Charlotte 2012 Market Overview

Published March 2012 n Copyright © 2012HealthLeaders-InterStudy, A Decision Resources Group Company n Copyright Strictly Enforced

OVERVIEW

OVER

VIEW

2012

Charlotte2012 Issue

2Copyright © 2012 | HealthLeaders-InterStudy | Charlotte Market Overview | Published March 2012

Contents

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CHARLOTTE MARKET OVERVIEW

3 Updates: Key Market Events4 Executive Summary 5 Charlotte Market 9 Health Systems & Hospitals 24 Physicians 31 Health Plans

39 Medicaid/Medicare/Uninsured 42 Pharmacy 44 Legislation 46 Employers 49 Demographics & Statistics 50 HealthLeaders-InterStudy

Charlotte Counties Covered:Anson, Cabarrus, Gaston, Mecklenburg, and Union in North Carolina; York in South Carolina

Key Cities Covered:Charlotte, Concord, Gastonia, Monroe, and Wadesboro in North Carolina; Rock Hill in South Carolina

Population:1,758,038

Analysis For Charlotte Healthcare Market

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Copyright © 2012 | HealthLeaders-InterStudy | Charlotte Market Overview | Published March 2012 3

CHARLOTTE BACK TO CONTENTS

Updates: Key Market EventsMarch 2012 – HealthLeaders-InterStudy publishes annual Market Overview for Charlotte

The annual report provides data and analysis of several sectors of the Charlotte healthcare market, includ-ing hospitals and health systems, physicians, health plans, Medicaid, Medicare, the uninsured, pharmacy, legislation, and employers.

The market’s largest health system, Carolinas HealthCare, won the bid to build a hospital in Fort Mill, S.C., in a reversal of an earlier decision in which the state agency chose Piedmont Medical Center. The seven-year certificate-of-need battle is now headed back to court, but will likely remain a win for CHS, which will expand its market share in the region.

Meanwhile, CaroMont Health is piloting bundled payments for knee replacements with Blue Cross and Blue Shield of North Carolina in what it says is an effort to lay the framework for an accountable care organization.

Managed care organizations targeted small employers with new products that offer multiple plan choices, such as UnitedHealthcare’s Multi-Choice, which was one of the first of these products to debut. We expect MCOs to eventually launch tiered networks that incentivize employees to use high-quality, low-cost provid-ers, giving employers more options for cost savings. Large employers are also enrolling employees in a medical home program that the state has used with its Medicare beneficiaries, which has resulted in cost savings.

Upd

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Executive Summary Market Outlook

No U.S. healthcare market with a population over 1 million has a health system controlling as much market share as Carolinas HealthCare System does in Charlotte. For its size, Charlotte is truly unique in its consolidation. While this is a strength for the health systems sector, it is a concern for employer coalitions that worry that the market is one major acquisition away from little competition. With two health systems controlling all but two hospitals, the concern is a prudent one. Population-based coordi-nated care models could be the market’s key to restraining inflating healthcare costs, but the two largest systems in the market are not yet moving in that direction. Blue Cross and Blue Shield of North Carolina intends to replicate a coordinated care model that its currently piloting in Raleigh if it is successful, and the insurer is testing bundled payments at CaroMont Health’s one hospital in the market. While other North Carolina markets are predicting increased consolidation, the Charlotte market cannot really get much more consolidated. Expect CHS and Novant Health to expand their footprints outside the market, and eventually dip their toes into some sort of population-based coordinated care models that both have the market share in Charlotte to launch.

Highlights:

» South Carolina’s certificate of need agency reversed an earlier decision in 2011, choosing Carolinas HealthCare System to build a new hospital in Fort Mill, S.C., instead of Piedmont Medical Center, which had won the bid in 2006. The issue is back in court, with both Piedmont and Novant Health appealing, but insiders say this time the issue may be settled within a year.

» Both CHS and Novant Health’s Presbyterian Healthcare bought physician practices in 2011. As a reaction, some small specialty practices are merging to gain leverage for insurance negotiations but remaining otherwise independent.

» A budget shortfall in 2011 led to a 9 percent Medicaid reimbursement reduction for hospitals. Law-makers had proposed cutting physician reimbursement rates, but hospitals lobbied to absorb the reduction rather than have physician rates cut further. Hospitals were concerned that further cuts to physician reimbursements would mean more medical practices closing their doors to Medicaid ben-eficiaries, resulting in those patients seeking treatment at hospital emergency rooms.

» Insurers are targeting small employers with new products that give employers more choice, such as UnitedHealthcare’s Multi-Choice product, which debuted in summer 2011. We expect insurers to innovate products that offer more tiered networks to incentivize patients to see providers deemed higher quality and lower cost. Consumer-directed health plans have grown so large in the market so as to have almost become common; employees are choosing this lower-cost option more than ever before.

» Blue Cross and Blue Shield of North Carolina and Allscripts are investing $23 million to pay for EMR systems for physicians and free clinics. Raleigh-based Kerr Health is incorporating technology that allows physicians to track how well patients adhere to their drug regimens..

» Large employers in Charlotte, such as SAS Institute, are signing up to use a medical home network that has saved millions of dollars for the state’s Medicaid program by coordinating care. Employers hope to reap similar cost savings.



Charlotte Market Market Indicators

Table 3-1: Market Stage: Consolidated* Market

» Moderate consolidation/integration of physician groups

» High consolidation/integration of health systems/hospitals

» Moderate use of disease management, utilization management

» Health plans have implemented a number of cost/quality controls for physicians/hospitals

» PPO benefit option prevails*For definitions of other market stages, see the Market Overview Product Manual.

Source: HealthLeaders-InterStudy, 2012.

Table 3-2: Situation Analysis by SegmentO Health Systems and Hospitals Neutral for health systems and hospitals. Look for steady patient volumes and stable earnings.

O Physicians Neutral for physicians. Look for earnings to remain stable.

O Health Plans Neutral for health plans. Look for stable health plan enrollments and/or profitability.

O Pharmacy Neutral for pharmaceutical sales. Expect unchanged PMPM costs for health plans and/or overall stability in the use of branded drugs.

O Employers Neutral for employers. Expect stable healthcare premium increases, with no change in efforts at healthcare cost containment.

Table 3-3: Market Consolidation

Hospital segment Physician segment

Health plan segment

High: 2 or 3 organizations control about 80% of the market. »

Moderate: 4 or 5 organizations control about 70% of the market. » »

Low: More than 5 organizations control about 70% of the market.



Leading Organizations Table 3-5: Health Systems/HospitalsName Total # of Hospitals Total # of Beds Market Share*

Carolinas HealthCare System 9 2,069 54%

Presbyterian Healthcare 5 763 27%

CaroMont Health 1 370 12%*Based on inpatient discharges.


Table 3-6: Physician OrganizationsName Total # of Physicians

Physician Services Group 1,237

Novant Medical Group 541

CaroMont Medical Group <200Source: HealthLeaders-InterStudy, 2012.

Table 3-7: Major EmployersName # of Employees

Carolinas HealthCare System 27,432*

Wells Fargo & Co. 16,017*

Charlotte-Mecklenburg Schools 13,070

Bank of America Corp. 10,825

Duke Energy Corp. 10,618

Presbyterian Healthcare 9,000*

City of Charlotte 9,405

Lowe’s 7,800*

Carlisle Companies Inc. 7,543

Ruddick Corp. 7,122

Wal-Mart Stores Inc. 6,831*Charlotte Observer Sept. 2011. Sources: HealthLeaders-InterStudy, 2012; January 2011 Employer Vantage.

Table 3-8: Pharmacy ChainsName

BI-LO, Bloom Pharmacy, Costco, CVS/pharmacy, Harris Teeter, Kerr Drug, Kmart, Rite Aid, Sam’s Club, Target, The Medicine Shoppe, Walgreens, Wal-MartSource: HealthLeaders-InterStudy, 2012.



Health Plans

Table 3-10: Total Enrollment*Plan Enrollment Market Share

Blue Cross and Blue Shield of North Carolina 227,872 26%

UnitedHealth Group 163,861 19%

Aetna 136,997 16%

*All HMO, PPO, POS, indemnity, Medicaid, and Medicare products.

Source: HealthLeaders-InterStudy, as of July 1, 2011.

Table 3-11: HMOs*Plan Enrollment Market Share


WellPoint 9,023 15%

Aetna 8,924 15%

*All HMO products, including Medicaid and Medicare.


Table 3-12: PPOs*Plan Enrollment Market Share

Blue Cross and Blue Shield of North Carolina 217,159 41%

Aetna 123,977 23%

WellPoint 52,278 10%

*Includes fully and self-insured commercial and Medicare PPO.




Table 3-13: POS*Plan Enrollment Market Share


Cigna 96,944 37%

Coventry 25,410 10%

*Includes fully and self-insured point-of-service plans.


Table 3-14: MCO-Managed MedicaidPlan Enrollment Market Share

Centene Corp. 8,138 54%

Blue Cross and Blue Shield of South Carolina 2,961 20%

AmeriHealth Mercy 2,041 14%Source: HealthLeaders-InterStudy, as of July 1, 2011. Data include Title 19, CHIP, and complex-care plans.

Table 3-15: MCO-Managed MedicarePlan Enrollment Market Share

Humana 10,657 31%


Blue Cross and Blue Shield of North Carolina 8,941 26%Source: HealthLeaders-InterStudy, as of July 1, 2011. Includes HMO, PPO, PFFS, and other managed Medicare.



Health Systems & Hospitals O THIS SECTOR IS: NEUTRAL

Sector OutlookDespite Charlotte’s large size, two major health systems control 81 percent of the market, making it highly consolidated. Unlike neighbor Raleigh, where consolidation is a recent phenomenon, the Charlotte mar-ket has been consolidating for many years as mammoth Carolinas HealthCare System expanded. CHS is now so large that population-based coordinated care models and payment reform models seem almost inevitable; however, the two largest systems in the market have not publicly shown interest in starting models like accountable care organizations. The one-hospital-system CaroMont Health is the only sys-tem actively piloting bundled payments for knee replacements with Blue Cross and Blue Shield of North Carolina and has formed a collaborative with other hospitals to study ACOs. CHS and second-largest system Presbyterian Healthcare are putting most of their efforts behind large-scale expansions in cancer care, orthopedics, and building new patient bed towers. The competition between them has intensified as Presbyterian Healthcare affiliated its heart program with Cleveland Clinic, while CHS enticed a Cleveland Clinic oncology veteran to lead its new cancer institute. But hospitals have been financially impacted by more Medicaid reimbursement cuts and growing uncompensated care.

CHS will likely be able to further extend its market domination once a seven-year long certificate-of-need battle over construction of a hospital in Fort Mill, S.C., is settled. In a reversal of a previous decision, CHS was chosen to build the hospital in late 2011 by the state, which had originally picked Piedmont Medical Center. This market cannot consolidate any further without eliminating competition, so expect systems to fight fiercely over every new expansion the state will allow, and expect CHS to expand its reach beyond the Carolinas to Tennessee and Virginia.

Highlights:

» Market composition: The Charlotte hospital market is heavily consolidated, with nonprofits Carolinas HealthCare System and Novant Health’s Presbyterian Healthcare accounting for 81 percent of total inpatient discharges. Carolinas HealthCare System’s Carolinas Medical Center is the largest and most influential hospital in the market as one of five academic teaching hospitals in North Carolina. It provides residency train-ing for more than 240 physicians in 15 specialties, while parent organization Carolinas HealthCare provides the majority of safety-net care for the Charlotte market. CaroMont Health, which has one hospital, serves growing Gaston County. For-profit Tenet Healthcare also has a single hospital, which services Rock Hill, S.C., to the south of Charlotte.

» Hospital makeup:The six-county Charlotte market has 16 acute-care hospitals, with an estimated 193,118 inpatient discharges annually and 3,490 total acute-care beds (most recent federal Medicare hospital statistics from Billian’s HealthDATA). The average daily occupancy rate is 70 percent, and the average length of stay is 4.6 days. Medicare and Medicaid account for an average 32 percent and 24 percent, respectively, of the area’s acute-care discharges.

» Financial performance:The two largest systems have both reported declines in net income and rising uncompensated care costs, but that has not stopped them from pumping capital into expansion projects. While the econ-



omy is clearly affecting these systems, their market shares and dominance ensure financial stability in the long term.

» Medicaid reimbursement levels:Medicaid reimbursement rates to hospitals were cut by 9 percent on inpatient care in 2011, which includes a 2 percent reduction that was planned for physicians. Hospitals in the state pushed to have the 2 percent added to their reimbursement reduction to prevent physicians from facing another rate cut. Hospitals were concerned that an additional reimbursement reduction for physicians would lead more physicians to close their practices to Medicaid beneficiaries, resulting in more of those patients seeking treatment in hospital emergency rooms. The reimbursement reduction is expected to trim $22 million from the Medicaid budget. The North Carolina Hospital Association says hospitals are starting to show financial strain from continued cutbacks in government reimbursements, causing some hospitals to cut staff and services.

» Cancer care:Carolinas HealthCare System is investing $500 million over the next decade into cancer treatment. It plans to open the new Levine Cancer Institute in summer 2012 and has hired a Cleveland Clinic vet-eran to develop a first-class cancer network at CHS. Derek Raghavan, M.D., who headed the Taussig Cancer Center at the Cleveland Clinic as it grew to 9th from 46th place in U.S. News & World Report’s national rankings of cancer hospitals, is expected to attract specialists and patients and oversee a spokes-and-wheel system that offers cancer care in small communities.

