HMGT 420 WEEK 4

CHAPTER

71

CLINICAL INTEGRATION

Learning Objectives

Upon completion of this chapter, you should be able to

• define and describe clinical integration; • discuss the importance of clinical alignment in delivering better care at a

lower cost with better access; • demonstrate how various models can be pursued to achieve clinical

alignment and integration; • explain why such integration is necessary to improve the delivery of

value in healthcare; • understand the challenges to clinical integration related to inefficiency,

anticompetitive activity, and professional resistance and explain how those challenges can be mitigated;

• consider case studies that demonstrate models of clinical integration; and

• propose forms of clinical integration that have both vertical and horizontal aspects.

The movement toward value-based healthcare has been driven by a number of innovative approaches across a number of areas, including coordina- tion of care, communication, and transitions in care. As these approaches

are implemented and continue to evolve, clinical integration becomes a key competency for stakeholders. Clinical integration seeks to ensure that care is coordinated across a wide spectrum of clinical conditions, settings, providers, and time, preventing patients from falling through the cracks. Integration has a number of clinical, operational, cultural, regulatory, and financial ramifica- tions that must be addressed if the concept is to deliver on its promise of effective care at low cost with a desirable patient experience to a greater number of people.

As value-based purchasing arrangements become a critical component of health providers’ operations, the need for stakeholder alignment will increase. Structural changes are leading to alignments geared toward value-based com- petition, but stakeholders must ensure that the alignments are geared primarily

clinical integration A mechanism that allows for the delivery of coordinated care across a wide spectrum of clinical conditions, settings, providers, and time; such care should be patient oriented, timely, efficient, effective, and easily accessible.

alignment A state of affairs in which all stakeholders are collaborating with one another to deliver coordinated care; their incentives are linked, and each party’s success depends on the success of the other parties.

5

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C o p y r i g h t 2 0 1 8 . H e a l t h A d m i n i s t r a t i o n P r e s s .

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The Core Elements of Value in Healthcare72

toward value. If the goal is to achieve market dominance and pricing power, then the goals of value-based care will be compromised (Porter 2010; Pear 2014). Any effective alignment model will need to address the challenges and opportunities inherent in programs for patients with multiple chronic condi- tions, the use of bundled payments, the development of accountable care organizations (ACOs), and comanagement agreements.

This chapter will explore the various models by which physicians orga- nize. It will also explore the models of integration that are possible between physicians and hospitals and the various forms of alignment that occur within integrative models.

Clinical Integration and Clinical Alignment

The terms clinical integration and clinical alignment are related but have somewhat different meanings. Clinical integration is a mechanism that enables the delivery of coordinated care across a wide spectrum of clinical conditions, settings, providers, and time. This coordination allows for the delivery of care that is patient oriented, timely, efficient, effective, and easily accessible (Athena- health 2013). The growing emphasis on clinical integration is driven by the need to reduce overuse, control costs, and improve quality. Payment reform, advances in health information technology, and innovation in clinical care are facilitating clinical integration. A constant focus on clinical integration across the continuum of care will likely lead to alignment. Clinical alignment develops from clinical integration—and particularly from the evolving efficiency, struc- tural improvement, and financial incentives that support such integration. As integration improves, outcomes improve. These improvements provide greater benefits to all stakeholders, who in turn become more aligned with one another.

Clinical integration and alignment may involve the combination of such entities as physician groups, hospitals, health plans, and post-acute care provid- ers within a legal structure. When investments are made to bring such entities together, a clinically integrated network can be developed. Under such an arrange- ment, the whole entity takes the financial risk of delivering care to the patient across the entire continuum. Regulators are allowing such networks to be made if they are focused on delivering better quality of care (Iglehart 1998). However, if the networks exist simply to bargain for better rates, they may attract scrutiny from regulators looking to prevent anticompetitive activity (Leibenluft 2011).

Although clinical integration can deliver value, the capital costs involved may be onerous. With advances in technology, clinical innovation, and regula- tory changes through legislation, clinical integration may also include virtual integration, in which providers are not fully brought together under one roof or in a single entity. In such an arrangement, a network of providers shares a

virtual integration A form of clinical integration in which providers communicate and invest in infrastructure so that coordinated and efficient care can be delivered without actually bringing the providers together under one roof or in a single entity.

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Chapter 5: Cl inical Integrat ion 73

strategic plan that is well aligned with the providers’ goals. A long-term com- mitment exists among the partners, and the stakeholders share development costs and risk. They may enter contracts through which they are committed to deploy resources when needed and compliantly enter incentive-based pricing contracts. They integrate their processes through web-based applications, indus- try standards, and real-time reporting that allows for technological integration. The partners also commit to ongoing performance improvement (Fuller 2011).

The Need for Clinical Integration

The goal of clinical integration is to move healthcare delivery out from isolated silos in which providers deliver care without regard to what happens outside their immediate sphere. In the past, healthcare has functioned as a cottage industry, in which each provider considers its own setting a workshop, operates with complete autonomy, and pays little attention to the reduction of waste across the entire delivery landscape. Physicians have traditionally practiced solo or in small groups organized as partnerships or professional corporations; similarly, hospitals have generally functioned independently of other hospitals and doctors. The cottage industry approach is believed to have contributed to fragmented and uncoordinated delivery of care (Institute of Medicine 2001), which in turn has negatively affected efficiency, cost, patient experience, and outcomes (Shih et al. 2008).

With integration, healthcare delivery moves away from the cottage industry approach, evolving toward more of a factory model. In this model, the various providers communicate and coordinate their care so that the efficiency of the entire system is enhanced (Swensen et al. 2010).

Case Example: Betsy G. Betsy G. is a 20-year-old woman who is unemployed. She suffers from bipolar disorder and schizophrenia. She has a history of substance abuse, and in the past she has used intravenous drugs such as heroin. Two months ago, she developed flulike symptoms and went to an urgent care clinic. However, because she did not have insurance, she was turned away. Four days later, when her symptoms worsened, she went to the local emergency room (ER), where a chest X-ray was performed. The X-ray was reported to be clear. She was given a diagnosis of an upper respiratory infection (URI) and discharged. The social worker in the ER connected with Betsy and, over the next week, helped her qualify for emergency Medicaid insurance

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The Core Elements of Value in Healthcare74

coverage. Betsy was advised to follow up with a local community clinic in a week, but she neglected to go.

Now, Betsy develops a cough and presents to another urgent care clinic. Because she has insurance now, she is seen by the treating physician there. Clinically, she is thought to have a worsening URI. However, the X-ray now reveals a slight haziness in the left upper lobe of the lung. She is started on antibiotics, receiving the first dose in the urgent care clinic. Betsy is advised to fill the pre- scription and see her primary care physician (PCP) at the local community clinic.

Betsy does not fill the prescription, and she soon develops hemop- tysis, a condition in which she coughs blood. She has been losing weight and also is feeling bloated around her abdomen. Betsy presents at the local clinic where she meets her new PCP, and a basic exam reveals that she is five months pregnant. Her hemoptysis worsens, but the provider is concerned about a repeat X-ray, given Betsy’s pregnancy. The PCP attempts to get the results of the last two X-rays that were done, but she is unable to get them while Betsy is in the clinic. Betsy signs a medical release form to enable the PCP to obtain these records. The PCP advises Betsy to see an obstetrician for prenatal care. Betsy tries to call the obstetrician’s office from the clinic but is placed on hold. She then leaves the clinic, and she later forgets to set the appointment because she does not have access to a phone.

A week later, Betsy sees the PCP, with whom she is establishing a close connection. The records from the urgent care and the ER are now avail- able, and the hemoptysis has worsened. The X-ray report from the ER now mentions a definite haziness in the left upper lobe, which had been missed in the initial preliminary reading by the ER physician. The official radiology report raises the concern for the left upper lobe. A week later, when the PCP obtains the actual digital images of the two X-rays, she sees a definite progression of the haziness, with concern for cavitation.

The PCP asks Betsy to go to the lab next door for some blood tests. Betsy collapses during the testing and is rushed to the ER, where she is admitted. Induced sputum testing confirms that Betsy has advanced tuber- culosis. Soon, Betsy goes into premature labor at 27 weeks and delivers a baby, who is admitted to the neonatal intensive care unit for six months.

