Healthcare system executives say they aren't on the same page as physicians when it comes to network integration.
In a national survey of health system executives, 90% say physician integration is critical to a system's success. Yet, these same executives are encountering countless pitfalls in getting physicians involved with the overall organization.
The study was conducted for MODERN HEALTHCARE*by Argus Arista Associates, a Northbrook, Ill.-based consulting firm, and Fairfax, Va.-based Decision Support, a research and consulting firm.
"We are not having fun yet," says Douglas S. Peters, president and chief executive officer at Jefferson Health System, Radnor, Pa., of systems' efforts to integrate physicians.
To most of the executives questioned, the spoilsports in system integration are overwhelmingly the physicians. They say doctors are skeptical of and resistant to any change in their traditional economic relationships.
The survey indicates integrating physicians is clearly the "most difficult aspect" of building an integrated delivery system, with 57% of responding executives citing alignment with physicians as the toughest phase of system development. The second-biggest problem, cited by 17% of respondents, was "reorienting management incentives."
"Systems are still searching for ways to achieve integration and are having problems getting there," says Stephen Hatch, a partner with Argus. "But they are trying and grasping to find the solution."
There were 72 total respondents, and 67% of them came from systems with annual revenues of more than $500 million. More than one-third, 38%, had annual revenues of $1 billion or more.
Most respondents were from not-for-profit systems, with just five-or 7%-coming from investor-owned hospital companies.
Executives say they are trying more than four of the 10 different physician-integration strategies listed in the survey (See chart, p. 68).
"I was a little bit surprised at the number of ways that systems have tried to integrate their physicians," says Pamela DeSmidt, managing partner of Decision Support, which did the tabulations and statistical analysis portion of the survey. "They are trying everything they can think of, and they don't know what works."
The most popular models respondents are using to increase physician integration are management service organizations (75%) and direct physician employment (74%).
More than half the executives said they are trying "open" physician-hospital organizations (56%) or physician practice management (51%).
"Clearly, people don't know the answers," DeSmidt says.
Some 44% of the executives said direct physician employment is the most successful physician integration strategy. But there's a hitch to that strategy.
"Virtually the only model cited as being effective was direct physician employment, but it was also the model cited as being least profitable," Hatch says.
Fifty-seven percent of the respondents said direct physician employment is the least profitable strategy.
Although the survey didn't give specific numbers for how much systems are losing on physician employment, studies show healthcare systems and hospitals lose as much as $100,000 each year per acquired physician, Hatch says.
"They are losing their shirts on this model," he says.
"Hospitals typically pay too much when acquiring physicians," Hatch adds. "(Employed) physicians are also less productive than self-employed physicians, studies have shown. Hospitals are also losing money because they don't have a lot of experience with managing self-employed physicians and are having difficulty incorporating them into their system."
One-third of the respondents said some form of PHO is the most effective way to integrate physicians into their systems. Those respondents are using open PHOs (19%) or closed PHOs (14%). Argus defined an open PHO as one that could include anybody on the hospital or healthcare system's medical staff. A closed PHO is more selective, with fewer physicians, intended to encourage cost-conscious medicine.
A key barrier in getting physicians together with healthcare systems is continued skepticism among physicians.
Two of three respondents indicated "physician inertia to change" is a major obstacle in achieving integration. Another 64% of the surveyed healthcare executives said "physician distrust of our system" is a major stumbling block.
"As a national system we have many local market systems in communities, and we use a lot of different strategies," says Don Brennan, president and CEO of Daughters of Charity National Health System in St. Louis.
With some 10,000 physicians on its medical staffs, Daughters of Charity is creating a company that will cater to physicians' needs. Known as Physician Partnership Services Co., the Daughters unit will work with physicians in strategic planning and building PSOs or MSOs, Brennan says. It is expected to open this year.
"You need to involve them (physicians) early," Brennan says. "It will be a system-owned company that will have staff available for physicians, so we don't have to reinvent the wheel 40 times over."
Executives declined to say how much they are investing in the project.
When it comes to involving a physician on the board, only 18%, or 13 system executives, said a physician had been appointed. In their most recent board appointment, more systems ended up adding a community leader (31%).
These days, not-for-profit systems don't really have an excuse for not including physicians on their boards. Last year the Internal Revenue Service relaxed rules that limit the physician composition of not-for-profit hospital boards to 20%. The new rules allow physicians and inside managers to account for up to 49% of board seats (July 8, 1996, p. 4).
But if the survey is accurate, it appears investor-owned companies have a leg up on the not-for-profits when it comes to getting physicians on boards.
"We typically have four or five physicians on a seven- or eight-member advisory board," says Stephen Ray, senior vice president and chief financial officer at Health Management Associates, an investor-owned hospital company based in Naples, Fla.
HMA owns and operates 26 hospitals in 11 states, primarily in rural and other nonurban areas. "The purpose of having a balance like that is to get community and physician input at the same time," Ray says.