Health Care's '98 Building Coming to '99 Fruition

The chief executive officer of one of Arkansas' leading contracting companies, which does a substantial amount of work in the health care sector, pondered a trend this summer.

"You hear a lot about the rise in health care costs and hospitals having to cut back on spending and all that," Dan Nabholz of Conway-based Nabholz Construction Corp. said. "But I don't know if I've ever seen the amount of construction going on in health care at one time than what I'm seeing now."

No doubt, 1998 can be deemed the year of health care construction in Arkansas. Health care-related products in various stages of development topped $350 million in construction costs.

Many are still far from finished as we roll into 1999. But before next year is up, most of those projects will result in 1999 being the year of the health care grand opening.

The most-talked-about project is Baptist Health's new hospital in the Springhill area of North Little Rock. The $53 million project has been in the works for years, construction started two years ago and a fall 1999 opening is planned. A 20,000-SF doctors clinic nearby is also under construction.

The Baptist project is directly leading to a number of non-health care-related developments, including hotels and restaurants in that Springhill area. South of Interstate 40, a stadium-seating movie theater could be built in Dark Hollow - presumably drawing families and even ambulatory patients from the new hospital, if not other Pulaski County residents. OK, we're being funny.

But residual effects from Baptist's Springhill project are being felt all over, particularly up U.S. Highway 67-167, where St. Vincent Health System in 1998 announced plans to expand its ambulatory St. Vincent-North campus at Sherwood into a complete medical center development.

The University of Arkansas for Medical Sciences, which jump-started the run of construction in the past several years while other providers tried to decide where they were headed, embarked in 1998 on its $18 million Donald W. Reynolds Center for Aging, which could open late next year or in early 2000.

Work on numerous other clinics - for example, the Ortho Arkansas development that will house four orthopedics firms and an outpatient surgery wing under one roof - began springing up throughout Pulaski County.

Furthermore, health care projects got under way in earnest across the north Arkansas corridor from Benton and Washington counties all the way to the northeast corner and covering Harrison, Mountain Home and Berryville in between.

Will there be enough business to make these projects worthwhile? You won't find any health care execs who say no. Much of the construction is being driven by technological advances in the field, and many of the projects are more ambulatory in nature. But, without question, hospital groups are fighting for market share and have identified needs where care is lacking. Hence, in Pulaski County, the move of Baptist and St. Vincent to the northeast corridor of the county.

Fighting for HMO Share

Officials at American Health Care Providers, based in Illinois, claimed that central Arkansas and the Fort Smith area were both overserved by physicians and providers. That, they said, figured into their decision to no longer offer their American HMO product in Arkansas.

But that hardly started an exodus of smaller health maintenance organizations plans from the state. In fact, several more sought licensing, including HealthLink, a product of the Missouri Blue Cross and Blue Shield, bringing to eight the number of (non-dental) HMOs in Arkansas. HealthLink by last spring had already lined up 35 Arkansas hospitals and 1,580 doctors in its network, which started as a PPO serving companies with Missouri ties but was to be expanded into a complete managed care offering.

Three HMOs showed steady growth during 1998. The leader in market share remained Health Advantage, the offering co-owned by Arkansas Blue Cross and Blue Shield and Baptist Health. Health Advantage had 53 percent of the state's total HMO premiums in 1997 (1998 figures won't be available until 1999).

United Healthcare of Arkansas Inc., with a total HMO enrollment of 47,000 and more than 130,000 in all of its plans by mid-year, remained the most profitable HMO. Two years ago, it was the only profitable HMO in Arkansas.

Health Advantage turned the corner of profitability in late 1997 after several quarters of losses. And QualChoice of Arkansas Inc., a late comer to the table, began to show signs of growth, particularly after it landed the Arkansas State and Public School Employees Insurance contract with its point-of-service plan and offered the lowest-priced HMO among all bidders. That helped bolster QualChoice's rolls somewhat from a meager 3,000 or so in 1997. Health Advantage HMO, which had previously held the contract, still maintained a large percentage (72 percent) of teachers during the 1998 enrollment period.