During this time, Betsy is treated with high-dose antituberculosis drugs, and she is provided with intensive social services support. Over the next seven months, she starts responding to her treatment. She enters a drug rehabilitation program, finds a job, and ultimately takes home her newborn son. However, she is left with an $800,000 bill, part of which is paid for by the insurance program. The Department of Public Health estimates that approximately 200 people were exposed to tuberculosis during the time that Betsy had been undiagnosed.

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Chapter 5: Cl inical Integrat ion 75

The case example that accompanies this section demonstrates the prob- lems that can occur in a disjointed health system where communication is lacking. Silos prevent information from becoming knowledge, procedures and tests are repeated, and important clinical signs are missed. The results include poor health outcomes, reduced access to care, and, ultimately, high costs of care that could have been avoided.

If clinical integration is achieved, test results, radiologic studies, and clinical signs can be integrated more rapidly so that teams of clinicians can arrive at diagnoses and intervene more quickly, producing better outcomes.

The Spectrum of Clinical Integration

In a 2001 report, the Institute of Medicine (IOM) highlighted the need for clinicians and institutions to collaborate and communicate to ensure the appro- priate exchange of information and coordination of care. A high-functioning healthcare delivery system should carry out the following six actions, each of which can be most effectively achieved through some form of clinical integra- tion (IOM 2001):

1. Redesign care processes so that the needs of chronically ill patients can be served through coordinated and seamless care across settings and clinicians over time.

2. Provide continuity of information through seamless technologies to automate clinical information available to patients and caregivers.

3. Establish learning organizations that leverage the evolving knowledge base and innovate around solutions.

4. Coordinate the care of patients across conditions, services, and settings over time.

5. Enhance team-based care so that caregivers work in multidisciplinary teams.

6. Incorporate care processes and outcome measures into daily work, and ensure that they reflect best practices.

An organized healthcare delivery system can achieve these goals. Such a delivery system should facilitate providers’ efforts to leverage infrastructure, information, and knowledge, and it should operate in a multidisciplinary man- ner to provide coordinated care that spans time and location (Kovner et al. 2011). If payment reform and alignment are also included, actual or virtual clinical integration across providers and payers can be achieved.

The IOM (2001) describes the evolving structures of US healthcare in a series of stages, as described in the sections that follow.

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The Core Elements of Value in Healthcare76

Stage 1 Stage 1 is characterized by a highly fragmented system in which physicians, hospitals, and other healthcare organizations function autonomously. Physi- cians attempt to stay abreast of knowledge and rely on experience to care for patients, who are passive recipients of care (IOM 2001).

Such a situation exists in several healthcare markets in the United States. Solo physicians run their clinics autonomously, using paper charts to keep track of patients’ medical conditions. Local community hospitals may serve people in the area, and the physicians may be on staff at one of these hospitals. The medical records in the hospital may be filed away in the records room, or they may be on an electronic system that does not communicate with other systems. Pharmacies dispense the medications to the patients based on prescriptions written by the physician. As a result, the physician may not be aware of the patient’s records or clinical course from a recent hospitalization; the physician also might not know whether the patient has filled his prescription. The care is disjointed.

Stage 2 Stage 2 is characterized by the formation of well-defined referral networks, which provide informal means to increase patient involvement and develop loosely structured multidisciplinary teams. Healthcare is organized around physician specialization, and data are paper based. Institutions and specialty groups provide practice guidelines and other tools (IOM 2001).

This stage reflects the evolving model in the United States over the past few decades. Primary care physicians have a patient base that they manage, in their clinics, using paper charts. They have an established referral network that they draw upon for patient care. A PCP may informally consult a spe- cialist regarding a patient’s condition, such as chest pain, and then refer the patient to a cardiologist. The cardiologist might then perform further testing and determine that the patient needs an angiogram, which would be done at a hospital with a cardiac catheterization lab, where the cardiologist has clini- cal privileges. The cardiologist would follow the clinical guidelines published by the American College of Cardiology to ensure that the patient receives appropriate treatment.

Stage 3 Stage 3 demonstrates the emergence of some team practice, but training is fragmented and isolated by health discipline. Ideas about patient-centered care and recognition of the uniqueness of patient needs are beginning to develop. Some information technology development is occurring, but systems are not yet able to communicate with one another. Best practices and guidelines are developed by more organized groups, but they are not integrated into the workflow (IOM 2001).

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Chapter 5: Cl inical Integrat ion 77

As the healthcare industry consolidates, especially in urban areas, small multispecialty clinics are emerging. Providers join or form a single practice and work together in the same office. A patient with diabetes might be seen by the PCP and then referred to the endocrinologist in the same office, who shares the same paper chart for the patient. Some practices may use an electronic medical record (EMR) that is accessible to all providers in the practice. The providers are able to get records immediately because they all have access to the same data and information. Consult notes may be printed and mailed to providers who are not in the same practice, or they may be shared by electronic means, such as email or e-fax.

Because the medical records system is not well integrated, the providers depend on their training and on clinical guidelines to determine appropriate care for patients. The care delivered is still variable and subjective. It is depen- dent on the preferences, training, and judgment of individual providers, who might not use standardized evidence-based protocols.

Stage 4 Stage 4 represents a modern system that supports safety, effectiveness, patient- centeredness, timeliness, efficiency, and equity. Patient engagement is well developed, and services are coordinated temporally and geographically, using sophisticated information technologies. Healthcare entities at this stage become learning organizations, characterized by measurement of performance around outcomes, which are then improved through the use of advanced engineering principles. The workforce is empowered to function at the highest level of its licensure (IOM 2001).

Stage 4 organizations will depend on economies of scale, workforce development, and access to capital. Larger organizations will have a compara- tive advantage and may evolve into integrated delivery systems. However, new technologies will also facilitate virtual networks, enabling smaller systems to achieve many of the same advantages (IOM 2001).

economy of scale The economic principle stating that, up to a certain point, increased size of an entity allows costs to be defrayed across a larger base of revenue, making costs lower for larger entities.

Case Example: Mayo Health System The following is adapted from McCarthy, Mueller, and Wrenn (2009b). Please refer to their analysis for a thorough discussion of this highly illustrative case.

The Mayo Health System is a regional health system and referral network of nearly 1,000 physicians and other allied staff. It is affiliated with the Mayo Clinic, based in Rochester, Minnesota, which serves more than half a million patients locally and globally. The Mayo Health System has nearly 20 hospitals under its management, as well as nursing homes and clinics, spread across Minnesota, Iowa, and Wisconsin.

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The Core Elements of Value in Healthcare78

The case example that accompanies this section illustrates how clinical integration across providers, settings, and time can provide more comprehen- sive solutions for patients. Organizations must develop similar competencies to evolve along the integration spectrum, even though such evolution will require significant effort, resources, and innovation.

The entire network for the Mayo Health System is connected via an electronic health record (EHR) system that can be accessed by providers at each site. Referring providers can access EHR portals to upload clinical information about the patients being referred and to receive information about their patients. Decision support tools are built into the system. This setup allows for effective information continuity.

Each patient in the system is assigned a coordinating physician or midlevel provider, such as a nurse practitioner. These professionals work with patients and the patients’ families to ensure that care plans, consults, ancillary services, and follow-ups are well coordinated. They also seek to ensure that patients are well informed and thus able to participate in their own care. These activities allow for effective care coordination, better transi- tions in care, and a system more accountable for results.

Clinical practice committees consisting of subject matter experts oversee the quality of care being delivered and ensure that the clinical protocols being used have been developed by experts and are based on evidence. Advisory groups coordinate across various sites to ensure that the protocols are reconciled and internally consistent. The groups are account- able to the organization’s board of governors for the overall quality of care being delivered across the system. Thus, peer review and teamwork are key to ensuring a high-value care delivery system.

The Mayo Health System engages in systems engineering and con- tinuous process improvement to innovate the way care is being delivered. A strong tradition of education and research allows for innovations to reach the patients expeditiously. Local teams of providers, researchers, and staff undertake pilot projects to ensure continuous innovation.

Barriers to access are mitigated via a patient-scheduling system that uses algorithms to assign new patients to providers in a way that incorpo- rates patient preference and availability. Follow-ups, tests and procedures, and consultations are sequenced in a way to ensure that patients do not get overwhelmed by the detail. Attention is even paid to the time needed for the patient to travel between appointments, reducing the likelihood of delayed or missed appointments. Appointments with PCPs are available the same day or the next day.

