Strategies for the next generation of integrated healthcare systems in the U.S. seem focused on two important components: First, patients are enrolled directly into hospital health plans instead of subscribing to policies offered by third-party payers. Second, healthcare personnel are employed—directly or indirectly—within an institutional framework, so costs and the structure of delivery systems can be coordinated.
Though these efforts are essential drivers for evolving models, they fall short of a complete approach. They lack a critical third component: providing professional liability coverage.
A Time magazine cover story in January by journalist and attorney Steven Brill titled, "What I learned from my $190,000 surgery," draws examples from several hospital systems that attempt to consolidate healthcare along this system's approach, emphasizing the efforts of the University of Pittsburgh Medical Center. This is the same author who engaged, if not enraged, hospital chief financial officers nearly four years ago when he took aim at chargemaster schedules. His comprehensive perspective also omits the issue of providing liability coverage to those involved in such plans.
The concept of directly insuring patients and establishing a comprehensive healthcare delivery system is not new, with the most notable champion of this approach likely being Kaiser Permanente. In states such as California, where statutes prevent the “corporate practice of medicine” (the recent U.S. Supreme Court decision in Citizens United, notwithstanding), Kaiser Foundation contracts with its group of physicians who are members of the Permanente Medical Group. Although Kaiser does not directly hire physicians, the end result is similar, where conditions of employment are negotiated. In states without such prohibitions, the process is similar.
Once shunned by a larger medical community based on a fee-for-service practice, the Kaiser model has been emulated by other hospital systems, where “foundation” physicians are recruited and interface with administrations much as Kaiser physicians do. Other trends in healthcare delivery, including the emergence of hospitalists and proposed changes in reimbursement based on outcomes rather than procedures are prompting many systems—such as UPMC—to rethink the way they do business.
The Kaiser system, however, includes the third component that is essential to a complete system. Successful foundation models provide incentives that include a referral base, HR benefit packages and liability coverage for contracted personnel, including physicians. This last piece has received too little attention. While the development of practice parameters within an integrated system may be aimed at improving care and containing costs, physicians may resist such directives when they believe their personal liability exposure increases—especially when hospital policies conflict with professional society recommendations. Hospital-subsidized underwriting by third-party liability policies may “cap” total payouts. Recall that most clinical pathways are works in progress and not entirely evidenced-based medicine.
In 1976, when liability costs in California were unjustifiably rising fast, physicians formed their own liability companies. These companies are now the primary sources of malpractice insurance coverage in the state, and similar approaches are available elsewhere.
CPT (current procedural terminology) codes as the basis for healthcare reimbursement reflect practice costs, physician work and malpractice coverage. In the same way that hospital systems are thinking about internally providing their patients with health insurance coverage and avoiding third-party underwriting, they may want to consider developing their own liability programs. The larger the integrated system, the higher the potential capital reserves that are required to satisfy state insurance codes. Physicians were successful in doing this 40 years ago, and emerging systems should expect no less success. The Mayo Clinic already self-insures.
This planning need not be hindered by immediate implementation. Hospital systems can still purchase liability coverage on the open market as they move forward in forming foundations and subscriber insurance products. Long-range planning might be well served by considering the development of in-system liability coverage so that all stakeholders share common risks and benefits.
The replacement of third-party health insurance as part of healthcare's future should be accompanied by similar initiatives to replace liability carriers as well. Independence from both facilitates a more controlled strategic planning agenda where institutional goals such as cost-effective care are not conditioned by external negotiated rates. Incomplete systems invite incomplete results; the aligning of healthcare delivery systems with risk management remains an attainable goal. As systems grow, they need to think big and act big.
Dr. R. James Brenner is a practicing radiologist within the Sutter Health system in the San Francisco Bay area and a recognized national expert in breast imaging and risk management. Brenner, who also holds a law degree, is a former president of the Society of Breast Imaging and is a consultant to industry and government on technology and health delivery systems.
