1. Integrated Delivery Systems Bringing Hospitals and Doctors Together

2. 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

3. Systems Framework for Understanding Managed Care EMPLOYERS Plan Choices, Employee Premiums, Information Contract for Product, Premiums/Benefits, Risk Marketing, Product Development Job preferences, Wage and Benefit Preferences Payment, Risk, Practice Guidelines, Profiling MCO Type of Plan, Philosophy and Procedures for Selection/Retention Member services Utilization management Select Products, Join Plan CARE Provider Network PHYSICIANS CONSUMERS Enrollees Marketing, Advertising, Information, Reputation Specialty, Style of Care, Discounts, Form of Organization Taxes, Votes Contract for Product, Risk, Premiums, Benefits Discounts, Specialized Services Employee Plans, Medicare, Medicaid, Information Treatment Facilities and Prescribed Services Customer Volume Admissions, Prescriptions, Referrals Regulate Allowed Products, Behavior Relationships GOVERNMENT HOSPITALS & OTHER SUPPLIERS Adapted from Gold , Medical Care Research and Review52(3): 307-341, Figure 1.

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

5. 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

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

7. 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)

8. 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

9. 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

10. 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

11. 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

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

13. 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

14. 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

15. 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