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The Community Snapshots Project

Capturing Health System Change

Houston, TX


n Houston, employers are reluctant to move enrollees into health plans with more restrictive networks, and the physician culture is largely opposed to constraints of provider organizations and managed care plans. This has led to slow changes in the health system. Nevertheless, insurer and provider anticipation of a rapid shift to capitation has affected the actual pace of change. Insurers and providers are positioning themselves for rapid change in the future. In Houston, change and change agents from outside the area have had an important effect on a market. Insurers and health plans, for-profit hospital chains, physician management companies, and consultants from other markets with higher levels of health maintenance organization (HMO) penetration or national strategies are bringing changes to the Houston health system.

For years, many expected HMO enrollment to grow rapidly, given the relatively high cost of health care and health insurance plan coverage in Houston. Yet many large unionized employers were reluctant to restrict employee choice of provider. Employers have been willing to reduce indemnity plan benefits, which has helped move enrollees into preferred provider organization (PPO) plans. Moreover, employer coalitions elsewhere in the United States have had success with premium negotiations, which probably led Houston employers to expect the same. Although employers have not aggressively worked for greater influence, despite the absence of aggressive employer actions, the excess of hospitals and specialist physicians has altered the balance of economic power in Houston in favor of payers and against hospitals and physicians that had dominated the market for years.

The influx of new HMOs into the Houston market acted as a managed care catalyst; it signaled to providers the likely future importance of capitation and stabilized premiums to employers after years of rapid increases. These health plans (including two California HMOs, some national insurers, and Texas plans) stimulated competition, as new plans have been willing to buy market share and accept initial losses. However, slow HMO enrollment growth has adversely affected new plans. HMO plans do not have a great cost advantage to the employer or enrollee, as employers offer PPO and indemnity insurance products with reduced benefit coverage so premiums remain competitive with HMOs. Enrollees seem willing to pay for services covered by PPO and indemnity products rather than lose their choice of providers.

Two major hospital systems have recently emerged in Houston (Memorial/Sisters of Charity Network (SCN) and Columbia/HCA), and one or two more systems may emerge. None has a dominant position in the Houston market. The 600-acre Texas Medical Center (TMC), with eight general care and six specialized hospitals, has dominated historically but has lost its dominance due to the emergence of these systems out of the surrounding community hospitals. The private community hospital systems are leading the way in system building and orientation to managed care.

For some of the leading private teaching hospitals, success under the old system has reduced the sense of financial urgency that can drive change. Nevertheless, they are cutting costs and attempting to expand and become part of integrated delivery systems, despite physician opposition and a lack of experienced physician managers and leaders. Outside forces have affected the Houston market. Over the past two years, Columbia/HCA, a large, national, for-profit corporation, has bought, merged, and closed Houston hospitals. It has acted as a catalyst setting off merger discussions among hospitals and accelerating plans for physician-hospital organizations. Nevertheless, major realignments have not yet occurred.

Only one delivery system has attempted to offer its own HMO plan. While providers would like to capture all of the premium dollar, they fear that HMOs may retaliate by directing enrollees to other providers.

Physicians slow down HMO market penetration in Houston in part because of a concentration of teaching hospitals and university faculty in the TMC and in part due to a culture of physician individualism that opposes the corporate practice of medicine. Top physicians prevented a key hospital merger in the high profile TMC, and the Texas Medical Association actively attempted to counteract HMO growth by using its influence in the state legislature to arrange passage of an anti-managed care bill. Although the governor vetoed the bill, some of its provisions were written into regulations.

Physician organization has grown slowly. Physician management firms from outside Houston have taken over the management of local Individual Practice Associations (IPAs), as well as one of the two large multi-specialty medical groups. Houston hospitals have assisted in the formation of their own affiliated IPAs, physician-hospital organizations, and hospitals, and some national insurers have acquired primary care physician (PCP) practices, which have driven up their price.

Despite discussions about managed care, the largest HMO and most of the smaller ones seem reluctant to directly manage the delivery of care and prefer to contract with organizations that do. Few physician organizations are able to do so. With the possible exception of two larger medical groups, clinical integration is a concept, not a reality.

A shift to Medicaid managed care is being discussed but has not yet occurred. Funding streams for the uninsured and underinsured are increasingly threatened. It is unclear whether existing changes have had an effect on the quality of care.


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