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Chapter 5: Cl inical Integrat ion 79

Requirements for Clinical Integration

The evolving healthcare landscape is placing a greater emphasis on teams, incentives, measured quality, coordinated care processes, and population health management, and it is shifting away from autonomous physicians, volume, unmeasured quality, fragmented care processes, and episodic care. Clinical integration represents a paradigm shift, in which clinicians and hospitals move from being competitors to being collaborators. The goal is demonstrably bet- ter, safer, and more coordinated healthcare.

Hospitals and physicians are increasingly looking to clinical integration to increase quality, reduce cost and waste, sustain physician independence, and empower providers to accept greater accountability for population health and utilization. Seven components of clinical integration are essential (Strilesky 2012):

1. Organizational structure. Given the complexity of clinical integration and the resources it requires, a legal entity must exist to provide a framework and parameters. Options for organizational structures to serve this purpose include physician–hospital organizations, independent practice associations, and subsidiaries to an upstream entity, all of which are discussed in this chapter.

2. Physician leadership. Throughout the history of the medical professions, relationships between hospitals and physicians have been complicated, with physician and hospital leadership often at a crossroads. Today, however, physicians and hospitals are beginning to see each other less as competitors and more as collaborators. Effective physician leadership can guide the transition to clinical integration by improving collaboration between the medical staff and nonclinician entities.

3. Participation criteria. The success of a clinical integration depends in large part on the criteria deemed necessary to become a part of the system. Certain infrastructure investments are especially important. The development of and adherence to evidence-based protocols, as well as internal consistency across the protocols, help define the culture of a clinically integrated entity.

4. Performance improvement. A robust performance improvement program can significantly benefit clinical quality and operations. A continually improving and evolving program helps embed important features across the clinical integration spectrum.

5. Information technology. A robust information technology system is essential for standardizing care, ensuring connectivity and communication, reducing waste, and improving coordination.

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The Core Elements of Value in Healthcare80

6. Contracts. Although clinical integration can reduce waste and enhance results, such activity is not sustainable if financial arrangements do not reward the improvements. Contracts must be negotiated around quality of care and sustainable economics, which in turn leads to clinical and financial alignment.

7. Shared incentives. Contracts formalize how clinical integration will occur, and these agreements must spell out how shared incentives will be defined, measured, and distributed. Flow of funds must be contingent upon measurable performance and transparency.

Options for Clinical Integration

A variety of options exist for clinical integration. Traditionally, the concept of inte- gration is viewed through the lens of mergers and acquisitions, reflecting a “bolt- on” approach. However, an entity can also incorporate elements of an integrated model through organic growth. In such cases, instead of acquiring another entity, the organization pursuing integration hires the expertise to develop an integrated model and then develops the capability internally (Jones and Miskell 2007).

In taking a “bolt-on” approach, a hospital might, for instance, purchase a nursing facility for the purpose of entering the post-acute care market. The hospital might also acquire a physician group to enter the ambulatory care market, as well as the primary care market, to establish a loyal source of patient referrals. The same hospital might then purchase a health plan, thus moving toward a payer–provider model of care. This type of approach to integration might enable the entity to achieve its goals within a faster time frame, although culture clashes among the various entities can be a challenge (Atun et al. 2009).

In taking an organic approach, the same hospital system might create a physician organization and recruit physicians to join the organization over time. The hospital might use some of the land it owns to create a nursing home and then hire the necessary staff, become licensed, and develop the model in an accretive way. It might then use some of the cash on its balance sheet to sponsor a health plan and become licensed as one. Such an approach will ensure that the founding entity’s culture permeates across the continuum. In the organic approach, the various components typically operate more harmo- niously. However, the strategy takes longer and might not be able to leverage short-term market opportunities (Favaro, Meer, and Sharma 2012).

Horizontal and Vertical Integration An organization pursuing integration must decide whether horizontal or vertical integration is appropriate. Horizontal integration occurs when an organiza- tion focuses on expanding further into the market populated by its peers. For

horizontal integration Integration that occurs when an organization focuses on expanding further into the market populated by its peers.

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Chapter 5: Cl inical Integrat ion 81

instance, a hospital might choose to acquire or create more hospitals. Vertical integration occurs when an organization enters markets that are upstream and downstream from its current position. For instance, a hospital might integrate a physician group, an ambulatory surgery center, a health plan, a nursing home, an ambulance company, and a pharmacy. Horizontal integration typically provides for greater market dominance and ability to drive better contract terms. Vertical integration typically provides opportunities to coordinate care and benefit from better care transitions (Baker, Bundorf, and Kessler 2014). Both approaches have their benefits, but they also have challenges (Burns and Pauly 2002).

One of the challenges associated with vertical integration is that such efforts can sometimes work against the incentives of each component entity to be profitable. Consider, for instance, a staff-model health maintenance organization (HMO) in which a physician group, a health plan, and a hos- pital are vertically integrated. If all the entities are in welcoming markets, the overall system will benefit, and all components will be intrinsically successful. However, if the market turns downward for one entity or more, those compo- nents may have an incentive to coast off the success of one another. The health plan might be profitable, but the hospital and the physician group might be economically nonviable. The integrated strategy may make sense if the plan’s success is dependent on having an integrated hospital and physician group. However, if the plan’s success allows the other components to be economi- cally and operationally inefficient, then the system will suffer in the long term. Likewise, if the health plan is unable to increase enrollment because its pre- miums are set too high, it might be sustained by the operational effectiveness of the hospital or require the providers to absorb the losses (Robinson 1999). Another concern with vertical integration is that it might limit innovation. Conglomerates often tend to be outcompeted by small rivals who have the motivation to innovate. Conglomerate firms grow less if other units in other industries are more productive (Maksimovic and Phillips 2002).

Physician markets are exhibiting both horizontal and vertical integration. In horizontal integration, very small practices are combining to form larger groups. These larger groups may benefit from economies of scale, improved coordina- tion and quality of care, within-network referrals, and capture of high-revenue services. The scale economies tend to be achieved rapidly, at around ten physicians in a group (Sen and Burns 2014). In vertical integration, physicians are aligning with nonphysician entities such as hospitals and health plans. Posited advantages include improved contracting, better risk management, and improved coordination. Transaction costs that arise from the need to work with other entities—which may involve negotiations around contracting, setting fair market values, or ensuring services and goods are available when required—can be reduced or even eliminated with vertical integration. Under such arrangements, physician incomes are believed to stabilize, and the practices considered to have some operational predictability.

vertical integration Integration that occurs when an organization enters markets that are upstream and downstream from its current position.

staff-model health maintenance organization (HMO) An HMO that does not distinguish between the insurance plan and the provider organization; the insurance product is a prepaid health plan that guarantees the beneficiary access to a predefined set of benefits and providers.

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The Core Elements of Value in Healthcare82

Although the trend toward physician–hospital integration has received considerable media attention, data suggest that the movement has not been as smooth or as rapid as some analysts have expected (Sen and Burns 2014). One study found that many organizations are seeing losses of more than $100,000 per year per employed physician as a result of the physician employment model (Kutscher 2014). In addition, vertical integration might not lead to improve- ments in quality, and economic integration does not necessarily lead to clinical integration (Sen and Burns 2014).

Vertical integration between providers and health plans has received renewed focus in recent years (Brill 2015; Sen and Burns 2014). The Kaiser Health Plan serves as a model of successful vertical integration. Its success can be attributed to a physician-driven system; unified clinical and administrative cultures that have developed over decades; and strong economic interdepen- dence between the physicians, hospitals, and the health plan. However, even organizations following this model have had difficulty expanding beyond their core markets. Key obstacles include physician resistance, capital investment requirements, difficulty with increasing enrollment, and employer preference to limit options to a few plans (Sen and Burns 2014).

Virtual Integration Both vertical and horizontal integration require significant investment of capital, labor, time, and cultural alignment. In the past, the only way to achieve such integration was through mergers, acquisitions, or organic growth. More recently, however, advances in technology and connectivity, along with new productivity tools and regulatory changes, have made virtual integration a viable option.

Virtual integration between network HMOs and medical groups can ensure that assets already deployed can be maximally utilized. Furthermore, medical groups can learn from one another and innovate. Network HMOs may compete with one another but also leverage one another’s innovations, such as using centers of excellence and preventive care to keep the population well (Robinson 1999). Virtual integration should also allow physicians to remain independent while receiving some of the advantages of group practice. It can also help physicians centralize operations, spread risk, and gain contracting leverage (Sen and Burns 2014).

