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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
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