The rural health care enterprise: keeping up with the city slickers

Physician Executive, May, 1996 by Barry R. Silbaugh

A cross the country, brutal market forces of managed care are creating uneasiness--if not panic--among insurers, hospitals, and physicians. Employers shopping for health care coverage show no mercy in their search for lower premiunms; the health care industry will find no shelter from these market forces in the foreseable future.

Urban health care systems of the United States were the first to respond to the demands of bargain-shopping consumers. They responded by forming "integrated systems," linking finance to delivery of a broad continuum of health services-often with great haste and catastrophic results as the cultures of the various "partners" failed to achieve a harmonic convergence.

As the managed sare juggernaut rolls into rural America numerous communities appear to be following the strategies adopted by their urban counterpart's. But rural areas are different. There are several key dynamics that must be considered for rural communities to be successful in responding to the considerabie challenges of this market. The PHOs ofthe rural areas may become nothing more than Potemkin villages of integrated health systems dotting the American landscape if important dynamics are not considered, or proper design elements are omitted.

Market Dynamics en Rural Health Care Make no mistake about it: The powerful managed care market forces of the urban areas will come to your rural community. Like the sun, the moon, or a cyclone on the Kansas plains, the natural phenomena of the economic markets will affect your livelihood.

Before plopping down your money to get a copy of the blueprint for health care integration in the city, you should consider the market dynamics in your rural market as part of your "due diligence" work. Blindly accepting the model being implemented in the city may be disastrous if key market dynamics are different:

1. Patients compete for primary eare physicians in rural areas. In economic terms, primary care physicians are a scarce human resource in the supply and demand forces working in rural areas. Unlike the heavily populated urban areas--with a surplus of physicians and hospitals competing for patients--rural communities tend to be underserved by health care professionals. Patients in these communities are often thrilled to be put on a primary care physician's active patient list after waiting months for an opening. This means that threats by managed care companies to move business ("covered lives") from physicians or hospitals who don't accept contract terms will be ineffective. These threats may even gain such managed care companies a well-deserved reputation for managerial stupidity.

2. Consumers will leave the community for discretionary health care services when their opportunity costs are appropriate. Most rural physicians and hospitals are concerned about patrent out-migration from the community. There is a common perceptiQn among rural residents--often incorrect--tlhat "city doctors and hospitals are better." With increasing moibility of rural residents, a trip to a neighboring town or city is a frequent occurrence for many reasons, including access to health care services. This consumer behavior in health care has heen noted=by the courts and the Department of Justice rwently in decisions or opinions regarding relevant geographic markets in such states as Iowa, Wisconsin, Colorado. New Mexico, and California., Competition in mral markets is often with nearby communities, including larger urhan areas that are usually perceived as hotbeds of managed care activity.

3. The population in rural areas is too small to spread reasonable insumuce risk across the community. Many mral communities are developing their own hospital-financed insurance operations to capture (and ksep) , covered lives" in the community's health care system. This is done to either deter managed care companies from entering the community, or. to prepare for provider-sponsored network development in response to public payer initiatives at the state and federal levels. Unbelievably, hospitals and physicians are naively assuming that the insurance risk is manageable, or at least limited (with reinsurance), and are letting eonsultants with little, if any, background in insurance lead them into a dangerous world of high monetary risk. Adverse selection in small risk pools is a vey common phenomenon, and can be disastrous financially. Ingredients for success in tire rural health care enterprise Physicians and hospitals in mra1 areas struggle with the same cultural issues causing decades-old tensiom within the big city delivery system--how to get along with each other. Jeff Goldsmith, PhD (,please see the interview with him on page 5 in this ,issue of Physician Executive) has accurately described this bizarre relationship as an "arranged marriage of the integrated health care system."2 The cultural difficulties arise from conflicts over clinical autonomy, independence, "control," decision-making styles, and governance of community health care systems. The egos of physicians often match those of hospital administrators--even in idyllic, peaceful eommunitres far from the hectic life of the city.