lubrizol, a chemical manufacturer that has its own point-of-service (POS) plan for Ohio employees, and Parker Hannefin, an industrial producer of aviation and other machinery that has developed its own preferred provider organization (PPO), have focused on general reputation and patient satisfaction surveys to evaluate plans.

The Health Action Council recently announced that it would selectively contract for certain specialty services (e.g., heart surgery, cancer care, transplants, joint replacements) based in part on quality demonstrated through CHQC performance. This direct contracting initiative represents a potentially important change in purchaser activity. First, it bypasses insurers and health plans -- fueling providers’ hopes that Cleveland will be able to avoid the dominance of managed care plans that has characterized other markets. Second, by using CHQC data to select providers, the council explicitly incorporates quality-of-care information into its purchasing decisions.

As noted, traditional fee-for-service insurance is still strong in the Cleveland market, although it is losing ground to preferred provider and POS products. The endurance of fee-for-service pricing is widely attributed to two factors:

• The heavily unionized Cleveland-area work force has placed a high value on freedom of choice and access in its collective bargaining negotiations.

• Employers have been able to achieve cost control through discounting.

Ohio Blue Cross & Blue Shield has dominated the fee-for-service market for many years by virtue of its large employer clientele, discounting practices and willingness to develop products geared to purchaser needs. The ability of private purchasers to achieve their cost objectives without significant changes in the delivery of care appears to have moderated a desire for managed care. Employers appear comfortable with current insurance products, and most recent enrollee growth has been in preferred provider and POS products. Staff-model and group-model HMOs have been less popular, although small and medium-size employers are showing more interest in them because they view them as less expensive and more stable than other provider network options.

Public Purchasing

In contrast to Cleveland’s private sector health care purchasers, Medicaid and Medicare are actively pursuing managed care. New opportunities for managed care in these two programs are credited with attracting national carriers to the Cleveland market, including the recently merged Aetna/U.S. Healthcare company. Under the state’s voluntary Medicaid managed care program, enrollment reached 56 percent in Cuyahoga County and 31 percent in Lorain County.¹³ Medicare managed care penetration is a modest 6 percent overall in the Cleveland area, but is reported to be growing rapidly. Health plans and providers see Medicare managed care as the next significant driving force in the delivery system, as new plan-provider alliances are formed to pursue a share of the Medicare managed care business. Medicaid and Medicare managed care plans generally appear to be moving toward more restrictive networks.