Change is underway in the delivery and financing of American health care, and it is manifested in the evolving relationship of hospitals and physicians across the U.S. These developments are most striking in California, but are appearing in various forms in almost all states. Physicians and hospitals are being both “pushed” and “pulled” together in new ways by a variety of market forces, including the development of Accountable Care Organizations (ACOs) for both Medicare and commercially insured patients, increased direct employment of physicians by hospitals, the emergence of new payment mechanisms such as global payments, and, in general, by the need for physicians, physician groups and hospitals to deliver greater “value.”

All of this presents the opportunity to redesign care to be more coordinated, efficient, patient-driven, and effective. These integration forces could lead to the kind of organizations envisioned 15 years ago in the Institute of Medicine report “Crossing the Quality Chasm”, resulting in the Triple Aim of better health, better patient care experiences and outcomes, and improved affordability — driven, in part, by new patient care models and payment methods including incentives for improving the value of health care services.

Many physicians are uncomfortable with the idea of physician-hospital integration for several reasons. The long tradition of “professional autonomy”– perhaps best described as “the need for physicians to be able to make appropriate and scientifically based patient-by-patient decisions in the best interest of those patients” — can raise fears among some physicians about becoming part of a larger practice or institution and losing that autonomy. Additionally, some physician groups have shown that they can develop a successful ACO without the need for hospital and insurance partners, preferring to manage the clinical and financial risk alone.

On the other hand, many physicians practice in “hospital-dominated” markets and see the emergence of ACOs that include a hospital partner as a threat to their valued professional and financial independence. Still others have actively sought employment by a hospital, but have not yet participated in the leadership and benefits of the larger system of care.

Many hospital leaders also are concerned about how physicians and hospitals can be successfully integrated, given the differences in their training and culture. Some leaders have never managed or co-managed with independent professionals and are more comfortable managing within a corporate hierarchical structure. Others see the potential value of closer integration with physicians but are concerned that physicians may not have the experience or skills to organize themselves collectively to become a truly effective “partner.” These hospital leaders may need to develop additional strategies and tools to help physicians organize, but they may be unaware of how to do so and then fully and effectively involve physicians in the management of the whole care delivery enterprise.

Despite all this, the inexorable professional, consumer and purchaser demand for higher value care, along with financial constraints and general market forces, suggest that, for many physicians and hospital leaders, some form of integration is the most desirable path to begin to achieve the Triple Aim.

The Traditional “Boat”

The traditional model for interactions between practicing physicians and hospitals is the triune structure consisting of the hospital governing board, hospital senior management and staff, and the physician “Organized Medical Staff (OMS).” The nature of this relationship is codified in law in most states, with specific functions exercised by each of the three parties. The hospital board has overall authority over the institution and its mission, assuring that the purpose for which it has been organized — generally the care of the community — is carried out effectively. Acting on behalf of the board, the hospital senior management and staff oversee the institution’s operations and employment, including some physicians. Recognizing the special clinical expertise of the medical staff, the board delegates to the OMS the credentialing of physicians and some clinical staff, as well as oversight and improvement of the quality of clinical care. In general, the OMS is a loosely knit entity without full-time physician leadership and lacks independent business expertise.

Although some have suggested that the current model could successfully create, develop and manage, for example, an ACO, others doubt this. One of the strengths of the OMS structure is to enable independent physicians to take broad collective action, but many OMS’s are not equipped (e.g. limited resources, no full-time leadership, and lack of expertise) to direct clinical operations or to participate as a full “partner” in institutional decision-making. Hospital boards are unlikely to cede broad new authorities and responsibilities to the OMS in this context. So, it is important to examine additional models, guided by examining institutions that have already developed alternative robust integrated structures.

October 2013 Conference

To begin such an examination, the American Medical Association (AMA), the American Hospital Association (AHA), and Health Affairs convened a two-day dialogue among leading health policy experts and representatives of 10 innovative integrated delivery systems in Washington, DC, in October 2013.  The purpose of the conference was to compare and contrast the key success elements of these exemplar systems and to draw what conclusions were possible, particularly regarding the elements vital to successful collective and integrated actions necessary to improve quality and reduce costs. These organizations were:

Geisinger Health System (PA); Memorial Hermann Health System (TX); PIH Health (CA); HealthCare Partners (CA); Kaiser Permanente (CA); St. Joseph Health (CA); Advocate Health Care (IL); Billings Clinic (MT); Presbyterian Healthcare Services (NM), and; University of Washington Medicine (WA).

Summary of Conference Findings

The major conclusion from the presentations and subsequent discussions was that there is no single structural or business model of integration that guarantees success or failure. Rather, there are a number of common elements that recur among successful integrated systems that are reasonable predictors of success and could be replicated by other systems.

Successfully integrated organizations have developed a broadly shared institutional culture, rooted in a jointly developed common vision and characterized by a strong set of values; these values support the organization’s mission and serve as “touch points” to help resolve the inevitable conflicts that arise among “partners.” They include:

  • A clear and explicit understanding of the mission, generally grounded in the quality of patient care delivered and sometimes in a broader concern for both the quality and cost of services delivered to a defined population;
  • A belief in shared responsibility for the mission among all parties, including leaders, managers, and direct caregivers;
  • A sense of mutual respect among the parties, despite differing training, experience, and priorities;
  • A sense of responsibility for the long term success and reputation of the organization that feels like “ownership” but transcends the details of organizational structure or legal ownership rights; and
  • A commitment to performance measurement transparency and to performance improvement through collective action.

