Lowell (Mass.) General PHO has many of the traits associated with weak physician-hospital organizations: low staffing levels, an ex-hospital administrator at the helm and an inclusive policy regarding doctors.
However, it also has shifted the focus of its members to providing efficient care rather than keeping beds occupied, which is what HMOs in the Boston area want.
The PHO represents 200-bed Lowell (Mass.) General Hospital and its 132 physicians, including 54 in primary care.
In addition, Executive Director Elizabeth Honan believes the PHO won points with HMOs by staying out of the three or four regional provider networks that have been forming. Instead, the PHO believes it will profit in the long run by taking costs out of its local system and winning HMO contracts, she said.
"The payers aren't thrilled to see the formation of networks because they know ultimately the networks will try to leverage them to get better deals," she said.
A good working relationship paid off for Lowell General Hospital and its medical staff when they created a PHO last year.
With 40% HMO penetration in the market, solo doctors and small practices in this city 20 miles northwest of Boston needed help assessing contracts, Honan said.
The hospital and its physicians, which already had an independent practice association, decided to build on their close relations. They collectively spent 10 months and $110,000 in strategic consulting and legal fees to pick an infrastructure for joint contracting.
They decided on a PHO, which would include all doctors on the medical staff.
Before going forward, Honan, then the hospital's director of managed care, asked HMOs if they would contract with a PHO-a step that is sometimes ignored. In Lowell, the answer was yes, providing the PHO followed through on promises to lower costs and improve care.
"The physicians there were very attuned to managed care and wanted to take more risk," said George Moran, senior vice president of operations at Waltham, Mass.-based Tufts Associated Health Plans, one of two large payers that now contract with the PHO.
In October 1994, the PHO was launched. Its medical management committee set policies to reduce costs, such as establishing a 45% generic substitution rate and arranging physician schedules to discharge patients sooner.
The PHO also pays six of its physicians to serve in leadership roles.
The PHO has 12,000 lives through the Tufts plan and 6,000 lives through HMO Blue, which is operated by Blue Cross and Blue Shield of Massachusetts.
Tufts pays on a fee-for-service basis with a global budget, which Lowell General PHO expects to fall below this year. PHO members will divvy the surplus in proportion to services rendered.
In the first six months of this year, the PHO was 20% under budget for pharmacy costs for the Tufts plan, Honan said. Its patient days were 195, or 17% below budget, compared with 232, or 7% below budget, for other hospitals in the plan.
Under HMO Blue, however, only the primary-care physicians receive incentive payments for meeting their targeted budgets.
About 12% of the hospital's annual revenues of $100 million come through the PHO-a percentage that is expected to increase to as much as 17% in 1996, even as the hospital budgets for a 7% to 8% decline in total revenues, Honan said.