New Issue of Great Boards Newsletter Addresses Clinically Integrated PHOs and Board Portals

The winter issue of the Great Boards newsletter is available now at The issue features two articles:

  • Clinically Integrated Physician-Hospital Organizations (PHOs). PHOs are getting a fresh look as a vehicle to integrate hospitals, employed physicians and independent practices around quality and financial goals. Great Boards chronicles two clinically integrated PHOs—one of the longest running, Advocate Physician Partners (APP) in Chicago, and one of the newest, TriState Health Partners (THP) in Hagerstown, Maryland.

APP is a success story. It has contracts with 10 health plans and paid out more than $28 million in incentives last year to physicians who achieved quality goals in more than 30 improvement initiatives.

THP recently received a favorable ruling from the Federal Trade Commission as it launches a similar effort to unite the local hospital, employed physicians and independent docs in a clinical integration program.  THP hopes to sign contracts with local health plans that will reward providers for providing better care.

With payment reforms from Congress on the horizon, PHOs are coming back from the dead as a mechanism to align hospitals and physicians into accountable care organizations.

  • Using E-Governance to Make Board Work Easier. More and more boards are getting computer-savvy. They’re adopting so-called “board portals” to deliver materials to directors electronically and thereby expedite information flow between the hospital and its board, between subsidiaries and their corporate parents, and among board members themselves.

What is a board portal? It’s a Web-based, online workspace devoted exclusively to the board. It offers directors confidential access to board materials, past and present, and provides tools that make it easier to prepare for board meetings. In this article and an accompanying Buyers Guide (under “Current Issue”), my colleague and governance consultant Linda Battaglini talks to users, describes the 10 essential features of board portals, and compares four commercially available products. Don’t buy or build a board portal unless you read this!

Read and download the winter issue now.


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.

Case Studies of System Integration

Clinical integration to manage quality and costs is taking center stage as health care reform legislation moves through Congress. Expanding access will unquestionably require controlling spending. When Washington is done, whatever the result, providers will have to pick up the pieces and redesign delivery systems to do more with less.

To help, The Commonwealth Fund is releasing 15 case studies to illustrate how diverse types of organized health care delivery systems promote higher performance through information continuity, patient engagement, care coordination, team-oriented care delivery, continuous innovation and learning, and convenient access to care. The first group includes Geisinger Health System and Hill Physicians, a California IPA. In December, Great Boards released five case studies of hospital-physician alignment, including Summa Health System in Akron, Ohio, and Aurora Healthcare in Milwaukee. All make good resources for board reading and discussion.

Should Healthcare Come With a Warranty?

Is your hospital sufficiently aligned with its doctors to offer a “fixed price warranty” for treating common conditions?  Doing so would require tight ties between hospitals and physicians to follow best clinical practices, minimize complications, and operate efficiently.  We talked about how hospitals and physicians can align in the winter and spring issues of Great Boards and in case studies of five integrated systems.

New evidence of the case for alignment comes from a Commonwealth Fund-supported study published by Health Affairs. It argues warranties could incentivize providers to cut complications and improve profit margins.

Under one approach — the “Prometheus Payment” model being tested by the Robert Wood Johnson Foundation — hospitals and physicians would receive a global fee based on best practices needed to treat a specific condition.  Risk-adjusted, “evidence-informed case rates” (EICRs) are being developed for 12 EICRs for certain types of cancer, cardiology and orthopedic care—as well as for some routine and preventive care.   EICRs fully compensate providers for expected costs of evidenced-based care, but only half of the predicted cost of dealing with potentially avoidable complications—in effect, creating a price warranty.

Some health systems, such as Geisinger’s Proven Care program, already offer fixed prices.  Geisinger CEO Glenn D. Steele Jr. explained the program to an impressed Congressional committee. Cutting Medicare and Medicaid costs though bundled pricing is almost certain to be included in health reform legislation.

Boards need to be certain their hospitals are engaging with doctors now to develop an alignment strategy that, for most, includes both employment and non-employment options.