4 choices for physicians when integrating with hospitals
The reasons for aligning with a hospital are changing, which makes integrating even more complicated.
Clinical and economic hospital-physician integration involves an agreement between a hospital or health system and physicians or physician practices to commit to creating value for the customer by improving quality, efficiency and care coordination while minimizing costs. But a successful hospital-physician integration – one that creates value – depends on physicians choosing the right reasons, sequence, model and customer. Here’s what you need to now.
1. Choosing the right reasons
Much of the hospital-physician integration we see today continues to be driven by volume and market share objectives – specifically, the establishment and control of primary care provider networks as the point of entry for patients. Hospitals are still economically incented to increase market share and grow volume, but they also desire to achieve program development, physician leadership and succession planning and quality of care from their integration activities. Physicians are largely incented for volume growth as well and generally want control of office staff, respect for the practice of medicine, quality of care and income security.
As payment reform initiatives such as value-based purchasing, inpatient quality reporting and bundled payments evolve and mature, the valid reasons for integrating will experience a sea change – shifting from volume to individual relationships, from autonomy to standardization, from experience-based medicine to evidence-based medicine, and from cost-reduction to waste-reduction. Physicians should choose the right reasons for integration by basing their integration decisions on the potential they hold to create value for the customer.
2. Choosing the right sequence
Integration is the act of combining two or more things so that they become a whole or one unit. Integration, in this context, should be a means to an end and not the end itself. When integration is the sole objective, all of the structural models will fail to create value for the customer. For hospital-physician integration to create value, integration should be preceded by engagement and succeeded by alignment. Engagement is the act of emotionally involving or committing to bind oneself to do something. The engaged physician feels a part of a noble purpose predicated on trust that also satisfies his/her own self-interest and need for respect from peers within the context of the hospital’s tradition.
Alignment is the act of arranging things so that they are in proper position. The aligned physician is committed with the hospital to a common vision, mutual quality and economic goals and incentives, and shared accountability. Physicians should choose the right sequence for integration by basing their integration decisions on the degree of engagement that has or can be achieved with the hospital and the potential for creating value for the customer through post-integration alignment.
3. Choosing the right model
The most successful, value-ready health systems are building their integration strategy on a variety of models. The most common models, listed in order of increasing strength of alignment and financial security, are medical directorships, professional services agreements, co-management agreements, practice lease agreements and employment. Regardless of the models used, the common essential elements are strong and committed physician leadership, aligned cultures and financial incentives, ready access to primary care, integrated IT, and data-driven improvement programs. Hospitals should recognize the widely varied needs of physicians and be ready with multiple models for integration. Physicians should choose the right model for integration based on their readiness and willingness to integrate as well as their need for financial security.
4. Choosing the right customer
Customers are the people or entities that buy your products and services and supply your revenue. Today, most physicians or physician practices consider the patient to be the customer. This is in part because of the physician-patient relationship itself and also because the fee-for-service nature of the business – albeit through insurance intermediaries – makes the patient the ultimate purchaser of healthcare services and, thus, the supplier of revenue. For primary care and other “gatekeeper” physicians, the patient will continue to be the customer.
For many medical and surgical specialists not employed by hospitals, however, the customer could be the patient or the hospital itself. If those physicians integrate in some model short of employment, they may receive all or most of their revenues through contract payments from the hospital – making the hospital the customer. As payment reform initiatives evolve and mature, and as macro- and micro-economic factors shift, some hospitals will fare poorly and the impact on physicians with essentially one large customer could be devastating. In general, before making decisions about integration, physicians should assess the competitive position of the hospital partner – including the threat of new entrants and substitutes, the rivalry among existing competitors, and the determinants of buyer and supplier power over the hospital.
For physicians for whom the hospital would be a customer, physicians should choose the right customer for integration, then understand what that customer values, adopt the business model that best allows them to satisfy the customer’s needs, and ensure that systems are in place to identify and respond to shifts in those needs.
Austin Kirkland is principal at OUTPERFORM LLC and a member of NSCHBC.