Case Example: Virtual Integration Imperial Health is a managed care system that operates in 12 counties in California. The organization leverages technology, contracts, preexisting healthcare assets, market knowledge, and local healthcare needs to develop a care delivery system responsive to the unique needs of each area.

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Chapter 5: Cl inical Integrat ion 83

The case example that accompanies this section underscores the impor- tance of economic and administrative controls in ensuring efficient use of health resources. Through virtual integration, expenses related to asset purchase are minimized, and resources can then be deployed for care coordination, disease management, population health, and effective preventive care. Integration

As a restricted licensed entity under California’s Knox-Keene Act,1 Imperial Health assumes significant financial and clinical risk in delivering care to Medicare beneficiaries. It contracts with several managed care plans to receive 80 to 87 percent of the premium that these plans receive from Medicare. The remaining 13 to 20 percent of the premium is used by the managed care plans to perform compliance, marketing, sales, and network development functions. Imperial Health thus focuses on the delivery of clinical care. It contracts with independent physicians and medical groups that are reimbursed for delivering care to patients. These practices contract with Imperial Health to gain access to additional patients seeking clinical care. Imperial Health reduces its overhead because it is not hiring doctors or purchasing their practices. It is instead leasing its infrastructure, which has excess capacity.

Patients may need various services such as medication, procedures, transportation, dialysis, home health care, nursing home care, orthotics, or use of medical devices. To meet these needs, Imperial Health negotiates fair market rates with providers such as hospitals, home health agencies, cab companies, ambulance companies, medical transportation providers, sellers of durable medical equipment, and pharmacies. The providers agree to provide services to patients enrolled with Imperial Health at the negoti- ated rates. These rates should cover the variable costs of the providers with an acceptable margin. At the same time, the rates are acceptable to Imperial Health because the arrangement allows for integration of various components of healthcare delivery without the actual purchase of the assets.

Imperial Health leverages an electronic platform, which is provided by a software vendor as a web-based tool. The software helps the system manage requests for services, pay claims, perform case management, upload contract terms, track costs, and coordinate patients’ care. A core team of case managers, claims professionals, care coordinators, and information technology professionals coordinates these functions using the managed care software platform, videotelephony, email, and real-time communica- tion with patients, providers, vendors, and health plans. Through virtual integration, this care delivery system leverages technology while keeping investments and costs manageable.

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The Core Elements of Value in Healthcare84

represents a significant opportunity to create the infrastructure needed to deliver value in healthcare.

Experiences with Clinical Integration Thus Far

People have explored the concept of clinical integration over the last several decades, generally with mixed results. In the 1990s, experimentation with the concept led to integrated delivery networks (IDNs) that incorporated hospitals and providers. The modern corollary to the IDN might be the ACO, which was the focus of chapter 4. Compared to IDNs, ACOs are more strongly linked to outcomes and quality. They also are expected to leverage technology to facilitate virtual integration, which should help control costs.

Overall experience with IDNs is cautionary (Goldsmith et al. 2015), and evidence suggests that integration of hospital and physician care has increased physician costs, hospital prices, and per-capita medical care spending (Rob- inson and Miller 2014). A study by Robinson and Miller (2014) found that, after adjustment for patient severity and other factors, hospital-owned physi- cian organizations incurred expenditures 10.3 percent higher than those of physician-owned organizations. Organizations owned by multihospital systems had expenditures 19.8 percent higher. The authors concluded that, although organizational consolidation may enhance some forms of care coordination, it may also be associated with higher total expenditures.

Research on hospital integration into health plan operations and capi- tated contracting has generally not shown a positive association with clinical or financial efficiency. Provider investment into IDN development has been linked to lower operating margins and return on capital. Diversification is also associated with negative operating performance (Goldsmith et al. 2015). Provider-sponsored health plans tend to face poor capitalization, actuarial and underwriting inexperience, adverse selection risk, low enrollment, and limited marketing capability (Goldsmith et al. 2015).

Although providers express great interest in moving upstream to also become payers, and vice versa, the additional skill sets necessary pose a significant challenge. Thus, such moves may only succeed in certain unique situations. Health systems that have been successful as sponsors of health plans include Intermountain, Geisinger, and the University of Pittsburgh Medical Center. These systems have unique features related to their location or historical evo- lution that may be difficult to replicate. Going forward, however, the explicit linkage between outcomes and reimbursement, improved access to data, and consumer acceptance of narrow networks might make provider-sponsored plans more successful (Khanna, Smith, and Sutaria 2015).

A 2015 study of provider-led health plans found that 107 systems were operating health plans that covered a total of about 18 million subscribers

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Chapter 5: Cl inical Integrat ion 85

(Khanna, Smith, and Sutaria 2015). Key advantages of these types of plans include the following:

• Systems can preserve their volumes and achieve control in steering patients to their facilities.

• Systems obtain access to information about the total cost of care and can reduce the administrative friction between payers and providers, which assists in optimization of care and resources.

• When providers move up the revenue chain and have exposure to the upstream revenue, they can create strategic option value for the future with innovation around payment design and incentives for executives and employed physicians (Khanna, Smith, and Sutaria 2015).

• Providers can have a lower barrier to entry in markets where employers are interested in a narrow network at a lower cost and a ready-made provider network (Khanna, Smith, and Sutaria 2015).

• Providers have the option to negotiate better reimbursement rates with preexisting dominant payers (Khanna, Smith, and Sutaria 2015).

Although the possibilities of provider-led health plans are promising, a number of risks and challenges must be considered. Payers develop value through reduced utilization and reduced reimbursement rates. Providers create value through pricing, increased asset utilization, higher-margin procedures, and an improved payer mix. To achieve success, a provider-led plan would have to reconcile these differing pathways to value creation (Khanna, Smith, and Sutaria 2015). As narrow networks become acceptable, strong branding around service, quality, and consumer experience will be important; they become deliverables on which the plan and provider will have to execute consistently. The onerous fixed cost of the plan must be distributed across a large subscriber base, which will only grow if the brand, quality, pricing, and experience are competitive. The plan will also need to ensure economic viability in the start-up phase, since the reserve requirements and operational costs will be significant. Com- pliance with insurance regulations is also a key concern that requires a strong infrastructure. Furthermore, the provider must consider the risk of losing any existing contracts it has with other payers, since a provider-led plan becomes a direct competitor to these payers. The value of a provider-led health plan depends on the share of the membership’s medical spending that stays within the system. Demographics will also influence profitability, as will the product line (Khanna, Smith, and Sutaria 2015).

Given the challenges in establishing a plan, a provider may consider building a plan, acquiring one, or creating a partnership through a joint ven- ture. Once the plan is a part of the provider’s strategy, the integrated system’s structure should be driven by the sources of value. If growth and margin opportunities vary by business line—such as the health plan, hospital, and

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The Core Elements of Value in Healthcare86

physicians—then certain business lines should be prioritized accordingly. If growth and margin opportunities depend on market penetration and integra- tion, then specific regions should be prioritized. If the goal is to maximize competitiveness as the payer, then customer segments should be prioritized (Khanna, Smith, and Sutaria 2015).

If a provider-led plan is to succeed, the providers must have strategic alignment across the system, a strong balance sheet, population health manage- ment capabilities, brand recognition, and scale (Khanna, Smith, and Sutaria 2015). The challenges encountered by a number of high-profile providers seeking to acquire health plans provide a note of caution (McCluskey 2014). In 2014, Partners HealthCare posted a $22 million loss for the first time in 15 years, based on the performance of a health plan it had recently acquired (McCluskey 2016).

Case Example: Partners HealthCare Partners HealthCare was established in Boston, Massachusetts, in the 1990s through a merger of two prestigious hospitals, Massachusetts General Hos- pital and Brigham and Women’s Hospital. Since then, the health system has merged, acquired, or entered into affiliations with several other hospitals in Massachusetts. It is now the largest hospital and physician network in the state. Thus, it has significant leverage in its contract negotiations with insurers as well as in its dealings with other providers.

