Is Hospital-Physician Integration Sustainable?

Reprinted courtesy of MCOL.

Perspectives on a Selected Key Topic |     April 2011/May 2011     |   Volume Three Issue Two

Will a material number of hospitals and their core medical staffs, that are relatively independent, evolve into highly integrated delivery systems during this decade, and why?

William J DeMarco MA, CMC

President and CEO, Pendulum HealthCare Development Corporation

The great momentum brought about by government and private payers demand for more accountability is unstoppable. Rapid consolidation of hospitals and consolidation of physicians by physician groups, hospitals and now insurers will shift referral patterns and consumer preference. 1 out of 4 hospitals will fall short of providing value and close or be absorbed within 10 years.

Physicians will be offered higher prices to sell out to insurers and investors who value the short supply of PCPs and will try to control care demand by retooling the care system building ASC and small scale short stay hospital.

True clinical integration will follow for the survivors. The ability to prospectively develop clinical budgets and bundles of services will connect regional tertiary and quaternary care facilities to local hospitals so integration can be regionalized across larger populations and payer segments.

Once these delivery systems realize they need a product recognizable to individual consumers they will seek alliance with select insurers or create their own insurance company thereby achieving the true definition of integration which is to integrate financing and delivery of care.

This offers the shared savings with themselves and stabilizes patient flow and overhead to achieve value to purchasers and users of care.

We think these opportunities will be at a tipping point on a market by market basis over the next 5 years and will be a national definition of success within 8 years. We believe this will happen because already the bond rating companies are looking at physician alignment and payer alignment as factors in establishing credit worthiness of hospitals for expansion and mergers.

Benjamin Isgur

Director, PricewaterhouseCoopers LLP’s Health Research Institute

Integration is certainly on the rise. The notion of independent physicians may be a myth because so-called independent physicians are becoming increasingly financially tethered to hospitals. In fact fifty-six percent of physicians PwC surveyed want to more closely align with a hospital in order to increase their income. The new health reform law focuses on population health and adopts a Medicare compensation model that penalizes poor quality and rewards cost savings and electronic information sharing. Some commercial payers are also pushing this business model.

Another reason for integration is decreasing payments that create the need for cost reduction. With Medicare fee-for-service and Prospective Payment System reimbursement being squeezed, the biggest potential income stream for both hospitals and physicians may reside in sharing savings from payers in an accountable care model. To do that, hospitals and physicians must manage care together. Two-thirds of physicians surveyed by PwC indicated that hospitals need physicians to reduce inpatient costs, thereby signifying a need for better collaboration and integration. The question is — does health reform create enough aligned incentives to overcome physician hospital trust issues — or will integration be short lived.

Doug Hastings

Chair of the Board of Directors of Epstein Becker & Green, P.C.

Many already have or are well on their way. There is wide recognition among hospital and health system leaders that the payment and delivery system in the United States needs to change to achieve better patient outcomes, greater patient satisfaction and improved cost efficiency. There is a value imperative that most hospital boards and CEOs understand, both from a mission and financial viability standpoint. This value imperative makes clinically integrated health systems – hospitals, physicians on their medical staffs and other providers collaborating effectively to coordinate care – equally imperative.

Nevertheless, hospitals are at various stages of operationalizing what is both a challenge and opportunity. The Affordable Care Act and the national dialogue on accountable care has been an accelerator for integration. It remains to be seen whether the accountable care “organization” concept will be sustainable, especially for Medicare given concerns as to the viability of the Medicare Shared Savings Program under the recently-released Proposed Rule. But the movement away from fee-for-service payment and toward greater provider integration seems inexorable and, indeed, is a movement in the right direction.

Not all hospitals will be successful in their integration efforts, and there will be winners and losers. The real world challenge to become truly clinically integrated is significant, and involves much more than mergers, acquisitions and new structures.

For hospital boards, there are significant fiduciary issues in all of this. Medicare fee-for-service payments are declining and payment changes will further reduce reimbursement to hospitals with high readmissions and poor scores on quality measures. A shift to bundled or global payments will require infrastructure investments. The increased focus on quality reporting may result in “fraud and abuse” enforcement against providers making claims to public payers for care deemed substandard. Furthermore, greater quality data reporting and transparency will require oversight, including assurance that reporting is accurate.

Physician involvement and leadership is critical. Most hospitals realize the need for change, but many find it difficult. Clinical integration is here to stay. The same cannot be said for all hospitals.

