January 2008

Grant Results

National Program

Changes in Health Care Financing and Organization

SUMMARY

In this 2002 to 2005 project, James C. Robinson, Ph.D., M.P.H., and researchers at the University of California, Berkeley, School of Public Health, analyzed the role of financial capital, capital investment strategy and market dynamics in the consolidation of the health insurance and hospital industries. Their work included a case study about the strategy that enabled Catholic Healthcare West, a 40-hospital chain, to reorganize and reverse major financial losses, while preserving its charitable mission.

This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO) (for more information see Grant Results). HCFO supports policy analysis, research, evaluation and demonstration projects that provide public and private decision leaders with usable and timely information on health care policy and financing issues.

Key Findings
The researchers reported the following findings in the Findings Brief.

  • Catholic Healthcare West's capital investment strategy, focused on selective diversification, improved its operating performance significantly.
  • Four core competencies enabled Catholic Healthcare West's strategy to succeed:
    • Having the ability to evaluate existing and potential markets.
    • Understanding the best way to deploy internal capabilities.
    • Having the necessary financial resources to take advantage of new opportunities.
    • Having the discipline to exit underperforming markets and services.
  • In regaining financial stability, Catholic Healthcare West's determination to preserve its social mission was as important as its market strategy.

Funding
RWJF provided a $148,971 grant for the project from 2002 to 2005.

 See Grant Detail & Contact Information
 Back to the Table of Contents


THE PROJECT

Consolidation of the hospital industry through mergers and acquisitions from 1996 to 2006 led to rapid growth of large health care systems based in multiple regions and states. Catholic Healthcare West, a nonprofit 40-hospital chain in Arizona, California and Nevada, over-expanded and entered markets where it had no advantage, moving from an operating gain of $26 million in 1996 to a loss of more than $300 million in both 1999 and 2000.

Researchers from the University of California, Berkeley, School of Public Health, under the leadership of James C. Robinson, Ph.D., M.P.H., conducted a case study on the way in which Catholic Healthcare West was able to reorganize and reverse these losses, while preserving its charitable mission. They explored how the hospital system's capital investment strategy incorporated performance and growth markets, along with charitable activities and the economic and health-related needs of the communities in which it operated.

In addition to the Findings Brief, the researchers published an article in Health Affairs and a book chapter related to this case study. (See the Bibliography for details.)

Other Analyses

As part of the project, the researchers conducted three other analyses related to the consolidation of the health insurance and hospital industries:

  • Insurance: From Local Focus and Vertical Integration to National Focus and Horizontal Expansion. This analysis covered the evolution of health plan network design and benefit design and the shift from physician to patient focus in medical management programs. The researchers studied Aetna, Blue Shield of California, Empire Blue Cross Blue Shield, Highmark Blue Cross Blue Shield, United Healthcare and Wellpoint.
  • For-Profit Conversion and Attempted Conversion of Blue Cross Blue Shield Plans. During the consolidation in the health insurance industry, many Blue Cross and Blue Shield plans converted or attempted to convert from nonprofit to for-profit ownership. This study covered the successful conversion of Empire Blue Cross Blue Shield in New York and the unsuccessful attempt at conversion of CareFirst Blue Cross Blue Shield in Maryland.
  • Quantification and Interpretation of Consolidation in Health Insurance. Previous research on consolidation in the health insurance industry was hampered by the paucity of information on self-insured firms, whose employees are not included in state regulatory data. With data from the investment bank Goldman Sachs on people enrolled in self-insured and regular health insurance plans, the researchers were able to more accurately quantify and interpret health insurance industry consolidation by firm and state.

The researchers published eight articles on these analyses in Health Affairs and the Journal of the American Medical Association. See the Bibliography for details.

 Back to the Table of Contents


FINDINGS

HCFO staff reported the following findings from the case study in a Findings Brief (August 2006):

  • Catholic Healthcare West's capital investment strategy, focused on selective diversification, improved its operating performance significantly, resulting in an estimated capital capacity averaging $600 million annually from 2005 to 2009.
  • Four core competencies enabled Catholic Healthcare West's selective diversification strategy to succeed:
    • Having the ability to evaluate existing and potential markets.
    • Understanding the best way to deploy internal capabilities.
    • Having the necessary financial resources for new opportunities.
    • Having the discipline to exit underperforming markets and services.
  • In regaining financial stability, Catholic Healthcare West's determination to preserve its social mission was as important as its market strategy. To identify mission-related capital investment options, staff quantified the level of each facility's charitable contribution in relation to the economic and health-related needs of its community. Staff then weighed the score against each facility's financial prospects, which considered performance and market attractiveness.

    As a result of the new investment strategy, staff:
    • Reduced funding for weak facilities in low-growth markets from 35 percent of total investments between 2000 and 2004 to a predicted 27 percent for 2005 to 2009.
    • Increased funding for the most profitable facilities from 32 percent of total investment between 2000 and 2004 to a predicted 46 percent in 2005 to 2009.

 Back to the Table of Contents


GRANT DETAILS & CONTACT INFORMATION

Project

Research on Corporate Finance and Consolidation in Health Care

Grantee

University of California, Berkeley, School of Public Health (Berkeley,  CA)

  • Amount: $ 148,971
    Dates: September 2002 to August 2005
    ID#:  046649

Contact

James C. Robinson, Ph.D., M.P.H.
(510) 642-0564
james.robinson@berkeley.edu

Web Site

http://www.hcfo.net

 Back to the Table of Contents


BIBLIOGRAPHY

(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)

Book Chapters

Robinson JC. "Entrepreneurial Challenges to Integrated Health Care." In Policy Challenges in Modern Health Care. Mechanic D, Rogut L, Colby D, Knickman J (eds.). New Brunswick, NJ: Rutgers University Press, 2005.

Articles

Robinson JC. "Hospital Tiers in Health Insurance: Balancing Consumer Choice with Financial Incentives." Health Affairs, Web Exclusive, W135–146, March 19, 2003. Available online.

Robinson JC. "The Curious Conversion of Empire Blue Cross." Health Affairs, 22(4): 100–118, 2003. Available online.

Robinson JC. "From Managed Care to Consumer Health Insurance: The Fall and Rise of Aetna." Health Affairs, 23(2): 43–55, 2004. Available online.

Robinson JC and Yegian JM. "Medical Management After Managed Care." Health Affairs, Web Exclusive, W269–280, May 19, 2004. Available online.

Robinson JC. "For Profit Non-Conversion and Regulatory Firestorm at CareFirst BlueCross BlueShield." Health Affairs, 23(4): 68–83, 2004. Available online.

Robinson JC. "Consolidation and the Transformation of Competition in Health Insurance." Health Affairs, 23(6): 11–24, 2004. Available online.

Robinson JC. "Reinvention of Health Insurance in the Consumer Era." Journal of the American Medical Association, 291(15): 1880–1886, 2004. Abstract available online.

Robinson JC and Dratler S. "Corporate Structure and Capital Strategy at Catholic Healthcare West." Health Affairs, 25(1): 134–147, 2006. Available online.

 Back to the Table of Contents


Report prepared by: Barbara Matacera Barr
Reviewed by: Lori De Milto
Reviewed by: Molly McKaughan
Program Officer: Nancy L. Barrand

Most Requested