Integrated Delivery Systems

Bringing Hospitals and Doctors

Together

Plan for Today

Hospital-Physician integration
More alphabet soup (PHO, MSO, IDS)
Continuum involving looser and tighter forms
of integration
Advantages and disadvantages of each form

The rise and fall of Penn State Geisinger

Health System

Systems Framework for Understanding Managed Care

EMPLOYERS
Plan Choices,
Employee
Premiums,
Information

Marketing,
Product
Development
Job preferences,
Wage and Benefit
Preferences

Select Products,
Join Plan

MCO
Member
services

Enrollees
Marketing,
Advertising,
Information,
Reputation

Taxes,
Votes
Employee
Plans,
Medicare,
Medicaid,
Information

Contract for
Product, Risk,
Premiums,
Benefits
Regulate Allowed
Products, Behavior
Relationships

GOVERNMENT
Adapted from Gold , Medical Care Research and Review 52(3): 307-341, Figure 1.

Utilization
management

CARE

Payment,
Risk, Practice
Guidelines,
Profiling

Provider
Network

CONSUMERS

Contract for Product,

Premiums/Benefits, Risk

Customer
Volume

Type of Plan,
Philosophy and
Procedures for
Selection/Retention

PHYSICIANS
Specialty, Style of
Care, Discounts,
Form of Organization

Discounts,
Specialized
Services

Treatment
Facilities
and
Prescribed
Services

HOSPITALS &
OTHER SUPPLIERS

Admissions,
Prescriptions,
Referrals

Why integrate?
Reduce average costs
Higher prices
Greater negotiating strength re. plans

Lower costs and higher prices -->

higher profit margins

How Can Integration

Reduce Costs?
Economies of scale
Share administration and overhead
Spread fixed costs

Deploy clinical resources more effectively

Physicians and hospitals pay more attention to
effects on each other

Information systems to manage business and

care

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

Physician-Hospital Organization (PHO)

Vehicle for jointly negotiating with managed
care organizations
Hospital and physicians on staff agree on terms
PHO has limited time to make the deal
Then physicians can contract separately

Open PHO (open to all physicians on staff)

Consequently heavy on specialists

Closed PHO (limited physician membership)

Physician-Hospital Organization (PHO)

Advantages
Negotiating power (United we stand.)
Easy for MCO to set up contracts
Potential ability to track and use data

Disadvantages
Little leverage if MCO already contracting with
physicians
Hospital middleman between MCO and docs
MCO may not want all docs in open PHO

Management Services
Organization (MSO)
Hospital provides services to physician
practices, in addition to MCO negotiations
For example, billing or administrative support
Support staff

Hospital may acquire some practice assets

All transactions at fair market price
Physicians not bound by exclusive contract to
admit to hospital

Management Services
Organization (MSO)
Advantages
Closer links between physicians and hospital
than PHO
More opportunity to share overhead and
rationalize/standardize practice management
and data

Disadvantages
Physicians still essentially independent

Integrated Delivery Systems (IDS)

Hospitals & physicians in one organization
Hospital owned
Staff model IDS (to be distinguished from staff
model HMO)

Physician owned
May integrate insurance functions, too
Accept risk from patients
Plan administration

Integrated Delivery Systems (IDS)

Advantages
One voice to negotiate with MCOs
Command and control to integrate and
rationalize services and systems

Disadvantages
Capital requirements
Managing on many diverse fronts

Hospital-owned IDS
(Staff model)
Hospital owns IDS and hires physicians
Advantages
Capital, management concentrated in hospitals
Avoids legal complications
Individuals cannot benefit from non-profit org.
Kickbacks to physicians, self-referrals

Disadvantages
Physician productivity
Challenge of managing physician employees

Physician-owned IDS
Majority equity owned by physician group
HCFA views individual shareholders as getting
kickbacks or making self-referrals

Advantages
Owners of clinical decisions (physicians) also
own the business.

Disadvantages
Capital requirements large for physicians

Integrating insurance functions

Risk
Global capitation (covering most services)
Or share of premiums (shares risk with MCO)

Plan administration (3 approaches)

IDS adds unit to do insurance functions
Insurer acquires IDS
Joint venture of IDS and MCO