Peter R. Kongstvedt, MD, FACP

Principal, P.R. Kongstvedt Company, LLC

The relationship between hospitals and their core medical staffs is very dynamic, and changes have been underway for many years now. For example, in a 2008 article in Health Affairs, Casalino, November, Berenson and Pham described the decline of the voluntary medical staff model and how it was being replaced with a two track model in which physicians increasingly were either employed by the hospital or actively competing against it. We also know that the trend in hospitals employing physicians has been rapidly rising for at least 5 years, while according to the AHA, the percentage of hospitals having active relationships with physician organizations such as PHOs, IPAs and MSOs has been in steady decline.

The new payment models under consideration by Medicare and commercial payers are likely to accelerate even further the employed-physician model. Still, it may also revive other organizational forms since figuring out how to manage both the clinical and financial aspects of a bundled payment program and Value-Based Payments is not easily done. It is likely that as payment models migrate further in this direction, we will see tighter and tighter clinical integration. Which model will prevail — employed-physician or independent physician organizations working with hospitals — is a crapshoot. For my money, I’ll roll the dice on the employed-physician model.

Vince Kuraitis, JD, MBA

Principal, Better Health Technologies, LLC

Whoa! Back up the train. The question assumes that doctors and hospitals will continue to be “natural” partners.

There is potential for an entirely different scenario — one in which physicians increasingly partner with payers, and the hospitals are left by themselves.

Under a payment system that rewards value over volume, physicians will no longer be indifferent about incurring hospital costs. The economic incentives are 180 degrees reversed — physicians are economically motivated to optimize quality and minimize usage of expensive resources like hospitals — their bonuses will depend on it.

Concurrently, many forces that previously united doctors and hospitals have weakened:

• Most hospitals have hired hospitalists to manage inpatient care; many physicians have little need to set foot in the hospital.
• Many physicians now compete with hospitals in providing ambulatory services.
• Independent multispecialty groups will see the hospital as a competitor in hiring community physicians.
• Physicians are increasingly reluctant to provide ER call coverage, which often is a requirement of hospital medical staff privileges.

In turn, think about the capabilities that physicians will need to be successful in the new “value over volume” world. They will need:
• Data, analytics, real-time decision support 7x24x365
• Services to support care management of patients in the community
• Technology for care management — PHRs, remote monitoring, patient/physician portals, etc.

These are capabilities in which hospitals traditionally have been weak — and payers have far more expertise.

We’re already seeing payer/physician lead ACOs and health plans hiring physicians. The traditional model of the last century — “hospital as doctor’s workshop” — is under severe stress and might not survive the next 5 years.

Henry Loubet

Chief Strategy Officer, Keenan

It is likely that PPACA and the advent of Accountable Care Organizations will spur a lot of integration attempts between hospitals and their medical staffs. While structuring such arrangements may be challenging due to the myriad of Federal and State laws and regulations governing physician-hospital relationships, the real challenge will be a philosophical one. It remains to be seen how many partners will be able to truly meld their individual cultures in a way that will allow them to achieve a truly successful integration given the history of relative independence.

The development of the necessary infrastructure – Health Information Technology (HIT) and Electronic Medical Records – and interoperability between systems will be critical if integration attempts are to be successful. Providers of all types need to have current and consistent patient data and information in real time to ensure that care is being coordinated and that diagnostic tests and other procedures are not repeated by multiple providers. Best practices need to be integrated into the continuous of care. Any chance of integration resulting in cost savings depends on these factors and many others.

Risk and rewards must be shared, as well as decision making and organizational objectives. An integrated structure will need to provide aligned incentives for all parties involved to make it work and to persevere through the transitional adversity that will be inevitable.

From the consumers’ (patients’ and employers’) viewpoint, integrated arrangements will need to be positioned so they will perceive the approach as providing them value, cost savings, quality and improved access to the health care system. If the integrated system presents consumers with greater bureaucracy, visible conflicts between the parties, quality lapses, the market traction, and opportunity will be lost quickly.

Many providers who jumped on the integrated delivery system bandwagon of the 90’s came to learn that creating a system was relatively easy in comparison to living within and implementing the system. There was a lot of “dis-integration” following the integration boom. Thus, much of it unraveled. The question is if this is “déjà vu all over again” or will Physician Hospital Integration be sustainable over the long term. I am cautiously optimistic the initial momentum will continue and be key to the new integration of Physician Hospital Systems.