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CapturingHealth System Change

Albuquerque, N.M.


he Albuquerque health care market, known for its relatively high rate of managed care enrollment and vertically integrated, hospital-based provider systems, has remained largely unchanged for the past year and a half. Since the early 1990s, these provider systems have controlled the market by sponsoring or co-opting health plans to increase their market share and leverage. Neither insurers nor purchasers have been able to produce significant market change, even though both have managed to extract some discounts from providers. Recent developments, however, suggest greater changes in the near future, including the following: growing prices, product competition from insurers not aligned with hospitals, increased purchaser sophistication, and early state efforts to implement Medicaid managed care and strengthen the purchasing sector.

Considerable change occurred in the Albuquerque market in the late 1980s and early 1990s that contributed to the formation of the current provider-dominated system. As managed care plans began to increase in popularity, the two main hospital-based delivery systems developed their own health plans and began to compete with each other and with an established staff-model health maintenance organization (HMO)/group practice for a growing pool of managed care enrollees. Out-of-state health plans also entered this competitive environment. The prospect of expanded coverage through national and state health care reform spurred the provider systems toward vertical integration of health plans and physicians.

Four major vertically integrated hospital-based systems, Lovelace, Presbyterian, St. Joseph’s, and the University of New Mexico, currently exist in Albuquerque and own or affiliate closely with one or two managed care plans. With two independent insurers/managed care organizations, the provider systems and their affiliated health plans attempt to maintain or attract market share from commercial and Medicare enrollees. Competition among health plans primarily revolves around existing contracts.

Provider systems and their affiliated health plans have maintained control in this market largely because of insufficient power by any other sector to successfully compete with them. Independent insurers (those without a close affiliation with one of the major providers) have not gained enough market leverage. Purchasers have not brought about a change because there is no collective purchasing, and the large public employers that dominate the local economy have sought reasonable price bargains but little else. Although some physicians are forming independent practice associations (IPAs) and merging into multi-specialty groups, most remain aligned with one system or another. And, since the 1994 state elections brought power to politicians primarily concerned with budget issues, state policy does not exert much influence over the health market.

Some recent developments may shift the balance of power, however. Preferred provider organizations (PPOs) not aligned with provider systems have become more aggressive competitors with the provider-affiliated health plans, primarily by reducing premium rates and developing less restrictive products (e.g., point-of-service) to capture enrollees from provider-affiliated health plans. Albuquerque’s largest area employers are either federal, state, or local governments. Therefore, health plan contract renewals by government purchasers, increasingly pressed for funds, may become even more competitive. In addition, state purchasing initiatives show signs of gaining strength. Provider systems and health plans are gearing up to compete for Medicaid managed care enrollees in 1997 by expanding their networks of clinics in underserved communities. A new state-sponsored purchasing cooperative for small businesses with relatively little influence now could become stronger with increased enrollment.

In the next one to three years, the market is expected to experience much greater change. The following factors could lead to a major shake-up of the hospital-based delivery networks and their affiliated health plans: (1) new health plans entering the market by offering very low premium rates; (2) significant pressure from organized public purchasers and Medicaid managed care, causing large shifts in health plan membership through more exclusive contracts; and (3) cuts in Medicare and Medicaid, which could undermine the financial position of one or more providers.


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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.