Partners HealthCare System set out in 1994 to preserve the medical cachet of its two leading institutions, protect its research and teaching superstructure and attain a critical mass amid shrinking healthcare capacity.
It has done so.
In a market that has driven hospital use down nearly 30% in the intervening years, the Boston-based provider network's admissions fell only 9% before bouncing up 3% in 1997.
The climate for medical research funding has tightened, but Partners' twin academic giants not only preserved their first and second rankings in funding awards from the National Institutes of Health but increased them handsomely. The result has been a 26% rise in the research budget to $409 million in 1998 from $324 million in 1994.
In a local healthcare market that has pinched hospital margins to 2.6%, Partners' systemwide margin has stayed at about 4% the past three years.
But in addition to protecting the turf of Massachusetts General Hospital and Brigham and Women's Hospital-the two founding institutions-Partners has developed a network of nearly 900 primary-care doctors with 1.2 million insured patients.
Marriage and capitation. And that positions the system for the next stage of managed-care contracting: the marriage of integrated provider networks and capitated reimbursement from HMOs.
"Capitation can become a very good system, done right and done properly," says Allan Greenberg, president and chief executive officer at Harvard Pilgrim Health Care.
It can forge common goals encompassing quality, customer services, cost improvement and disease management, Greenberg says.
But if it's done poorly, patient satisfaction will suffer. And if a physician practice or institution shows it isn't equipped to handle the responsibility, "we're not willing to transfer a lot of risk," he says.
The number of patients cared for under capitated plans at Partners has risen to 190,000, and the primary-care network's capitation count is expected to reach 250,000 by next year, says Samuel Thier, president and CEO. In 1996, 11,000 patients were covered by capitation.
Since 1994, Partners' consolidation and system-building efforts have saved $200 million and decreased by 15% the inflation-adjusted cost of discharges that have been adjusted for case mix, Thier says.
Regaining management. Meanwhile, the combination of tertiary reputation and primary-care volume makes Partners a formidable force in the marketplace, poised to "regain medical management" from HMOs, Thier says. "We're an important enough organization that it's very hard to ignore us."
That trend is fine with Kathleen Goonan, M.D., chief medical officer of Blue Cross and Blue Shield of Massachusetts. When it comes to public disenchantment with healthcare cost containment, HMOs are the wrong unit to analyze, because they don't control the means of delivery. "Accountability should be at the provider level," she says.
And though choice consciousness leads Boston's HMOs to include virtually every provider, health plans can attack cost through risk-sharing by provider unit, says Dale Lodge, the Blues' senior vice president for health services contracting.
A lot depends on the negotiations for capitated payment levels, though. Providers' strategy to date has been to keep payments up "rather than get down to business" on reducing costs, Goonan says.
Looking just at Massachusetts over time, hospital stays and inpatient days have shown substantial improvement since 1992 (See chart, p. 62). But compared with California, for example, the state's utilization figures are still significantly higher.
The Boston area's continued demand for choice and open access makes full-risk capitation problematic for providers, says Jon Kingsdale, senior vice president for planning development at Tufts Health Plan.
Tufts puts providers through a series of protocols to consider whether they can assume full risk. In some cases, the HMO will work with some physician groups on areas that need improvement, such as utilization management, physician leadership and case management, Kingsdale says.
The improvements may take a few years-or the group may decide full risk is not what it wants, he says.
But the ranks are filling up: About 35% to 40% of Tufts' 700,000 commercial enrollment is capitated, with a group of physicians and hospitals taking full risk for a defined set of services.
Competitive responses. Following Partners' lead, CareGroup has reorganized its six hospitals and 1,800 physicians into a structure that can manage care and risk, says Sandra Fenwick, senior vice president for system development.
A year-old provider service network has grown to 640 primary-care physicians, and CareGroup has contracted for the at-risk care of 210,000 insured patients, Fenwick says. The capitated total will rise to 270,000 on Jan. 1.
In suburban Burlington, Lahey Clinic has accepted capitation for nearly all the 200,000 insured patients under the care of physicians at the group practice, says Merritt Brown, senior vice president for strategy, managed care and business development.
Long a prestigious name in specialty medicine, Lahey has built a network of primary-care physicians during the past several years to land and manage HMO contracts, virtually all capitated, Brown says.
Because its hospital and physician-practice operations are integrated with a common medical record, Lahey is positioned to drive costs down while attending to clinical performance. "It's peer review day in and day out, with physicians looking over everyone's shoulder," he says.
But in the HMO world of Boston, Brown adds, the network initiative is also a survival strategy: "We wouldn't do any of it if the world didn't change around us."