Tenet vs. HCA in El Paso: How Hospitals Go To War

(MoneyWatch)  For a rare look at how hospitals compete for the commodities that really matter to them -- primarily patients and their insurance coverage -- check out a rough and sometimes brutal war Tenet Healthcare has waged with its larger rival HCA in El Paso, Tex., for much of the last past year.

The weapons in this case are discounts and "exclusive provider" arrangements that hospital chains use to lock in customers -- in this case, El Paso County's $10 million, self-funded public-employee health plan -- and, not coincidentally, to lock out their hospital rivals. At ground zero in this battle are third-party health-plan administrators, middlemen who bear the brunt of the hospitals' competitive positioning.

Like many healthcare-business stories, the details of this one get pretty hairy very quickly. So here's a broad outline of the conflict and what it stands to cost cash-strapped local government in western Texas. For much of what follows, I'm indebted to the work of David Crowder, a reporter for Newspaper Tree, which bills itself as El Paso's online newspaper.

• Five years ago, HCA struck a sweet deal with the county that favored its hospitals over Tenet's. Under its terms, the county health plan covered 80 percent of medical costs for public employees at HCA facilities, but only 60 percent for those admitted to Tenet's hospitals. HCA offered steep discounts on hospital fees in exchange for this "exclusive provider" status, thus saving the county money.
• Earlier this year, Tenet decided it would no longer tolerate this arrangement and began to play hardball. It leaned on third-party health-plan administrators for two school districts in the county, including Cigna and a much smaller local outfit called Foresight TPA, a unit of the publicly traded Access Plans USA.
• Tenet effectively told the administrators that they could no longer offer plans that favored HCA. Foresight president Michael Puestow, who came out of retirement to manage the company as it prepared for a merger, said Tenet "began to reinterpret the contract in a way that said we were unable to offer anything that didn't have Tenet at the highest level."
• On May 30, Tenet initiated arbitration against Foresight, seeking damages in excess of $5 million for alleged breach of contract. The two sides settled the case in September on undisclosed terms. Access Plans CEO Ian Stuart told Crowder that "a business decision I made was to agree to conform to the way they have chosen to do business in the El Paso market with all the third-party administrators they do business [with]."
• Tenet then offered the county a new deal through Foresight -- one that would make Tenet the county's exclusive provider, effectively shutting out HCA. County commissioners rejected that offer, and instead agreed to open up their health plan to put HCA and Tenet on an equal footing. Under the new arrangement, the plan will pay 80 percent of employee expenses at both hospital chains.
• As a consequence, however, HCA will apparently ratchet back its discounts since it will no longer be the county's exclusive provider. A county consultant estimated that the open-access plan could cost the county $800,000 more every year than its previous arrangement with HCA or the proposed exclusive deal with Tenet.

Most people could be forgiven for thinking that hospital management is a pretty staid affair, one about as exciting as selling insurance. Hospitals themselves, of course, do a lot to further that perception, marketing themselves as smooth-running palaces of high-tech medicine filled with smiling doctors, caring nurses and grateful patients. As it turns out, though, the underlying reality can be a lot more interesting than most hospitals want to let on.

Image of Vietnam-era field hospital via Flickr user otisarchives3, CC 2.0