USAble dominates HMO and PPO markets in Arkansas.

Blue Cross and Blue Shield Subsidiary Owns Largest Managed Care Firms

Arkansas Blue Cross and Blue Shield subsidiary USAble Corp. is the dominant player in the managed care market in Arkansas. USAble is an owner of the largest health maintenance organization in the state and the largest preferred provider organization.

HMO Partners Inc., which does business as Health Advantage, is the largest HMO with 51,000 members in only eight central Arkansas counties. HMO Partners, owned by USAble and Baptist Medical System HMO Inc., has almost twice the members of the second-largest HMO, Complete Health of Arkansas Inc.

HMO Partners was formed in September 1993 with the merger of the state's two largest HMOs, Baptist Medical System's Health Advantage and Blue Cross' HMO Arkansas Inc.

There are only six HMOs licensed to do business in Arkansas, according to information at the state Insurance Department. Two others have applications pending: QualChoice, which now operates as a not-for-profit PPO subsidiary of UAMS Medical Center, and PCA Health Plan of Florida.

The state's six HMOs range in size from Health Advantage at the top to HealthWise of Arkansas, which has operated in Arkansas for only seven months and has 3,000 members in 10 counties.

Getting a handle on the PPOs is not nearly so simple. Unlike HMOs, PPOs do not require the licensing of the Insurance Department or the Health Department.

There are at least 26 PPOs doing business in Arkansas, according to SMG Marketing Group Inc. That includes 16 of the more familiar PPO plans with owner or self-developed networks and 10 PPOs using rented networks.

The largest PPO is Arkansas' FirstSource, also owned by USAble Corp. FirstSource covers 245,000 people in Arkansas. That is about 2 1/2 times larger than HealthSource Arkansas, the second-largest PPO with coverage for 108,000 people.

For the PPOs, those numbers don't necessarily represent only covered employees working for businesses insured by the PPO. Often the number of members are multiplied by 2 or 2.5 to include others in the employee's family.

HMO, PPO Differences

According to Norine Yukon, executive director of The Prudential Healthcare Plans of Arkansas, the distinction between an HMO and a PPO is that an HMO requires the use of a primary care gatekeeper who refers patients to one of the network's specialists. A PPO also has a network of physicians but no primary care gatekeeper. The PPO also offers members the use of out-of-network doctors by paying a higher deductible and co-insurance rate.

A third plan is known as point of service. A POS works like a cross between an HMO and a PPO: If you remain in-network, you work through a primary care physician who refers patients to specialists; if you go out-of-network, you pay the higher deductible and co-insurance rate.

Prudential has a POS plan in Arkansas with 36,000 members, Yukon says.

Almost every HMO and PPO executive interviewed termed Arkansas' competition "fierce."

"I'd classify central Arkansas over the next two years as a buyer's market for health care," says Nick Reiland III, chief executive officer of Health Advantage. "There is so much competition right now. Everybody is needing certain volume to remain a player in Arkansas.

"Also there are some efficiencies that are coming out. You'll see that in areas where HMOs start to get a critical mass, costs are, in reality, being driven down."

Jim Denman, CEO of Health Wise of Arkansas, agrees that the central Arkansas market is becoming very price-sensitive.

"The employers and the employees and those that pay the bills are benefiting," says Denman, who adds that HealthWise hopes to have 12,000 members by year's end with operations in Fort Smith, northwest Arkansas and northeast Arkansas.

Rob Herndon, CEO of Complete Health, says that several years ago managed care was only viable in Little Rock.

"Now we've moved out into some rural areas in Arkansas," Herndon says. "And there are still some areas in Arkansas that are untouched by managed care, but we're moving into those areas and having some good talks with physicians and employer groups."

$70 Million Business

Health Advantage's 13 hospital affiliations include Baptist Medical System's four hospitals, Conway Regional Medical Center, Saline County Memorial Hospital, Rebsamen Regional Medical Center and White County Memorial Hospital.

Health Advantage did $35.1 million in revenues in 1993. Reiland estimates the HMO had $53.3 million in revenues last year. He forecasts sales of about $70 million this year.

Health Advantage has a goal to remain the largest HMO in Arkansas, Reiland says, adding that it wants eventually to cover the state. In the future, Health Advantage - now sold mainly to employer groups - will be offered to individuals, Medicare beneficiaries and "every segment of the Arkansas population," Reiland says.

Health Advantage concentrates on selecting the right physician and hospital partners, Reiland says.

"Once we've picked the ones we believe are the best in an area, we approach them, and if they are interested, we take the time to begin meaningful contract discussions," Reiland says.

Health Advantage tries to reach agreement on expected volume levels, risk-sharing arrangements and the proper credentialing of the providers. Reiland says Health Advantage investigates physicians' educational and malpractice backgrounds, following rigorous National Committee of Quality Assurance standards, before signing up doctors.

Reiland expects possibly three primary HMOs will still be standing in Arkansas after the competitive smoke clears: one connected to the Baptist Medical System organization statewide, one associated with UAMS' network of hospitals and one grouped with St. Vincent Infirmary Medical Center's statewide network.

He was asked about an HMO connected with Columbia Doctors Hospital withstanding the competition. That hospital's owner, Columbia Health Systems, has indicated a goal of owning at least 25 percent of the hospitals in the state.

"It sounds like a good game plan, but I haven't seen it be able to be executed," Reiland says. "Time will tell."

RELATED ARTICLE: HMO Executives Oppose Any-Willing-Provider Bill

Most executives of Arkansas' health maintenance organizations and preferred provider organizations are concerned about the Patient Protection Act, also known as the any-willing-provider bill, before the state Legislature.

"I don't quite see the need for any-willing-provider," says Jim Denman, chief executive officer of HealthWise of Arkansas. "There is already a very competitive environment. Employees and employers have choices among a multitude of HMOs and managed care plans. They can keep their indemnity plans and have total freedom of choice.

"But if it passes, we'll certainly continue to thrive in that environment as we are in the current environment."

Nick Reiland III, CEO of Health Advantage, says the Patient Protection Act is misnamed.

"I really think it's the Provider Protection Act," Reiland says. "It really will drive up the cost of health care unnecessarily. I think medium- and small-business owners are going to get killed if it passes.

"I find it ironic that several years ago it was very difficult to sign any doctor up into an HMO. Now a few years later, they are petitioning that they have a right to get into any HMO. They see what's happening. They see that the buyers like good quality health care at lower prices."

He points out that there are no similar laws for "any-willing-attorney" or "any-willing-engineer."

"Do you want just anybody building your airplane?" Reiland asks. "We have standards and these companies that we rely on to do certain things, we trust that they know how to select. Why do physicians and hospitals get exempted from this?"

HMOs insure for about 4-5 percent of Arkansas.

"Why are we legislating something around 5 percent of the population?" Reiland asks.

Both Denman and Reiland indicate there is a good chance the bill will pass. Florida's Legislature passed a similar law two years ago.