Market Calm, but Change on the Horizon:

In December 1998, researchers visited Miami, Florida, to study the local health system, its evolution and the effects on consumers. More than 70 health care market leaders were interviewed as part of the Community Tracking Study by the Center for Studying Health System Change (HSC) and The Lewin Group. Miami was among 12 communities HSC monitored biennially through site visits and surveys. The first visit in December 1996 created the baseline for tracking changes. The Miami market encompassed Dade County.

Deal-Making Gives Way to Relative Calm

In 1996, the Miami-Dade health care market had been marked by extensive deal-making that raised expectations of major consolidation among health plans and hospitals. High Medicare payments and relatively attractive Medicaid rates had drawn numerous plans into the market. Three major hospital systems were pursuing aggressive acquisition strategies, leaving the future of independent hospitals in question. The pending rollout of mandatory Medicaid managed care raised concerns about safety net providers' survival.

By 1998, generous Medicare capitation rates continued fueling competition among the market's many health plans. Although several hospital acquisitions had gone through, there had been little clinical consolidation or meaningful reduction in capacity. Physician organizations had been formed to accept financial risk but most had struggled to find their footing. Key developments included:

• Hospital competition was easing as systems carved out distinct geographic submarkets and solidified their positions.
• Physician organizations had proliferated to take on risk-based contracts, but few achieved financial stability.
• Medicaid managed care had been implemented without major disruption to the safety net.

Abundant Resources Amid Deep Poverty

Miami-Dade was a health care market of abundance, fueled by attractive Medicare and Medicaid payments and an oversupply of providers and plans. The market spanned more than 2,000 square miles of urban, suburban, ethnic and rural areas, with Hispanics accounting for roughly half the population. Hospital beds and physicians per capita ranked among the highest of the 12 communities HSC tracked. Yet this wealth of resources contrasted sharply with the poverty and lack of insurance concentrated in parts of the county -- one in four residents was uninsured, and the share of employers offering coverage was the lowest of any HSC study site.

The Medicare capitation rate of $763.19 -- among the highest nationally -- had attracted a crowded field of health plans competing for Medicare enrollees through generous benefits including unlimited pharmacy, zero premiums and no copayments. The now-eliminated 50/50 rule, which had required at least half of plan enrollees to be commercial, resulted in cross-subsidization that kept commercial premiums artificially low. With the rule's removal in 1999, purchasers expected commercial premiums to rise. Medicaid rates remained relatively favorable at 92 percent of fee-for-service levels.

Neither public nor private employers had exercised significant influence over the market beyond price-conscious purchasing. The state's Community Health Purchasing Alliance (CHPA) program, launched in 1993 to help small businesses offer coverage, had not attracted large numbers of firms. Florida's legislature had mandated national accreditation for all health plans following fraud scandals in the 1980s and had recently strengthened consumer protection legislation and mandated performance report cards.

Hospital Competition Subsides as Systems Settle In

In 1996, Miami-Dade's hospital sector was characterized by intense rivalry. Three principal systems -- Baptist Health Systems, Columbia/HCA and Tenet Healthcare -- were aggressively acquiring other hospitals to expand market share and reduce costs. By 1998, the anticipated head-to-head competition among these systems had calmed considerably, driven by two factors. First, the perceived threat from Columbia/HCA had diminished as the company's attention was consumed by a federal investigation. Second, hospitals had continued pursuing geographically and demographically targeted strategies to cement their positions in distinct submarkets, minimizing direct confrontation.

Tenet expanded its north Dade presence through its merger with OrNda and acquisitions of Hialeah Hospital and North Shore Medical Center, then pushed north into Broward and Palm Beach counties. Baptist Health remained the dominant system in south Dade, owning Baptist, South Miami and Homestead hospitals, though its planned merger with Mercy Hospital fell through over disagreements about reproductive health and end-of-life policies. Independent hospitals also strengthened their positions: Mount Sinai Medical Center's distinct geographic service area ensured its inclusion in most plan networks, and Pan American Hospital reinforced its ties to the Hispanic community and was operating at full occupancy.

Jackson Memorial Hospital (JMH), the area's public tertiary care facility, appeared to have strengthened its standing as well. JMH was planning an affiliation with Columbia/HCA's Deering Hospital, expanding primary care capacity through a new center and physician contracts in the suburbs, and building commercial and Medicaid business. Its sponsored health plan also won the sole Miami-Dade contract for the state's Children's Health Insurance Program, KidCare.