» CON battle:Charlotte’s three local health systems have been vying to build a hospital in Fort Mill, S.C., for seven years. State regulators chose Carolinas HealthCare System in September 2011 to build the $77.5 million hospital in fast-growing northern York County, and Novant Health and Tenet Healthcare appealed. The S.C. Department of Health and Environmental Control refused to hear an appeal. The two asked for a court hearing challenging the state agency’s decision in November 2011. Both had already purchased land for the new hospital.

This is not the first time this battle has headed to the courts. Tenet won the initial bid in 2006 to build the hospital, but an administrative judge ordered DHEC to reopen the applications in 2009. When making its case the second time to the state, CHS said South Carolina residents are already crossing the state border to get care in a CHS facility in Charlotte, so it is already the provider of choice. Novant said it would bring competition to Fort Mill, possibly lowering healthcare costs. Tenet said its plan addresses growing community needs through construction of g a 100-bed facility instead of a 64-bed one, and it already has a facility in Rock Hill. In its decision, Novant Health sfelt the state incorrectly considered CHS’ large market share in York County as a factor in the decision.

Insiders say the decision was different the second time because the agency director had changed, and so had much of its staff, which illustrates the political nature of CON decisions.. The health systems were asked to reapply with more up-to-date information, and CHS won the bid because the system has a large number of physicians already serving the county. Unfortunately, the decision will still be tied up in court, but the administrative law judge must make a decision within a year. A South Carolina committee is now studying the goals and needs for CON over the next six months.

» Expansion plans:Both Carolinas HealthCare System and Presbyterian Healthcare want to expand their orthopedic surgery capabilities to meet a growing need for hip and knee replacements. Both filed applications in October 2011, and a decision is expected in spring 2012. Presbyterian wants to build an $84 million, 64-bed hospital to replace Presbyterian Orthopaedic Hospital, which is more than 50 years old. CHS plans a $6.7 million upgrade at CMC-Mercy that would add a dedicated 22-bed orthopedic unit. This follows a $95.5 million upgrade to CMC-Mercy in 2009.



Beyond t the orthopedic plans, both are adding beds and new patient towers to their campuses, and CHS has been rapidly establishing freestanding Emergency Rooms. Its third ER opened in early 2012, another will open in April 2012, and two more are approved to be constructed. CaroMont Health can move forward with building a freestanding ER in Mount Holly after CHS appealed the decision and lost. CHS is also planning a new rehabilitation hospital and psychiatric hospital.

» Payment bundling pilot: In May 2011, CaroMont Health began a pilot program with Blue Cross and Blue Shield of North Carolina to implement the Prometheus Payment model developed by the Health Care Incentives Improvement Institute to cover the full episode of care for knee replacements. The pilot will enable CaroMont and the insurer to acquire data about quality and efficiency of payment bundling. The payment includes presurgical care 30 days before hospitalization, the surgery, and follow-up care within 180 days.

CaroMont Health and Blue Cross and Blue Shield of North Carolina implemented the knee replace-ment program, worked out contracts, and set bundled prices and risk-sharing agreements in four months, according to Francois de Brantes, executive director for the Health Care Incentives Improve-ment Institute (Modern Healthcare, February 2012). BC/BS of North Carolina says the pilot is already seeing some success in reducing avoidable complications and increasing collaboration among provid-ers. The insurance carrier did not change out-of-pocket costs for patients for bundling but plans to eliminate them in phase two of the pilot.

The system says its goals with bundled payments are to improve the health of the population, enhance patient experience, and reduce the per capita cost of care. It views bundled payments as laying a framework for a larger accountable care organization and a foundation for future performance-based product opportunities. In its pilot, the system will track the percentage of patients with an episode cost greater than what was budgeted.

A report prepared for the Centers for Medicare & Medicaid Services in December 2011, entitled Infor-mation Technology for Bundled Payment, said that CaroMont’s participation as the first system in the Prometheus pilot for knee replacements shows that a health system’s small size is not an impediment to participating in bundled payments.

» Value-based purchasing: Beginning Oct. 1, 2012, the Centers for Medicare & Medicaid Services will withhold 1 percent of regular hospital reimbursement based on performance; patient experience will account for 30 percent of total bonus payments. The highest-scoring hospitals will get all of their Medicare deductions back, and the lowest-scoring hospitals will get nothing back. The level of deduction will increase over a five-year period, topping out at 2 percent in late 2016. Charlotte hospitals ranked 78th out of 295 hospital referral regions in patient satisfaction in 2010 (Kaiser Health News analysis of Centers for Medicare & Medicaid Services’ data).

» Pharmaceutical shortage: Carolinas HealthCare System and Novant Health’s Presbyterian Healthcare have faced higher prices for medications in short supply due to a national pharmaceutical shortage, especially sterile injectables. Novant spends close to $180 million annually on medications and has staff that monitors manufacturing situations to adjust purchasing. CHS’s budget for purchasing drugs is more than $200 million, and in August 2011, the system had about 45 drugs that were delayed or not available—double the number in 2010.

» Significant legislation: The state General Assembly enacted a levy on hospitals that will generate about $215 million annually. Those funds will be used to draw down federal matching funds for Medicaid, resulting in an addi-tional $370 million going to hospitals.



» Telemedicine:Carolinas HealthCare System is using telemedicine to provide virtual consultations for psychiatric patients in local emergency departments, assess orthopedic needs at the Mecklenburg County Jail, and provide stroke care resources to Roper St. Francis Health System in South Carolina. High-definition video allows physicians to assess a patient’s condition and appearance. Psychiatrists at CMC-Randolph average 200 virtual consultations with psychiatric patients each month. Virtual consulting is so far limited to Mecklenburg County facilities.

Presbyterian Healthcare is exploring the addition of telemedicine, particularly to its psychiatric care, and may begin using the technology in 2012. Piedmont Medical Center started a telemedicine pro-gram for stroke care in May 2010 with the Medical University of South Carolina in Charleston.

» Indigent care: Mecklenburg County announced its plans to stop funding charity care to hospitals in the county in 2011, but Carolinas HealthCare System sued, and the matter is in litigation. Eliminating funding would have the greatest impact on CHS, which receives about $16 million a year from the county for charity care, and on Presbyterian HealthCare, which receives about $900,000.

» Prison care: The state is privatizing its healthcare for inmates instead of using its network of 2,000 healthcare pro-fessionals, who will be laid off. The projected date for a vendor to take over is summer 2013.

» Mental health: Hospitals in North Carolina are facing serious challenges managing mental health patients in their emergency rooms, according to the North Carolina Hospital Association. State cuts in mental health have resulted in many patients waiting in emergency rooms to get bed placements. A statewide study found that people in the midst of a mental crisis can expect to wait 2.8 days in a North Carolina hos-pital ER before gaining admission to a state psychiatric hospital.

State psychiatric hospitals began downsizing in 2001, and about half of the state-operated hospital beds have been eliminated. Inpatient occupancy at CMC-Randolph regularly exceeds 100 percent, with 20 to 30 patients routinely waiting in emergency departments for a bed. Carolinas HealthCare will build a new psychiatric hospital in Huntersville by 2013. Presbyterian Hospital also received state approval to transfer 15 psychiatric beds from Broughton Hospital in Morganton to its main hospital in Charlotte.



Carolinas HealthCare SystemTable 4-1

Local Hospitals: 9 Physicians Employed: 1,962 PBM: CarolinaCARE, MedImpact

Local Hospital Beds: 2,069 Physicians Affiliated: N/A GPO: Premier, VHA Central Atlantic, VHA Inc.» Nine acute-care hospitals in the Charlotte market:

» Carolinas Medical Center (includes Levine Children’s Hospital), Charlotte, 827 beds» Carolinas Medical Center-Northeast (includes Jeff Gordon Children’s Hospital), Concord, 457 beds » Carolinas Medical Center-Mercy (includes Carolinas Medical Center-Pineville), Charlotte, 281 beds» Carolinas Medical Center-Union, Monroe, 227 beds» Anson Community Hospital, Wadesboro, 147 beds» Carolinas Medical Center-University, Charlotte, 130 beds

» Physician Services group, which includes 1,237 physicians in the Charlotte region» Mecklenburg Medical Group, a group practice of 102 physicians» Carolinas Medical Center-Randolph, a behavioral health center» Carolinas Rehabilitation, on the CMC campus and in Mount Holly» Three freestanding ERs, in Kannapolis, Waxhaw, and in the Steele Creek area of Charlotte» Carolinas HealthCare Urgent Care, operating at 19 locations» MedCost, a PPO owned jointly with Wake Forest Baptist Medical Center in Winston-SalemSource: HealthLeaders-InterStudy.

DescriptionLocally based Carolinas HealthCare System is the dominant healthcare provider in the Charlotte market. It is the largest healthcare system in the Carolinas and the second-largest public system in the country. Formally known as the Charlotte-Mecklenburg Hospital Authority, Carolinas HealthCare System was organized in 1943 under the North Carolina Hospital Authorities Act. The not-for-profit system receives public funding for treating the uninsured.

Carolinas HealthCare System accounts for 54 percent of inpatient discharges and 59 percent of total acute-care beds (most recent federal Medicare hospital statistics). The average occupancy rate is 70 percent, and the average length of stay is 4.7 days. Medicare and Medicaid account for an average 31 percent and 27 percent, respectively, of acute-care discharges.

Carolinas Medical Center in Charlotte includes a research institute and specialty treatment units that have an emphasis on heart, cancer, organ transplant, and behavioral health treatments. The hospital serves as the regional referral center for western North Carolina and northern South Carolina. It also is one of five facilities in North Carolina designated as an academic teaching hospital, providing residency training for more than 240 physicians in 15 specialties. The campus includes Levine Children’s Hospital, the largest pediatric hospital between Atlanta and Washington, D.C., and a Level I trauma center.

In Concord, Carolinas Medical Center-Northeast includes the Jeff Gordon Children’s Hospital, along with a dedicated heart center, an imaging center, a cancer center, a surgery center, emergency care, and the Health and Fitness Institute.

Carolinas Medical Center-Mercy includes The Heart Center, The Lung Center, Southeast Pain Care, and The Sleep Center.

Carolinas Medical Center-Pineville includes women’s services, intensive care, and telemetry care units, and cardiopulmonary, emergency, rehabilitation, and surgery services.

Carolinas Medical Center-Union includes a day surgery center, a cancer treatment center, a long-term care facility, a behavioral health center, home health services, outpatient specialty care clinics, and a community wellness and outreach program.



Carolinas Medical Center-University is adjacent to the campus of the University of North Carolina at Char-lotte and includes a maternity center, an emergency department, an intensive care unit, and rehabilitation and cardiovascular services.

Anson Community Hospital in Wadesboro offers general surgery and laparoscopic surgeries. The facility also includes the Lillie Bennet Nursing Center, a long-term care facility.

News and AnalysisAs Charlotte’s largest and most powerful health system, Carolinas HealthCare System is growing as fast as state regulators will allow it. The system plans more than $449 million in capital expenditures in 2012, including expanding Levine Cancer Institute, which will be its headquarters for cancer care led by a former Cleveland Clinic oncologist.

Growing pains in 2011 got the system into a fight with Mecklenburg County over its plans to build a new psychiatric hospital, causing lawsuits. However, CHS won the chance to build a new hospital in Rock Hill, S.C., over its rivals after a seven-year-long battle, although the other systems are appealing and the issue cannot be put to rest until it heads to court. Expect continued domination and capital growth from this system; and expect it to expand beyond the Carolinas into Tennessee and Virginia.

Financial performance: Carolinas HealthCare System reported net income of $7.3 million in the first nine months of 2011—a 96 percent drop from $193 million in the same prior-year period. The drop was due to investment losses of $134 million. Despite investments, the system said revenues and expenses for its ser-vices in Mecklenburg, Cabarrus, and Lincoln counties were “steady,” and patient volumes grew 5.6 percent from a rise in surgical patients, ER visits, and outpatient services. Visits to physician practices increased 4.9 percent. CHS reported operating income of $111 million during the first nine months, a 45 percent increase over last year. Uncompensated care increased 16 percent (Charlotte Observer).

Retail clinic agreement: CHS signed an agreement in late 2011 with CVS Caremark for CHS physicians to serve as medical directors at the 16 MinuteClinic locations in the Charlotte area. They will oversee clinic staffers, who will remain MinuteClinic employees, as well as review charts, provide referrals, and conduct site visits. The two plan to collaborate on patient education and disease-management initiatives and develop a system to share patient data electronically. Signage at MinuteClinic locations will announce a clinical affiliation with CHS, and the system hopes to gain referrals for patients who do not have primary-care physicians.

CON fight: CHS won state approval to build a 64-bed hospital in Fort Mill, S.C., in late 2011, but its rivals appealed the decision, which is now headed to court. Fast-growing northern York County is coveted ter-ritory for CHS, which will gain millions of dollars in revenue from new patients using its York County physicians.

Expansion plans: CHS is building freestanding ERs, a rehab hospital, a psychiatric hospital, new hospital towers, and a new cancer institute, among other expansions:

» The system broke ground on a $26.4 million, 40-bed rehabilitation hospital in Concord in February 2012. The 70,000-square-foot facility, Carolina Rehabilitation-NorthEast, is a joint venture between Carolinas HealthCare and Stanly Regional Medical Center in Albemarle. The facility will open in mid-2013 and provide services for Cabarrus, Rowan, and Stanly counties. The system has two other rehab hospitals in the region, and the new facility brings its number of inpatient rehab beds to 172, making it the largest provider of rehab services in the Southeast.

