Florida Healthcare Market Shows Signs of Trauma - Brief Article

Healthcare Financial Management, June, 2000 by Scott J. Davis

Florida's healthcare industry has become decidedly unhealthy for many of its largest participants. Although treatment is in progress, intensive care may be needed to solve some of the current crises.

There are 2.7 million residents 65 years old or older in Florida, accounting for 18.5 percent of the state's population -- the highest concentration of senior citizens of any state in the nation. Yet despite the high demand for healthcare services among this older population, the Florida provider industry is struggling in many areas.

Florida's Problem Areas

Long-term care and HMO struggles. Bankruptcy and insolvency have plagued nursing homes, long-term care companies, and HMOs operating in Florida. Vencor, Sun Healthcare Group, Mariner Post-Acute Network, and Integrated Health Services, which together own 25 percent of all nursing home beds in the state, all filed for bankruptcy protection in the past year. In addition, Genesis Health Ventures is undergoing a restructuring of its debt, and Manor Care's board of directors has formed a committee to review buyout proposals.

Statewide losses for HMOs reached almost $60 million in the third quarter of 1999, compounding losses of $31 million and $36 million in the preceding two quarters. While some HMOs have done well, largely through consolidations, others have not survived. Health Plans of America, Champion Healthcare, Ultramedix Healthcare System, and Sunrise Healthcare Plan, Inc., all have shuttered their operations, leaving substantial unpaid claims in their wake. SunStar, currently in liquidation, is Florida's latest HMO casualty.

As recently as 1997, it was predicted that 50 percent of Florida's population would participate in HMOs. This prediction has not come to pass. In fact, about 49 million people -- only about one-third of Florida's population -- belong to HMOs.

Uninsured population. A report by the State of Florida estimates the uninsured population in the state at 2.1 million, down 560,000 from the 1993 level, [a] Major metropolitan areas, such as Tampa, Orlando, Jacksonville, Palm Beach, and Ft. Lauderdale, are below the statewide average for uninsured residents. In areas around Immokalee, Lake Okeechobee, and Miami-Dade County, the number of uninsured residents is much higher.

Even with fewer uninsured residents overall, however, the amount spent on uncompensated care in Florida continues to climb. Florida hospitals alone provided more than $1.2 billion in uncompensated services in 1998.

The losses incurred by HMOs could have the effect of increasing uncompensated care for Florida providers. As some plans implement double-digit rate increases to help stem those losses, many smaller businesses that may not be able to absorb this additional cost could stop offering employees coverage.

BBA and BBRA cuts. The Balanced Budget Act of 1997 (BBA) has been estimated to reduce Florida hospital Medicare payments by $3.5 billion over five years. Even with the adjustments made by the Balanced Budget Refinement Act of 1999 (BBRA), losses for rural hospitals in Florida are still expected to top $52 million. These numbers do not include the effect of the new outpatient prospective payment system, slated for implementation on July 1, 2000, or the home health prospective payment system, set to begin October 1, 2000. The potential loss of nursing home beds due to the aforementioned bankruptcies of long-term care companies, coupled with reduced hospital payments, could leave some communities without access to essential healthcare services.

Labor shortage. Florida once again is experiencing a shortage of nurses. The Florida Hospital Association estimates there are more than 4,800 open nursing positions in Florida hospitals. Pharmacists and other health professionals are in short supply as well. Costs for salaries and wages, benefits, recruiting, and temporary labor to deal with these shortages all are on the rise.

Less access to capital. Growth and consolidation have been the means used most often by Florida healthcare organizations in their attempts to survive. For example, Aetna U.S. Healthcare acquired Prudential's managed health business, and Blue Cross of Florida's Health Options acquired Principal Health Care. But growth and consolidation generally require an infusion of capital, and the current capital market is very unfavorable.

The bankruptcy of Pennsylvania's Allegheny Health Education Research Foundation was a clear sign of the increased fragility of the healthcare industry's financial situation. Consequently, Florida healthcare organizations, like their counterparts across the country, are finding it difficult to obtain insurance for healthcare bond issues. In addition, hospital credit ratings are sinking. Moody's reports there are five times more hospital credit-rating downgrades than upgrades for 1999. As a result, hospitals that are assuming debt are paying higher interest rates.

Intensive Care for Florida

Florida providers, payers, and regulators are working together to address these potentially catastrophic conditions. One remedy that was taken was the creation of a task force to address the lack of prompt payments of HMO claims. The task force was made up of representatives of the HMO, hospital, and physician sectors and the state's Department of Insurance and Agency for Health Care Administration. It held several meetings to identify the issues and propose legislation to fix the problems. About 20 recommendations are expected to be made to the legislature.