Washington Aside, States Turn Toward Managed Care

ABSTRACT discussions of impending health-care reform in southeastern Pennsylvania abruptly turned into reality last month when the region's largest hospital and largest health insurer announced that they were merging. Area health insurers, hospitals, and doctors are still scrambling to respond to the move.

The Independence Blue Cross and the Graduate Health System merger will create a massive new health-care company resembling the full-service organizations some health-care reform proposals have envisioned. Everything from health insurance to check-ups to surgery will be provided by a single company.

Analysts say the merger is a sign of a growing trend across the United States toward managed care. In the next 10 to 20 years, analysts predict, a half-dozen regional and national health-care companies offering managed care will dominate Philadelphia and other cities, whether or not national health-care reform is enacted. ``I'm no big fan of managed care,'' says Arthur Caplan, director of the Center for Bioethics at the University of Pennsylvania Medical School in Philadelphia, ``[but] I think that it [a shift to managed care] is going to happen no matter what happens in Washington.''The pace of change in Philadelphia - which has nearly twice as many doctors per capita as the national average, six medical schools, and 37 hospitals - has been breathtaking, says Craig Holm, a strategic planner with Chi Systems Inc., a national consulting firm.

The percentage of patients treated by health maintenance organizations (HMOs), which use managed care, has grown rapidly over the last five years, reaching 33.5 percent in 1993. In the last year, 10 Philadelphia hospitals have merged or formed alliances.

Officials involved in the Independence-Graduate merger say combining a health insurer and a hospital system will give them a greater ability to control costs. ``You will have a single management system fighting to hold down costs at every stage [of care],'' says Richard Doran, vice president of Independence Blue Cross.

Efficiency is winning

Similar mergers or alliances have occurred in Michigan, Ohio, Minnesota, California, and several western states, according to analysts at the national Blue Cross Blue Shield Association in Chicago. ``I think we're in a transition between two forms of [health-care systems],'' says Carron Maxwell, a strategic consultant with the association. ``The more and more efficient players are going to succeed.''

But many health-care professionals in Philadelphia, especially doctors, say they are uncomfortable with the mergers and managed care in general. Critics argue that efficiency should not be the main goal of health care. ``There's a real concern that the quality of care is going to go down,'' says Sandra McGraw, an attorney with the Health Care Group, a Philadelphia consulting firm that works exclusively with doctors. ``The fear is that you're having a business ... decide what should be a clinical [medical] decision.'' Philadelphia-area doctors are scrambling to form their own large physician associations to ensure a place in the rapidly changing regional health-care market, Ms. McGraw adds.

Minneapolis' example

Mr. Caplan, the ethicist, says the Minneapolis-St. Paul area is an example of what could happen in Philadelphia and other cities. Minnesota has extended health coverage to more people; roughly 85 percent of Minneapolis-area residents currently receive managed care.

The area, which had more than 30 hospitals and insurers 10 years ago, now has more managed care than any city in the country. Four health-care companies or alliances dominate the market. ``The cost of care has dropped somewhat,'' Caplan says. ``It's very difficult to say whether the quality of care has changed.''

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