Hopkins health system feels pinch


In today's dollar-driven world of health care, Johns Hopkins Health System faces challenges that go well beyond the issues raised by an ill-fated lawsuit against Prudential Insurance Co. of America and one of its former executives.

Johns Hopkins Hospital, the system flagship, is too expensive for many bargain-hunting health maintenance organizations that increasingly control the flow of patients to hospitals. And Hopkins' distinguished specialists, who can treat the rarest of diseases, are in less demand by HMOs that emphasize down-to-earth primary care.

If a lawsuit that ended Monday in a settlement requiring an embarrassing public apology by Hopkins had been successful, it would have returned to Hopkins a profitable HMO it sold to

Prudential in 1991. But that would not have cured the underlying cost problems that strike at the financial heart of Hopkins, the East Baltimore hospital that brings in nearly $400 million a year.

Although Hopkins officials say they are responding aggressively these issues, health industry executives and consultants say Hopkins must do more.

Hopkins faces an additional burden as a result of the lawsuit. The bitter legal contest antagonized Prudential, which continues be an important Hopkins business partner.

Whether brought on by the legal acrimony or not, Prudential has been penalizing Hopkins $250 a day since last summer for alleged shortcomings in medical record-keeping and other violations of their contract. Hopkins provides medical services to 70,000 Prudential subscribers at 18 sites.

The lawsuit also damaged Hopkins' reputation among some HMO companies. When Hopkins applied for special affiliate membership last year in the Maryland HMO Association, HMO executives say they rejected the application because of the litigation -- in particular Hopkins' allegations in the suit against Barbara B. Hill, a highly regarded former Hopkins and Prudential official. She is now president of an HMO subsidiary of Aetna Life Insurance Co. in Chicago.

In an interview this week, Hopkins officials said they were eager to put the lawsuit behind them and rebuild their relationship with Prudential. And, even though the lawsuit sought the return of the HMO, Hopkins officials now play down the significance of owning one.

They said it was more important for their hospitals and doctors to master the techniques of managing care -- providing high quality medicine at the lowest possible price.

"You don't have to be an HMO to manage care," said Joanne E. Pollak, vice president and general counsel of the Johns Hopkins Health System. "Managing care means being efficient and being able to offer a provider product in a very efficient way that will be attractive to insurance companies, HMOs and the state," she said.

"And we think Hopkins is going to be able to be one of the leaders in the management of care and that that's going to be an asset that all payers," such as HMOs, "will be interested in as we look down the next five or 10 years in health care," she said.

Hopkins officials say they're cutting costs, increasing their patients from other states and other nations, expanding outpatient treatment and entering into innovative arrangements with doctors, other hospitals and insurance companies.

Trying to attract patients

In the most ambitious, long-term program, Hopkins announced last fall it was undertaking a multiyear "re-engineering" of its operations to improve the efficiency of the hospital and related -- medical facilities. In the meantime, Hopkins is moving in several directions to attract patients:

* Hopkins Hospital has signed contracts with 11 managed care companies -- HMOs and other insurers -- that send patients for services many other hospitals may not provide, or perform as well.

* The Johns Hopkins Oncology Center announced recently that it has teamed up with 12 other leading cancer facilities in the United States to "promote high-quality, cost-effective care."

* Hopkins Hospital has begun so-called package pricing of cardiac services and organ and bone marrow transplants. Under this system, approved by state regulators who set hospital rates, Hopkins can offer a fixed price that includes hospital and physician services, which appeals to managed care companies.

Hopkins officials are sensitive to complaints about the hospital's costs. Although the average cost of a stay at the hospital was $8,530 in 1994 -- nearly $3,000 greater than the statewide average -- Hopkins' figures reflect the high expense of often complex cases, the huge cost of providing charity care in its impoverished East Baltimore neighborhood and the costs of training doctors.

Hopkins officials say the cost of charity care should be more evenly shared among hospitals and outpatient surgical centers across Maryland, a step state regulators are considering.

It's not easy for Hopkins to reduce charges, noted Doug Sherlock, an independent HMO consultant. "The problem that all academic medical centers face is with fixed costs," he said. "If you carry the load of a teaching and research mission, those costs stay regardless of the volume of patients that are there."

Hopkins' reputation for quality and its role as a medical education center aren't enough to compete in today's market, said Michael Merson, vice chairman of the board of Helix Health System, a network of Baltimore-area hospitals.

"To justify obtaining managed care contracts, no matter who the provider is, you have to demonstrate the maximum value to the buyer, i.e., the managed care company," he said. "And why should they give any element of the provider community a reprieve from that mandate just because of name, status or their own mission?"

Jeff D. Emerson, chief executive of HealthPlus, a Greenbelt-based HMO, said Hopkins made a mistake in selling its HMO outright to Prudential in 1991 for $18 million. "At today's prices they sold very cheap," he said, estimating the HMO's value to be more than $100 million.

Mr. Emerson said Hopkins should consider following the example of Duke University Medical Center, another prominent academic medical center, which is starting an HMO in North Carolina in partnership with HealthPlus' parent company, New York Life.

Opportunity to profit

The co-ownership agreement gives both parties the opportunity to profit, while taking advantage of the expertise each can bring to the business, he said.

Hopkins is barred from doing this, for another six years, by its contract with Prudential.

Despite this, Hopkins' contract with Prudential remains one of the most important for both organizations. Both sides said the settlement was intended to improve the arrangement.

Still, Hopkins and Prudential offer conflicting views of the settlement, which spells out management changes on the Hopkins side and requires the appointment of an independent consultant to evaluate the services provided by each company.

Dr. James A. Block, president of the Hopkins Health System, said in a statement that the settlement provided "significant financial benefits," "access to management information which previously was unavailable to Hopkins" and "access to financial information which previously was unavailable."

But Ancelmo Lopes, president of the Prudential Health Care Plan of the Mid-Atlantic, said the settlement provided only one potential financial benefit for Hopkins, a change in a risk-sharing agreement that will permit the Health System to share in any profits resulting from superior management of medical costs.

The change in the agreement could involve as much as $2 million a year that the companies would share, Mr. Lopes said, adding, "It is not guaranteed."

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