WASHINGTON, DC—Attracting well-insured suburban patients, expanding profitable specialty-service lines and winning physician loyalty are the main fields of competition between the two dominant Cleveland health systems, leading to ever-more consolidation of the hospital and physician sectors, according to a new Community Report released today by the Center for Studying Health System Change (HSC).The strategies of Cleveland’s two largest health systems—Cleveland Clinic and University Hospitals (UH)—and the persistent fallout from the weak economy continue to shape the community’s health care market, according to the report.
Many viewed health care as one of the region’s strongest economic sectors, and the community hopes that growth in medical care and research can contribute to an economic turnaround, according to the report. Others, however, questioned whether the competition between Cleveland Clinic and UH will lead to higher health care costs from excess capacity if the hospital systems can’t attract more patients from outside the Cleveland metropolitan area.
“Like other communities, Cleveland is hoping medical care and research can replace manufacturing as the area’s economic engine,” said HSC President Paul B. Ginsburg, Ph.D. “How that proposition works out for the community depends on, as one respondent put it, the degree to which medical care is ‘exportable or that patients are imported.’”
In March 2010, HSC researchers visited the Cleveland metropolitan area—Cuyahoga, Geauga, Lake, Lorain and Medina counties—to study how health care is organized, financed and delivered in the community. Researchers interviewed more than 45 Cleveland health care leaders, including representatives of major hospital systems, physician groups, insurers, employers, benefits consultants, community health centers, state and local health agencies, and others.
Cleveland is one of 12 communities across the country tracked intensively as part of the Community Tracking Study site visits, which are jointly funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform. HSC has been tracking these communities since 1996.
Key findings of the report, Cleveland Hospital Systems Expand Despite Weak Economy, include:
- Ongoing capacity expansions as Cleveland Clinic and University Hospitals compete for well-insured patients and physician loyalty, particularly in suburban areas, even as the local economy falters and the population declines.
- The continued shifting of health care costs from employers to employees, including greater use of high-deductible health insurance plans.
- A safety net system protected in the short run by federal stimulus funds but threatened in the longer run by ongoing state budget woes and the weak local economy.
Cleveland Clinic and UH reportedly have maintained strong financial performances but face challenges, including rising uncompensated care costs and declining or flat patient volume. To improve financial performance, Cleveland Clinic and UH leaders envision transferring patients freely within their organizations, allowing them to match patients’ medical needs—and expected reimbursement—to the expertise and unit costs of individual admitting facilities. The goal is to manage complex, high-margin cases at the flagship academic hospitals with the highest unit costs per bed, while patients with less-complex needs are admitted to community hospitals.
Both systems also were concentrating service lines at one or two high-volume sites to limit duplication and working to become more tightly integrated, both organizationally and clinically, using electronic medical records, quality initiatives and direct employment of physicians to exert greater control over the flow and costs of patient care.
Mirroring the hospital market, physicians have been leaving small practices for larger ones and giving up independence in exchange for alignment with the larger health systems. Indeed, physician organizations affiliated with—by contract or employment—either Cleveland Clinic or University Hospitals dominate the physician community.
Most observers characterized Cleveland’s health insurance market as competitive, with both local and national players of various sizes vying for a larger piece of a shrinking pie. In a market with relatively little product and network differentiation, plans compete for customers primarily on the basis of price and customer service.
Both small and large employers in Cleveland reported ongoing pressure from rising health care costs, especially for hospital services, and the resulting increase in insurance premiums.
Owned by Cuyahoga County, MetroHealth System continues to anchor Cleveland’s health care safety net after emerging from significant financial stress in the mid-2000s. With what observers described as new but tenuous stability, MetroHealth was viewed as neutral ground amid the Cleveland Clinic-University Hospitals rivalry. Neither large system has competed for MetroHealth’s core business of caring for Medicaid and uninsured patients.
Cleveland’s three main federally qualified health centers (FQHCs) are relatively strong, longstanding organizations that have weathered the recent economic recession. Several federal grants have provided significant financial relief, and federal stimulus funding has allowed the health centers to expand capacity and renovate facilities, add staff, and move forward with health information technology initiatives.