The lawyers and consultants didn't promise you a rose garden. What they did promise was an organizational framework that helps align the economic interests of physicians and hospitals.
Therefore, we have come to praise physician-hospital organizations. And to bury them.
As many as 3,000 PHOs have been formed by healthcare providers, many of recent vintage. Because of the sizable fees charged to construct PHOs, some healthcare executives are left grumbling about disappointing results. In terms of 1995 dollars and cents, they are probably right. After all, PHOs do little to lower hospital costs or reward efficient doctors. And they don't guarantee lucrative managed-care contracts for the organization.
That doesn't mean that the PHO should be viewed as a failed fad. As reporter Mary Chris Jaklevic points out in this week's cover story, PHOs have provided the spark for many organizations to test the reality of vertical integration.
For many healthcare systems, it's time to move beyond the testing phase. The value of PHOs will be determined years from now based on the progress of business relations between hospitals and their physicians. The next 24 months should be spent ironing the wrinkles out of the PHO or moving deliberately to an offshoot strategy. Frankly, it's time for a major tune-up if your PHO hasn't made progress in developing standards of care, aligning incentives for capitation deals or cutting into inpatient utilization.
Under the reform plans being hatched in Washington, the Republican leadership seems willing to allow provider-sponsored networks to contract directly with Medicare. Insurance and managed-care groups are certain to point out that such networks offer providers an unfair advantage.
To overcome such opposition will require provider networks to demonstrate an ability to manage risk and emphasize primary care. The PHO provides the blueprint to build organizational competency in those areas.
But, repeat after me: It's only a blueprint.
The "ultimate" PHO is a work in progress. The barriers to maturation include legal restrictions on pricing, the reluctance of managers to freeze out inefficient doctors, an inability to alter physician behavior and the bias payers show against PHOs.
These obstacles cannot be underestimated. For hospitals it means giving up the concept of dominance. For physicians it means forgetting about control. If your PHO is not developing into a marketable, primary-care-driven network, it may be time to search for a better solution.