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The Community Snapshots Project

Capturing Health System Change

South Florida


he south Florida health care market, known for an aggressive for-profit culture, an excess of providers, and large elderly and Hispanic populations, is changing rapidly. Over half of the insured market is enrolled in managed care; coverage is very high among Medicare and Medicaid beneficiaries compared to other markets. The market is, by many accounts, at a tipping point for hospitals and insurers to become much more consolidated. Players in the health system are engaged in a deal-making frenzy that is likely to become even more intense in the future. Although the market spans three counties, Dade, (where Miami is located), Broward (Ft. Lauderdale), and Palm Beach, and sometimes extends into Monroe County (the Keys) and counties to the west as well, the site visit was limited to Dade and Broward counties. Over the past four years, health maintenance organization (HMO) enrollment in this area experienced tremendous growth; between 1993 and 1994 alone, HMO enrollment rose 30 percent, with most of the growth occurring in HMO point-of-service (POS) products.1 There are 26 competing HMOs and numerous preferred provider organizations (PPOs), none of which have more than 15 percent market share and all of which are vying for new enrollees. Competition among these plans is intense. Due to the potential for increased market share as well as the profitability of current Medicare and Medicaid contracts, the Miami market has become increasingly attractive to out-of-state investor-owned health plans. Consolidation among the many health plans has begun to occur, mostly in the form of large plans acquiring smaller local plans to buy their way into the market or to increase market share.

Payers generally, and insurers in particular, are in the driver’s seat because South Florida is a classic buyer’s market. The market is over-saturated with providers of all kinds, hospitals, primary care doctors, medical equipment suppliers, and home health agencies. With such excess supply, health plans are able to bargain for lower prices, capitate physicians, and pay hospitals relatively low per diem rates. However, the plethora of providers and health plans often means that no one is ever really in charge. Pacesetters within each sector change frequently, especially as leaders within organizations change frequently.

As the power of insurers and managed care plans in particular has increased, providers of all types, hospitals, physicians, safety net providers, have responded in different ways. In order to strengthen their negotiating position with insurers, most hospitals have merged into one of four major systems. Three of the four major hospital systems are for-profit (Columbia/ HCA, OrNda, Tenet) and one is nonprofit (Dimension). Public and private hospitals that remain independent are seeking partnerships with other providers and health plans.

Hospitals are fueling the development of physician-hospital organizations (PHOs) as part of their efforts to bolster their market power. Most hospitals are forming alliances with or purchasing physician groups and outpatient clinics to enhance their outpatient service capacity. Although in the past physicians have been fervently independent, multi-specialty group practices are becoming more common in the market. In addition to joining physician-hospital organizations (PHOs), physicians are trying to diversify their HMO contracts and take on capitation to assure continued revenue. Despite these trends, there remains very little real vertical integration between hospitals and physicians or between providers and insurers.

In their search for relief from high health care costs, employers and consumers are contributing to the trend toward increased managed care. Neither large nor small purchasers negotiate health benefits collectively, suggesting they have little market power. However, competition among health plans is such that organized purchasing is not necessary to get good deals. Several large employers have negotiated substantial premium discounts. The state-sponsored community health purchasing alliances (CHPAs) have also increased awareness among small businesses that lower premium prices are possible. However, it is unclear whether the CHPAs or the state’s small group insurance reforms have had direct impact on premium rates available to small firms.

State and federal policy do not play a significant role in the south Florida market, except through efforts to enroll Medicaid and Medicare beneficiaries in managed care plans. Both levels of government pay relatively generous rates, which explains much of their attractiveness to health plans. The state has also made it easy for Medicaid-only plans to get started by granting them exemptions from normal licensing and quality-of-care requirements. Despite their popularity, the quality of care delivered by such plans has come under increased scrutiny.

The publicly supported safety net providers, including public hospitals, federally funded community health centers, and community mental health centers, appear to be holding their own by adopting business-oriented strategies. However, these providers remain vulnerable to large public sector funding cuts. Safety net providers are experiencing increasing financial pressure. Some of them may perish if Medicaid and state funding cutbacks occur as expected and the proportion of the uninsured, 24 percent, remains the same or increases.

Over the next two to three years, the market is expected to change rapidly as managed care growth continues. As long as price competition among plans and providers keeps annual increases in health plan premium rates low, purchasers will have little motivation to organize. Smaller HMOs are expected to leave the market or merge with larger ones, leaving fewer health plans covering the region. Additional hospital alliances or mergers are also anticipated, and the number and size of physician groups is likely to increase. More vertical integration between hospitals and physicians is predicted. But it remains less certain that insurers will seek financial integration with providers.


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