THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, January 29, 1995 TAG: 9501280187
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: Long : 241 lines
In an era of managed care, Sentara's sparkling new CarePlex in Hampton is care managed with precision.
Patients phone in to make a reservation, like they would at a hotel.
CarePlex's computerized registration system tracks patients from the preparation room to the operating table and back, so family members and doctors can determine a patient's progress during every second.
Despite CarePlex's similarities to a hotel, patients won't stay the night there. That's the point.
One of the key measurements on the managed-care stat sheet is the number of inpatient days per 1,000 customers. The more people a health care company keeps out of hospitals, the lower the cost of care and the more money the company pockets. Health companies are therefore trying to lower the number of inpatient hospital stays.
The inpatient days per thousand people at the CarePlex will be exactly zero.
Across the way at Hampton General, one of Sentara's hospitals, 32 percent of its staffed beds sit empty. Of the beds Hampton General is licensed to operate, 59 percent are empty.
Why? Because of facilities like CarePlex.
The $10.2 million center stands as testament to the strategic direction of Sentara Health System, known by both critics and admirers as one of the more innovative regional managed-care companies on the East Coast.
Two years ago, in a report called ``Reinventing Health Care: The Revolution at Hand,'' Sean Sullivan wrote that Sentara's operations paralleled managed-care systems in Los Angeles, San Francisco and New Mexico.
``It is ahead of the curve of change, pointing the direction in which others will have to go,'' said Sullivan, now president of the National Business Coalition on Health.
Since September 1984, when the state certified Sentara's Optima Health Plan as a health maintenance organization, the Norfolk company's direction has moved steadily toward managed care.
To Sentara, managed care means an integrated health system: The company owns the hospitals, pays and manages the physicians, and sells and administers the insurance.
The approach, in may ways, amounts to one-stop shopping.
Sentara's efforts to infiltrate a conservative eastern Virginia population with this nontraditional concept have been largely successful, mostly because companies have been demanding that health care costs be checked. Somehow.
Sentara dominates the Hampton Roads HMO market. Optima and its other HMO, Sentara Health Plan, cover 112,500 people. The HMOs give them a combined 62 percent of Hampton Roads' managed-care business.
The company's 11-year growth spurt appears to be far from over. During the next six years, Sentara expects 1.2 million Hampton Roads residents, or 85 percent of the population, to enroll in managed-care plans.
The company's payroll has swelled to 10,400, making it the largest nonmilitary employer in South Hampton Roads. It earned $611 million last year and has cash reserves of $294.5 million.
Sentara has cornered the market. But the market is about to explode.
National companies Cigna, Prudential and Aetna are trying to make inroads in Tidewater, as is Richmond's Trigon Blue Cross Blue Shield.
For Sentara, the test will be whether it can keep its 112,500 customers and secure 60 percent of the more than 1 million residents who may join managed-care plans this decade.
In other words, Sentara has shown its competitors the direction they'll have to go to compete. The question now is whether Sentara can remain out front. An early leap
To win long-term dominance of Hampton Roads, Sentara needs to de-emphasize the very thing on which its success has been based - its four hospitals.
That's a wrenching change for Sentara.
Born as a hospital company in 1888 when Norfolk General Hospital was called the Retreat for the Sick, Sentara comes to the managed-care derby with its roots firmly in the hospital business.
Seventy-two percent of Sentara's $611 million last year came from its hospitals. But in each of the last 10 years at Sentara, the share of hospital-generated revenue dropped 2 percent, while the share of managed care-derived revenue grew 2 percent.
During the first seven months of fiscal year 1995, Sentara's prepaid health plans produced 26 percent of the company's money, their highest contribution ever.
That's precisely the plan. Sentara zeroed in on managed care in the early 1980s, when nearly 100 percent of its cash flow came from hospitals. Administrators' eyes latched onto one part of a study by consulting firm Booz Allen. The study predicted 70 percent of Hampton Roads would move into prepaid health care: Medicare, Medicaid, military, unions and private companies.
Sentara set up Optima, partnering with Maryview Medical Center, Virginia Beach General and a group of doctors, the Independent Physicians Association.
It already owned two hospitals. Then the company set out to buy everything else patients need through the course of life. Sentara now owns divisions that provide medical equipment, child care, prescriptions and ambulance service. Instead of contracting the work with an outside agency, the company even established its own temporary personnel service.
Sentara saw that if it didn't set up a managed-care network, a national insurer or HMO group could come into Hampton Roads, divert patients' dollars from Sentara's hospitals and turn Sentara into little more than a decrepit hospital company.
The strategic shift made some in the health care business question whether Sentara was self-destructing.
``Some people thought they were traitors,'' said Lou Rossiter, a professor of health economics at the Medical College of Virginia, of Sentara's early foray into managed care. ``They thought this sort of integration was foolish and would hinder them, and they heard, `You've got to stick to hospitals.'
``But you've got to hand it to them: They had a vision, and it turned out to be right.'' Controlling home turf
Sentara's integration of physicians' practices, ambulance services, nursing homes and hospitals serves two purposes: It makes the company more cost-efficient, and it fortifies the Hampton Roads market from money-rich national companies.
``The lack of major national HMO companies in our market just boggles the mind of people in California,'' said Jack McNamara, president of managed care at Sentara. ``How come you don't have United Healthcare; how come you don't have U.S. Healthcare?''
The strategy bought time for Sentara, which now has a network set up to battle the national companies such as the $1.5 billion Minnesota-based United Healthcare and the $2.2 billion Pennsylvania-based U.S. Healthcare.
If an HMO price war breaks out in Hampton Roads, Sentara is prepared to fight. The company, a tax-exempt nonprofit organization, has cash reserves of $294.5 million, which could be used to buy into other health care companies or keep prices low.
