Competition in Utah Health Care Markets Report to the Privately Owned Health Care Organization Task Force of the Utah Legislature May 5, 2006 Submitted by: with Washington, D.C. PREFACE This report is the product of more than five months of research and analysis. It relies on publicly available data provided by the Utah Department of Health’s Office of Health Care Statistics, Utah Department of Insurance, Utah Hospitals and Health Systems Association, Utah Medical Society, individual providers and payers, and others. In the case of the Department of Health Data, the Office of Health Care Statistics provided detailed payer-specific information that had not previously been made public. All of these payer-specific data were offered for verification to the facilities that had submitted the data to the Department of Health. The report also relies on information gathered in dozens of interviews of participants in Utah’s health care markets as well as with other interested parties. Interviews were conducted of each acute care hospital system, each of the major managed care payers, many ambulatory surgery centers, and numerous physicians and physician representatives. For many of these entities, several different individuals were interviewed at multiple times. These interviews solicited opinions and information on how markets operated, problems with markets’ functions, and suggestions on how to make improvements. All of the interviewees provided valuable insights, offered original data, verified publicly available data, and some offered perspectives from their own consultants’ analyses. Finally, the report relies on testimony and materials provided to the Task Force in its hearings. The Task Force minutes summarize the presentations of testifying parties and recordings of some hearings are available as well. The Task Force staff made available copies of all materials provided by testifying parties, which proved to be valuable sources of information. Special thanks are extended to Nimish Dixit and Jaclyn Cote for their assistance in assembling the data and exhibits. Submitted May 5, 2006. Economists Incorporated Ober/Kaler David A. Argue, Principal Investigator William E. Berlin Barry C. Harris John J. Miles Robert A. Kneuper Stephanie M. Mirrow John M. Gale i TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 1 TASK ............................................................................................................................................................. 3 FRAMEWORK FOR COMPETITIVE ANALYSIS................................................................................. 3 HOSPITAL AND AMBULATORY SURGERY SERVICE MARKETS................................................ 5 PRODUCT MARKETS FOR HOSPITAL AND AMBULATORY SURGERY SERVICES ............................................ 5 PROFILES OF MAJOR PROVIDER SYSTEMS .................................................................................................. 7 Intermountain Health Care .................................................................................................................... 7 IHC Wasatch Front Area Facilities...................................................................................................................8 IHC Washington County and Cache County Area Facilities.............................................................................9 IHC Rural Areas Facilities..............................................................................................................................10 IHC Facilities Planned or Under Construction...............................................................................................10 MountainStar....................................................................................................................................... 11 IASIS................................................................................................................................................... 12 University Health Care........................................................................................................................ 13 Other Acute Care Hospital Providers .................................................................................................. 13 Non-hospital Facilities ........................................................................................................................ 14 GEOGRAPHIC MARKETS FOR HOSPITAL AND AMBULATORY SURGERY SERVICES .................................... 15 Hospital and Ambulatory Surgery Center Proximity .......................................................................... 17 Service Area Overlaps......................................................................................................................... 17 Service Areas for Acute Care Inpatient Services.............................................................................................17 Service Areas for Normal Newborn Services...................................................................................................20 Service Areas for Ambulatory Surgery Services..............................................................................................21 Patient Origin Analyses....................................................................................................................... 23 Patient Origin for Acute Care Inpatient Services............................................................................................24 Patient Origin for Normal Newborn Services..................................................................................................25 Patient Origin for Ambulatory Surgery Services.............................................................................................26 HOSPITAL AND AMBULATORY SURGERY SERVICES MARKET STRUCTURE ............................................... 27 Inpatient Acute Care Services ............................................................................................................. 28 Normal Newborn Services .................................................................................................................. 29 Ambulatory Surgery Services.............................................................................................................. 30 Other Areas: Inpatient Acute Care/Normal Newborns/Ambulatory Surgery Services........................ 31 Unique Facilities and Services ............................................................................................................ 31 HEALTH CARE FINANCING MARKETS............................................................................................ 32 PRODUCT MARKETS FOR HEALTH CARE FINANCING SERVICES................................................................ 32 PROFILES OF MAJOR PAYERS.................................................................................................................... 33 SelectHealth (IHC) .............................................................................................................................. 34 Regence BlueCross BlueShield of Utah.............................................................................................. 35 Altius Health Plans.............................................................................................................................. 36 Public Employees Health Program...................................................................................................... 37 Other Commercial Payers.................................................................................................................... 38 ii GEOGRAPHIC MARKETS FOR HEALTH CARE FINANCING SERVICES.......................................................... 39 HEALTH PLAN PROVIDER NETWORKS ...................................................................................................... 40 HEALTH CARE FINANCING SERVICES MARKET STRUCTURE..................................................................... 44 VERTICAL INTEGRATION.................................................................................................................... 48 Perspectives on Vertical Integration in Health Care............................................................................ 49 Vertical Integration in Utah’s Health Care Markets............................................................................ 51 STEERING OF PATIENTS BY PAYERS............................................................................................... 54 IHC-Oriented Network........................................................................................................................ 55 Non-IHC-Oriented Network................................................................................................................ 56 Mixed Networks.................................................................................................................................. 56 CONTRACTING AND OTHER CONDUCT OF PROVIDERS AND PAYERS................................. 59 Exclusivity/Bundled Discounts ........................................................................................................... 59 Washington County .........................................................................................................................................62 Cache County ..................................................................................................................................................64