» The system opened its third freestanding emergency department in Kannapolis in January 2012, Carolinas Medical Center-Kannapolis, and opened one in Waxhaw in December 2011. CHS also oper-ates a freestanding emergency department in the Steele Creek area of Charlotte. Another will open in Huntersville in April, and applications were approved for two more: in Charlotte’s SouthPark area



and on Providence Road in south Charlotte. In the SouthPark area, the system will spend $28 million to build a freestanding emergency department on the campus of CMC-Morrocroft (where it already has an urgent care facility, physician offices, and a retail pharmacy). In south Charlotte, the system will build a $27.7 million facility to be called CMC-Providence. Both will open in the first quarter of 2014. The system treats 60 patients a day at its first freestanding ER, CMC-Steele Creek in southwest Mecklenburg County.

» A $160 million tower is under construction at Carolinas Medical Center-Pineville, adding 100 beds and 280,000 square feet. It will be completed in December 2012. The hospital serves Pineville, south Charlotte, and parts of South Carolina. The construction is phase two of a $300 million expansion project that increases bed capacity to 206 beds from 120, establishes a Level III Trauma Center, and adds a new maternity wing. Expansion was needed due to south Charlotte’s growth.

» CMC-NorthEast is moving forward with a plan to build a $264 million tower on its Concord cam-pus. The project had been delayed two years owing to the economy, but officials say the eight-story tower will now be completed within three to five years. The hospital already completed a $40 million surgery-center expansion and added 32 beds to its postsurgical floor.

» CHS plans to build a $33 million psychiatric hospital in Huntersville, with 66 beds and an attached 10,000-square-foot medical office building for outpatient behavioral health services, by July 2013. The proposal won state approval in November 201, but resulted in a dispute between Mecklenburg County officials and the health system that led to lawsuits. County officials were concerned that a new hospital would take away patients from CMC-Randolph, a county-owned and subsidized behavioral health center. CHS had to gain approval from the N.C. General Assembly in June for legislation that would allow it to move forward with or without county support, and did. Mecklenburg County ended its $40 million-per-year contract with the health system to operate CMC-Randolph and the county’s public health department, effective June 30, 2013. The health system sued the county for failing to abide by the terms of their agreement. The county also eliminated indigent-care funding to CHS. CHS says more inpatient capacity will help ease pressure on the Randolph facility, which operates at 103 percent occupancy. Plans call for a second story and 44 more beds in five years.

» Work continues on Levine Cancer Institute for a late summer 2012 opening. The system plans to invest $500 million over the next decade for cancer care and treatment. The institute is a five-story addition to the Morehead Medical Plaza II. While the institute will be headquartered in the addition, the system says the institute will function as a series of integrated units. It will focus on innovations in cancer treatment and work with affiliated organizations to enhance the quality and convenience of cancer care. The cancer center is being funded with a $20 million grant.

» In October 2011, CHS filed three CON applications to add 19 beds at Carolinas Medical Center (13 for general neurological care and six for neurological intensive care), add 38 beds at CMC-Mercy to enhance orthopedic services, and move 29 rehab beds to CMC-Pineville from Carolinas Rehabilita-tion and CMC-Mercy. The state will decide on these projects in spring 2012.

» The system opened a new specialty center, the Women’s Center for Pelvic Health, in January 2012. The center is the first of its kind in the region, combining a fellowship-trained urologist and urogynecolo-gist to treat patients.

» In February 2011, CHS bought Hospice of Union County, which will continue to operate as a local non-profit agency. The hospice will become part of CHS’s Carolinas Palliative Care & Hospice Network, which was formed to ensure care is available to all the communities the system serves.

Cancer care: In April 2011, CHS hired Derek Raghavan, M.D., to develop a first-class cancer network at CHS as president of the new Levine Cancer Institute. He previously led the Taussig Cancer Center at the Cleveland Clinic, which rose from 46th to 9th in the U.S. News & World Report’s national ranking of can-cer hospitals during his tenure. He is expected to attract cancer specialists and patients to the new institute and oversee a spokes-and-wheel system that keeps cancer care in small communities.



Health plan: In 2011, the U.S. Department of Labor began investigating CHS following questions about whether its relationship with health benefits company MedCost, which CHS co-owns, poses a conflict of interest. CHS co-owns MedCost, its group health plan, with Wake Forest Baptist Medical Center in Winston-Salem. The system uses MedCost to provide health benefits to its 30,000 employees. CHS says it sees no conflict because MedCost offers good benefits at a competitive price.

Lease agreement: Negotiations between CHS and Union County resulted in an extension of a 50-year lease that will allow CHS to continue to run Carolinas Medical Center-Union, which is owned by Union County, and make it a fully integrated hospital, which means the system will invest its own funds into the operation and expand services. CHS opened a freestanding ER in Waxhaw in western Union County in late 2011. The system will pay the county $54 million and annual lease payments of $6.1 million. Some county commissioners had wanted to sell the hospital, which CHS has managed since the mid-1990s. A $57 million expansion of the hospital will begin in 2012 and conclude in 2014, including a patient tower with labor, delivery, and recovery suites.

Statewide facilities: Outside the market, New Hanover County voted against affiliating New Hanover Regional Medical Center with CHS in summer 2011. New Hanover is the ninth-largest healthcare system in the state, serving southeastern North Carolina and northeastern South Carolina. The Wilmington system’s physician group already works with the Carolinas Physician Network.

Also outside the market, CHS started managing Murphy Medical Center in Murphy as of July 1 2011—a 57-bed acute-care hospital that draws patients from Cherokee, Clay, and Graham counties. CHS will man-age day-to-day operations and provide planning, operation, and financial oversight.

Drug testing: Carolinas Medical Center cancer specialists participated in studies that led to the approval of a landmark melanoma drug in March 2011. The drug, ipilimumab, is the first melanoma drug to receive approval from the U.S. Food and Drug Administration in 13 years. Bristol-Myers Squibb chose CMC to conduct the trials because of its large number of melanoma patients, the track record of its physicians in research, and its data collection capabilities. The center saw 400 melanoma patients in 2010. CMC offers 242 clinical trials for adults and children with a variety of cancers.

Information technology initiatives: CHS launched its first-ever mobile application to improve patient access to providers. The free app allows patients to search for physicians and provides directions to and wait times for providers.

Key personnel changes: In December 2011, Sanger Heart & Vascular Institute hired internationally rec-ognized vascular surgeon Frank R. Arko, M.D., who will focus on repairs of the aorta. Arko previously worked at the University of Texas Southwestern Medical Center, where he led the vascular surgery team and one of the largest practices in the country.

In summer 2011, Sanger Heart & Vascular Institute hired Charles Bridges, M.D., a prominent heart surgeon from the University of Pennsylvania, as chairman of Carolinas Medical Center’s department of thoracic and cardiovascular surgery.

Pediatric transfers: Jeff Gordon Children’s Hospital, which is on the campus on Carolinas Medical Center-NorthEast, signed an agreement with Mooresville-based Lake Norman Regional Medical Center to accept pediatric patients from Lake Norman who need inpatient care. A mobile intensive care unit will provide specialized transport of sick patients.

Social media: The system started a newscast about the company’s physicians, employees, and patients called CHS Network News on its websites, YouTube channel, and Facebook and Twitter pages.

Awards: Carolinas Medical Center was ranked as the Charlotte market’s best hospital and was top-ranked in orthopedics and pediatric nephrology (U.S. News & World Report). No Charlotte area hospitals were



named to the magazine’s national honor roll. CMC-NorthEast and CMC-Mercy were also ranked in the top four.



Presbyterian Healthcare Table 4-2

Local Hospitals: 5 Physicians Employed: 541 PBM: N/A

Local Hospital Beds: 763 Physicians Affiliated: N/A GPO: Novation, MedAssets, Shared Services Healthcare

» Five acute-care hospitals in the Charlotte market: » Presbyterian Hospital (includes Presbyterian Hemby Children’s Hospital), Charlotte, 521 beds» Presbyterian Hospital Matthews, 102 beds» Presbyterian Orthopaedic Hospital, 80 beds» Presbyterian Hospital Huntersville, 60 beds

» Dozens of medical office buildings that include physician offices, health centers, laboratory services, imaging, surgery, sleep medicine, and pri-mary care

» Novant Medical Group, a group practice with 541 physicians in the Charlotte region» Presbyterian Midtown Surgery Center, Charlotte, and Presbyterian Surgery Center in Ballantyne and Monroe » Seven urgent-care centers in Charlotte (two), Concord, Cornelius, Matthews, Mooresville, and MonroeSource: HealthLeaders-InterStudy.

DescriptionPresbyterian Healthcare is a major competitor in the Charlotte market, representing the local operations of Novant Health, a nonprofit healthcare system headquartered in Winston-Salem. Novant serves more than 3.5 million people in 34 counties spanning northern South Carolina to southern Virginia.

Presbyterian Healthcare accounts for 27 percent of inpatient discharges and 22 percent of total acute-care beds (most recent federal Medicare hospital statistics). The average occupancy rate is 85 percent, and the average length of stay is 4.6 days. Medicare and Medicaid account for an average 28 percent and 18 percent, respectively, of acute-care discharges.

Presbyterian Healthcare’s flagship, Presbyterian Hospital, is Novant’s second-largest facility (after Forsyth Medical Center in Winston-Salem) and includes Presbyterian Hemby Children’s Hospital. The hospital offers cardiac care, cancer treatment, behavioral health services, women’s services, diabetic care, emergen-cy services, radiology, and neurology. The children’s facility is a family-centered operation, encouraging family participation. It was established by the hospital in the early 1950s as a pediatric unit and includes a pediatric intensive care unit, a children’s emergency department, and pediatric surgery services.

Presbyterian Hospital Matthews is south of downtown Charlotte, within the Interstate 485 loop, and offers a full range of medical services, including emergency surgery, maternity care, outpatient radiology, and laboratory tests.

Located adjacent to Presbyterian Hospital, Presbyterian Orthopaedic Hospital includes specialized ortho-pedic nursing care units, along with an ambulatory care center, operating rooms, a post-anesthesia care unit (recovery room), acute inpatient units, and a sub-acute transitional care unit.

Presbyterian Hospital Huntersville is just north of the Interstate 185 loop. It provides a wide range of ser-vices, including maternity, surgery, cardiovascular, and cancer care.

Novant Health was formed by the 1997 merger of Carolina Medicorp of Winston-Salem and Presbyterian Health Services of Charlotte. Also outside of the Charlotte market, Thomasville Medical Center joined the health system in November 1997, and Brunswick Community Hospital joined in 2006.

News and AnalysisNovant Health is beefing up its electronic health records system across its three-state region, while in Char-lotte it has expanded or plans to expand all of its campuses, including replacing the 50-year-old orthopedic hospital. Its major play in 2011 is its new affiliation with Cleveland Clinic for heart care. The system says



the partnership will bring new processes, technologies, clinical trials, and training to its cardiologists. Presbyterian took a blow, however, when it lost the bid to build a new hospital in Fort Mill, S.C.

Financial performance: In 2010, Novant Health experienced a decline in net income of $31 million, to $158 million. The system also reported a 12 percent increase in free care, to $119 million in 2010. Bad debt increased as well, to $178 million in 2010—an increase of 21 percent from 2009. The system said challenges include the slow economy, unemployment, and an increase in uninsured patientse, which has resulted in fewer outpatient surgeries or elective procedures, especially among patients who have high-deductible health plans. The system did experience an uptick in services that tend to be more recession-proof, such as inpatient surgeries and emergency room visits.

Expansion plans: Presbyterian is expanding or renovating all of its campuses, including a large expansion completed at Presbyterian Hospital and a plan to build a replacement hospital for its outdated orthopedic hospital:

» Presbyterian Healthcare wants to replace the 50-year-old Presbyterian Orthopaedic Hospital with a new, $84 million facility. The project needs CON approval and would be completed in 2015. As a replacement hospital, the plan is not expected to meet much opposition. A decision by the state is expected in spring 2012. The new hospital will have larger and private patient rooms and new operat-ing rooms. The facility was named among the 60 best orthopedic facilities in the nation by Becker’s Hospital review in 2011.

» Presbyterian Hospital opened 74 beds in a $58 million, four-story expansion in March 2011, which included its first helipad and doubling the size of patient rooms. It is still expanding its surgery wing, operating rooms, inpatient pharmacy, and pediatric emergency department in an additional $43 mil-lion project. The hospital added new technology for drug distribution with barcode scanning. The system says streamlining those processes allows pharmacists to spend more time with patients. The new pediatric emergency room opened in late 2011 with triple the square footage of the old one.

» The system is approved to build a $90 million hospital in Mint Hill but has not yet started construc-tion. The full-service emergency room with imaging services is scheduled to open by the end of 2013. Later stages call for surgery rooms and a 50-bed patient building. The system plans to open the entire hospital by the end of 2018. The hospital was delayed in 2008 because of the recession.

» Construction of a new hospital tower is underway at Presbyterian Hospital Huntersville to add 15 beds (13 medical/surgical and two intensive care unit beds), bringing the hospital’s total bed count to 75. Completion is scheduled for winter 2012.

» The system plans to start an expansion on the Matthews campus in 2012 that will add 20 new inpatient beds. Completion is scheduled for mid-2013.

Medical home: Lake Family Physicians, a group practice that is part of Novant Medical Group, received designation as a patient-centered medical home by the National Committee for Quality Assurance in 2011. Lake Family Physicians has 11 locations in the Charlotte region.

