Hospitals Compete for Specialty Care

Community Report No. 07 | Greenville, S.C. | Spring 2001 | By Glen P. Mays, Sally Trude, Lawrence P. Casalino, Patricia Lichiello, Bradley C. Strunk, and Jeffrey Stoddard

In November 2000, HSC researchers visited Greenville, South Carolina, interviewing more than 50 health care market leaders as part of the Community Tracking Study. Greenville, covering Greenville, Spartanburg, Anderson, Cherokee and Pickens counties, was one of 12 communities tracked biennially through site visits and surveys. The area's continued population growth and economic development had kept providers busy and profitable, but the competitive dynamics were shifting as hospitals moved aggressively into specialty services.

Hospitals Expand into Profitable Specialty Lines

Greenville's hospital systems had remained financially sound and powerful. Steady population growth kept most facilities operating at full capacity. After a failed three-way merger attempt in 1996, hospitals concentrated on distinct geographic submarkets. Since 1998, however, most area hospitals strengthened their ability to deliver high-margin specialty services -- cardiology, oncology and orthopedics in particular -- and began competing more aggressively across submarket boundaries.

Spartanburg Regional Healthcare System built a cancer center and expanded cardiac surgery capacity. Mary Black Memorial Hospital allied with a national oncology provider to grow cancer services. Anderson Area Medical Center received state approval for a cardiac surgery center. Bon Secours St. Francis Hospital opened cardiac surgery and bone marrow transplantation units and won approval for expanded neonatal intensive care. State certificate-of-need regulations had historically restricted such expansions, but population growth prompted the state to approve the new services.

Managed Care Preparations Abandoned

While building specialty capacity, area providers gave up on preparing for managed care risk contracting. Hospitals that had been acquiring primary care practices and developing care management programs found these investments unprofitable given limited HMO enrollment, low capitation payments and high administrative overhead. The area's only provider-sponsored health plan, HealthFirst, was dissolved by its three hospital owners after just two years of operation. Some community leaders worried that without external pressure from managed care, providers lacked meaningful incentives to improve clinical quality and efficiency.

Strong Physician-Hospital Ties Persist

Physicians remained closely aligned with hospitals despite the end of managed care preparations. By 1997, nearly 75 percent of Greenville's primary care doctors were hospital-employed, and most hospitals maintained active physician-hospital organizations. Although these arrangements were no longer focused on risk contracting, they served as vehicles for collective bargaining with health plans. Hospitals successfully negotiated substantial payment increases from insurers, with plans attributing this success partly to the tight physician-hospital alignment.

Small Employers and the Uninsured

Rising insurance premiums prompted some small employers to drop dependent coverage, raising concerns about growth in the uninsured population. HMO enrollment remained low, and distinctions between HMOs and PPOs had diminished. On a positive note, access to care for underserved populations improved through cooperative efforts among safety net providers and community organizations, though projected state budget shortfalls threatened Medicaid and SCHIP stability.

Sources and Further Reading

This report was originally published as Community Report No. 07 by the Center for Studying Health System Change as part of the Community Tracking Study, funded by the Robert Wood Johnson Foundation.