In a market where choice of provider continues to appeal to consumers, 565,000-enrollee Harvard Community Health Plan is hitching its future to Brigham and Women's Hospital.
The 750-bed teaching hospital has the contract for all tertiary-care referrals from the HMO's 315,000-enrollee staff-model division, which employs 644 physicians.
Physicians practicing in the HMO's 160,000-enrollee group-practice network have more leeway in referring patients, but "we try very hard to encourage referrals to the Brigham," said Joseph Dorsey, M.D., chief of the separate division that Brigham set up for Harvard Community.
The two organizations recently intensified a longstanding drive to align financial incentives and clinical practice. A new system of payment is designed to continue a fixed-rate approach, but it accounts for each organization's unavoidable cost pressures and it rewards measurable improvement in care.
"Throughout the financial structure, it was designed to make sure that the behavior of both organizations would end up with them doing better financially," said Kathryn Angell, Brigham's assistant vice president for managed-care development.
Brigham has been the HMO's principal adult hospital since 1986, when Harvard Community closed a 90-bed hospital and contracted out for all hospital care. An estimated 25% of Brigham's patients come from that HMO.
The relationship goes back 25 years, to Harvard Community's inception by a pioneering group of physicians that included H. Richard Nesson, M.D., now Brigham's president and chief executive officer, and Dr. Dorsey.
Harvard Community's patient volume has enabled it to negotiate favorable rates at Brigham, said Glenn Hackbarth, president of the HMO's health centers division.
But while the corporate relationship remains at arm's length, operations have become intertwined as physicians from both organizations cross paths daily and as strategies for delivering care cross paths philosophically. "Many of our specialists spend much of their practice life at the Brigham," said Mr. Hackbarth.
That exposes non-HMO physicians on staff to the practices of salaried HMO physicians while keeping the skills of the HMO physicians current through their association with a major teaching hospital, said Dr. Dorsey.
Harvard Community physicians also participate in teaching primary care to Brigham medical residents, and HMO physicians are officers on Brigham's 2,000-physician medical staff, said Dr. Dorsey.
And physicians from both organizations share the task of scrutinizing clinical practices and care processes, an ongoing initiative that's helped methodically improve and conserve on clinical care, Ms. Angell said.
The routine crossovers "straddle and integrate the practice patterns and philosophies of two different organizations," she said.
That relationship is reflected in figures for length of stay at Brigham. In 1989, the average stay was 6.2 days, compared with 8 days statewide. Current stays average 5.4 days, compared with 6.7 days statewide in 1992, the most recent figures supplied by the Massachusetts Hospital Association.
The Brigham figure was influenced by an average stay of 4.6 days for Harvard Community patients in 1989, but the average stay of 6.8 days for non-HMO patients still was more than a day shorter than the state average. Current stays for Harvard Community patients are down to 3.9 days; for non-Harvard patients, 5.9 days.
The new contract aims to maintain or further chip away at length of stay without unduly penalizing Brigham financially or tempting it to skimp on necessary care.
Under the previous contract, Brigham reimbursement was based on per-day rates, and Harvard Community worked to decrease the number of days its patients spent at Brigham.
Even with per-day payments, practices were discouraged that needlessly extended stays, such as keeping patients one more night and morning when they were ready for discharge at the end of the previous day, Dr. Dorsey said. The hospital didn't get credit for the day the patient went home, he said.
But as length of stay declines, the services to each patient become more intense and costly per day, squeezing the hospital more and more while the cost-saving benefits of staying fewer days accrue to the payer, said Mr. Hackbarth.
"It hurts the hospital and it also doesn't give them any incentive to cooperate in further reducing length of stay," he said. "Flat per-diem rates can become uncoupled from the reality of the practice of medicine."
The new agreement, which was reached in January and is being finalized, seeks to give credit for the higher daily intensity by blending per-day rates with a per-case reimbursement based on diagnosis-related groups, Mr. Hackbarth said. The adjustment allows Harvard Community to further manage hospital stays but do all that should be done for the patient, added Dr. Dorsey.
Besides the adjustments per patient, a series of performance priorities will be monitored against recently established baselines, and improvement will be financially rewarded under a negotiated formula, said Jacqueline Rosenthal, Harvard Community's vice president of hospital relations and provider contracting.
The priorities-for example, length of wait in the emergency room-focus on care improvement and patient satisfaction, she said. Cooperation between the two organizations can better manage care by improving processes and making clinical treatment plans more efficient, "not simply responding in an economic way," said Jeffrey Otten, Brigham's senior vice president and chief operating officer.