Affiliation with Cleveland Clinic: Presbyterian Hospital affiliated with the heart program of the Cleveland Clinic in late 2011. Presbyterian and Novant’s Forsyth Medical Center in Winston-Salem will both be affili-ates, giving them access to new technologies, processes, and training in use at the Cleveland Clinic. The Cleveland Clinic, whose heart program consistently ranks No. 1 in the country, started its national affiliate program in 2003 and has agreements with six other facilities in the United States. Novant pays a fee as part of the agreement. Patients from Charlotte could also travel to Cleveland for procedures, such as heart and lung transplants, that are not offered at Presbyterian. Presbyterian physicians will participate in Cleveland Clinic training programs and collaborate with colleagues during visits and teleconferences. Patients will benefit from the latest research and clinical trials, officials said.



Supply chain network: Novant Health created MNS Supply Chain Network with MedStar Health and Sen-tara Healthcare. MNS will work to generate savings and improve efficiency. Savings are expected to reach $60 million a year. MNS has contracted with VHA Inc., a national hospital alliance, to provide support.

Contract dispute: Novant Health ended a heated contract dispute with the market’s third-largest MCO Aetna in July 2010. The two signed a two-year contract that will be up for renewal in 2012.

Information technology initiatives: Novant Health announced in October 2011 that it was working with Epic Systems to develop a comprehensive practice management and electronic health record system. The EMR implementation will create a single patient record across the system’s hospitals in three states. Between July and October 2011, the system converted 192 primary-care and specialty clinics from paper records to EMR. The estimated cost to convert all hospitals and physician clinics is $600-700 million over five years. To create the records system for the Charlotte market, Novant has been hiring 150 information technology employees in Fort Mill, S.C..

Presbyterian Hospital will be the first acute-care facility to use the EMR technology. Implementation is scheduled for fourth quarter 2013. The system expects that medical records will be available system wide by the fourth quarter of 2015.

Modern Healthcare ranked Novant Health 14th among the top 100 most highly integrated healthcare networks in the country in 2011.

Key personnel changes: Paul Wiles, president and CEO of Novant Health, retired at the end of 2011 after 41 years with the system. Under his leadership, Novant grew from a single hospital with annual revenues of $20 million to a four-state health system with 13 hospitals and revenues of $3.5 billion. He was succeeded by Carl Armato, who was senior executive vice president and chief operating officer.

Awards: Presbyterian Hospital was named one of the 50 best hospitals in America by Becker’s Hospital Review in 2011—the only hospital in the Charlotte region to make the list.

Presbyterian Hospital is a top-ranking facility in Charlotte for gastroenterology (U.S. News & World Report). It is ranked the fourth-best hospital in the Charlotte market.

Presbyterian Hospital, Presbyterian Hospital Huntersville, Presbyterian Hospital Matthews, and Presby-terian Orthopaedic Hospital are all recognized as Magnet facilities by the American Nurses Credentialing Center, the credentialing arm of the American Nurses Association.



Other Health Systems and Hospitals Nonprofit CaroMont Health owns Gaston Memorial Hospital and has approximately 3,800 employees. CaroMont serves a large patient base in rapidly growing Gaston County, as well as in Cleveland and Lincoln counties in North Carolina and bordering counties in South Carolina. The system includes the nearly 200 physicians of CaroMont Medical Group, spanning five counties and two states. The health system also includes a skilled-nursing facility, an inpatient hospice facility, three off-site imaging locations, two same-day surgery centers, and an occupational medicine clinic. Gaston Memorial is affiliated with Columbia Heart Source and Columbia University Medical Center in New York.

Gaston Memorial Hospital accounts for roughly 12 percent of inpatient discharges and 11 percent of total acute-care beds (most recent federal Medicare hospital statistics). The average occupancy rate is 69 percent, and the average length of stay is 3.9 days. Medicare and Medicaid account for an average 43 percent and 33 percent, respectively, of acute-care discharges.

The system is collaborating with Blue Cross and Blue Shield of North Carolina on bundling payments for knee replacements. The payment includes pre-surgical care 30 days before hospitalization, the surgery and follow-up care within 180 days. The payment plan starts in spring 2012. The system expects the program to lead to more bundling programs. The new program includes physicians in Carolina Orthopedic and Sports Medical Center, P.A., and Gaston Anesthesia and Pain Management. (See Health Systems section for more details.)

CaroMont Health is free to move forward with building a $24 million freestanding emergency room in Mount Holly after Carolinas HealthCare System said it would not contest a court decision allowing the new ER. Both had applied to build the facility, and CaroMont was approved in 2009, but CHS appealed. An administrative law judge sent the case back to the state. In November 2010, the state again approved CaroMont’s application, and CHS appealed a second time. In December 2011, the court ruled in favor of CaroMont. The 46,000-square-foot medical complex will offer a full-time ER, radiology, laboratory ser-vices, and a Gaston County EMS satellite station with two ambulances.

The system broke ground on its second CLiC Immediate Care facility in the Gaston Mall in late 2011. CLiC stands for “convenient, local, individualized care”; it provides care 12 hours a day, seven days a week. The first CLiC facility opened in 2010 in the Mountain Island Lake area with an urgent care, retail store with over-the-counter medicines, and a sleep lab. The CLiC concept has a strong wellness focus.

The hospital was designated a Level III trauma center by the N.C. Office of Emergency Medical Services in February 2012. It has been pursuing the certification since 2008. Designated trauma facilities give rapid treatment to patients in critical condition. The hospital hired five surgeons dedicated to the trauma center. It expects to see as many as 1,000 trauma patients annually.

CaroMont Health named Randall Kelly as CEO in late 2011. He succeeds Valinda Rutledge, who left for a post with the Center for Medicare and Medicaid Innovation, and comes from Inova Health System in Virginia.

CaroMont participates in Premier Inc.’s ACO Implementation Collaborative, a project that allows 18 other hospitals and health systems to share best practices for development of an ACO. Premier Inc, based in Charlotte, is a healthcare performance improvement alliance and group purchasing organization.

In January 2012, the Centers for Medicare & Medicaid Services conducted a survey of Gaston Memorial Hospital and declared the hospital in immediate jeopardy status due to the failure of nursing staff to follow medication verification policies in November 2011. The hospital submitted a plan of correction to CMS and is confident Medicare funding will remain in place. After a plan is approved, a team of inspectors must visit the hospital unannounced to make sure the proper procedures are in place.



Gaston Memorial Hospital is recognized as Magnet facility by the American Nurses Credentialing Center, the credentialing arm of the American Nurses Association.

The hospital also ranks third in the market for best hospitals, with high-performing specialties in gastro-enterology, nephrology, and pulmonology (U.S. News & World Report).

Piedmont Medical Center in Rock Hill, S.C., is owned by Dallas-based Tenet Healthcare and provides healthcare services to residents in the South Carolina counties of Chester, Lancaster, and York. Its service area covers one of the fastest-growing regions in that state.

The state had awarded Piedmont a CON in 2006 to build a 100-bed hospital in Fort Mill, but after an administrative law judge ruled in December 2009 that regulators must reconsider competitors’ plans, Carolinas HealthCare System was awarded the CON. Piedmont and Presbyterian are still both appealing, and the issue is headed to court again.

The hospital started offering online check-in for its ER in summer 2011 through InQuickER in Nashville, Tenn. Patients pay $9.99 to be seen within 15 minutes, or their money is refunded.

Piedmont has a telemedicine program with the Medical University of South Carolina in Charleston for stroke care. Members of the university’s Stroke Center use streaming video to connect with Piedmont physicians and offer guidance on whether drugs like Alteplase, which must be administered soon after the onset of symptoms, should be given. The program is significant because South Carolina has the second-highest stroke-related death rate in the United States.



Table 4-3: Charlotte HospitalsName City Beds

Carolinas Medical Center (includes Levine Children’s Hospital) Charlotte 827

Presbyterian Hospital (includes Presbyterian Hemby Children’s Hospital) Charlotte 521

Carolinas Medical Center-Northeast (includes Jeff Gordon Children’s Hospital) Concord 457

Gaston Memorial Hospital Gastonia 370

Piedmont Medical Center Rock Hill, S.C. 288

Carolinas Medical Center-Mercy (Mercy and Pineville campuses) Charlotte 281

Carolinas Medical Center-Union Monroe 227

Anson Community Hospital Wadesboro 147

Carolinas Medical Center-University Charlotte 130

Presbyterian Hospital Matthews Matthews 102

Presbyterian Orthopaedic Hospital Charlotte 80

Presbyterian Hospital Huntersville Huntersville 60

Sources: HealthLeaders-InterStudy, 2012; Billian’s HealthDATA, 2011.



Physicians O THIS SECTOR IS: NEUTRAL

Sector OutlookThe Charlotte market’s already high consolidation has sent many physician practices into the arms of one of the major two health systems. Carolinas HealthCare System is much more aggressive at expanding its physician ranks than Presbyterian, but both are actively adding practices. To counteract this trend, some independent physician practices, especially specialists, have been merging their small practices to gain leverage in the market, but still remain independent from health systems. OrthoCarolina and several urology groups are among the merged or acquired practices in 2011. Expect more of this strategy as physi-cians look for ways to pay for electronic medical records and deal with declining reimbursements without becoming employees of a health system.

Physicians won a major victory in 2011 when the state legislature passed medical liability reform. They were also protected by hospitals from another cut to their Medicaid reimbursement rates, although more cuts could be on the horizon in 2012.

Highlights:

» Market composition: Charlotte’s physician sector is moderately consolidated and grows even more consolidated each year, with practices affiliated with Carolinas HealthCare System and Presbyterian Healthcare having the largest physician groups. Independent specialty groups own some large private practices such asOrth-oCarolina, one of the largest orthopedic specialty groups in the region. It has acquired three practices in the last year.

In 2011, Charlotte saw a string of independent physician practices merging to better tackle a changing healthcare environment where larger is better when it comes to negotiations with insurers and with fronting the high costs of electronic medical records. Eight urology practices in the Charlotte market merged in April 2011 to form a new independent medical group, Carolina Urology Partners. The phy-sicians said they were unable to remain small practices of three or four physicians in today’s environ-ment but wanted to remain independent. Physicians say larger groups can recruit the best physicians and potentially negotiate higher reimbursement rates. Carolina Urology Partners is still planning to expand by adding more urology practices.

Two more urology practices merged in late 2011: Urology Specialists of the Carolinas merged with Charlotte Urology Associates, bringing Urology Specialists to 15 urologists in nine locations.

» Information technology:Blue Cross and Blue Shield of North Carolina and Allscripts are investing $23 million for physicians and clinics to upgrade their electronic medical records. The initiative will cover the entire cost of upgrades for eligible,free clinics and 85 percent of the cost for some independent practices, allowing 750 physicians to connect to the statewide Health Information Exchange. Many small practices have been slow to adopt EMR because of cost: Allscripts’ software can cost $30,000 per physician to install and $2,000 a year for support services. BC/BSexpects to recoup its $15 million investment in the program by reducing unnecessary tests and procedures, and it expects the software to recommend generic drugs and cheaper treatment options. This financial incentive for physicians is in addition to the federal government’s program that pays up to $44,000 to physicians who change to EMR. Less than



half of the state’s independent primary-care physicians use EMR, according to the N.C. Area Health Education Centers Program.

» Physician supply:Although North Carolina suffers from a shortage of primary-care and specialty physicians, the Char-lotte market does not. Charlotte has 73 primary-care physicians per 100,000 people, compared with 68 nationally, and 121 specialists per 100,000 people, compared with 113 nationally (SK&A Information Services Inc.).

To help the statewide shortage, UNC Chapel Hill School of Medicine opened a branch campus in 2011 at Carolinas Medical Center in Charlotte for 22 students in their third and fourth years of school. CMC also has a residency program.

Campbell University, which is south of Raleigh, is planning to open the first new medical school in North Carolina since the 1970s. The N.C. Institute of Medicine, a health policy group, predicts a major shortage of doctors in North Carolina over the next 20 years. The $60 million school of osteopathic medicine is expected to graduate 150 physicians a year and enroll its first medical students by 2013.

» Nurse practitioners:At 45th in the nation, North Carolina ranks low in the number of nurse practitioners for its popula-tion size. The state has 38 nurse practitioners per 100,000 people, compared with 54 nationally (data from the Pearson Report analyzed by Kaiser Family Foundation and HealthLeaders-InterStudy calculations).

» Medicaid reimbursement:Physicians in Charlotte and throughout the state continue to feel the pinch of a tighter state budget as lawmakers try to contain Medicaid costs. During the most recent legislative session, lawmakers pro-posed cutting physician reimbursements by an additional 2 percent to 5 percent. However, hospitals in the state absorbed an additional 2 percent reimbursement reduction to spare physicians the proposed cut. Hospitals were concerned that further reimbursement reductions for physicians would prompt more medical groups to close their practices to Medicaid enrollees. In recent years, physicians in the state have seen a 5 percent across-the-board rate reduction as well as an additional 9 percent reduction for some specialties.

» Information technology:Novant Health, which owns Presbyterian Healthcare, has 125 physicians throughout North Carolina using AirStrip OB software to monitor pregnant women from remote locations via iPad or iPhone. The group is the first in the state to use this iPhone application. Novant expects to give the technology to other specialists. Approximately 75 percent of U.S. physicians own some sort of Apple mobile device, according to Manhattan Research.

Carolinas Medical Center is still reviewing the AirStrip OB technology, but Carolinas HealthCare Sys-tem’s Sanger Heart & Vascular Institute uses iPads to view radiology images, and its CMC emergency physicians are using smartphones to see results of electrocardiograms of patients who are coming to them via ambulance.

» Pay for performance: Blue Cross and Blue Shield of North Carolina offers the Blue Quality Physician Program for primary-care physicians; it pays providers 10 percent above their regular reimbursement rate for meeting certain goals. The program rates physicians on clinical quality outcomes; the use of e-prescribing; and administrative efficiency and patient experience, including after-hours care and electronic visits.



