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ABOUT THE LIST–Consolidation Recurring Phenomenon in PPO Industry

Every year San Diego’s PPO industry seems to change.

One year it’s competitive, the next year it’s almost as if a monopoly dominates the market. Some years it seems everybody has insurance and some years, like the last several, it seems nobody has insurance.

In the last five years, a distinct pattern has developed in the local PPO industry , good for some, bad for others.

The San Diego Business Journal’s List this week ranks San Diego County PPOs by the number of subscribers. The List only counts subscribers and not dependents.

The PPO List is characterized by the small , Aetna, No. 6, with 10,698 subscribers , and the big , CCN, No. 1, with 187,500 subscribers.

The huge difference in the number of subscribers is not based on a large number of substitute firms , there are only six PPOs on The List. It’s not because the local population has declined, either, although a large number is without health insurance.

– Competition Affects

Subscriber Numbers

Rather, it is a result of natural competition, members of The List said.

“What’s happened in San Diego over the last five years is tremendous consolidation in health care started by the HMOs coming into the (PPO) marketplace and taking over a lot of the market share,” said Kevin Conley, regional marketing director for Pacific Foundation for Medical Care, No. 4 on The List.

At the same time, local PPOs merged and bought each other out on the national and statewide levels.

The highlight on the local level was CCN’s acquisition by Columbia HCA through its parent company, Value Health, in 1997. CCN’s additional subscribers made it the “900-pound gorilla” of the local managed health industry, Conley said.

In September 1999, Pacific Foundation merged with a sister organization in Napa, Calif. The smaller available market share in San Diego necessitated the deal to save Pacific Foundation’s “bottom line.”

– Merger Followed

By Downsizing

After the merger, Pacific Foundation downsized local operations to three employees from 26 a year ago and cut subscribers from 176,480 to 74,380. The dramatic downsizing forced Conley to refocus his marketing strategy.

“We’re marketing more of the statewide network instead of just the local network,” Conley said. This program started in the last six months. “What employer groups are wanting to see is more of the one-stop shop. They would prefer to contract with either a statewide PPO, where they can unload all the employee information one time, or a national PPO.”

The benefits of doing that is Conley can present “the whole ball of wax” to prospective clients. So far the program is being received well, he said.

As for King Kong at the top of The List, things just keep rolling along at CCN, said Terry Merryman, director of marketing communications. Merryman has spent her entire 15-year professional career as a health care employee in San Diego.

– Nation’s Largest

PPO Tops The List

CCN is No. 1 on this year’s PPO List with 187,500 San Diego County subscribers and 32 million throughout the country. CCN is the largest PPO in the nation with providers in 46 states.

Merryman said organizations like hers are gaining on HMOs. Where PPOs represented 35 percent of the managed health industry in 1997, they accounted for 43 percent last year.

“That’s creating new opportunities for us” by being able to contract with HMOs looking for servers to care for their members wherever they are, she said.

The fact that employers are looking for one-stop shops hasn’t been lost on CCN.

“It’s sort of the name of the game now,” she said.

As large conglomerates continue to expand to different parts of the country, Merryman said, it is relatively easy to market CCN’s plans because it can service multi-site companies. Plus being a San Diego-based health organization allows it to tap into the growing local business scene.

“We have great relationships with brokers and consultants who put the (small business) packages together,” Merryman said.

CCN believes it can expand its service base through the Internet, Merryman said. Already the PPO receives 4 million hits a month on its Web site because it has 350,000 providers online.

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