Integrated Delivery Systems Bringing Hospitals and Doctors Together

Plan for Today • Hospital-Physician integration – More alphabet soup (PHO, MSO, IDS) – Continuum involving looser and tighter forms of integration – Advantages and disadvantages of each form • The rise and fall of Penn State Geisinger Health System

Systems Framework for Understanding Managed Care EMPLOYERS Plan Choices, Employee Premiums, Information Job preferences, Wage and Benefit Preferences Select Products, Join Plan MCO Member services Enrollees Marketing, Advertising, Information, Reputation Taxes, Votes Employee Plans, Medicare, Medicaid, Information Contract for Product, Premiums/Benefits, Risk Contract for Product, Risk, Premiums, Benefits Regulate Allowed Products, Behavior Relationships GOVERNMENT Adapted from Gold , Medical Care Research and Review 52(3): 307 -341, Figure 1. Utilization management CARE Payment, Risk, Practice Guidelines, Profiling Provider Network CONSUMERS Marketing, Product Development Customer Volume Type of Plan, Philosophy and Procedures for Selection/Retention PHYSICIANS Specialty, Style of Care, Discounts, Form of Organization Discounts, Specialized Services Treatment Facilities and Prescribed Services HOSPITALS & OTHER SUPPLIERS Admissions, Prescriptions, Referrals

Why integrate? • Reduce average costs • Higher prices – Greater negotiating strength re. plans • Lower costs and higher prices --> higher profit margins

How Can Integration Reduce Costs? • Economies of scale – Share administration and overhead • Spread fixed costs • Deploy clinical resources more effectively – Physicians and hospitals pay more attention to effects on each other • Information systems to manage business and care

Continuum of integration (Loosest to tightest) • Physician-Hospital Organization (PHO) • Management Services Organization (MSO) • Integrated Delivery System (IDS)

Physician-Hospital Organization (PHO) • Vehicle for jointly negotiating with managed care organizations – Hospital and physicians on staff agree on terms – PHO has limited time to make the deal – Then physicians can contract separately • Open PHO (open to all physicians on staff) – Consequently heavy on specialists • Closed PHO (limited physician membership)

Physician-Hospital Organization (PHO) • Advantages – Negotiating power (“United we stand. ”) – Easy for MCO to set up contracts – Potential ability to track and use data • Disadvantages – Little leverage if MCO already contracting with physicians – Hospital middleman between MCO and docs – MCO may not want all docs in open PHO

Management Services Organization (MSO) • Hospital provides services to physician practices, in addition to MCO negotiations – For example, billing or administrative support – Support staff • Hospital may acquire some practice assets • All transactions at fair market price • Physicians not bound by exclusive contract to admit to hospital

Management Services Organization (MSO) • Advantages – Closer links between physicians and hospital than PHO – More opportunity to share overhead and rationalize/standardize practice management and data • Disadvantages – Physicians still essentially independent

Integrated Delivery Systems (IDS) • Hospitals & physicians in one organization • Hospital owned – Staff model IDS (to be distinguished from staff model HMO) • Physician owned • May integrate insurance functions, too – Accept risk from patients – Plan administration

Integrated Delivery Systems (IDS) • Advantages – One voice to negotiate with MCOs – Command control to integrate and rationalize services and systems • Disadvantages – Capital requirements – Managing on many diverse fronts

Hospital-owned IDS (Staff model) • Hospital owns IDS and hires physicians • Advantages – Capital, management concentrated in hospitals – Avoids legal complications • Individuals cannot benefit from non-profit org. • Kickbacks to physicians, self-referrals • Disadvantages – Physician productivity – Challenge of managing physician employees

Physician-owned IDS • Majority equity owned by physician group – HCFA views individual shareholders as getting kickbacks or making self-referrals • Advantages – Owners of clinical decisions (physicians) also own the business. • Disadvantages – Capital requirements large for physicians

Integrating insurance functions • Risk – Global capitation (covering most services) – Or share of premiums (shares risk with MCO) • Plan administration (3 approaches) – IDS adds unit to do insurance functions – Insurer acquires IDS – Joint venture of IDS and MCO