Sentara apparently thwarted an early attempt by the nation's largest HMO operator, Kaiser Permanente, to enter Hampton Roads. In 1988, Kaiser, an Oakland, Calif., company with 6.6 million HMO members, was apparently considering buying a struggling Hampton Roads HMO owned by Maxicare.
``Maxicare asked if we were interested in buying them, and we said, `Not really, we have one HMO already,' '' McNamara said. ``Then we heard that Kaiser was in the area and nosing around and we said, `Maybe we better buy that.' ''
Maxicare became Sentara Health Plan, which Sentara runs as a staff-model HMO, a setup in which the hospital company employs the doctors and owns the clinics.
Despite Kaiser's backtracking, competition has begun to appear.
National insurer Cigna has 8 percent of the HMO market; Richmond-based Trigon Blue Cross Blue Shield is buying into Tidewater Health Care, which owns Virginia Beach and Portsmouth general hospitals and two HMOs.
Hampton Roads will shake out until its managed-care market is ruled by two or three companies, observers say. The survivors will likely be Sentara, the Trigon-Tidewater team and possibly Cigna or another player who has yet to emerge, they say.
Trigon's market share could expand quickly if it manages to convert even half of the 200,000 Hampton Roads residents it covers through traditional indemnity insurance to HMOs.
``Sentara likes to represent that they own the market,'' said Tidewater Health Care President Douglas L. Johnson. ``There is a lot of the market yet to be won.''
Sentara's McNamara knows the competition is just beginning. Most of the top 20 markets have already seen the battle joined, and Hampton Roads is in the next tier.
``We know that U.S. Healthcare has indeed filed to come into Virginia,'' McNamara said, ``and they're very aggressive and they've got a lot of money and they know how to use it. They'll buy market share.'' Hospitals: A burden? Trigon executives are among those who believe hospital-based health care companies are lugging around a heavy burden in the managed-care competition.
``There are lots of ways to compete,'' Trigon CEO Norwood H. Davis Jr. said of going head to head with Sentara. ``Owning the hospitals has its advantages, and it also carries a lot of baggage with it.''
It doesn't take an accountant to figure out which is cheaper: having a patient show up in the morning, get operated on and sent home by dinnertime? Or admitting the patient the night before, operating on him and keeping him another night for observation?
Collectively, inpatient hospital stays are the most expensive kind of medical care. McNamara said the average hospital stay costs $1,300 per day and lasts four days.
Charging $1,300 a day is great if you're in the hospital business. But not if you're an HMO paying the tab.
That's why Sentara built the outpatient care center. It's also the reason no hospital has been built in Hampton Roads since Chesapeake General Hospital opened in January 1976.
Sentara's four hospitals exemplify how managed-care networks have put the brakes on health care costs. The hospitals - Sentara Norfolk General, Sentara Leigh, Sentara Hampton General and Sentara Bayside - each have at least 30 percent of their beds vacant. Collectively, the 18 hospitals in Hampton Roads show only a 59 percent occupancy rate.
Promoting good health - not treating sick people - fattens an HMO's wallet. In an HMO, or any other ``prepaid health plan,'' a person pays a certain amount of money each month to belong. The HMO makes money if, for instance, the person's $1,500 yearly premium payments aren't used.
In this environment, Optima has lowered its inpatient days per 1,000 lives to about 300; Sentara Health Plan's number stands at 250 days per 1,000 lives. McNamara said the target of Kaiser Permanente is 150 inpatient days per 1,000 for an under-65 population. He thinks Sentara's plans could reach that level of efficiency and still offer high-quality care.
That means health care companies will have to continue to channel patients away from hospitals and toward lower-cost centers like CarePlex. By the end of the decade, only 1,770 of the 3,200 acute-care hospital beds in this region will be needed, McNamara said.
Though beds sit empty at Sentara's hospitals, these so-called ``cost centers'' remain busy. McNamara says wings of hospitals may one day be turned into elder-care operations, but for now the hospitals are being used for more and more outpatient procedures.
Sentara's Leigh, Hampton General and Bayside hospitals each are tapping outpatient care for about 35 percent of their revenues. Even Norfolk General, which provides the greatest range of services, pulls in 21 percent of its revenue from outpatient care.
But there's an administrative downside to outpatient care. ``There's more work,'' Corcoran said, ``because you may have to do 150 outpatient accounts to do the same revenue as one $40,000 heart transplant.''
And with all the emphasis on outpatient care, the cost of outpatient procedures has been rising in some parts of the country. The constant shifting of the industry makes Greg Mertz, director of health care consulting firm Professional Practice Management, predict Sentara will be repositioning itself by the end of the decade.
``I think they're doing exactly what they need to do today,'' Mertz said, ``and in five years they'll be doing something totally different. For Sentara, as big as they are, they're extremely light-footed.'' MEMO: Staff writer Marie Joyce contributed to this report.
ILLUSTRATION: MARTIN SMITH-RODDEN
Staff photos
Workers put the finishing touches on the CarePlex, which opened last
week for emergencies and opens this week for operations.
Cardiac tech Jeff Crickenberger and nurse Lula Lee are among the
Sentara workers who treat patients at the CarePlex.
STAFF [Chart]
HAMPTON ROADS INSURANCE MARKET
Estimated breakdown of coverage
NOTE: Figures are rounded and do not equal 100 percent.
Estamated changes on number of people covered by managed care in
Hampton Roads.
SOURCE: Sentara Health System
[For a copy of the charts, see microfilm for this date.]
CHARLIE MEADS/Staff
Jack McNamara heads the managed-care division at Sentara.
KEYWORDS: SENTARA HEALTH CARE SYSTEM by CNB