Sierra Health expanding along with community

By Michelle Swafford / Staff Writer

Las Vegas-based Sierra Health Services announced recently that it plans to expand its portfolio of local health care offerings and remain the dominant managed-care insurer.

The company held its annual investors' day in New York City on Dec. 13, painting a picture of prosperity despite some industry challenges.

"The big picture takeaway is that the fundamental business continues to be extremely solid for Sierra," Carl McDonald, a managed-care analyst with CIBC World Markets, said this week.

He said Sierra benefits from its health plan enrollment growth and its unit cost advantages over its competitors such as the best hospital contracts in the city and its own physicians' group.

But 2006 will likely bring contentious contract renegotiations between Sierra and HCA -- owner of Sunrise, Mountain-View and Southern Hills hospitals in Las Vegas -- before the contract expires at the end of the year.

That is Sierra's main challenge in the year ahead, McDonald said.

"Both sides have taken a fairly hard-line stance to date, which isn't that surprising," he said, adding that there is said to be a significant difference between the rate increase HCA wants and the reimbursement increase Sierra is offering.

"It's going to be difficult for HCA to walk away from this contract because Sierra is 20 percent of HCA's business in Las Vegas," McDonald said. Under the current contract between the companies, HCA hospitals are guaranteed 50 percent of the bed-days occupied by Sierra health plan members and that provision expires at the end of 2006. (Bed-days are the number of days a patient occupies a bed.)

McDonald said it is likely both companies will reach a contract extension in about six months and accept the fact that "life is better with each other than it is without each other."

But, he added, Sierra is preparing the market for health plans that do not include HCA hospitals in Las Vegas.

Currently, Sierra has hospital contracts with all of the 11 Las Vegas Valley hospitals.

Although hospital negotiations may be painful for Sierra in the coming months, medical clinic expansions and membership growth remain priorities for the company. Sierra is expanding its surgery center and adding two Southwest Medical Associates clinics -- one in the southwest part of the valley and one in the northwest.

Southwest Medical Associates clinics are being added about every 18 months to keep pace with the valley's growth, Sierra spokesman Peter O'Neill said. Those 13 clinics provide primary and specialty care and although voluntary, 75 percent of Sierra's health plan members chose treatment from those doctors.

Sierra also announced that it is considering building a long-term acute care facility and a sub-acute care facility on nine acres at its corporate campus in northwest Las Vegas.

The facility would be about 132,000 square feet with 120 sub-acute beds and 60 long-term acute care beds for patients who still need one-on-one assistance for ventilators or other acute conditions, O'Neill said.

Sierra would likely compete with Kindred Healthcare and HealthSouth for those services in Las Vegas.

While Sierra would have equity in the facility, it would not operate it, O'Neill said.

"The company is not in the hospital operating business," he said. "We are estimating that, assuming we can get financing and get the right hospital operator, we would break ground in late 2006. It's still preliminary."

Sierra is increasing its emphasis on health care delivery because it wants to improve its efficiencies and the company can't "pay a claim faster or answer a customer service call any faster," O'Neill said. "The best efficiencies can be found in the delivery system."

Anytime there is a lack of capacity or quality or rising costs, Sierra considers bringing that service or process in house, he said.

In addition to Sierra's physicians' group, Sierra owns a home health agency, in-home hospice service, durable medical equipment supplier and behavioral health services.

Sierra said the number of people it insures continues to grow at a steady rate -- in large part because of the continuous Las Vegas Valley population growth. As of Sept. 30, the company insured 251,000 Nevadans with commercial health plans, 55,200 Nevadans with Medicare plans and 53,300 Nevadans with Medicaid plans.

In 2005, Sierra projected it would increase its membership by between 6 percent and 7 percent and it actually is growing between 11 percent and 12 percent -- 23,500 of those members were Las Vegans, O'Neill said.

Overall, Sierra's Health Plan of Nevada insures about 78 percent of Clark County residents on health maintenance organizations and 66 percent of Nevadans on HMOs.

"We believe we can still grow this market," O'Neill said.

In 2006, Sierra projects it will increase the number of people it insures by between 6 percent and 9 percent, O'Neill said.

"The national average amongst large managed-care companies is in the low single-digit increases -- 3 to 4 percent commercial growth," he said. "Sierra defies those odds èè growing 10 to 12 percent (in the last several years.)"

While Sierra is confident about its market position in the Nevada insurance industry it is prepping for additional competition from national companies such as UnitedHealth Group and Cigna, which have both acquired local companies to increase their presence.

"The company doesn't rest on its laurels," O'Neill said. "Even though we haven't seen it yet, competition will start to heat up with United's acquisition of PacifiCare. They bring a certain amount of efficiency to their own operations, which might make them a more formidable competitor than PacifiCare was. We don't think the competition will ratchet up as quickly as Wall Street does."

While Sierra balances its company successes, it will continue to focus on penetrating the Medicare Part D market with its Sierra Rx plan that provides prescription drug coverage to Medicare beneficiaries Jan. 1 for those who enroll in a plan.

Sierra is one of seven insurers in Nevada that will manage prescription drug plans for Medicare beneficiaries who qualify for Medicaid and Medicare and will be automatically enrolled in a Medicare Part D plan.

"The number of auto enrolled is progressing much better than anticipated," O'Neill said. "The number of voluntary enrollees is much slower than anticipated. We're seeing what everyone else is seeing -- seniors are confused about the products and are being bombarded with the options."

Sierra expects to have 200,000 Medicare beneficiaries in Nevada and nine other states enrolled on its Medicare Part D plan in 2006, O'Neill said.

Michelle Swafford covers health care and small business for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached by e-mail at swafford@lasvegassun.com or at (702) 259-2326.

IBLV Homepage