Published: 27 April 2000
Analyst(s): Jonathan Edwards
Management Summary Rochester continues to be a cooperative and self-enclosed healthcare market that has been praised for its low costs and high quality. However, sharp increases in HMO premiums and reductions in federal Medicare reimbursements are forcing change. As local healthcare players debate the future of Rochester's healthcare market, two trends are developing. The dominant HMO, Blue Cross and Blue Shield (BC/BS) of the Rochester Area, at the insistence of local employers, is taking a more active role in reducing medical costs at Rochester's hospitals. Also, Rochester's hospital-based integrated delivery systems (IDSs) are exploring potential alliances, which, if consummated, will engender rapid consolidation in the provider community. Thus far, no local healthcare organization has addressed the explosive rise in prescription drug costs, which, if unchecked, will threaten the financial viability of payers and providers alike. Cost pressures on Rochester's three IDSs have intensified due to the federal Balanced Budget Act. The six hospitals in the city of Rochester alone expect to lose $185 million in inpatient Medicare revenue between 1997 and 2002. These cost pressures are already having far-reaching consequences for the structure of care delivery in the region. o ViaHealth, with four hospitals and 34 percent of the region's hospital discharges, struggled financially in 1999 in the face of Medicare reimbursement cuts and increases in drug and technology costs. The IDS lost $21 million in 1998 (3.5 percent of revenue) and a similar amount in 1999, and it has laid off up to 200 employees during the past year. ViaHealth attributes part of its losses to poor information systems that hindered its ability to successfully manage risk contracts. In an indication of ViaHealth's problems, between December 1998 and July 1999, its CEO, COO and CFO all resigned. Observers note that ViaHealth has been slow to cut costs, has failed to develop an identity that...
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