Given Partners HealthCare’s dominance in its market, critics have argued that its negotiated rates with large payers have led to higher rates across the state. Much of the system’s ability to drive better contract rates likely stems from the higher quality of care that it delivers; however, another well-regarded health system, the Beth Israel Deaconess Medical Center (part of the Harvard Medical School system), has not been able to negotiate the same rates with payers such as the Tufts HMO. Partners HealthCare’s ability to drive its dominance is likely strengthened by its illustrious his- tory in US medicine. Massachusetts General Hospital is among the oldest hospitals in the country, and many of the hospitals in the system have been the site of medical breakthroughs. However, most of the care delivered in the Partners facilities is similar to the regular procedures and ordinary care that can be delivered at a lower cost in community hospitals with similar or better quality data (Allen et al. 2008).

In 2012, to leverage the opportunities of clinical integration, Partners HealthCare acquired Neighborhood Health Plan, which caters to Medicaid recipients (Weisman 2012). Since the acquisition, membership growth in the Medicaid insurer has increased greatly. However, despite the membership

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Chapter 5: Cl inical Integrat ion 87

Alignment Models

Clinical integration provides a path to align stakeholders’ interests and increase the value of healthcare being delivered. Such alignment can vary depending on the degree of financial and clinical integration.

Alignment between physicians and hospitals can be limited, moder- ate, or full. Limited alignment can take the form of managed care networks, call coverage stipends, medical directorships, and shared savings. Moderate alignment can be achieved through service-line management agreements, management service organizations, equity group assimilation, joint ventures, and comanagement of clinical and service offerings. Full alignment occurs with physician employment. A hospital may achieve such alignment by acquiring a practice and maintaining the practice’s identity as a specific subsidiary of the hospital. Full alignment is the strongest form of alignment, since economic risks are aligned between the hospital and the physicians.

In a full alignment model, some form of a professional services agree- ment (PSA), which stops just short of employment, may be executed (Becker’s Hospital Review 2012). Under a PSA, the hospital contracts with the practices for services in exchange for payment at a global payment rate. Such agree- ments have proved viable from an alignment standpoint. If a physician is not yet ready for employment by a hospital, the PSA allows for some autonomy (Reiboldt 2012).

professional services agreement (PSA) A form of hospital–physician alignment in which the physician is not directly employed by the hospital but provides certain services under the terms of a contract.

increase, Partners reported an overall operating loss four years after the acquisition, because the beneficiaries were sicker than expected and gov- ernment payments did not cover the full costs of care (McCluskey 2016). Partners has since worked to integrate Neighborhood Health Plan into its operations to coordinate population health efforts (HealthLeaders Media News 2016). Given the high fixed costs for the Partners HealthCare system, achieving a profit by delivering care to a population cohort in a program with low reimbursement can be difficult. A similar experience has been reported by some other provider-based health plans (Gale 2016).

The experiences of Partners HealthCare suggest that better value could be achieved by allowing lower-complexity care to be delivered at community hospitals, which can achieve similar results at a lower cost, and directing higher-complexity care to Partners facilities, where the results may be better. This case provides an example of a situation where value can be generated by allowing world-class facilities to coexist with community- based facilities.

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The Core Elements of Value in Healthcare88

Multispecialty Medical Groups Initially, medicine in the United States was organized around solo practices (Robinson 1999; Starr 1982). Over time, however, multispecialty medical groups, pioneered by the Mayo Clinic, have gained prominence. Medical groups are able to bear the risk of capitation and provide population-based healthcare. Peer review and a shared culture predominate.

With the growing emphasis on cost containment and clinical coordina- tion, multispecialty groups have become natural partners with managed care health plans. They are well suited for care coordination, utilization manage- ment, evidence-based care, and cost-effectiveness. The groups accept a risk- adjusted capitation from the plans, which attenuates their financial risk while also incentivizing cost-effective care. Global capitation prevents cost shifting and encourages the provider to deliver care that is most cost-effective overall (Robinson 1999). Large multispecialty groups such as HealthCare Partners contract with health plans and then take over several delegated functions, such as claims processing, utilization, and health services delivery. The groups receive a share of the capitated payments for these functions (Gbemudu et al. 2012).

The fundamental belief behind multispecialty medical groups is that coordinated care is better than fragmented care. Coordination is achieved by ensuring that patients are assigned a primary care physician at all times. Utiliza- tion management allows for standardization of care by ensuring that providers follow the evidence base concerning appropriate care. Thus, standard protocols can facilitate the management of patients with clinical issues such as chest pain, back pain, or fainting. The clinical infrastructure and systems in place for such functions reduce specialty referrals, hospital admissions, and hospital lengths of stay. Delegation of these functions is more common on the West Coast than on the East Coast (Robinson 1999).

Global or partial capitation payments that are tied to quality and out- comes, as well as the administrative infrastructure possible with larger multispe- cialty groups, can help change the process of care in the United States. These types of arrangements give groups the incentive to develop such initiatives as home visits by doctors or nurse practitioners to frail heart-failure patients, distribution of inhalers to asthmatic children, and efforts to encourage patients to follow up on preventive health measures (Robinson 1999).

Multispecialty groups need to have sufficient negotiating power to ensure competitive contracting that allows them to be viable while ensuring the delivery of coordinated and high-quality care. As these groups become larger, how- ever, the culture may tend to dissipate, making the group less effective and unique in its structure. Individual incentives may erode, and productivity may decrease. In some cases, the management of the group may be spun off into an administrative firm that is owned by a few of the committed physicians. The other physicians may become employees, thus relegating the medical group to become a collection of contracts (Robinson 1999).

multispecialty medical group A collection of physicians from various specialties who join together to deliver care under a single clinical entity.

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Chapter 5: Cl inical Integrat ion 89

Independent Practice Associations In areas that have a plethora of solo practices but lack the multispecialty medical groups necessary to form conventional HMOs, independent practice asso- ciations (IPAs) have emerged. These associations contract with independent practices rather than medical groups, and they pay on a discounted fee schedule or capitation. The IPAs monitor utilization and direct care coordination.

In an IPA, the enrollee selects a primary care physician, who then directs the use of specialists. The IPA manages utilization through prior authoriza- tions for high-cost tests and procedures. Although the IPA has the flexibility to contract with multiple health plans, it does not have the efficiency or care coordination of a multispecialty group. The successful IPAs have embraced managed care and thrived in this market (Robinson 1999).

Health plans have the ability to tolerate the risk of unknown expendi- tures related to claims that have been incurred but not reported. However, physician groups such as IPAs are made up of providers who work closely with patients, hospitals, nursing homes, and long-term acute care facilities, and such interactions can help with the management of costs (Chamblee, Greeter, and Reiboldt 2013). As a provider organization grows in size, it is able to take on more of the actuarial and financial risk of managing the cohort of patients under its care. When the IPA has control over costs and can become responsible for a greater portion of the risk, the health plan can step back into a more supportive role. The plan then becomes more concerned with ensuring that the IPA does not withhold care, since the group may now have a financial incentive to do so (Robinson 1999).

Considered a networked medical group, an IPA leverages the infrastruc- ture in place within solo or small group practices and connects them using information technology. It contracts with the groups on a capitated basis and provides them with incentives to deliver cost-effective and high-quality care. The capitation and the opportunity to share in savings are linked to quality metrics. A key determinant of an IPA’s success is its orientation toward managed care with a primary care focus. Typically, the IPA is managed by a manage- ment services organization (MSO) that takes responsibility for credentialing of physicians, care coordination, utilization management review, and financial management. Thus, a “medical group without walls” is created, while still allowing physicians to exercise autonomy within their practices.

The IPA model offers benefits for a variety of stakeholders. If a health plan contracts with an IPA and delegates certain functions to it, the plan can then concentrate on its core competencies of underwriting, developing a network, increasing subscriber enrollment, and managing risk. Hospitals may become involved in IPA development to incentivize a group of physicians to remain loyal to the hospital, to direct admissions to the hospital when appro- priate, and to provide MSO services, which bill a percentage of the revenue earned by the IPA through a capitation premium. A challenge for such entities

independent practice association (IPA) An association of independent physician practices that agree to deliver care to a group of patients on a discounted fee schedule or capitation; the IPA assumes some of the financial risk of delivering care.

management services organization (MSO) An entity that addresses the administrative functions of a network medical group on a long- term and exclusive basis.

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The Core Elements of Value in Healthcare90

is that the IPAs may be economically inefficient and have to be subsidized by the hospital.