» Ambulatory surgery centers/outpatient centers: Health systems in the Charlotte market have been strong competitors in the ambulatory surgery center segment, although there are several physician-owned facilities that compete with their larger peers. The multispecialty Charlotte Surgery Center, founded in 1984, has expanded since it opened and now includes a seven-OR suite facility. The Carolina Center for Specialty Surgery performs elective outpa-tient surgery and ambulatory surgery and is connected to Carolina Neurosurgery & Spine Associates, Eastover OB/GYN, and Barron & Homesley Orthopedic Specialists.

» Medical liability reform: The North Carolina Medical Society succeeded in getting the General Assembly to pass medical liability reform in 2011—its top legislative priority. Senate Bill 33 establishes a $500,000 cap on non-economic damage awards, with very limited exceptions. It also raises the burden of proof required when litigating emergency treatment negligence and requires that malpractice claims regarding care of minors be brought in a more timely manner.

» Retail/urgent care: Since CVS MinuteClinic entered the Charlotte market in 2005, it has grown to 16 locations, including two added in 2011. Both health systems offer urgent care: Carolinas HealthCare has 19 urgent-care locations, and Presbyterian has seven. Concentra and NextCare also have a presence in the urgent-care market.

» EMR/e-prescribing: North Carolina is one of the states leading the way in e-prescribing, ranking No. 10 in e-prescribing rates, according to e-prescribing network Surescripts. 2012 is the first year that physicians will be penalized for failing to electronically prescribe 40 percent of their total prescriptions. The number of prescriptions sent electronically in North Carolina increased from 3.3 million in 2008 to 8.6 million in 2009 to 12.4 million in 2010. The number of physicians in North Carolina e-prescribing in those same years increased from 3,284 to 3,433 to 6,705.

The North Carolina Blue plan has been incentivizing physicians to e-prescribe since 2008. The man-aged care organization initially provided a $1,000 incentive to physicians who used online software to write at least 20 prescriptions. Since many independent pharmacies and small chains were slow to accept e-prescriptions, BC/BS of North Carolina began offering the incentive to pharmacies as well. Now the incentive is included in the MCO’s Blue Quality Physician Program.

» Medical homes: Practices with both Physician Services Group and Novant Medical Group have been certified by the National Committee for Quality Assurance as a patient-centered medical home.



Physician Services GroupTable 5-1

Type: Health-system owned Internal Guidelines: N/A

Total Physicians: 1,237* Medical Management: Yes

Primary-Care Physicians: 588* Clinical IS: Yes*In the six-county Charlotte area.

Physician Services Group is the health-system owned physician group of Carolinas HealthCare System. Physicians Services Group has 1,489 physicians, and 1,237 in the six-county Charlotte market. PSG includes Carolinas Physicians Network, which has 675 physicians in 15 counties of North and South Caro-lina, as well as Faculty Physician Network, Northeast Physician Network, and Regional Physician Network, which have physicians across the entire CHS footprint. Specialties include cardiology, gastroenterology, pulmonology, rheumatology, oncology, endocrinology, urology, and general surgery.

The National Committee for Quality Assurance has recognized 77 Physician Services Group practices as Level 3 patient-centered medical homes, the highest level of recognition. Carolinas Physicians Network was named an honoree for the American Medical Group Association’s Acclaim Award, which honors organizations displaying the finest models of medical management, coordination of care delivery, and patient experience improvement.

Carolinas Hospitalist Group has grown to 100 physicians serving eight CHS hospitals. CHS and its regional affiliates acquired many independent practices in 2011 to expand its integrated delivery system. Those include nine practices affiliated with New Hanover Regional Medical Center, one practice affiliated with Columbus Regional HealthCare System, two practices affiliated with Scotland Health Care System, one practice affiliated with Wilkes Regional Medical Center, one practice affiliated with St. Luke’s Hospital, and two locations of Rutherford Pediatrics.

The group opened Carolinas HealthCare Urgent Care-Belmont in October 2011 with an on-site lab and X-ray services. The system now has 19 urgent-care centers in the Charlotte market.

Novant Medical Group Table 5-2

Type: Health-system owned Internal Guidelines: Yes

Total Physicians: 541 Medical Management: Yes

Primary-Care Physicians: 343 Clinical IS: Yes

Novant Medical Group includes more than 1,000 physicians and more than 1,400 providers in North Carolina, South Carolina, and Virginia. In the greater Charlotte region, the group has 541 physicians, and was previously called Presbyterian Novant Medical Group, but that name has been phased out. Of its 343 primary-care physicians in greater Charlotte, 142 are family medicine, 58 are internal medicine, 73 are pediatrics, and 70 are ob/gyn. The group offers a private practice model for physicians but affords members the benefits of a larger group affiliated with a major health system.

Fifty-three practices have been designated as patient-centered medical homes by the National Committee for Quality Assurance, including Lake Family Physicians, with 11 locations in the Charlotte market.

The practice opened Presbyterian Medical Plaza in 2011, offering family medicine, pediatrics, geriatrics, urogynecology, and imaging. Existing practices opened 13 new locations in the market in 2011.



At present, 134 Novant Medical Group clinics and 539 providers in the greater Charlotte market are using practice management system software that improves efficiency, pinpoints convenient patient appointment times, and increases billing accuracy. There are 26 practices and 85 providers in the Charlotte market now using the electronic health record, which allows patients to use MyChart, an online service that allows patients to e-mail their physician, schedule appointments, refill prescriptions, view laboratory test results, and access personalized medical information. All NMG practices will soon have access to both PM and EHR systems.

CaroMont Medical GroupTable 5-3

Type: Health-system owned Internal Guidelines: N/A

Total Physicians: <200 Medical Management: N/A

Primary-Care Physicians: N/A Clinical IS: Yes

CaroMont Medical Group has 20 primary-care practices and 27 specialty practices and nearly 200 employed physicians of CaroMont Health. It includes both CaroMont Primary Care and CaroMont Spe-cialty Services. Three Gastonia physician groups—Carolina Heart Specialists, CaroMont Vascular Center, and Carolina Cardiovascular & Thoracic Surgery Associates—merged to form CaroMont Heart in late 2011. CaroMont Heart will have a headquarters in Gastonia, with satellite offices in Lincolnton, Belmont, Shelby, and Lake Wylie. The new group will remain part of CaroMont Medical Group. The group serves Gaston County and surrounding areas in 15 specialties. It uses Athena Health’s cloud based services, which allows patients online access to their EMR.

OrthoCarolinaTable 5-4

Type: Group practice Internal Guidelines: Yes

Total Physicians: 125 Medical Management: Yes

Primary-Care Physicians: N/A Clinical IS: Yes

Charlotte-based OrthoCarolina provides comprehensive orthopedic care. The practice was founded in 2005 with the merger of Miller Orthopaedic Group and Charlotte Orthopedic Specialists. It has relation-ships with all the market’s hospitals.

OrthoCarolina added Hickory Orthopaedic Center in December 2011, which resulted in eight more orthopedic surgeons. The practice will now be OrthoCarolina Hickory; the name change includes its four satellite offices.

This merger is OrthoCarolina’s fourth since late 2010. It now includes 25 offices throughout the Carolinas, including Charlotte, Gastonia, Huntersville, Matthews, and Shelby. In April 2011, it added nine-physician, Concord-based NorthEast Orthopedics, which operates as OrthoCarolina Concord. Prior to that, it added Laurinburg-based Scotland Orthopedics and Boone Orthopaedics in Boone.

Its main offices are consolidated in its 100,000-square-foot Uptown Charlotte campus, adjacent to Pres-byterian Hospital. The Uptown location includes the group’s Pediatric Orthopedic Center, Hand Center, Sports Medicine Center, Shoulder & Elbow Center, Spine Center, Hip & Knee Center, and the Foot & Ankle Institute. The group provides walk-in and after-hours urgent care orthopedic services at locations in the Matthews, University, and Randolph Road areas of Charlotte.

OrthoCarolina uses an efficiency system developed by Orthocrat Limited Surgeons. When physicians enter a patient’s room, they can swipe their identification badge against the OrthoFlow reader and instantly



view diagnostic images and other information. With another swipe, the computer is locked until the surgeon sees the next patient. The group also uses a Philips Healthcare iSite picture archiving and com-munication system, which is part of the group’s transition from analog to digital radiography, so physicians have access to images at all of the group’s locations.

The group operates the OrthoCarolina Research Institute, which fosters scientific collaborations in ortho-pedics with universities, hospitals, pharmaceutical companies, healthcare device manufacturers, and other academic and research organizations. The OrthoCarolina Education Center offers seminars and one-day events for primary-care physicians, nurses, referral coordinators, and therapists on the latest practices, research, and procedures.

Mecklenburg Medical GroupTable 5-5

Type: Group practice Internal Guidelines: N/A

Total Physicians: 102 Medical Management: N/A

Primary-Care Physicians: 60 Clinical IS: N/A

Mecklenburg Medical Group, part of Carolinas Physicians Network, has been providing services in the Charlotte market for more than 70 years. It specializes in cardiology, pulmonology, internal medicine, dermatology, rheumatology, endocrinology, senior services, gastroenterology, sleep medicine, hematol-ogy, and oncology. The group has 12 locations in greater Charlotte. Its Steele Creek office, which opened in October 2009, is part of the Carolinas Medical Center-Steele Creek healthcare pavilion. The group also runs an Express Care location in Charlotte’s uptown business district. Mecklenburg Medical Group uses CHS’s MyHealth Online system, which allows patients to schedule appointments and request pre-scription refills.

Additional Physician Organizations

» Southeast Anesthesiology Consultants:The 91 physicians of Southeast Anesthesiology Consultants include anesthesiologists and pain-man-agement specialists who serve more than 100,000 anesthesia and more than 45,000 pain-management patients each year in North Carolina, South Carolina, and Virginia. In October 2010, the group was acquired by American Anesthesiology, a subsidiary of publicly traded MEDNAX Inc. It is the principal provider of anesthesia services for eight of Carolinas HealthCare System’s 32 hospitals, including the flagship, Carolinas Medical Center.

» Charlotte Radiology:Charlotte Radiology’s 83 physicians provide radiology services for more than 11 hospitals, and own and operate 12 breast-imaging centers, two vascular and interventional clinics, and an MRI center. It also partners with Carolinas HealthCare System in the joint ownership of five locations of Carolinas Imaging Services, where the physician group also is the exclusive provider of radiology services. The group’s radiologists have specialty training in many areas, including mammography, musculoskeletal, pediatrics, and interventional radiology.

» Charlotte Eye, Ear, Nose & Throat Associates:With 66 physicians, Charlotte Eye, Ear, Nose & Throat Associates specializes mostly in otolaryngology and ophthalmology, but also includes audiology, allergy, clinical research, contact lenses, facial plastic surgery, and sleep medicine services. The practice has 15 locations throughout the region. The group includes two area sleep centers, audiology and hearing aid services, optical shops, The Voice & Swal-



lowing Center, laser vision correction, a surgery center, in-house diagnostics, and clinical research. In July 2011, this group merged with Mecklenburg Ear Nose & Throat, taking the Charlotte Eye, Ear, Nose & Throat Associates name. Mecklenburg officials said the merger would help it expand services.

» Carolina Urology Partners:Eight urology practices in the Charlotte market merged in April 2011 to form a new independent medi-cal group, Carolina Urology Partners. The merged group is now the nation’s eighth-largest urology practice with 38 physicians, nearly 200 employees, and 15 locations in the Carolinas, and it controls about 60 percent of the market share in Charlotte. The groups started consolidating because they wanted to remain independent, but found it difficult to remain as separate small practices because of the pressures of declining reimbursement rates and the cost of converting to electronic medical records. It recently opened a 12,000-square-foot facility in Huntersville near Presbyterian Hospital Huntersville for practice management services and with a laboratory that allows the group to expand research opportunities related to clinical trials. Physicians say larger groups can recruit the best physi-cians and potentially negotiate higher reimbursement rates. The practice is still planning to expand by adding other urology practices.

» Urology Specialists of the Carolinas:Urology Specialists of the Carolinas merged with Charlotte Urology Associates, bringing Urology Specialists up to 15 urologists in nine locations in Charlotte, Huntersville, Matthews, Pineville, and Concord. Urology Specialists of the Carolinas was formed in 1999 when Charlotte’s oldest and largest urology practices, Charlotte Urology Group and Hawes Urology Clinic, merged.

» Carolina NeuroSurgery & Spine Associates:Established in 1940, this group includes 20 neurosurgeons, one orthopedic spine surgeon, six physiat-rists, and a staff of physical therapists. Its practice offers locations in Charlotte, Ballantyne, Concord, Gastonia, Huntersville, and Rock Hill, S.C. The practice was the first in North Carolina to adopt a new, minimally invasive technology to treat brain aneurysms called the Pipeline Embolization Device, or PED. The practice also boasts an MRI machine that can scan patients sitting, standing, or in most positions not previously possible with MRI imaging.

» Oncology Specialists of Charlotte:This five-physician group cares for oncology and hematology patients and works closely with Presby-terian Hospital Cancer Center. It participates in clinical trials, including through the Duke Outreach Network.



Health Plans O THIS SECTOR IS: NEUTRAL

Table 6-1: Local & State Enrollment

>>> Commercial HMO: Commercial PPO: Commercial POS: Indemnity: Managed

Medicaid: Managed

Medicare:

Local 25,409 522,878 261,170 18,153 15,022 34,678

State 150,561 2,265,783 977,409 97,712 0 213,204Source: HealthLeaders-InterStudy, as of July 1, 2011.

