A long, narrow county on central Florida's Space Coast, Brevard is an unlikely theater for a hospital civil war. Five hospitals are spread more or less evenly along the county, which means geography often dictates the choice of facility for Brevard's roughly 450,000 residents. With usually only one hospital within easy driving distance, hospitals didn't much have to compete for patients.
Until recently, the lack of overlapping coverage areas also meant HMOs didn't have leverage to wangle the deep discounts for medical services they'd come to expect elsewhere around the state. Less than three years ago, only 13% of Brevard residents belonged to a managed care plan, and today's 27% figure still lags well behind the 40%-plus rates in larger, urban counties like Broward.
The inroads by the HMOs have caused all sorts of friction between a three-hospital network and a smaller independent hospital, including an antitrust lawsuit that may be the state's first between competing hospitals. The animosity that's resulted from the whole affair permeates virtually every corner of the county's business, political and medical communities. "We feel like children in a divorce," says Lee Bohlmann, president, Melbourne/Palm Bay Area Chamber of Commerce.
It all started with Health First. In the early '90s, directors of Holmes Regional Medical Center in Melbourne, Brevard's largest hospital, saw the consolidation taking place nationwide among hospitals, doctors and insurers and decided Holmes needed partners to realize economies of scale and compete effectively for managed care contracts. The Holmes executives began drawing up the blueprint for a comprehensive, countywide healthcare provider network, to be called Health First. Now nearly 4 years old, Health First is by most measures a success: It runs three of Brevard's five hospitals, operates a variety of outpatient centers, a network of physicians and its own HMO. Health First's 1997 revenues topped $302 million.
Bob Carman would say Health First has been too successful. Carman is CEO of Wuesthoff Health Systems in Rockledge, which owns and operates Brevard's second largest hospital. Wuesthoff's directors greeted the coming of managed care more cautiously. They knew they would have to make changes, but becoming an owner of an HMO or a cluster of physician practices seemed too aggressive, too faddish. When Holmes asked Wuesthoff to join Health First, Wuesthoff said thanks, but no thanks. But when the hospital closest to Wuesthoff, Cape Canaveral Hospital, joined Health First, Carman saw disaster: He feared that Health First, which controls the only hospitals in south Brevard, the economic heart of the county, could force insurers to do business with Cape Canaveral Hospital -- and not Wuesthoff -- by refusing to give meaningful discounts to any insurer that didn't play along.
And that, he says, is exactly what happened. Carman claims Health First's "monopoly" is costing Wuesthoff at least $10 million a year in lost contracts. But the problem, he says, hurts others as well as Wuesthoff. Carman believes, along with many large employers and insurers, that businesses, particularly those in south Brevard, are paying higher insurance premiums because Health First controls both of the area's hospitals and many of its doctors. Health First "is trying to dictate what happens in healthcare in Brevard County," Carman says. "Someone has to take a stand. We have."
Have they ever. In a move that's rare for the industry, Wuesthoff has filed an antitrust lawsuit against Health First, claiming the healthcare network amounts to an illegal monopoly. Among other charges, Wuesthoff claims that Health First threatens to revoke admitting privileges of doctors who refer less than 51% of their patients to Health First hospitals and bullies physician networks into becoming exclusive Health First providers by threatening to create new, competing networks that would undercut prices and drive them out of business.
Healthy competition?
Perhaps more significant, Wuesthoff has asked -- and received -- state permission to build a new hospital in south Brevard to compete with Health First's Holmes Regional Medical Center. Wuesthoff's proposed hospital would contain just 50 beds, compared to Holmes Regional's 468, but it would give south Brevard employers -- for the first time -- two healthcare systems to choose from and to negotiate with. Health First has appealed the state's approval; hearings begin next month before a state administrative law judge, but with appeals of any ruling likely, resolution appears far off.
Wuesthoff didn't stop there. It went to court to challenge Health First's takeover of Cape Canaveral Hospital and, after the judge tossed out the suit on the grounds that Wuesthoff didn't have standing, Wuesthoff paid for two local citizens to re-file the same suit. (That one got tossed out, too.) Wuesthoff also has run newspaper ads alleging wrongdoing by Health First in contract negotiations with managed care giant Cigna HealthCare. Complains Health First CEO Mike Means about Wuesthoff, "Their behavior is totally embarrassing to the industry."