Mature IPAs can separate from the hospital or plan, contract with mul- tiple plans and hospitals on a nonexclusive basis, and develop contracts to take global capitation risk with an opportunity to share savings with other parties so that financial incentives are aligned.

Management Services Organizations Management services organizations address the administrative functions of network medical groups on a long-term and exclusive basis. They typically are separate entities from the IPA and are owned by the most committed and entrepreneurial physicians. Often, individuals with professional management expertise are employed by the MSO and also have an ownership stake; such an arrangement helps attract talent to the entity while still complying with laws in many states that prohibit nonphysician ownership of medical groups (Michal et al. 2006).

The professional management of the MSO allows for financial discipline. The MSO manages the administrative functions such as claims management, enrollment, disenrollment, information technology installation, care coordina- tion, utilization management, financial planning, and budgeting (Robinson 1999). The fixed cost can be spread effectively across several IPAs and patients.

MSOs incorporate the functions of traditional physician practice man- agement firms. They serve as corporate entities that can consolidate physician practices and coordinate IPAs, single specialty networks, and multispecialty clinics while remaining independent of HMOs and hospital ownership (Rob- inson 1999).

Modified Staff-Model HMOs Staff-model HMOs do not distinguish between the insurance plan and the provider organization. The insurance product is a prepaid health plan that guarantees the beneficiary access to a predefined set of benefits and providers. The providers are salaried, and clinics are built in response to demands.

The modified staff-model HMO is exemplified by the Kaiser health plan and the Kaiser Permanente medical groups. The health plan contracts exclu- sively with several Permanente medical groups that have control over clinical operations. All clinical decisions are delegated to the medical group, and uti- lization is evaluated by the same. The medical groups’ budget is derived from the premium collected by the insurance plan. This contractual relationship has allowed the preservation of culture within the medical groups and the health plan. The modified staff model fared better than the model where physicians were directly employed by the health plan (Robinson 1999).

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Chapter 5: Cl inical Integrat ion 91

Physician–Hospital Comanagement Arrangements With the growing awareness of the benefits of cost sharing, more and more stakeholders are exploring ways to align hospitals and physicians. However, many organizations lack the financial or operational breadth to create an ACO. Furthermore, many physicians prefer maintaining their independence and not becoming employees of a hospital (Goldsmith, Kaufman, and Burns 2016). In these cases, a comanagement arrangement might be a viable option (Sow- ers, Newman, and Langdon 2013). Comanagement arrangements provide an alternative to physician employment and encourage doctors to cooperate with the hospital in improving quality and reducing the cost of care.

Comanagement arrangements must be structured in compliance with laws that prohibit physicians from using certain strategies intended to enrich the provider. Such laws include the Stark Law,2 the Anti-Kickback Statute,3 and the Civil Monetary Penalties Statute4 (Burack 2013). A number of past rulings and decisions have provided guidance for pursuing comanagement arrangements without running afoul of these rules. A 2012 advisory from the Office of the Inspector General applied to a cardiology group that managed the cardiac catheter- ization laboratories in a hospital. Importantly, the advisory spelled out a number of safeguards that had prevented the group from violating the relevant statutes. Key characteristics included the following (Office of Inspector General 2012):

• Compensation to the physician group was based on a fair market value. • The compensation was independent of the number of patients treated. • The hospital did not appear to offer compensation to the physician

group as an incentive to increase physician referrals. • The arrangement ensured that the purpose was to improve quality, not

to increase referrals. • The agreement was limited in duration.

As a provider or payer group assumes greater responsibility for the financial risk of delivering care, the greater risk can protect the entity from kickback or self-referral concerns. The assumption is that an entity taking on such a risk will be rational in delivering care.

Clinical service lines that are the most costly may provide the greatest opportunity (Ojeifo and Berkowitz 2015). If providers in such service lines as cardiology, orthopedics, and oncology are able to assume greater risk, the savings could be significant (Olson and Mather 2013). Typically, savings from comanagement are made possible through judicious resource management—in other words, through better stewardship of resources to ensure that patients are receiving effective care at the right time at the right place. By contrast, ACOs focus on frequency management, which seeks to reduce the number of

comanagement A symbiotic hospital–physician relationship in which the physicians use their expertise to manage the service line provided by the hospital.

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The Core Elements of Value in Healthcare92

times the patient accesses the same care. Resource management relies heavily on the use of protocols and the evidence base, whereas frequency management relies on better care coordination. Comanagement can be an effective vehicle for improving value through bundled payments, but the entire episode of care must be incorporated and benchmarks must be linked to quality metrics.

Physician–Hospital Organizations Physician–hospital organizations (PHOs) are partnerships between hospitals and physicians, and they can take either of two forms. In one form, the PHO represents an equal partnership between a hospital and an established physi- cian organization.5 In the other form, a PHO is created between the hospital and groups of physicians, individual practices, and multispecialty groups. In this second version, the balance of power may favor the hospital, because the physicians are not truly organized and aligned according to economic incentives (Cleverley, Song, and Cleverley 2011). Typically, PHOs are not truly integrated, and they struggle with how to divide payments between the hospitals and the physicians (Creighton 2004). The revenue may be generated from a capitation structure or a fee-for-service mechanism.

A PHO may result from vertical integration, when a hospital acquires medical practices. When structured as a diversified healthcare conglomerate, the PHO can enhance coordination between the hospital and primary care practices. Prior to the passage of the Affordable Care Act and the benefit of shared savings, this concept was unlikely to succeed, since the whole purpose of the PHO was to align feeder practices so that the hospital could maintain admissions. Effective primary care should reduce the need for hospital admis- sions (Robinson 1999; Todd 2013).

physician–hospital organization (PHO) A partnership between a hospital and physicians.

Case Example: Physician–Hospital Organization This case example is adapted from a presentation by Eric Norwood (2014b) to Citrus Valley Health Partners in Covina, California.

DeKalb Physician Hospital Organization (DPHO), based in Decatur, Georgia, was formed as a joint venture between three hospitals and a select network of leading physicians. The physicians were part of an IPA. The DPHO set out to operate as a clinically integrated network (CIN) in compliance with a set of integration principles set forth by the Federal Trade Commis- sion (Donovan 2013). According to those guidelines, in order for healthcare providers to bargain collectively, the entities must

• use protocol and/or clinical practice guidelines to standardize care, • perform internal review and profiling of doctors, • invest in infrastructure,

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Chapter 5: Cl inical Integrat ion 93

• take action against poor performers, • provide data to payers, and • ensure that fee bargaining is ancillary to the reason for coming together.

The goal of DeKalb’s CIN is to provide value to patients, payers, doc- tors, and hospitals. Patients benefit from higher-quality outcomes and care. Payers can reduce cost via better outcomes and utilization. Doctors benefit from more competitive and preferred rates. Finally, hospitals benefit through better alignment with physicians and payers, improved rates, and reduced costs that result from improved operations.

The governing structure of the DPHO is 25 percent PCP representation, 25 percent specialty representation, and 50 percent hospital representation. Action can be taken with a supermajority. Effective physician leadership and collaboration with hospital leadership are essential. The CIN credentials its members and conducts concurrent peer review that includes evaluation of clinical and business practices. This process goes beyond the typical credentialing, privileging, and peer review of the hospital’s medical staff.

The layers of physician alignment under the DPHO are shown in exhibit 5.1. Physicians in the CIN do not necessarily have to be part of the medical staff, and they may continue practicing in the community. A number of conditions exist for membership in the CIN, and that membership is largely determined by the key customers who are the purchasers and payers. The entity assuming the risk for a population of members is the one that has the right to decide the criteria for the network of doctors and hospitals who will serve those members. Thoughtful selection of CIN members is critical,

All physicians in community

Employed physicians

Medical sta� physiciansPhysicians in clinical integration

Source: Adapted from Norwood (2014b).

EXHIBIT 5.1 Layers of Physician Alignment

(continued)

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The Core Elements of Value in Healthcare94

Accountable Care Organizations The ACO model was discussed at length in chapter 4, but this section will pro- vide further discussion of the role of ACOs as they relate to clinical integration. ACOs address several of the key integration challenges associated with PHOs. Such challenges involve the conglomerate model inherent to PHOs, whereby diverse entities with different operating models are connected structurally; the significant capital investment generally required for PHOs; and potential antitrust concerns. ACOs tend to keep stakeholders better connected through virtual integration, typically require a lower investment, and have been provided clear safe-harbor instructions that should mitigate antitrust concerns.

because it is easier to keep poor performers off the staff initially than to disinvite them later.