It was noted repeatedly that physician leadership and committed involvement are key to building and maintaining such a successful culture. This requires more than a few physicians in senior management roles. It requires the identification, training, and support of physicians, chosen by the community of practicing physicians and entrusted with the authority to speak for them collectively. These physicians must have leadership skills, clinical and business expertise, and professionalism, as well as a high degree of credibility with both physicians and hospital leadership.  They must be trusted to make decisions and commitments that are endorsed and adhered to by all parties.

The development of this type of effective physician leadership, in turn, requires that the physicians working with the institution — whether employed, contracted, or independent — collectively form an empowered “physician organization” capable of responsibility and accountability beyond that of the traditional OMS. This does not necessarily require the formation of a formal medical group or independent practice association (IPA). It does, however, require sufficient cooperation among physicians; governance processes; management support structures; and the discipline to engage in physician leadership selection and training, performance measurement and improvement, and “integrated leadership” activities as described below. Additionally, this must be accomplished within the current legal and regulatory framework.

Hospital executives must also change for integration to succeed. They must develop a more complete understanding of physicians’ long emersion in a clinical environment, with its unique values based on a strong sense of medical professionalism; they must respect the need for physicians to make scientifically based decisions in the best interest of each patient, free from pressures, economic or otherwise, based on organizational- or self-interest. This is the true definition of “physician autonomy,” but the term can be confused at times with broad independence of action with a lack of accountability. Thus, hospital executives can be skeptical when physician autonomy is used by physicians to explain their concerns about practicing within an organizational framework. Yet, in most successful integrated organizations the real definition of this principle is collectively respected and followed.

Finally, most of the successful organizations present at the conference directed the affairs of their organization through some form of “integrated leadership committee” (ILC) or “clinical enterprise board” (CEB). Such a committee or board can be formal or informal, but it meets regularly and is the place where all key organizational decisions are discussed and most are decided. The form used varies and can sometimes be an integrated governance structure, but it is usually separated from the health care organization’s governing body or bodies and exists at the management level. In addition to shared strategy setting, the ILC or CEB often oversees both the clinical and business functions of a joint clinical risk-bearing entity. Hospital senior management and staff, and elected representatives of the practicing physicians, are usually members of the ILC or CEB in roughly equal proportion.

In turn, this physician-hospital management partnership is sometimes reflected in the creation of co-managed service line teams across the institutions, with administrative staff members and physician leaders managing together, making decisions on budgeting, staffing, and supplying the service line, as well as developing the clinical processes and standards employed by the service line. There may also be some sharing of non-financial incentives in compliance with all legal rules and regulations.

Organizations like those presenting at the conference exist in many but not all parts of the country.

Policy Implications

A number of policy implications arose from the conference:

  • There is a need for more rapid development of physician organizations and physician-hospital organizations capable of accountable self-governance, collective management of quality and cost, the ability to create and award incentives, and the ability to share in the overall organization’s operational management. This process has been slow to date. The Medicare program has begun to create incentives and even supply up-front capital to this end. Broader efforts are needed, including a reevaluation of overly restrictive laws and regulations that inhibit some forms of physician organizations and physician-hospital organizations that would provide societal value.
  • There is an inadequate supply of physicians with the training in leadership and management skills required for integrated leadership of a complex organization. Medical schools, residency programs, and integrated delivery systems themselves should join together in providing this training.
  • Cultural changes, as described above, are needed to create successful integrated organizations. More attention needs to be paid to codifying the elements of such cultural changes so they can be learned and replicated by others.
  • The “integrated leadership” model highlighted at this conference is still uncommon. More codification of the specifics of how the process works — and especially where it does not work well — would create more confidence for those considering its adoption. Here again, attention needs to be paid to laws and regulations that inhibit well-meaning institutions and physicians from adopting this model.
  • The evolution away from payment for volume of services and toward payment for value can be seen as threatening to both physicians and hospitals that have historically been rewarded for delivering more services. Yet, value-based payment both creates incentives for integration and enhances the quality and cost efficiencies that can be achieved through integration for patients, communities, and providers themselves. Payers should move forward in developing these models and seeking relationships with institutions with the interest and capability to jointly manage care.
  • Lastly, the traditional triune model of hospital governing body, hospital senior management and staff, and OMS will not go away any time soon. Nor should it, until it can be replaced by new structures reflecting the determinants of success noted above. In the meantime, it will be important to understand how emerging integrated leadership models and existing traditional roles and models, especially those of the OMS, can coexist without unnecessary duplication of effort or conflict.

There still remain several unanswered questions about a more integrated and coordinated care model that is positioned to achieve the Triple Aim. While this conference focused on the emerging partnership of physicians and hospitals, the roles of insurers, payers, and, most importantly, patients were left largely untouched. Without these additional partners, it is difficult to see how we can create a health system that improves both health and health care at an appropriate cost.