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Fallon keeps growing -- just not in Boston

Central Mass.'s dominant health insurer fills a niche for patients who don't want to pay higher costs at the Hub's teaching hospitals

Go east, young man.

That could be the motto at Fallon Community Health Plan as the health insurer attempts to penetrate the affluent and densely populated Boston suburbs.

For years, Fallon has been the dominant healthcare provider in Worcester and much of central Massachusetts, with 40 percent of the market share, according to Eric H. Schultz, Fallon's chief executive. But over the past four years, the health plan has also been assembling a network of doctors and hospitals in Eastern Massachusetts. The eastward expansion is at the heart of Fallon's plans to grow.

And Fallon is doing it by employing a counterintuitive strategy: Avoid doing business with the academic and teaching hospitals that make Boston a leader in medical education and research.

''This is a surround-Boston strategy," said Schultz. ''We've decided not to go into the city of Boston and contract with the primary care physicians at the teaching hospitals. We have been focusing on signing up primary care physicians that primarily admit to community hospitals outside of Boston."

So why is Fallon shunning the stars of Boston's medical complex? Schultz said it's about saving money.

''The average cost of a hospital day at a Boston facility is twice as much as those outside the city," he said. ''For your bread-and-butter services, community hospitals can perform very well with high levels of clinical quality."

To make his point, Schultz recited a statistic unearthed by company research: Of those patients who get a second opinion at a Boston hospital, more than 85 percent choose to receive their healthcare from the doctor who provided the initial opinion, if both doctors dispense similar advice. In other words, convenience trumped reputation for consumers.

Fallon has spent the last few years signing contracts with some of the Bay State's lesser-known hospitals. Two weeks ago, it signed a contract with Merrimack Valley Hospital in Haverhill. Last year it affiliated with Milford-Whitinsville Hospital of Milford, and in 2004 it contracted with Anna Jaques Hospital in Newburyport, among many other institutions and doctors' groups.

Fallon says the contracts allow it to offer managed-care products that are less expensive than competitors'. For instance, Fallon said its HMOs in a tight network of Worcester county doctors cost employers about 10 percent less than the same type of coverage through other insurers. And its new products, including those offered through Eastern Massachusetts doctors and hospitals, are ''competitive" with other plans, the company said.

Fallon is by far the smallest of the region's nonprofit health plans. Blue Cross Blue Shield of Massachusetts has 2.82 million members, Harvard Pilgrim Healthcare has about 900,000, and Tufts Health Plan about 625,000. Fallon has just 172,000, little changed from the 169,000 it had in 1994.

As its network expands, Schultz said, Fallon will be able to attract more companies from Eastern Massachusetts. Fallon also will become a more attractive option to employees at companies that currently offer a Fallon health plan, but who live outside its traditional central Massachusetts service area.

The push to expand accelerated in January 2004, when Fallon officially separated from Fallon Clinic, the physician group practice founded in 1929 in Worcester with more than 250 doctors in 30 locations in central Massachusetts. The clinic gave rise to the health plan in 1977. Through that corporate separation, the health plan was able to pursue its own goals.

''This is a smart move for Fallon," said Shawna Oliver, a consultant at Mercer Health & Benefits, a firm that advises companies on healthcare plans for employees. ''They're attempting to do a very slow expansion to become a more global product in the Commonwealth. As other health plans have expanded into their niche in the Worcester area, Fallon has to expand into different parts of the state to be competitive."

Fallon's last attempt at a major expansion was in 1999, when it signed a contract with Partners Healthcare doctors to provide Medicare services. Schultz terminated that contract when he joined Fallon the following year. In the mid-1990s, Fallon also made an abortive attempt to expand into the Lowell area.

But the move to provide care through community hospitals also leaves Fallon potentially exposed. Should Fallon members choose reputation over convenience and seek care at the area's more expensive teaching hospitals, the health plan will have to reimburse those hospitals at higher rates than what it pays to contracted network hospitals.

If enough Fallon members choose higher-cost care, it could erode the company's margins.

''It's a bold move. I wouldn't say it's foolish, but it's risky," said Marc Bard, chief executive of the Bard Group of Newton, a healthcare consulting company that advises hospitals on organizational and business issues. ''You can't predict which way the market is going to react. The further east they go, the greater the magnetic pull of the very powerful academic institutions, whose reputation is real."

Bard said the problem with Fallon's analysis is that many patients choose a hospital before their diagnosis has been finalized.

If a patient fears something may be seriously wrong, they may seek care at a teaching hospital before seeing a doctor.

Some doctors have welcomed Fallon's move east.

Charles River Medical Associates, a group with 35 physicians with offices throughout the Metrowest area, joined the network two years ago after being approached by Fallon.

''Our doctors are busy," said Brian Parillo, practice administrator. ''We're not looking to grow our number of patients."

Instead, Parillo said, his group is hoping to move some patients from out-of-state healthcare providers to a local company.

''Aetna, Cigna, and United Healthcare -- they're horrible payers, and we hate them," said Parillo. ''We want to convert all those patients into Fallon or Blue Cross or Tufts or Harvard Pilgrim members."

Parillo said Charles River does not recommend different health plans to members, but it did send a letter alerting them that it is now part of the Fallon network.

In the past 12 months, the number of Charles River patients who are Fallon members has doubled, to about 800.

Jeffrey Krasner can be reached at krasner@globe.com.

Expanding its reach

Fallon Community Health Plan's network of physicians and hospitals, and when they became part of the plan.

Network as of 2002

St. Vincent Hospital and IPA,Worcester

Central Mass IPA, Worcester

Hubbard Regional Hospital, Webster

Heywood Hospital and PHO, Gardner

Athol Memorial Hospital and Quabbin Care IPA, Athol

Lowell General Hospital and PHO, Lowell

Beverly Hospital, Addison Gilbert Hospital, and Northeast PHO, Beverly

MetroWest Medical Center, Natick and Framingham

Holy Family Hospital and Merrimack Valley IPA, Methuen

Southborough Medical Group, Southborough

Newton-Wellesley Hospital, Newton

Sturdy Memorial Hospital and PHO, Attleboro

South Shore PHO, Weymouth

2003

UMass Memorial Health Care, Worcester

HealthAlliance Hospital, Leominster

Clinton Hospital, Clinton

Acton Medical Associates, Acton, Harvard, and Littleton

Emerson Hospital and PHO, Concord

Lahey Medical Center, Burlington

Melrose/Wakefield Hospital, Melrose

Lawrence Memorial Hospital, Medford

Marlborough Hospital and Assabet Valley IPA, Marlborough

SOURCE: Fallon Community Health Plan

2004

Wing Memorial Hospital, Palmer

Saints Memorial Medical Center and Merrimack Valley IPA, Lowell

Lawrence General Hospital and IPA, Lawrence

South Shore Medical Center, Weymouth

Anna Jaques Hospital and Lower

Merrimack Valley IPA, Newburyport

Mount Auburn Hospital and Mount Auburn Cambridge IPA, Cambridge

Charles River Medical Associates, Ashland, Framingham, Holliston, Hopkinton, Hudson, Marlborough, Medfield, Natick, and Westborough

2005

Harrington Memorial Hospital and PHO, Southbridge

Milford-Whitinsville Hospital and Greater Milford Health Alliance physicians, Milford

Central Mass. Asssociation of Physicians, Fitchburg, Gardner, Leominster

Family Health Center, Worcester

Great Brook Valley Health Center, Worcester

2006

Merrimack Valley Hospital, Haverhill

Nashoba Valley Medical Center and PHO, Ayer

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