Accountability is a learned business discipline of paramount impor- tance for the CIN. The CIN depends on physician leadership in a joint-ventured business (Norwood 2014a), and such leadership requires management of the business performance of physicians. Key competencies in this area include keeping referrals in-network, ensuring high patient satisfaction, and following protocols based on evidence-based medicine.

The CIN self-regulates the clinical practice patterns of its members both in the hospital and in the office. Decisions for membership are related to quality and business performance. In this scenario, population health management becomes important. The stakeholders in the PHO are develop- ing experience with data aggregation, risk stratification, care coordination, and patient outreach. Population health management competencies include the following (Norwood 2014a):

1. Automated care management (EMR linked from inpatient to ambulatory)

2. Reduced readmissions 3. Measures of cost and utilization of resources across the continuum

of care 4. Improved patient compliance 5. Reporting of quality measures by provider 6. Increased patient engagement 7. Reduced no-show rates 8. Stratification of patients and targeted interventions to the right

people 9. Outreach and ambulatory management of chronic diseases

10. Connections with community-based organizations

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Chapter 5: Cl inical Integrat ion 95

Payment reform has facilitated the growth of ACOs. The entities aim to improve efficiency, transparency, and quality; decrease cost; and align incentives among providers. They are responsible for clinical care management, captur- ing data across the continuum of care, and monitoring costs and quality. The infrastructure for achieving these goals depends heavily on information tech- nology—EMRs, computerized order entry, data warehousing, and reporting functionalities for quality and outcomes. Effective care coordination and the wherewithal to share risk are also important.

ACOs allow virtual integration between payers, physicians, hospitals, and post-acute care providers. The goal of contracts between these stakeholders is to ensure that the ACO manages patients effectively and efficiently while adhering to quality benchmarks. Such efforts should lead to shared savings that can be divided between the stakeholders, which in turn provide for economic alignment as well.

Integration via ACOs must reflect the paradigm shift from volume-based to value-based healthcare. The traditional volume-based delivery system consid- ers healthcare to be a privilege, and an incentive exists to provide more care, admitting and readmitting patients to increase volume. The patients have little self-responsibility, and care is delivered in physician-focused face-to-face settings. Pricing is not consistent or transparent, and payment has a fee-for-service orien- tation. By contrast, the value-based delivery system espoused by ACOs regards healthcare as a right, and it focuses on delivering appropriate care that leads to less volume, better results, and greater accountability. The emphasis on value leads to consolidation and a hub-and-spoke model, whereby experts provide the care that they are best equipped to provide. Innovations such as remote monitoring and the leveraging of allied professionals allow for a greater patient orientation. Pricing is transparent, with more bundled payments and risk sharing.

Key elements of success for ACOs include improved access points through urgent care centers, federally qualified health centers, emergency departments, health plans, physician offices, and retail clinics. Access to primary care, effective specialist care, cost-effective community hospitals, and tertiary and quaternary hospitals is essential.

Value-Based Care and Interprofessional Collaboration

The traditional model of healthcare has focused on each profession working within its own confines (Mitchell et al. 2009). Nurse practitioners and nurses, for instance, might care for patients but have limited interactions with physi- cians. Similarly, social workers, pharmacists, physical therapists, psychologists, and other healthcare professionals might work with patients but have limited interactions with professionals outside their immediate sphere of influence. Such a limited interprofessional model limits the potential of value-based healthcare.

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The Core Elements of Value in Healthcare96

Value is dependent on services being delivered by professionals at the highest level of their licensure. Thus, a protocol for treating patients with congestive heart failure (CHF) might be designed by physicians, but input from nurses, pharmacists, home health aides, physical therapists, and social workers can help ensure that the protocol is germane and targeted. Once the protocol is developed, a pharmacist might be more effective than the physician in ensuring medication adherence, since the physician might be busy with the immediate clinical needs of patients in a busy practice. A social worker could make home visits to ensure that patients with CHF have the social support to thrive in the community. Physical therapists could ensure that patients have agility and strength to undergo cardiac rehabilitation treatment.

Through collaborative efforts, interdisciplinary teams can achieve consen- sus on treatment plans that allow patients to receive effective care at the appropri- ate sites of care (Reeves et al. 2017). Such collaboration may include team action planning, interprofessional rounds, and regular meetings and checklists (Reeves et al. 2017). Through these efforts, adherence to recommended practices can be improved, and optimal use of resources can be facilitated (Reeves et al. 2017).

The IOM recommends that training in collaborative efforts start early in healthcare education, with the aim of developing healthcare students as future interprofessional team members (Bridges et al. 2011). Didactic programs emphasizing team building and patient-centered care can help make clinicians more interdisciplinary in their approach. Community-based training can instill an appreciation for available community resources and an understanding of the ways those resources can affect patient health status. Such training can help profes- sionals understand their own identities while also developing an appreciation for other professionals’ roles in delivering care to beneficiaries (Bridges et al. 2011).

Today’s healthcare landscape offers a variety of opportunities for clinical integration that can eliminate waste, improve care coordination, and contribute to higher-value healthcare delivery. However, attention to the intricate details of integration is essential, or else the mission of delivering value may well be derailed. In pursuing clinical integration, many organizations are incorporating several or all of the concepts presented in this chapter. One such organization is described in the case example that accompanies this section.

Case Example: MemorialCare Health System The following case is adapted from the 2014 annual report of the Memorial- Care Health System (2014).

MemorialCare is an integrated, comprehensive health system in Los Angeles County and Orange County, California. Extending across the full con- tinuum of care, the system includes six hospitals, including a free-standing children’s hospital; 2,600 affiliated physicians; medical groups; urgent

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Chapter 5: Cl inical Integrat ion 97

care centers; imaging centers; ambulatory surgery centers; a digestive care center; a home health care company; laboratory sites; and a regional health plan. Its six hospitals give it a strong presence in the acute care mar- ket, and it has established centers of excellence in the cardiac, oncologic, orthopedics, pediatrics, women’s health, and minimally invasive surgery service lines. MemorialCare also has an affiliation with an independent practice association.

The MemorialCare Surgical Center allows the system to leverage the move from an acute care model to an ambulatory care model, which helps boost patient satisfaction and reduce costs. The system has entered joint ventures to open several surgical sites, bringing greater value to patients through better options, lower cost, and improved accessibility.

The MemorialCare Imaging Center comprises several outpatient imag- ing centers. These ambulatory sites help reduce costs while improving the patient experience through greater access points, convenient scheduling, and access to innovative technology such as 3 Tesla (3T) magnetic resonance imaging (MRI), high-field open MRI, and cardiac computerized tomography. Clinicians also have immediate access to images and reports that can be viewed remotely.

The MemorialCare Home Health service is a joint venture between the system’s Saddleback Memorial Hospital and the Bridge HomeCare Partners. The entity represents an important part of MemorialCare’s long-term strategy to encompass the full continuum of care. It provides services primarily in the southern Orange County area.

MemorialCare acquired a regional health plan, Seaside Health Plan, with the aim of becoming a fully integrated health system capable of assum- ing financial risk for the care it delivers. It has entered plan-to-plan agree- ments to serve Medicare and Medicaid beneficiaries as well as patients in commercial plans (Becker’s Hospital Review 2013).

With these structural pieces in place, MemorialCare is also pursuing an integrated physician strategy to ensure that patients have a seamless experience across its various facilities, services, and clinicians. It acquired the Bristol Park Medical Group—now known as the MemorialCare Medical Group—which serves as the vehicle for its employed physician strategy. The entity provides an option for physicians looking to be employed by the system. At the same time, MemorialCare recognizes that a number of physicians wish to remain in independent practice. Thus, as part of its pluralistic physician strategy, the system acquired an existing IPA, Greater Newport Physicians, to provide independent physicians an opportunity to closely align with the health system (Robeznieks 2012).

(continued)

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The Core Elements of Value in Healthcare98

Summary

Clinical integration represents an exciting opportunity to redefine the way healthcare is delivered. When implemented effectively, it can reduce barriers to access, lower costs, elevate quality, and improve the patient experience. Thus, it is a key component for delivering value in healthcare.

