Minnesota's grand health care experiment goes awry
Eric Wieffering and Terry Fiedler
Sunday, July 22, 2001
Minnesota has been the site of a unique national experiment for most of the past 10 years, one built around the idea that when it comes to controlling health care costs, bigger is best.
Now that experiment -- in which a few nonprofit health care companies were allowed, even encouraged, to evolve into sprawling conglomerates -- has begun to unravel.
Four mega systems -- Allina, Blue Cross and Blue Shield, Fairview and HealthPartners -- insure 9 of every 10 Minnesotans, own or are investors in most of the state's major hospitals and clinics and wield market power unheard of elsewhere in the country. But health care costs are rising -- at an accelerating pace.
The cost of insuring a worker in Minnesota rose nearly twice as fast as the national average in 2000, according to a leading survey by Hewitt Associates. HMO premium increases in the state topped the national average for each of the past four years. The increases have pulled Minnesota health care costs, once well below the national average, even with national rates.
The bigger-is-better premise is under siege. Attorney General Mike Hatch has been the leading player on that front, pushing an aggressive investigation of Allina this year. Allina, the largest of the four systems, announced a plan to break up its operations Friday, and Hatch intends to also review the practices of the others. A growing number of health care executives, economists, employers and physicians also question the system, saying the wave of mergers that swept the state in the mid-1990s has resulted in higher costs and less competition.
"I think it would be hard to argue that things are working just fine," said David Wessner, chief executive officer of Park Nicollet Health Services in St. Louis Park, an independent hospital and physician group. "The cost increases in this market are staggering."
Meanwhile, executives at small, rival firms say the market clout held by the big four -- which includes control of the health plans, the hospitals and the doctors groups -- makes it nearly impossible to bring new competition and products to the market.
Lee Newcomer, chief medical officer of Vivius, a St. Louis Park-based health plan company, said there hasn't been a truly new health insurance offering in Minnesota since 1993. His company is preparing to introduce a product in 49 of 50 states; Minnesota is the lone exception. Vivius is not offering a Minnesota plan largely because it has been unable to get hospital contracts with the biggest health care companies.
"We would like to see more competition and more innovation," said Laurie Fenwick, manager of employee benefits for Minnesota Life Insurance and vice chairman of the Buyers Health Care Action Group, an organization made up of some of Minnesota's largest companies, including Target and Cargill. The attitude of the state's large health systems is "this is how we do business and how we will continue to do business," Fenwick said.
Allina won't comment
Allina declined to comment for this story. Senior executives at Fairview, HealthPartners, and Blue Cross and Blue Shield of Minnesota -- a unit of Aware Integrated -- offered qualified criticism of the market situation, but disputed any suggestion that Minnesota's health care system is broken.
"Consolidation was meant to contain cost," said David Page, chief executive of Fairview. "In some part, that has been unrealized."
Richard Neuner, vice president and chief marketing officer at Blue Cross, said state mandates and higher labor costs are behind the recent premium increases, as well as national price trends.
George Halvorson, CEO of HealthPartners, blamed rising premiums on higher prices charged by hospitals and specialists. Increasing the number of insurers wouldn't bring lower prices, he said, because they wouldn't have as much leverage in negotiations with hospitals and doctors.
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