Are clinically integrated PHOs a viable platform to align physicians and hospitals?

Last week, I attended a symposium on clinical integration sponsored by Advocate Physician Partners of Chicago. APP is arguably the country’s most successful physician-hospital organization (PHO) at linking hospitals and physicians to contract collectively with health plans, improve clinical outcomes, reduce costs, and share savings with physicians.

In the winter issue of Great Boards, I’ll examine whether clinically integrated PHOs are a viable mechanism to align the financial incentives for hospitals and physicians to manage costs and improve quality. So I came to learn more about APP’s success story, and whether other system’s boards and leadership should pursue this alignment strategy.

And a success it is.

Out of the 5,200 medical staff members practicing in Advocate’s hospitals, APP includes 900 primary care physicians and 2,500 specialists, as well as eight acute care general and two childrens hospitals. APP has signed contracts with 10 health plans for 280,000 capitated lives and 700,000 PPO lives. APP has clearance from the Federal Trade Commission to negotiate contracts for all its members because of its clinical integration program, in which providers agree to follow best practice guidelines designed to improve quality at lower cost.

In 2009, the clinical integration program is engaging physicians in 37 initiatives designed to meet or exceed goals for 107 measures for clinical outcomes, efficiency, medical and technological infrastructure, patient safety and patient satisfaction. For example, the diabetes care initiative focuses physicians on eight measures of how well diabetes patients are managed outside the hospital, to prevent costly hospitalizations, premature deaths, and diabetic complications such as blindness and kidney failure, In 2009, the program preserved an estimated 9,000 years of eyesight and 6,800 years free of kidney disease, and extended lives an estimated 5,700 years.

APP also boasts success with clinical integration programs designed to achieve smoking cessation, screen for and treat depression, improve asthma outcomes, administer childhood immunizations, prescribe generic drugs, and use appropriate drugs to treat coronary artery disease and heart failure. For the details, see a copy of APP’s 2009 Value Report.

As a result, APP’s physicians received more than $28 million in clinical integration incentive payments in 2008. The average payout was about $10,000 per physician, but some high-performing, busy clinicians earned in the neighborhood of $20,000 in incentives.

Some 800 of APP’s physicians are employed by Advocate, but the rest are private practitioners, and about 1800 medical staff members are not part of the PHO, so APP is a good model to examine whether hospital-employed physicians and independent practitioners can collaborate to achieve common quality and economic goals.

Here are a few of my takeaways from the symposium:

What’s in this for physicians? If a PHO has a genuine clinical integration program, “physicians can align with each other and hospitals to distinguish themselves in the market on the basis of quality; justify higher reimbursement; and conduct collective negotiations with health plans,” said Thomas Babbo, a partner with Hogan Marren, Ltd. and the legal architect of the clinical integration program. “This is about quality and about getting better reimbursement from payers precisely because of this ability to drive better quality. This is value-based, collective bargaining for physicians. It’s not something to apologize for,” so long as it’s genuinely intended to improve quality.

Should you ask the FTC’s permission? Although the Federal Trade Commission has issued a number of advisory opinions describing the characteristics of a clinical integration program that would justify collective contract negotiation by physicians, Babbo generally advises clients to actively engage the FTC up-front regarding what they’re doing, but not to go through this formal process The process is lengthy, the PHO must delay clinical integration while it’s waiting for the opinion, and there’s a risk the FTC will find some aspect of the program to fault. Instead, he recommends following the existing guidelines laid out by the FTC and U.S. Department of Justice since 1996, and in earlier opinions for other PHOs, such as the Greater Rochester IPA and Tri-State Health Partners.

Since Advocate has a successful medical group of employed physicians, why does it need a PHO? The PHO recognizes that “9 out of 10 Americans get their medical care from a solo or small group practice,” explains Lee B. Sacks, M.D., president of APP. Among APP’s approximately 600 primary care physicians in private practice (not employed by Advocate), 300 (50%) are in solo practice, almost 200 are in two or three person practices, and less than 250 are in practices of 20 or fewer physicians. These physicians are not interested in larger groups or hospital employment. “APP is a bridge between Advocate’s employed and independent physicians.”

Will payers play? “You have to have payers in the market who are willing to pay you” an incentive for quality, says Sacks. Since the PHO seeks higher fees from health plans, it has to demonstrate its value proposition, i.e., better outcomes and more efficient healthcare at a lower overall price. Even then, health plans will be reluctant to pay higher fee schedules on the promise of lower overall costs. Babbo recommends going to local employers and making the case for the value proposition of clinical integration directly to them, such as smoking cessation programs that decrease absenteeism and lower healthcare costs. The employers can then become an ally of the PHO when seeking contracts with health plans. Sacks, adds, “Health systems are usually among the largest local employers, so working with the benefits team of the partnered system is an opportunity to demonstrate value to other employers.” In our winter issue, I’ll describe APP in further detail, including its membership criteria, infrastructure, financial incentives, and governance structure, which is physician driven and physician led. I’ll also describe the startup efforts by Tri-State Health Partners in Hagerstown, Maryland, the most recent PHO to get a favorable advisory opinion from the Federal Trade Commission.

Clinically integrated PHOs are one of a number of possible mechanisms for hospital physician alignment and integration. You can read about others, including case studies, on the Great Boards website.