In addition, MemorialCare created a partnership with an academic medical center, University of California Irvine, to expand its footprint and to provide an association with a tertiary provider (Terhume 2013). It also acquired a health plan with products in the Medicare, Medicaid, and com- mercial segments (Arbuckle 2014).

The system has made significant strides in population health manage- ment, with initiatives addressing such issues as obesity and chronic disease. Its EMR system serves as the backbone, with computerized physician order entry usage exceeding 90 percent. Urgent care centers provide sites for work injury treatment for more than 140 employers. The integrated system has launched programs for managing chronic conditions such as diabetes and hypertension. Results of these programs have included 84 percent partici- pant retention, 92 percent compliance with medications, average reduction of HbA1c levels by 0.9 percent, and an average reduction of systolic blood pressure by 27 mmHg (MemorialCare Health System 2013).

Given its vast span of operations, MemorialCare has invested sig- nificant resources into its common EMR platform, which allows data to be collected, shared, and used across all its sites to provide a unified clinical picture of each patient. To avoid duplication of resources and to eliminate waste, the system has also created a program that critically assesses pro- cesses and works to streamline operations. The initiative is called PLUC, representing its focus on productivity, Lean, utilization management, and care model redesign. The effort has helped the system identify efficient processes, reduce waste, and keep costs in control while providing high- quality care.

MemorialCare’s strategy incorporates both horizontal and vertical integration. It has also leveraged technology to provide virtual integration, helping make its acquisitions, joint ventures, and affiliations successful. Its physician strategy has helped keep stakeholders well aligned, and its ability to take risks in financial terms allows it to make rational investment decisions. Taken together, MemorialCare’s efforts help ensure that patients receive care at the right place, at the right time, at the right cost.

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Chapter 5: Cl inical Integrat ion 99

Regulatory and market forces are driving healthcare away from a frag- mented fee-for-service model and toward a bundled payment approach tethered to value-based contracting. Integrated models for healthcare delivery are well suited to the aim of global population health and to the use of value-based payment.

Integration can take a variety of forms. It can be limited to multispecialty physician groups, or it can be somewhat more expansive, through independent practice associations. Physician–hospital organizations encompass integration across physicians and hospitals. Comprehensive integration can encompass the entire continuum of care. Such an arrangement might feature a pluralistic phy- sician strategy, incorporating groups and IPAs, as well as acute care hospitals, post-acute care entities, ambulatory care facilities, and an aligned health plan. Advances in technology are facilitating virtual integration, which can make value-focused initiatives and innovations more affordable.

Organizations may pursue integration by building competencies organi- cally, acquiring other organizations with the requisite skill sets, or exploring joint ventures. Organizations should select the strategy that makes the most sense for their particular situation, geography, or demographic. Integration strategies can prove costly if they are not well thought out. It may be prudent for some organizations to embark on a clinical integration strategy in small and iterative steps, gaining expertise that can be further leveraged as the process goes on.

Notes

1. The Knox-Keene Health Care Service Plan Act of 1975 regulates prepaid health plans in the state of California (Roth and Kelch 2001). A restricted license allows a provider group to assume the risk of coordinating and delivering care to patients through medical professionals and institutions such as hospitals.

2. The Stark Law, also known as the physician self-referral law, is written in Section 1877 of the Social Security Act (42 U.S.C. § 1395nn). It prohibits physicians from making referrals for certain designated health services to an entity in which the provider has a financial interest.

3. The federal Anti-Kickback Statute is a criminal law that prohibits exchanging or offering to exchange anything of value with the intent to induce the referral of healthcare business funded by the federal government. See 42 U.S.C. § 1320a-7b.

4. The Civil Monetary Penalties Law imposes significant monetary penalties on entities that present claims for services that were not provided or claims that were otherwise false or fraudulent. See 42 U.S.C. § 1320a-7a.

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The Core Elements of Value in Healthcare100

5. An established physician organization would typically refer to a group of physicians who have organized into an entity for the purposes of delivering care. Such an organization may have a corporate structure or function as a partnership. This entity can enter into contracts, negotiate rates, and assume clinical and financial risk involved in delivering medical services to patients.

Discussion Questions

1. What benefits does clinical integration provide in delivering value in healthcare?

2. What challenges exist that might limit the effectiveness of clinical integration?

3. What are the characteristics of a clinically integrated health system? 4. Does clinical integration lead to reduced competition and

anticompetitive behavior? How can clinical integration be achieved without raising concerns about monopolistic behavior?

5. Identify some recent examples in the literature that illustrate success in clinical integration.

6. Identify some recent examples in the literature that illustrate failure in clinical integration.

7. Is virtual integration the answer to the high cost of clinical integration? Identify some possible ways to reduce the cost of integration.

8. Discuss the spectrum of clinical integration described in the chapter, and provide examples that illustrate the various structures.

9. Provide and discuss examples of both vertical and horizontal integration.

10. Which form of clinical integration delivers more value in healthcare: vertical integration or horizontal integration?

11. Consider the following case: You have recently been appointed the chief strategy officer of a healthcare system called Carlaris Health. Carlaris owns seven hospitals in three states in the Midwest, and its revenue is $400 million annually. Government programs such as Medicare and Medicaid account for 70 percent of the revenue; the rest is from commercial contracts. Carlaris recently experienced a 25 percent drop in its admissions, in part because a larger health system started focusing on activity in Carlaris’s area, causing many admissions to be diverted. Health plans and employers have expressed concern that Carlaris’s cost structure is comparatively high, and a recent spate of infections and complications after surgeries has brought negative publicity. The

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Chapter 5: Cl inical Integrat ion 101

medical staff has had difficulty recruiting new physicians to the area because of low reimbursement, high workload, and poor collaboration between the physicians and the health system. Readmission rates have been rising, causing Carlaris to be penalized by Medicare. Many patients in the area lack adequate primary care, which results in them coming to the emergency room for health problems that could have been prevented. Safe discharges for these patients also pose a challenge. Your team has been tasked with producing a strategic plan that can put Carlaris on a steady financial and operational footing. a. What steps can be taken to integrate Carlaris health system and the

physicians? b. Are interprofessional opportunities available to improve access to

primary care? c. How can interprofessional options be used to address high

readmissions? d. How would you approach payers about entering into shared

savings contracts? Identify the key elements in these contracts that will help improve operational effectiveness. How can you benefit from contracts whereby admissions, readmissions, and complications come down?

e. Carlaris Health has a presence in several geographic areas. Provide a strategy to take advantage of this presence through physician– hospital organizations, ACOs, and service line collaboration.

f. Can Carlaris Health become a payer as well? What are the benefits and risks of such a strategy?

g. Draft a two-page memo to your board outlining the strategy that Carlaris should implement to effectively become a value-based health delivery system.

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CHAPTER

103

POPULATION HEALTH

Learning Objectives

Upon completion of this chapter, you should be able to

• define population health; • explain how a focus on population health facilitates the delivery of value

in healthcare; • distinguish between the concepts of population health, public health,

preventive medicine, and wellness; • schematize the connections between population health and public

health; • understand how patient engagement, population health, and prevention

are key to the delivery of value in healthcare; • apply case studies to present-day situations by incorporating principles

of population health, disease management, complex case management, risk stratification of patients, preventive care, and patient engagement; and

• enumerate the determinants and facilitators of population health and public health.

Any strategy that helps a group of people maintain good health delivers value, since the costs of helping people remain healthy are low compared to those needed to make people healthy once they fall ill. Healthy habits,

a safe environment, good nutrition, policies promoting wellness, and effective preventive care can facilitate a healthy population for a relatively low investment (Caron 2014). Healthier people tend to be happier and more satisfied with life in general—and with their healthcare in particular. Thus, population health— with its emphasis on wellness, prevention, and effective policy—represents a key aspect of delivering value in healthcare (Musich et al. 2016).

The field of population health is emerging rapidly and holds great prom- ise in the era of value-based care. It draws upon the concepts of public and social policy, preventive medicine, public health, disease management, and patient empowerment, as well as primary and specialty care, to keep popula- tions healthy and productive while managing costs. An appreciation for the

population health An approach to health that recognizes the importance of the community and the environment in keeping people healthy; it incorporates public health, policy making, nutrition, wellness promotion, preventive care, and patient engagement.

6

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