Sector OutlookMarket leader Blue Cross and Blue Shield of North Carolina’s strategy is to unveil population-based quality care with a more limited network plan that is cost efficient. The company is piloting this idea in Raleigh through a partnership with UNC HealthCare, where a population of 5,000 Blue Cross members with chronic diseases will get their care at one location in an effort to coordinate better care and monitor progress. Charlotte healthcare advocates and employers would like to see similar coordinated care models launch in Charlotte, leading insurers to eventually innovate plan designs in the region with narrowed networks that may only include one health system; such networks do not exist in the area as of March 2012.

Product offerings like high-deductible plans and UnitedHealthcare’s new Multi-Choice product are gaining the most steam as employers look for cost savings. The insurer’s Edge product, which requires employers to use premium-designated hospitals and physicians to get the best reimbursement levels, has increased its enrollment. Expect these plans , to boost business for the carriers who are the first to offer them since they offer preferred pricing to a smaller set of providers but still allow choice if members are willing to pay more.

Highlights:

» Market compositionBlue Cross and Blue Shield of North Carolina is the top managed care organization in the Charlotte market, with 26 percent of total enrollment as of July 1, 2011. UnitedHealth Group is the second-largest health plan in the market with 19 percent of total enrollment, followed by Aetna with 16 percent. Cigna



HealthCare and WellPoint are the fourth- and fifth-largest with 13 percent and 8 percent market share, respectively.

The Charlotte market skews toward PPO plans, which account for 30 percent of total enrollment. HMO plans have only a 3 percent market share here. Most commercial enrollment is self-insured at 60 percent.

» Plan design/competition: UnitedHealthcare is offering a new insurance product called Multi-Choice, a platform of defined contribution plans that target employers with two to 50 employees. UnitedHealthcare has reduced its total number of plans and separated them into three packages based on copay, coinsurance, and range of deductibles. Employers define the contribution they want to make and the richness of the plans offered, and employees choose the option within the package that suits their needs. The new product rolled out in North Carolina in July 2011, and more than 500 small businesses had signed up by October 2011. The company estimates that nearly half of its 100,000 small-business customers in North Carolina will shift to Multi-Choice over the next two years. Brokers say other insurers will have to consider similar plans to avoid losing market share.

Competitors BC/BS of North Carolina and WellPath responded to UnitedHealthcare’s Multi-Choice offering by allowing smaller-size employers to offer multiple plans. BC/BS of North Carolina began offering its dual-option plans, such as a traditional PPO alongside a CDHP option, to groups with as few as 10 members. The Blue plan previously offered the dual-option only to groups of 25 or more. WellPath offers its dual-option—a choice between two healthcare products—to groups of 10 or more employees.

UnitedHealth Group’s fully insured business grew between July 2010 and July 2011 mostly due to its Edge product, which is offered to groups up to 300. Edge products require employers to use premium-designated hospitals and physicians to get the best reimbursement levels. Of the top four MCOs in the state, UnitedHealthcare was the only one with an enrollment increase.

» Pharmacy benefits:BC/BS of North Carolina is lowering generic copays from $10 to $4 on new and renewed plans in 2012, a move that will likely increase use of generics in the market.

BC/BS of North Carolina and WellPath both offer a drug card option that covers generics with a copay, but branded drugs are subject to a deductible, up to a certain dollar limit. FirstCarolinaCare, one of the smaller MCOs in the market, raised its generic drug utilization to 77 percent after implementing a policy that requires the use of generics instead of branded drugs.

BC/BS of North Carolina is switching to Prime Therapeutics for its pharmacy benefit management beginning April 1, 2012. The Blue plan’s PBM is currently Medco. BC/BS of North Carolina is purchas-ing an equity interest in Prime Therapeutics, a privately held company owned by nonprofit Blue plans and their affiliates. The change will allow BC/BS to better coordinate pharmacy and health manage-ment programs. Medco will continue to serve the Blue plan’s Medicare Part D customers.

BC/BS has established a network of accredited specialty pharmacies to make specialty drugs more affordable for its members. The network started in July 2011, and 13 pharmacies had joined the network by November 2011. Members with prescriptions for specialty drugs must use one of these pharmacies for prescriptions to be covered.

» Medical loss ratios:In February 2012, federal regulators allowed North Carolina insurers a one-year delay in meeting the medical loss ratio benchmark. Under federal healthcare reform, health plans are required to have a medical loss ratio of at least 80 percent of premiums in the small-group and individual markets and



at least 85 percent of premiums from large groups. North Carolina asked the federal government for a three-year, graduated delay for the small-group and individual markets: an adjustment to 72 percent in 2011, 74 percent in 2012, and 76 percent in 2013. The government granted an adjustment of 75 percent for 2011 only, with the 80 percent standard to apply in 2012.

» Value-based insurance design:BC/BS of North Carolina has maintained a large value-based insurance design program that offers no copays for generics and reduced copays for branded drugs. A research team from Duke University Hospital and the insurer released a study in November 2010 that found that program improved adher-ence to drugs for diabetes, hypertension, hyperlipidemia, and congestive heart failure.

» Legislation/regulation:In June 2011, the North Carolina Senate passed Senate Bill 517, a measure that aims to prevent most-favored nation contracts in which providers are required to give their lowest rate to the insurer that is the largest in the state. The bill has moved to the House and will likely be taken up in 2012, the second year of the two-year session.

» State Health Plan:Administration of the North Carolina State Health Plan, which covers more than 600,000 state employees, is up for bid for the first time since 2006. BC/BS of North Carolina administers the plan and has done so almost every year since it was first outsourced to managed care plans in 1972. The plan covers 664,000 state employees and paid out $2.5 billion in claims in 2011. The state says the insurer “must be able to demonstrate speed to market with new programs and an ability to bend the trend of healthcare costs.” The new contract starts July 1, 2013, and expires December 31, 2016.

» Health insurance exchange:In June 2011, Gov. Beverly Perdue (D) signed into law HB 22, a bill indicating the General Assembly’s intent to establish and operate a state-run health insurance exchange. In August 2011, the North Carolina Department of Insurance, working with the North Carolina Department of Health and Human Services, received a $12.4 million Federal Level One Establishment grant in August 2011; the state received a $1 million federal Exchange Planning grant in September 2011. The DOI has sought subcontractors in the planning and development of the exchange.



Blue Cross and Blue Shield of North Carolina Table 6-3: Commercial Enrollment

>>>

Fully Insured HMO:

Self-Insured HMO:

Fully Insured PPO:

Self-Insured PPO:

Fully Insured POS:

Self-Insured POS: Indemnity:

Local 598 768 155,147 60,452 0 0 1,966

Statewide 4,198 10,969 902,157 422,797 0 0 4,578Source: HealthLeaders-InterStudy, as of July 1, 2011.

Table 6-4: Government-Sponsored Enrollment>>> Managed Medicaid: Medicare HMO: Medicare PPO: Medicare PFFS: Other Medicare:

Local 0 7,381 1,560 0 0

Statewide 0 53,474 8,909 0 0Source: HealthLeaders-InterStudy, as of July 1, 2011.

Durham-based Blue Cross and Blue Shield of North Carolina is the largest MCO in the local market, where it has the largest PPO enrollment with a 41 percent market share, the third-largest managed Medicare enrollment and the second-largest managed Medicaid enrollment.

In North Carolina, the Blue plan is the largest MCO and has the largest PPO enrollment, and third-largest managed Medicare enrollment.

BC/BS offers HMO and PPO products, consumer-driven products, Medicare Advantage plans, Medicare supplement plans, and individual commercial policies. Blue Options 1-2-3 is one of the most popular prod-ucts; it allows employers to save up to 30 percent on premiums through tiered benefits. Primary-care and preventive services have the smallest copays, while inpatient hospital visits fall under the plan’s deductible and per-admission copayment. The highest out-of-pocket coinsurance is for specialist visits and outpatient hospital services.

The carrier’s consumer-driven product line includes a Blue Options health savings account for both small and large groups.

BC/BS of North Carolina’s Blue Advantage Saver plan offers 100 percent coverage for preventive care and limited copayments for office visits for members who see a physician infrequently. For the pharmacy costs under Blue Advantage Saver, members pay copayments and sometimes separate prescription drug deductibles before paying the copayments for the drugs. In this plan, hospital visits require deductibles to be met before coinsurance applies.

Due to flat enrollment gains, CEO Brad Wilson set a goal in 2010 to cut $200 million, or 20 percent, of annual administrative costs by 2014. The company’s reforms include steering members to low-cost provid-ers. In January 2012, BC/BS of North Carolina formed a joint venture with BC/BS of Kansas City to per-form claims processing, enrollment, and billing for both insurers’ individual and small-group customers.

BC/BS of North Carolina is one of the insurers under investigation by the U.S. Justice Department for forcing hospitals to sign contracts that stifle competition from rival insurers through most-favored nation clauses. Federal investigators sent civil subpoenas to Blue plans in Ohio, Kansas, Virginia, and North Carolina in early 2011.

In January 2012, the insurer rolled out a new website to give patients better access to cost information and out-of-pocket expenses, including information on the cost of 59 elective, or non-emergency, procedures.



The MCO has had significant increases in generic utilization (HealthLeaders-InterStudy data). The carrier urges members to pursue generics through its Medication Dedication program, a value-based insurance design that includes waiving generic copayments for enrollees with congestive heart failure, high blood pressure, high cholesterol, and diabetes. The program also drastically reduces copayments for brand-name drugs for those same conditions. The generic waiver program is for enrollees in Blue Advantage and Medi-care supplement plans and for members of fully insured and self-funded employer-sponsored plans that have pharma benefits through the Blue plan.

The Blue Quality Physician Program is designed to reimburse providers based on the quality of care they provide, rather than the volume of services. BC/BS pays 2 percent bonuses to physicians who electroni-cally file more than 50 percent of prescriptions covered by Medicare Part D. The insurer says the program promotes generics because physicians see more generics available through the electronic system.

BC/BS of North Carolina reported its net income rose 5 percent in 2011, to $177 million in consolidated net income, from $168 million in 2010. The company’s profit margin was 3.2 percent, unchanged from last year but slightly below the company’s long-range target of 3.5 to 4.5 percent.

In 2011, the Blue plan reported spending 85 cents per premium dollar on its customers’ medical care.



UnitedHealth Group Table 6-5: Commercial Enrollment

>>>

Fully Insured HMO:

Self-Insured HMO:

Fully Insured PPO:

Self-Insured PPO:

Fully Insured POS:


Local 2,628 0 7,768 4,828 33,418 100,429 3,916

Statewide 13,727 16 34,631 28,676 158,409 368,772 30,917Source: HealthLeaders-InterStudy, as of July 1, 2011.


Local 1,882 8,497 495 0 0

Statewide 0 87,116 5,657 4,861 0Source: HealthLeaders-InterStudy, as of July 1, 2011.

For-profit UnitedHealth Group is the second-largest MCO in the market and has the largest HMO enroll-ment, the largest point-of-service plan enrollment with 51 percent market share and the second-largest managed Medicare enrollment.

In North Carolina, UnitedHealth Group is the second-largest MCO and has the largest HMO enrollment, second-largest managed Medicare enrollment, and POS enrollment.

In 2011, UnitedHealthcare expanded its NowClinic telemedicine partnership into North Carolina, where it offers patients all-hours access to a physician who can diagnose minor medical conditions, prescribe some drugs, and offer chronic disease management through online video chat. NowClinic is provided by OptumHealth, which is part of UnitedHealth Group.

UnitedHealthcare’s One Hospital, One Nurse program uses registered nurses stationed in hospitals to con-sult with providers primarily about a patient’s care after discharge, acting as an advocate for the patient and finding the best fit for post-discharge care. Larger hospitals have an onsite nurse, while smaller hospitals typically have an assigned nurse who works by phone.

Through UnitedHealth Group subsidiaries Definity Health and Golden Rule, the MCO sells consumer-driven health plans.

UnitedHealth’s Premium Designation program recognizes physicians and hospitals in 21 specialties that meet or exceed standards for quality of care and cost efficiency. Physicians can receive financial payments through UnitedHealth Practice Rewards.

The Minnetonka, Minn.-based UnitedHealth Group reported $8.46 billion in earnings from operations in 2011, up from $7.86 billion in 2010. Revenues were $101.86 billion, up from $94.16 billion in 2010, while the operating margin was 8.3 percent, down slightly from 8.4 percent the previous year. As of year-end 2011, the company had 39.4 million medical members (including stand-alone Medicare Part D enrollment), a 5 percent increase from 37.5 million medical members in 2010.



Aetna Table 6-7: Commercial Enrollment

>>>

Fully Insured HMO:

Self-Insured HMO:

Fully Insured PPO:

Self-Insured PPO:

Fully Insured POS:


Local 7,199 1,701 10,711 112,675 0 0 4,096

Statewide 12,515 2,129 30,527 223,812 0 0 21,354Source: HealthLeaders-InterStudy, as of July 1, 2011.


Local 0 24 591 0 0

Statewide 0 48 3,386 0 0Source: HealthLeaders-InterStudy, as of July 1, 2011.

One of the nation’s largest insurers, Aetna is the Charlotte market’s third-largest managed care organiza-tion in total insured lives. Locally, it has the second-largest PPO, with the market’s largest self-insured PPO enrollment. It has relatively few fully insured PPO enrollees. Statewide, Aetna is the fifth-largest insurer.

Novant Health and Aetna ended a heated contract dispute in July 2010 by signing a two-year contract that made all of Novant’s physicians, services, and facilities in-network for Aetna enrollees.

Aetna has a pay-for-performance program in conjunction with Bridges to Excellence that gives physicians bonus payments per patient, per year for performance in one or more BTE programs, such as cardiac care, diabetes, and chronic back pain, as well as for establishing a medical home. Charlotte is among the 13 cities where this is offered.

