Managed Care - July 2008 - (Page 20) Hospitals see value in working with physicians W hile physicians may be winking at hospitals, their seductive powers do not have to be all that great. Speaking at the World Health Care Congress this spring, leaders at two fully integrated health systems forecast a rapid move toward integration — for two different reasons. Francis J. Crosson, MD, one of the top executives at Kaiser Permanente, predicts that policy changes will encourage physicians and hospitals to marry. Meanwhile, Craig Samitt, MD, president and CEO of Dean Health System in Madison, Wis., says the economic advantages of systems that integrate payers, hospitals, and physicians are so substantial that market forces will increasingly punish those who pursue the single life. Crosson, senior medical director at Permanente Federation, co-chairs the Kaiser Permanente Partnership Group, which is the organization’s joint management body. From the policy perspective, Crosson says urgency for fundamental change is created by the government’s forecast that the Medicare Trust Fund will be depleted in 2019. “That’s obviously not going to happen, so Medicare is going to do something substantial,” says Crosson, a Medicare Payment Advisory Commission (MedPAC) trustee. While specifics have not yet emerged, all signs point to creating incentives for hospitals and physicians to work together to provide better care at lower cost. For example, MedPAC recently recommended that Congress create a program to study bundled payments, in which physicians and hospitals receive a single payment for a patient’s care. Another recom- mendation: Establish financial penalties for hospitals when patients with certain diagnoses are readmitted within a certain period. “This will create, on the part of hospital administrators, the idea that they must work more closely with physicians,” Crosson says. Samitt, meanwhile, cites a single statistic that makes his argument for fully integrated health care delivery. In Madison, dominated by integrated providers, health care premiums cost 20 percent less than in Milwaukee, not 80 miles away, which is served by many unintegrated hospitals, physicians, and payers. Pointing out that health plans and hospitals for years have been merging to create economies of scale, he says the final wave of health care integration is under way. “Now is the time for physicians to merge with physicians [to create larger practice groups] and physicians to merge with hospitals to provide value,” he says. Providers not associated with a health plan, however, are at a competitive disadvantage because they lack the incentive to operate efficiently. The system he runs includes a health plan, Dean Health Insurance, with 265,000 members. “We have alignment of incentives,” he says. “One could argue that our hospital and physicians are capitated, which means that the more we focus on prevention and the more we focus on better outcomes through efficient means of providing care, the more the hospitals, the health plan, and the doctors succeed financially.” the premium prices for physician practices they paid in the mid-1990s. “Now they’re often paying little to nothing for the value of the practice,” Jessee says. Indeed, McCartie says some physicians are willing to join a hospital staff even if they are paid nothing for their private practice. Compensation. Today’s physician employment arrangements tie compensation to revenue, giving physicians incentives to focus on productivity, McCartie says. This is a distinct departure from the 1990s, when guaranteed salaries resulted in physicians working shorter hours, seeing fewer patients and generating less revenue for hospitals than when physicians owned the practice. Expectations. Hospitals know that most physician practices will lose money, so acquiring physicians is viewed as an investment needed to make the hospital successful. By keeping physicians in the community and closely aligned with the hospital’s interests, hospitals avoid losing market share to a competitor. “The integrated model can accommodate lower profit at the practice level if the hospital is making money,” McCartie says. What it means to insurers The integration of hospitals and physicians will make life easier in some ways — and more chal- 20 MANAGED CARE / JULY 2008
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