Competition creates life-and-death struggles.

• Position: Charlotte, North Carolina's Carolina HealthCare System - Industry Overview

Sitting in a Hickory warehouse is a $300,000 monument to the year the gloves came off in health care. Barely used and crated up, Catawba Memorial Hospital's heart-surgery equipment has been idled in a fight with rival Frye Regional Medical Center. The feud simmered for years before Gov. Jim Hunt rewrote state rules in September to permit Catawba to perform open-heart operations, only to be overruled when Frye went to court. Catawba has appealed.

Such competition pitted hospital against hospital in 1997, while managed-care companies bloodied each other financially. Consumers, who were supposed to benefit, saw rates rise. "It was a hard year, and things are still looking tight," Barbara Morales Burke, deputy insurance commissioner, says of the HMO industry she regulates.

That applies to much of the state's $22 billion health-care industry, including its 144 hospitals. "The market is demanding efficiency, but hospitals are uncertain how to best achieve that, whether through partnering or tightening up their own processes," adds Thomas Ricketts, director of the Cecil G. Sheps Center for Health Services Research at UNC Chapel Hill.

What has been the largest network, Charlotte-based Carolinas HealthCare System, continues to grow. By October, it owned or managed 3,582 hospital beds, as well as an HMO and 50 physician practices. But Winston-Salem's Carolina Medicorp Inc. and Charlotte's Presbyterian Healthcare System formed Novant Health Inc. in April, overnight creating a system that rivals Carolinas'. It has an HMO, too, and was wooing more partners, including Raleigh's 394-bed Rex Hospital, the Triangle's leading obstetrics hospital.

Hospitals felt the impact of managed care. In five years, says Carolyn Anderson, statistician with HCIA Inc., a Baltimore research firm, gross revenues per in-patient stay in North Carolina have edged up only 13%, to $6,592. That's less than some one-year gains in the 1980s.

A spat like the one between Frye and Catawba broke out in Charlotte over Gaston Memorial's proposed open-heart-surgery center. A leaked memo - "Strategy to Prevent Gaston Memorial from Opening an Open Heart Surgery Center" - from Carolinas Medical Center showed administrators fretting that Gaston might earn enough from cardiac patients to expand other services and compete for managed-care contracts. "Insidious and unethical," railed state Rep. Connie Wilson, a Charlotte Republican who obtained the memo.

In Asheville, the partnership of former...