Cigna/Healthsource Inc. and St. Vincent Health System, which owned 30 percent of the health care plan, decided to part ways as 1998 began, opening the door for St. Vincent to work with multiple HMO-POS plans such as QualChoice, into which St. Vincent partner Tenet Healthcare Corp. bought during 1997. It also removed Cigna's limits on working with other providers. The company continued to battle for market share in third place among HMO enrollees and fourth among profitability, according to Arkansas Insurance Department figures at mid-year.

Prudential Health Plans of Arkansas Inc. stood fifth but was helped in late 1998 when its national parent was purchased by Aetna Insurance Co. That should keep the company among the players in Arkansas for some time. Prudential's Arkansas presence appeared to be dwindling as the company had shifted most of its member services to Houston. Its HMO had 17,000 enrollees, about the same as American HMO, when it picked up stakes.

With about 25 percent of the state's population enrolled in HMOs and at little more than 50 percent enrolled in managed care plans, according to industry observers, the market still has enough share left to be captured and for the smaller companies to make a dent, American HMO's contentions notwithstanding.

David Ott, HealthLink's president and chief executive officer, said his company was attracted to Arkansas by the low market penetration of managed care. "There's competition now, but not the same level that we see in Missouri, Indiana, or particularly, Illinois. It's an area where the population is growing both in terms of retirees and baby boomers moving into Arkansas."

Hospital officials didn't buy into American's cited problems for its failures in Arkansas.

"American HMO bumped into a real strong business reality called going in there and under-pricing the product on the market and then expecting other businesses called doctors and hospitals to do stupid things like they did and price their products low," said Randall Fale, CEO of St. Joseph's Regional Health Center in Hot Springs. "Nobody would participate in that process and they were left holding the losses. There was a lot of whining for dumb decisions."

But panel tightening continued with some managed care plans. St. Joseph signed an exclusive deal with Blue Cross and Health Advantage, and Blue Cross also decided to lock out the Arkansas Heart Hospital and a cardiology clinic at mid-year, causing that facility to go on a public relations campaign to blast Blue Cross and bring the problem to light.

Northwest Developments

Northwest Arkansas' big health care news was the sale of Northwest Health System to Quorum Health Group Inc. The true impact of the deal, though, won't be felt until 1999.

Northwest, which included Northwest Medical Center in Springdale and Bates Medical Center in Bentonville, was struggling financially in an increasingly competitive market. Unlike the region's other two major hospitals, St. Mary's Hospital in Rogers and Washington Regional Medical Center in Fayetteville, Northwest had no outside source to help finance capital improvement projects.

St. Mary's is part of the St. Louis-based Sisters of Mercy system, a multibillion-dollar organization, and the hospital has entered into some joint venture agreements with Washington Regional.

The sale to Quorum is expected to give Northwest additional financial backing. Already, Quorum has promised to build a new hospital in Bentonville to replace the structure occupied by Bates Medical Center.

Bates is scheduled next month to open a new maternity ward, a service discontinued 15 years ago by the hospital. At Northwest, a new neonatal nursery for critically ill infants opened in November and the region's first neonatologist, Dr. Bruce Pichoff, joined the hospital's staff. Meanwhile, Fayetteville's Washington Regional Health System announced two major construction projects for 1999: a $10 million women and children's center and a $4 million assisted living center.

Other Health Care Happenings

Columbia/HCA Healthcare Corp. left Little Rock in early 1998 when its deal closed to sell Doctors Hospital to St. Vincent. In early '97, the company began a full-scale plan to establish a presence in central Arkansas with smaller satellite hospitals, but it all fell apart when the company underwent a federal fraud investigation and its chief shareholder took over leadership of the company.

Columbia's remaining holdings in Arkansas - hospitals in El Dorado (where it has a 50-50 arrangement with Medical Center of South Arkansas), Hope and De Queen - will be spun off into a separate, publicly traded company in the coming weeks. The new, 43-hospital company will be known as Triad Hospitals Inc.

Columbia at one time had its sights set on Southwest Hospital in Little Rock, until all the plans fell through. Health management Associates saved the day for Southwest, and the hospital began turning the corner in 1998, bringing back its women's specialty unit.