Hartford, Conn.-based Aetna Inc. posted net income of $1.99 billion for 2011, a 12 percent increase from $1.77 billion in 2010. Total revenue in 2011 was $33.78 billion, a 1 percent decrease from revenue of $34.25 billion the prior year. Aetna had 18.5 million medical members, including 2.4 million members in con-sumer-driven health plans, nationwide as of Dec. 31, 2011.



Table 6-9: Health Plans and Pharmacy

Health Plan 2-tier Design% 3-tier Design% 4-tier Design%$Rx Generic

Copay$Rx Preferred Brand Copay

$Rx Nonpre-ferred Brand

Copay

BC/BS of North Carolina N/A N/A 100% $10.00 $30.00 $45.00

UnitedHealthcare 1% 90% 9% $10.00 $35.00 $60.00

Aetna 8% 58% 19% $10.00 $35.00 $60.00Source: HealthLeaders-InterStudy, July 2011 Pharmacy Benefit Evaluator. Tier design is national company data for all Rx benefits, copay data is for the most typical plan offering.

Table 6-10: Health Plans and Pharmacy Management

Health Plan PBM(s)PBM Provides Formularies or Formulary Consultation?

PBM Provides Consultations on Benefit Design?

BC/BS North Carolina Medco Health (Retail, Mail Order, Specialty) No Yes

UnitedHealthcare Medco Health (Retail, Mail Order, Specialty) No No

Aetna CVS/Caremark (Retail, Mail Order, Specialty) No No

Source: HealthLeaders-InterStudy, July 2011 Pharmacy Benefit Evaluator. National company data.

Table 6-11: Health Plans and Generics

Health PlanPercent Spent

on Generics Percent Spent on Preferred BrandsPercent Spent

on Nonpreferred Brands

BC/BS North Carolina 27% 38% 35%

UnitedHealthcare 20% 49% 31%

Aetna 20% 53% 27%Source: HealthLeaders-InterStudy, July 2011 Pharmacy Benefit Evaluator. National company data for all Rx benefits.

Note: For more information about health plans and pharmacy benefits, please contact HealthLeaders-InterStudy about purchasing access to the Pharmacy Benefit Evaluator. Additional coverage includes indi-cators of commercial, Medicaid and Medicare business opportunity; indicators of branded drug coverage; indicators of access to biological drugs; drug expenditures by therapeutic class; and indicators of plans’ ability to control Rx benefit.



Medicaid/Medicare/Uninsured

Table 7-1: Medicaid>>> Total Beneficiaries: Percent of Population: MCO-Managed Medicaid: MCO-Managed Medicaid:

Local 262,401 15% 15,022 6%

State 1,616,117 17% 0 0%Source: HealthLeaders-InterStudy, as of July 1, 2011.

In 2011, lawmakers made $3.5 billion in cuts to balance the state budget; as part of those efforts, the Med-icaid budget was reduced by $356 million. Hospitals took the brunt of the latest round of rate cuts with a 9 percent reimbursement reduction to spare physicians from having their own rates lowered. Further provider rate cuts could be on the table as the General Assembly seeks to cut $407 million from the 2012 state budget.

The state of North Carolina operates a public/private medical home model for Medicaid enrollees called Community Care of North Carolina. The program is a collaborative effort of the state and 14 nonprofit, regional community care networks that manage medical services for low-income adults and children enrolled in Medicaid and Health Check, the state Children’s Health Insurance Program. Providers in the program include hospitals, primary-care physicians, county health departments, social services depart-ments, and other stakeholders. CCNC saved nearly $1.5 billion in Medicaid spending from 2007 to 2009, according to a June 2011 analysis from Treo Solutions, a healthcare analytics consultant. Enrollment has increased 33 percent between 2007 and 2010.

NC Health Choice covers children of working families who do not qualify for Health Check but who may not be able to afford private insurance. For a child to qualify, a family’s monthly income must not exceed 200 percent of the federal poverty level.

The CCNC’s Pharmacy Home Project provides medication management and coordination tools to phar-macists, nurses, and other health professionals. Pharmacy Home serves as a virtual databank of drug-use information from multiple sources and is being used to inform prescribing and intervention strategies. Pharmacists who are in the CCNC network use Internet-based software to exchange patient information among case managers, physicians, and pharmacists within the community. The Pharmacy Home Project has three criteria for patient enrollment; this includes taking a large number of drugs within a three month periodand visiting more than three medical practices in a six-month period Patients must be referred to the Pharmacy Home by prescribers, case managers, or network pharmacists.

The state Medicaid program is taking an active role in moving members to generics and low-cost alterna-tives to high-priced brands.

North Carolina is one of 15 states that received $1 million from the Centers for Medicare & Medicaid Ser-vices to integrate care for residents dually eligible for both Medicaid and Medicare. North Carolina will use the money to design a healthcare delivery system for dual-eligibles through its current CCNC infrastruc-ture. The program will target all 100 counties and approximately 284,000 enrollees in 2012.



North Carolina’s Medicaid program has launched an initiative aimed at reducing the number of infant deaths and premature births in the state. When a pregnant woman is determined to be at risk, the physician alerts a case manager with the North Carolina Public Health Department to coordinate her care during the pregnancy. As part of the program, providers agree not to perform elective deliveries before 39 weeks. The number of pregnant women enrolled determines what physicians are paid.

Table 7-2: Medicare

>>>

Total Beneficiaries:

Percent of Population: Medicare HMO: Medicare PPO: Medicare PFFS:

Other Managed Medicare:

Total MCO-Managed

Medicare:

Local Medicare 220,696 13% 18,502 8,840 7,307 29 16%

State Medicare 1,528,319 16% 150,828 62,018 54,423 358 18%Source: HealthLeaders-InterStudy, as of July 1, 2011.

Table 7-3: Prescription Drug Plan>>> MA-PDP: Stand-alone PDP: Total PDP Penetration:

Local PDP 31,169 99,631 59%

State PDP 234,475 672,246 59%Source: HealthLeaders-InterStudy, as of July 1, 2011.

North Carolina is a single region for stand-alone Medicare Part D drug plans and joins with Virginia to form a single region for Medicare Advantage plans with an attached prescription drug benefit.

Humana is the largest provider of managed Medicare in the Charlotte region. BC/BS of North Carolina and UnitedHealth Group have almost equal market shares at about 26 percent each.

Humana’s pending acquisition of Arcadian Management Services will expand HMO products for man-aged Medicare to the east coast of North Carolina, where Humana did not previously offer an HMO. The acquisition will increase Humana’s market share in the state, potentially solidifying it as the second-largest Medicare Advantage plan there. Humana also offers PPO and private fee-for-service Medicare plans in North Carolina.

BC/BS of North Carolina’s Medicare plans have the highest star ratings in the state (four stars). BC/BS offers five HMO and PPO plans in 75 counties. Humana is focused on boosting its plans’ star ratings. Two of its plans in North Carolina saw their star ratings improve in 2012.

The star-ratings bonus the MA provider will receive for having an overall rating of at least 3 stars will benefit beneficiaries. BC/BS of North Carolina says it will reinvest the star-rating bonus back into the plans to lower premiums and improve benefits. This will improve retention while attracting new members. The North Carolina Blue plan is making seniors aware of its star rating and the importance of the ratings through advertising and other marketing initiatives. The MA provider also sends people to the Medicare website, which has star ratings for all plans, so they can make an informed decision and measure the plans themselves.

The Community Care of North Carolina program for low-income Medicaid patients became available to low-income, dual-eligible Medicare patients and some Medicare-only enrollees in January 2010 through a Centers for Medicare & Medicaid Services pilot project. The pilot is part of the national, five-year Medicare Health Care Quality program mandated by Congress.

The project runs through May 2014 and is set up to improve what CMS officials say is a fragmented system of care for dual-eligibles in places such as North Carolina, where primary care for Medicaid beneficiaries is



coordinated but does not extend to Medicare recipients. The new Medicare project uses a physician-direct-ed care management approach combined with information technology applications designed to support care coordination and evidence-based medicine. The project operates in 26 of the state’s 100 counties. The program provides shared savings payments to physicians, and at least half of those payments are contingent upon achieving targets on a set of performance measures, including those for diabetes, heart failure, and transitional care (HealthLeaders-InterStudy).

Beginning April 2, 2012, UnitedHealthcare will require prior authorization for select specialty drugs pre-scribed by physicians in North Carolina. This requirement excludes specialty drugs for services that take place in an emergency room, observation unit, urgent-care facility, or during an inpatient stay.

Table 7-4: Uninsured>>> Uninsured: Percent of Population:

Local 288,754 16%

State 1,548,148 16%

National 47,384,967 15%Source: HealthLeaders-InterStudy, as of July 1, 2011.

North Carolina’s uninsured population has increased sharply since 2000 (North Carolina Institute of Medicine, 2010), and much of this increase is due to large-scale declines in employer-sponsored insurance, brought on by fewer small employers offering healthcare coverage for workers. There is also a smaller number of workers who can afford to buy insurance even when options are available.

Care for the uninsured is somewhat limited in Charlotte. Even though Charlotte is the 20th-largest city in the United States, it only has one Federally Qualified Health Center, C. W. Williams Health Center. Both Carolinas HealthCare System and Presbyterian Healthcare have submitted letters supporting a new com-munity health center. That free clinic opened in Charlotte in February 2011 to serve uninsured children, an expansion of the Charlotte Community Health Clinic, which treats uninsured adults. The pediatric office is staffed by nurses who speak English and Spanish. The clinic will accept children referred by Presbyterian Healthcare’s Community Care Cruiser, the system’s mobile health clinic. After three years in operation, the cruiser found 1,600 children with no medical home so Presbyterian Healthcare approached the clinic about becoming partners. The mobile clinic offers free immunizations and wellness checkups for uninsured children. Presbyterian is leasing the building to the pediatric clinic for $1 a year. The clinic would like to become a FQHC.

Mecklenburg County voted in 2011 to stop funding for indigent care to its hospitals. Presbyterian Health-care receives about $900,000 for indigent care from the county. About $16 million goes to Carolinas HealthCare System, which gets the most reimbursement because it operates four clinics specifically for underserved patients, serving 235,000 patients per year. Presbyterian supports two free clinics and operates the mobile health clinic. Mecklenburg was the only North Carolina county that subsidized indigent care.

North Carolina operates a preexisting condition insurance plan, which is run by the North Carolina Health Insurance Risk Pool (Inclusive Health). Monthly premiums vary by region, ranging from $69 to $548.



Pharmacy O THIS SECTOR IS: NEUTRAL

North Carolina continues to rank low in terms of health status and has a per-capita prescription drug fill rate higher than the national average. Although these factors bode well for the pharmacy sector, health plans and the state Medicaid program have stepped up efforts to steer patients to generics and lower-cost drugs. High consolidation in the Charlotte market can also create barriers for sales representatives’ access to physicians.

As of July 1, 2011, Medicare Advantage PDP and stand-alone PDP enrollees combine for a market penetra-tion of 59 percent in the Charlotte market, versus 61 percent nationwide (HealthLeaders-InterStudy).

Factors that are favorable to pharmaceutical sales include the following:

» All three of the largest insurers in the Charlotte market spend more on preferred brands than on generics.

» North Carolina continues to rank low among other states in its health status, although it showed improvement in 2011, rising to 32nd overall from 35th last year. The prevalence of diabetes and obesity has continued to rise in North Carolina over the last 10 years, while the prevalence of smoking has declined.

» Raleigh-based Kerr Health struck a deal with the touch-screen computer and software company Family Health Network to implement a program to track whether patients at high risk of side effects take their drugs properly. Kerr Health is part of Kerr Drug, a chain of pharmacies with locations in Charlotte. The technology will give pharmacists a direct daily link to patients to detect drug regimen errors and could improve compliance with drug prescriptions.

» In 2009, generic utilization in North Carolina’s Medicaid program was 65 percent, lower than the national average of 68 percent (IMS analysis commissioned by the Generic Pharmaceutical Association).

» About 123.8 million prescriptions were filled in North Carolina at a total value of $7.8 billion in 2010 (analysis of data by the Kaiser Family Foundation). About 12.9 prescriptions were filled per capita versus the national average of 11.1, ranking the state 19th in the nation on that measure. The $62.94 average cost per prescription is the eighth-highest in the nation versus the national average of $59.49.

» About 63 percent of North Carolina residents purchased prescription drugs in 2007 versus the national average of 61.7 percent (Agency for Healthcare Research and Quality). The annual average expense among residents purchasing prescription drugs was $1,275 versus the national average of $1,251, ranking the state 13th among the 34 states reported. The average amount paid out of pocket was 26.5 percent, the 26th-highest among reported states, versus the national average of 27.7 percent.

Factors that are unfavorable to pharmaceutical sales include the following:

» Average HMO spending on prescription drugs on a weighted per-member, per-month basis decreased from $67 in 2009 to $58 in 2010 in North Carolina. UnitedHealth Group, which has the largest HMO enrollment in the market, saw its average PMPM spending on prescription drugs decrease to $57 from $59 for HMO members.

» High-deductible health plans are growing in the Charlotte market, affecting patients’ willingness to pay out of pocket for drugs. From 2010 to 2011, the number of covered lives in a HDHP with an HSA rose 23 percent in North Carolina (America’s Health Plans, 2011).



