HMO OR LESS.

• Author: Martin, Edward
• Position: North Carolina managed care practices create two tiers of health care, one for the cities and one for the rural areas

Managed care is a numbers game that creates two tiers of health care -- rural and urban -- in North Carolina.

In the town of Jefferson, at the base of Mount Jefferson in the Blue Ridge Mountains, cars and ambulances sweep up the graceful curve of Hospital Drive and stop at the hilltop home of Ashe Memorial Hospital. This was Ashe County's only hospital when it was built in 1941. It still is.

But now, in a state where two tiers of health care are emerging -- one rural, one urban -- the future that faces Ashe Memorial and hospitals like it doesn't look much like the past. Managed care and hospital consolidation -- both closely linked -- are remaking the almost $40 billion-a-year Tar Heel health-care industry. Analysts say that's true even in small, remote counties like Ashe that exhibit little sign of either.

As recently as five years ago, insurers were calling those places the next frontier for managed care. The easy gains had all been scored in urban centers, they said, and to expand stalled market share, they would forge into rural North Carolina. That didn't happen. Instead, experts say, managed-care plans, desperate to reverse losses that topped $100 million a year in North Carolina in the middle 1990s, have shied away from sparsely populated counties with few potential customers and even fewer doctors and hospitals that they can pit against each other to force down prices. The result? Although preferred-provider plans, a mild form of managed care, are more widely available in rural counties, pure health-maintenance organizations -- HMOs -- still enroll less than 1% of the eligible population in Clay, Currituck, Dare, Gates, Graham, Tyrrell and some other counties. Eligible population includes those under 65, Medicare age, but above income limits that qualify for Medicaid. On that basis, 44% of those eligibl e for HMO membership in Charlotte belong, as do 52% in the manufacturing-heavy Triad.

However, doctors and hospital officials who rail about managed-care bureaucracy and pressure to cut charges to below their actual costs have less reason to rejoice than that might indicate. In a two-tier system, rural doctors and hospitals are increasingly becoming what amounts to farm clubs for big-city health-care teams. To understand why, step back in Tar Heel health-care history.

During the first quarter of the 20th century, W.S. Rankin, a former Wake Forest College dean and the first state public-health director, persuaded The Duke Endowment to...