Changing market squeezes insurers, providers, patients

Through the gray, Gothic halls of west Durham and along the stone walls of East Franklin Street in Chapel Hill, tension is in the air. The old rivals are squaring off again Duke vs. Carolina.

Forget basketball, this is the big stuff medical care. When UNC Health Care System bought Rex Healthcare

How powerful? When Duke quietly began trying to sell its WeIlPath Community Health Plans Inc. health-mainintence organization late in the year, analysts say it wasn't merely because the plan lost $12 million in 1998. "Duke now controls hospitals, employs the physicians and sells the insurance," says Stephen Leary, physician consultant with Professional Management Inc. of Raleigh. "They realize they're approaching antitrust."

The year for North Carolina's $25 billion healthcare industry was another in a troubled string. One of the state's largest HMOs capsized, angry physicians saw more patients for less money, and HMOs began to sweat a revolt by their 1.6 million members and the doctors who treat them. The stunning HMO casualty was Kaiser Foundation Health Plan of North Carolina, licensed in 1984. After years of losses, including $12 million in 1998, the company sold its 40,000member Charlotte operation in October to Coventry Health Care of the Carolinas Inc. (formerly Principal Health Care of the Carolinas Inc.), leaving behind a vacant, nearly new $23 million medical center. A few months later, Kaiser announced it would unload its 73,000 Triangle-area members on Partners National Health Plans of North Carolina Inc.

Late in the year, newcomers Carolina Summit Healthcare Inc. in Raleigh and One Health Plan of North Carolina Inc. in Charlotte were preparing to enter a stark landscape. By yearend 2000, fewer than a dozen HMOs will remain in the state, down from almost two dozen in 1995. The industry lost $93 million last year in North Carolina. To combat losses, many HMOs are offering new plans, including open-access HMO models. They dispense with the gatekeeper physicians and preauthorization managers that patient advocates say HMOs have used to discourage members from seeking care.

As for doctors, they are "in a vise," says Robert Seligson, CEO of the North Carolina Medical Society, which is exploring how its 10,000 members can organize to protect their autonomy and incomes short of unionizing. The 1998 General Assembly required that utilization-review managers be doctors licensed by North Carolina rather than the administrative clerks and nurses used in the past.

UNC's acquisition of Rex bolsters its negotiating clout with managed care as well as its growing network of doctors who will refer patients to its hospitals and specialists. That's what Duke has in mind, too. In addi

tion to its 1,124-bed Duke University Medical Center, it has Durham General Hospital, Raleigh Community and others, along with physician groups in Cary and Durham. Its stake in WellPath heightens the competition with UNC, which has an interest in Generations Family Health Plan Inc. Duke officials deny they're concerned about antitrust action.

In Charlotte, Presbyterian Healthcare, southern anchor of Novant Health Inc. of WinstonSalem, continues to suffer against larger Charlotte-based Carolinas HealthCare System. Presbyterian barely broke even in 1998 and, in June, laid off 140 workers. An additional 300 jobs went unfilled.

Hospital administrators blame the battles in part on the federal Balanced Budget Act of 1997, which mandates $115 billion in Medicare cuts nationwide through 2003, along with a 2% annual cap on reimbursements. Medical inflation is rising at 6%. Cuts are spread over five years but are slated to kick in mostly in the last three - 2000 through 2002.

There are some bright spots. In managed care, insurers are jumping on a concept called disease management, which involves seeking out and aggressively treating members with chronic illnesses. Catawba Memorial and Frye Regional hospitals in Hickory resolved a long feud, agreeing to cooperate in an openheart surgery center that both had sought for a decade. Last year, the spat reached the governor, who weighed in on the side of Catawba, only to be overruled by a state court.

"We're going though frustrating times in health-care financing," Seligson says. "But in 2000 and beyond, we're going to see some of the greatest breakthroughs ever in medicine."