According to Means, Wuesthoff's assault on Health First is more about protecting Wuesthoff from competition than engendering it. Means argues that it's completely appropriate to offer steeper discounts to insurers who promise more patients -- that, he says, is the bedrock principle of managed care. It's then up to the insurer, or the employer buying the insurance, to decide whether price or choice is more important.
Wuesthoff, says Means, would like to be in on every contract that Health First negotiates, but it's not that easy. A hospital can discount its prices only to the extent that an insurer can assure a certain volume of patients, so to include Wuesthoff just because it agrees to accept the same rates would undercut the assumptions on which the discounts are predicated, Means says.
He also denies that Health First has bullied or threatened doctors in any way, citing Health First's difficulty persuading doctors to sign up for the HMO it created in December 1995. "We were out looking for dates and getting turned down at every bar stool," he says. Health First has defended itself aggressively in court and in letters to community leaders, but the stress of prolonged combat shows in Means' voice. "It's almost a weekly occurrence to see what comes out next."
Last summer, the war between the two health systems spilled into the political arena when the School Board of Brevard County chose Cigna to provide health insurance to its 7,300 employees. At an August meeting, board members learned that the Cigna proposal recommended by an insurance committee included all Brevard hospitals except -- surprise -- Wuesthoff. The exclusion of Wuesthoff meant that 18% of school board employees lived farther than 15 miles from a hospital, a fact that troubled most school board members.
It turned out that Health First had been discounting prices 10% to 15% in Cigna contracts that included Wuesthoff, but offering cuts of 30% and higher for non-Wuesthoff agreements. In a huge contract like the school board's, that difference amounted to millions. The school board ultimately voted to accept the Cigna contract without Wuesthoff, but school board member Paula Viebl was not a happy camper. "If we continue as large employers to allow this to happen, eventually Wuesthoff will not be here any more and will no longer be a threat, and then our rates will skyrocket because then there is no competition," Viebl said.
Means counters, again, that there's nothing evil about offering higher discounts for more volume. After Wuesthoff placed an ad in Florida Today decrying the Cigna situation and went to court to block its exclusion from the Cigna contract, Means took his case to Brevard community leaders in a letter: "Health First never demanded Cigna to exclude Wuesthoff from its provider network. We offered Cigna several pricing options, including an option for an open network. All over the country, people are electing to limit provider networks in return for lower healthcare premiums." A federal judge refused to block the Wuesthoff-less school contract.
Making sense of it
Community leaders, for their part, aren't quite sure what to make of the whole thing. Bohlmann, the local chamber of commerce president, says both Wuesthoff and Health First are well-regarded hospitals and so business owners don't want to take sides. "It's not like you're dealing with a good guy and a bad guy. Then it would be easy," Bohlmann says. "We hear one side and say, 'Oh, that really makes sense,' but then we hear the other side, and that makes sense, too."
When it comes to the specific issue of allowing Wuesthoff to build its second hospital in south Brevard, however, many businesses have sided with Wuesthoff. A human resources vice president for Harris Corp., which employs thousands in south Brevard, writes in support of Wuesthoff's hospital bid that "despite Harris' success with managed care, our local hospital inpatient and outpatient expenditures have continued to rise faster than the rate of inflation" and that the introduction of competition into the area would lower Harris' healthcare costs.
Becky Cherney, CEO of a health coalition representing 128 mostly large central Florida employers, says that many coalition members struggle in Brevard because there is no competition. Although most employers typically oppose new hospitals because the duplication of services and expensive medical equipment is believed to increase healthcare costs, in this case Cherney believes the resulting competition on price and quality of services will benefit employers in the long run. But like most in the Brevard community, she wants the Wuesthoff/Health First war to end. "If (only) we could (apply to indigent healthcare) the dollars both parties have spent on attorneys," she sighs. "We just feel the need to have something change."