» BC/BS has a heavily utilized prior-authorization program, and its list of procedures and drugs is growing. In July and October 2010, the insurer began requiring prior authorization for the following drugs: Provenge, Xiaflex, Actemra, Hizentra, Stelara, and Gammaplex. The Blue plan has also lowered generic copays from $10 to $4 on new and renewed plans in 2012. In addition, the carrier offers a drug card option that covers generics with a copay; branded drugs are subject to a deductible.



Legislation In June 2011, the Republican-led North Carolina General Assembly overrode Gov. Bev Perdue’s veto and passed a new budget with a wide range of cuts targeting the state’s Medicaid program, including reducing hospital reimbursements but protecting physicians from another rate cut. However, the two-year budget that was passed will be reviewed in 2012, and more cuts to provider rates are possible.

Physicians won the fight to implement meaningful medical malpractice reforms in 2011, and providers expect the state’s certificateof- need law to be under close scrutiny in the coming year. Lawmakers will also likely address how to create a state-run health insurance exchange. The North Carolina General Assembly convened on February 16, 2012, for a continuing session of the 2011–2012 biennium. Lawmakers will also convene for a short session on May 16, 2012, to review the biennial budget passed in 2011. No adjournment date has been set.

In South Carolina, a state committee is studying the certificate-of-need process. The governor removed funding for CON in her budget, but the General Assembly has since restored that funding. With regula-tions now up for review, it appears there will be continued discussion about the purpose and need for CON review.

Table 9-1: Summary of Recent LegislationBill Name and Number Description Status and Date

North Carolina Health Benefit Exchange (HB 115)

Would authorize the creation of a North Carolina Health Benefit Exchange In committee

May 2011

Health Insurance Risk Pool (HB 138)

Increases the number of successive terms that board members can serve from two to three and adds language to specify that funding from premium subsidies may come from both federal grants and the pool’s own funding

Signed by governor

April 2011

Insurance Copays for Chiropractic Services (HB 496)

Would require insurance copays for medically necessary chiropractic services to be equal to or less than copays required for primary-care services

In committee

March 2011

Tort Reform (HB 542) Requires that juries see the actual amounts paid to satisfy medical bills instead of the full charges billed by a provider

Signed by governor

June 2011

State Health Plan (HB 578) Allows the State Health Plan to enact cost-saving measures, such as wellness programs, and use those savings to allow all state employees to enroll in the basic coverage plan without a monthly premium for fiscal years 2011–2012 and 2012–2013

Signed by the governor

May 2011

Hospital Medicaid Assessment (SB 32)

Hospitals will pay an assessment to gain more federal matching dollars for Medicaid Signed by governor

March 2011

Medical liability reform (SB 33) Limits the amount of non-economic compensatory damages that can be awarded in medical malpractice cases to $500,000 and separates trials for negligence and damages, among other provisions (effective October 1, 2011)

Governor’s veto overridden

July 2011

Expand Pharmacists’ Immunizing Authority (SB 246)

Would allow pharmacists to administer vaccinations to patients over age 18 In committee

June 2011

Smart Card Biometrics Against Medicaid Fraud (SB 307)

Creates a pilot program under the Department of Health and Human Services to use Smart Cards in place of Medicaid Assistance cards; Smart Cards allow provid-ers to check recipient eligibility at the time of service

Signed by governor

June 2011

State Health Plan (SB 323) Requires monthly premiums to be paid by state employees; retirees remain eligible to enroll in the Basic plan without a monthly premium; repeals Comprehensive Wellness Initiative

Signed by governor

May 2011



Statewide Health Information Exchange (SB 375)

Regulates the disclosure of protected health information through the secure elec-tronic transmission of individually identifiable health information among health-care providers, health plans, and healthcare clearinghouses that are consistent with HIPAA

Signed by governor

June 2011

Medicaid and Health Choice Provider Requirements (SB 496)

Requires the state to implement a process to screen those seeking to become Medicaid providers as required by the Patient Protection and Affordable Care Act

Governor’s veto overridden

July 2011

Freedom to Negotiate Healthcare Rates (SB 517)

Would allow healthcare providers and managed care organizations to freely negotiate reimbursement rates by prohibiting contract provisions that restrict rate negotiations

In committee

June 2011

Electronic Prescription Rules (SB 774)

Would require the North Carolina Board of Pharmacy to adopt additional rules relating to electronic prescriptions

In committee

April 2011

South Carolina

Healthcare Constitutional Amendment (HB 4424)

Would preempt federal law or rule restricting peoples’ choice of private health-care providers or the right to pay for medical services

In committee

Prohibit DHHS From Reducing Provider Rates (SB 434)

Prohibits the Department of Health and Human Services from reducing provider rates; requires that proposed changes in provider rates must include estimates of savings, number of providers, and patients affected

Signed by governor April 2011

Tort Reform (SB 772) Would provide that a person may recover the actual amount of economic dam-ages; would limit noneconomic damages caused by a licensed physician or dentist to $350,000

In committee




Employers O THIS SECTOR IS: NEUTRAL

Sector OutlookHaving only two major health systems in a city as large as Charlotte is a concern to local employers, who are worried that such heavy consolidation could eventually mean no competition in the healthcare sector. Employers are hopeful that efforts to improve the quality of care but bring down costs, such as Blue Cross and Blue Shield of North Carolina’s medical home practice for patients with chronic diseases in Raleigh, will materialize in Charlotte as well. BC/BS has said if the medical home program with UNC Healthcare is successful in lowering costs and increasing quality, it will expand the program. For now, employers are increasingly using high-deductible health plans, as well as wellness programs and onsite clinics, as a strat-egy for lowering costs. Large employers in the state are hoping a successful medical home program used by Medicaid beneficiaries will cut their healthcare costs.

Despite Carolinas HealthCare System’s large size, narrow networks are uncommon in this market because most residents seem to have an aversion to the HMO benefit design. But medical home/quasi-HMO prod-ucts with narrower networks based on quality are likely on the horizon for this market.

Also, Blue Cross and Blue Shield of North Carolina plans to begin offering provider cost information in 2012, which will help employees with an HDHP to choose lower-cost providers. Expect continued move-ment toward HDHPs and eventually narrowed networks.

Highlights:

» Economy: While Charlotte is known as the nation’s bank capital, it has several other industries driving its economy, namely healthcare and energy, which have grown over the last few years. Charlotte-based Duke Energy Corp. is in the process of acquiring Raleigh-based Progress Energy, dependent on regula-tors’ approval, to create the nation’s largest utility headquartered in Charlotte. The city also has seven Fortune 500 companies headquartered in its borders, including Bank of America.

Unemployment has remained relatively high, as banks and manufacturing have both been hurt in the recession. Charlotte’s unemployment rate was 9.9 percent in November 2011, down from 11 percent November 2010, and much higher than the 8.2 percent rate nationally for November 2011.

» Plan design/premiums: Sixty percent of North Carolina employers planned to shift more costs to their employees in 2012 by raising deductibles, copays, coinsurance, or out-of-pocket maximums or by increasing the employee’s share of premiums, according the Mercer’s National Survey of Employer-Sponsored Health Plans. That compares to 50 percent nationally.

Thirty-six percent of North Carolina employers offer a high-deductible health plan, compared with 32 percent nationally. Brokers say these plans have become very popular with Charlotte employers over the last few years and have increased in utilization by employees. For employers who offer both a CDHP and traditional copay plan, insiders are seeing more enrollment in the CDHP option now. The average benefit cost in North Carolina rose 5.7 percent in 2011, and the average benefit cost was $9,412.



Premiums have risen 7 to 9 percent on average for employers in Charlotte. Broker say employers that are offering a traditional plan and an HDHP are eventually switching to only an HDHP once they see the cost savings.

UnitedHealthcare is reportedly finding a receptive audience for its Multi-Choice product, which allows employers to choose from 31 plans. Most employers choose three to five of the plans to offer employees, allowing them to provide their employees choices that only large employers typically have been able to offer in the past. The employer pays UnitedHealthcare a flat rate, and employees can then choose a plan based on affordability or coverage options.

» On-site clinics/wellness initiatives:Charlotte employers are offering wellness programs and on-site clinics through the market’s two larg-est health systems. A Healthiest Employers survey of Charlotte employers found that 31 percent spend up to $99 a year per employee to encourage participation in wellness programs. Some of Charlotte’s employers spend more than $1,500 annually per employee.

Both Carolinas HealthCare System and Presbyterian Healthcare have conducted health fairs, employ-ee health screenings, counseling, and on-site clinics staffed by nurse practitioners for employers.

Carolinas HealthCare offers Carolinas Corporate Health & Wellness, which contracts with 1,800 employers in the 14-county Charlotte region. Novant offers its “Work Well Be Well!” program to employers for screenings, educational campaigns, or developing a complete wellness program. Novant has contracts with nearly 1,900 employers, including 700 in the Charlotte area.

Employer Charlotte Pipe & Foundry Co., which has 1,900 employees in the Charlotte area, said its on-site clinic has resulted in employees spending less time away from their jobs and seeking medical attention more often. The company has seen lower prescription costs as generic drugs are more often prescribed.

» Consumer-directed health plans: With the sharp rise in high-deductible plans, brokers have been pushing employers and employees to question the pricing they get from their providers, especially extra tests. Since CDHP is often the only affordable option for small businesses in the market, the burden of cost shopping is moving more heavily to employees in this market. A new transparency online service from BC/BS of North Carolina expected for 2012 would help employees “shop” for their healthcare and compare prices.

» Medical home: Community Care of North Carolina, the state’s medical home program for Medicaid beneficiaries, has saved so much money for the state that private employers are hoping it will work for them. CCNC has joined with BC/BS of North Carolina, GlaxoSmithKline, SAS Institute in Charlotte, Kerr Drug, and the North Carolina State Health Plan to offer the medical home option in a new program called First in Health. CCNC is a community-based, public-private partnership that works on improving health-care and containing costs by employing a population management approach to healthcare delivery.

Employees at the companies participating in the First in Health program can voluntarily enroll. At GSK, employees in one of the company’s two PPO plans could choose to enroll in the program starting in January 2012. They choose a First in Health primary-care physician, and copays normally charged for seeing that physician are paid by GSK. The employer provides health insurance for about 10,000 employees, retirees, and dependents. Employees who want to see a primary-care physician who is not participating in First in Health can do so and pay the copay. GSK is paying physicians a per-member, per-month fee for each employee assigned to a medical home. The fees will help fund improved health information technology systems and enhance care coordination. Kerr Drug expects to offer the



program in 2013. The State Health Plan will begin offering access to CCNC medical homes in some counties in fall 2011 and offer the option to 400,000 enrollees in 100 counties by 2014.

» State employee program: BC/BS of North Carolina contracts with the state of North Carolina to administer the State Health Plan for about 664,000 state workers, teachers, and retirees. The Legislature controls benefits and premium levels for the State Health Plan, but BC/BS provides administrative services.

An audit in fall 2011 found the State Health Plan potentially made $48 million in benefit overpayments from 2008 to 2010. The audit also found the state plan lacks the infrastructure to recover overpayments and does not have the checks in place to prevent benefit payment errors. Those errors occurred when BC/BS of North Carolina paid claims that should have been picked up by Medicare or other insurance providers.

Administration of the North Carolina State Health Plan is being put out for bid for the first time since 2006. BC/BS of North Carolina has administered the plan nearly every year since its administration was first outsourced to managed care plans in 1972.

Business CoalitionsThe North Carolina Business Group on Health provides a forum for employers and providers to work together to improve healthcare quality and reduce the cost of medical care. The group represents self-insured and fully insured businesses.

Based in Charlotte, The Employers Association provides human resource group services for its members, including advice, research, information, and training. The association serves more than 860 member organizations of all sizes and industries, both public and private.

Employers Coalition of North Carolina is a partnership of three employer associations in the state—Capital Associated Industries, The Employers Association, and Western Carolina Industries in Asheville—and their 2,500 members. The coalition is the lobbying arm of the business community.



Demographics & Statistics Table 11-1: Charlotte, NC Demographics & Statistics

July 2011 % Change

Population 1,758,038 0.7%

# of HMOs 20

Managed Care Market July 2011July 2011

National Avg.

Total HMO Enrollment 58,933

HMO Penetration % 3.4% 22.8%

Medicare % 15.7% 25.7%

Medicaid % 5.7% 55.1%

Public Insurance* 2011 2010 2009

Medicare AAPCC $815 $815 $819

Physician Supply (2011)** Physicians/100K Population

Number % of Total Regional National

Primary-Care Physicians 1,280 37.5% 72.8 67.7

Specialists 2,135 62.5% 121.4 113.0

Total Patient-Care Physicians 3,415 100.0% 194.3 180.7

Hospitals*** 2011 2011 National Avg.

Number of Hospitals 12 N/A

Acute-Care Beds per 1,000 Pop. 2.0 1.6

Inpatient Occupancy Rate 70.0% 60.7%

Average Length of Stay (Days) 4.6 4.7

Note: HealthLeaders-InterStudy relies on third parties to assemble some of the data above. Variations in these firms’ methods may introduce inconsistencies when comparing their data.

*Rates were identical In 2010 and 2011 in accordance with the Health Care & Education Affordability Reconciliation Act of 2010.**Office-based physicians only.**Calculations exclude the following hospital types: federal, state, psychiatric only, rehab only, nursing home, skilled nursing facility care, and long-term acute care.

Sources: HealthLeaders-InterStudy; Billian’s HealthDATA; SK&A Information Services Inc.



Vice President, Market Analysis Sheri Sellmeyer

Vice President, Development Deb North

Principal Director, Managed Markets Analysis Carolyn McMeekin

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Assistant Directors, Managed Markets AnalysisRenée Burnham, Josh Kelley, Dave Raiford

Principal AnalystPaula Wade

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JENNY KERRCharlotte Market Analyst

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