Physician Organizations Proliferate but Struggle

In 1996, most Miami-Dade physicians practiced in small single-specialty groups. The only established physician organization was the University of Miami Medical Group, a faculty practice plan with more than 600 academic physicians affiliated with JMH and Miami Children's. Hospitals had begun developing physician-hospital organizations (PHOs) and independent practice associations (IPAs) to assume risk, while the oversupply of physicians attracted national management companies and local entrepreneurs to develop physician organizations.

Most of these ventures proved short-lived. National physician practice management companies (PPMCs) like PhyCor, MedPartners and FPA came to Miami-Dade but could not satisfy physicians' financial expectations or their own revenue targets, consistent with their struggles nationally. Specialty network manager VIVRA experienced financial problems and disrupted plan-provider relationships. Hospital-sponsored PHOs and IPAs won few risk-based contracts, and both hospitals and physicians were becoming disenchanted with these structures. Tenet was planning to abandon some PHOs and reorganize physicians into an IPA, and Baptist Health's 600-member IPA, DadeWell, had struggled to secure globally capitated contracts or generate expected referral volumes.

Some local physicians launched their own organizational efforts. FemWell, a group of 60 obstetricians and gynecologists controlling roughly 80 percent of OB/GYN business at three Baptist-affiliated hospitals, banded together with only a 2 percent management fee and reportedly began improving practice revenues. PhyTrust, another new entity, managed globally capitated contracts between HMOs and participating primary care physicians. Whether these locally grown models would take hold remained uncertain.

Medicaid Managed Care Rolls Out Without Major Disruption

Two years earlier, the prospect of Medicaid managed care had worried providers and plans alike. Safety net providers feared losing Medicaid revenue as beneficiaries shifted into managed care plans that might redirect patients elsewhere. Plans had fought the state's attempt to use quality measures for enrollment allocation and blocked competitive bidding. The state ultimately contracted with any HMO willing to accept 92 percent of fee-for-service rates and meet quality requirements including national accreditation.

Nine HMOs were awarded contracts when mandatory enrollment began in 1997, and the transition proceeded with relatively little contention. No plan exited the program despite the rate reduction from 95 to 92 percent of fee-for-service. However, plans reported frustrations with enrollment churn, administrative burdens from outsourced enrollment functions, auto-assignment complications and restrictions on direct marketing. The legislature was considering a six-month enrollment lock-in to address discontinuity.

Safety net providers adapted creatively. A network of community health centers formed Atlantic Care, a management service organization that held a full-risk contract with the HMO Physicians Healthcare Plans for its Medicaid enrollees, and the venture was growing steadily. JMH partnered with North and South Broward Hospital Districts to launch a new health plan emphasizing traditional safety net providers for Medicaid beneficiaries.

The Safety Net Holds Steady

Contrary to fears, Medicaid managed care had not undermined Miami-Dade's safety net providers. Some community health centers reported service reductions from declining Medicaid reimbursement, but many safety net providers were working cooperatively to meet the county's enormous indigent care burden. JMH, designated as sole recipient of the Public Health Trust's half-cent sales tax funds for indigent care, had eased opposition to its hold on this revenue by affiliating with other safety net providers and offering technical and financial support.

Expansions of children's health insurance through KidCare, funded by federal CHIP dollars, were expected to cover an estimated 35,000 additional children in Miami-Dade. But optimism was tempered by concerns about outreach and enrollment challenges, particularly for immigrant children. Even at full enrollment targets, the program would only begin to address a problem of enormous scale: roughly 100,000 children -- one in five -- were uninsured in the area.

Issues to Track

Miami-Dade's health care market had entered a period of relative calm. Hospital competition had diminished as systems solidified geographic niches. Health plans continued to be sustained by generous Medicare payments that until recently had cross-subsidized commercial premiums. Physician organizations had met with little success, producing turmoil but no fundamental reorganization of care delivery. Safety net providers appeared stable despite persistent poverty and high uninsurance rates. Critical questions ahead included how the elimination of the Medicare 50/50 rule and slower Medicare payment growth would affect commercial premiums, what impact JMH's expansion would have on hospital competition and its role as an indigent care provider, whether a viable physician organizational model would emerge, and how the community would address the heavy health care burdens created by poverty and lack of insurance.

Sources and Further Reading

• Community Tracking Study Household, Physician and Employer Surveys, 1996-1997, Center for Studying Health System Change.
• U.S. Census Bureau, Population Estimates, 1997.
• Hirshkorn, C., Trude, S., Andrews, C.A. and Brown, L.D., "Market Calm, but Change on the Horizon: Miami, Florida," Community Report No. 08, Spring 1999, Center for Studying Health System Change.