Integration is the inescapable issue facing all providers. The question is: Which method do you pursue?
Horizontal integration: Do you enlarge your network through strategic alliances?
Vertical integration: Should you build rapport with the medical staff through a physician-hospital organization?
Virtual integration: How do you incorporate the insurance function into your system?
As many providers can attest, a sound integration strategy should include all these methods-and more.
Falling into the "and more" category is the business-provider organization. BPO is more than just another snappy acronym. It's an integration model that, although perhaps embryonic in development, is sound in concept. BPOs may go by other names, but the basic idea is getting purchaser and provider to collaborate in a true partnership.
To understand why the BPO is viable, we need to revisit the rationale for integration. The desired objectives of integration are fundamentally twofold: decrease costs and increase market leverage.
While there's often a direct correlation between these defined objectives, if integration, in any form, doesn't accomplish both, it is little more than an expensive exercise in futility. The problem with many integration models is that, because of current market dynamics, both goals may not be achieved.
A widening chasm. Providers now find themselves in a somewhat precarious position in relation to their fundamental customers-employers. Due largely to the influence of financial intermediaries, a "relationship chasm" is developing between providers and employers. Managed-care companies often seek to widen this chasm in an effort to keep control of the dollar by controlling the purchasing process. Consequently, hospitals and physicians are relegated to the role of vendor. Unless the system is altered, even well-executed integration initiatives will not correct this unfavorable market dynamic.
Efforts by providers to merely reduce costs do not necessarily produce sufficient leverage to bridge the gap that separates them from their employer customers. What's needed is a structure that aligns incentives.
The BPO does just that. This innovative approach, which is being explored in a few markets across the country, meets both objectives of integration. Providers in a BPO have ample incentive to reduce costs because they are at financial risk through capitated payment arrangements. As has been demonstrated in numerous markets nationwide, capitation is the consummate mechanism for cost reduction. Remember, the at-risk component involved in accepting capitation can be handled through a provider-based HMO or a partnership with an insurance entity.
The second objective-increased market leverage-is achieved by providers dealing directly with the ultimate purchaser: an employer or employer coalition. As has been shown in other industries, market leverage correlates directly to contact with the customer. Consequently, under a BPO, physicians and hospitals regain control of the purchasing process and, therefore, of divvying up the dollar.
While some may think a BPO is just a repackaged HMO, there is a critical difference. BPOs engender the active participation and partnership of employers because they align incentives of the purchaser with the provider.
In some models, the BPO offers the potential of a "health dividend" or "return of premium" to employees, thus providing incentives for the end user, not just the purchaser/employer. This arrangement offers the employer the palatable prospect of restraining, and eventually reducing, healthcare costs as all parties work in concert to rationalize the use of resources.
Working models. One example of the purchaser-provider partnership exists in Savannah, Ga. A coalition of employers and Memorial Medical Center formed the innovative model, known as the Georgia Healthcare Partnership. Robert Hallock, president and chief executive officer of the partnership, refers to it as a business-physician-hospital organization, or BPHO. Employer representatives sit on the board of the BPHO and are integrally involved in the decisionmaking process, ensuring the partnership meets their expectations on cost and delivery.
Several providers have formed another dynamic example in St. Louis called the Unity Health Network. According to Donald Kalicak, Unity's executive director, extensive research was conducted among 14 large employers and representative employees. Based on the findings, Unity is developing an approach with HMO partners that includes the above-mentioned return of premium for plan participants based on use of network services. The Unity plan is a textbook case study on aligning incentives among purchaser, provider and end user, the employee.
These are but two examples of providers that have developed leading-edge systems that bring them closer to their customers and enhance their leverage in the market. Although other models exist across the country, the number of providers pursuing this advanced form of integration is relatively few at present.
Admittedly, the BPO model is not without its share of legal and logistical constraints that could be Herculean hurdles for some providers. However, given the need for physicians and hospitals to explore all means available to reduce costs and improve market standing, the BPO may prove to be a valuable integration strategy for forward-thinking providers.
Under a BPO, physicians and hospitals regain control of the purchasing process.