How well are IDSs working?

November 1, 1998
Pharmaceutical Representative

Aside from an alphabet soup of acronyms, what do integrated delivery systems bring to the table?

Understanding managed care today often necessitates a trip through the alphabet. From HMO to MSO to PHO, IDS, IPA, PSO and beyond, the acronyms used to describe the multitude of available health care delivery systems begin to resemble a bowl of alphabet soup.

What adds to the confusion is the fact that each acronym-bearing entity can exist in a variety of forms and stages of development depending on where it's located and who created it. In fact, location is often key. For example, an integrated delivery system in a small Midwest town may comprise of different components than an integrated delivery system in a large East Coast city. And an independent practice association in California may have matured to the point of assuming risk, while an independent practice association in another state may still be in the earlier stage that simply involves physicians banding together to contract with HMOs.

"Health care is driven by the health care needs of the community," said Randy Killian, executive director of the American Association of Integrated Healthcare Delivery Systems in Glen Allen, VA.

The first step to understanding how the letters line up starts with a look at how players in the health care field align to provide care. Four such arrangements include integrated delivery systems, physician hospital organizations, independent practice associations and provider sponsored organizations.

Integrated Delivery Systems

Defined as a system that provides a continuum of care that can include hospitals, physician groups, specialists, HMOs and more under one umbrella, integrated delivery systems are not a new concept. In fact, systems such as the Henry Ford Health System in Detroit have been around since the 1950s. But, according to Killian, recent pressure to reduce health care costs may be a factor in making integrated delivery systems more attractive to payors and employers today.

In order for health care delivery systems to survive, Killian said, they must be both efficient and effective. Integrated delivery systems utilize effective business practices such as central billing systems, shared management systems and seamless information systems in order to accomplish these goals.

"Integrated delivery systems are still in evolution," said Gerald McManis, president of McManis Associates in Washington, D.C., a management and strategy consulting firm that helps build integrated health care delivery systems.

Systems at different stages of integration can include physician hospital organizations that have aligned in some manner the financial incentives of physicians and hospitals, as well as managed care organizations that primarily restrict themselves to managed care contracting. McManis describes the integrated delivery system as having the financial incentives of the system and the physicians aligned totally for all kinds of care.

"That's where they actually begin to hire physicians," he says. "Usually at that point, they have their own managed care product or joint venture for managed care with an insurance company, so they have integrated financing. And that's where you are getting into the integration of financing and delivery of care. The hospital is aligned, the physicians are aligned, and the financing is aligned."

"We see the earlier versions of the physician hospital organizations attempting to replicate some of the larger clinics - like a Cleveland Clinic or a Mayo - but somehow align the financial incentives of physicians and hospitals," McManis said.

He underscores the existence of a wide range of degrees of integration in delivery systems: "You have the MCOs - the managed care organizations themselves - that primarily restrict themselves to managed-care contracting. And you have the more true integrated delivery systems, such as an Allina Health Systems in Minneapolis/St. Paul, where you have the managed care function and where they actually have HMO lives. They've merged with hospitals in a true business relationship."

Like other health care systems, integrated delivery systems have matured in the past few years.

"I think three to five years ago, integrated delivery systems were more gleams in the eye than reality," McManis said, noting that the emphasis then was on fundamental consolidation - trying to merge hospitals, align physicians and buy physician practices to create integrated delivery systems. Today's challenge is to make them succeed.

"Now, since a lot of that has been put into place, the question is how to make it work," McManis said. "This is where courage is going to be required on the parts of boards and leadership to align financial incentives and put organizational vehicles in place within the integrated delivery systems that will, in fact, work."

Niches, or carve-outs, present a possible challenge to the integrated delivery systems, according to McManis, who describes a carve-out as physicians aligning with a for-profit company to manage their specialties outside the hospital. "At the end of the day, the more successful integrated delivery systems will probably be the ones that align the financial incentives between the hospitals and physicians and determine the appropriate financing vehicle - whether it's their own HMO, a preferred provider organization, or a provider sponsored organization - and then determine how they can deliver value to the payors and, hence, value to the customers."

Independent Practice Associations

Independent practice associations began forming in the late 1980s and early 1990s as a response to the burgeoning HMO industry, explains Kathleen Canevaro, executive vice president for the National IPA Coalition. NIPAC is a not-for-profit trade association based in Oakland, CA, that works with physician organizations, IPAs, medical groups, PHOs, and IDSs that are managing risk or wanting to take risk. "In the early days the HMO industry was contracting primarily with medical groups and the IPAs were formed by physicians who were interested in maintaining marketshare and still being able to be a player in the managed care industry," Canevaro said.

Today, independent practice associations in some parts of the country have grown into organizations that also manage risk. "They have matured into organizations where risk that was previously being managed by the health plan has been passed down to the physician organizations such as IPA's," Canevaro say. "The IPAs are now responsible for managing risk and for meeting the audit requirements that the health plans have to meet from NCQA. So they are far more mature and much more sophisticated," she said, adding that typically independent practice associations have only a contractual relationship with the physicians, who maintain their autonomous and independence functions.

"It's really important to emphasize that IPAs are formed to try to achieve the best of both worlds," Canevaro adds. "To assure that physicians who need and want autonomy and independence can also come together organizationally in such a way that they can manage to be in the managed care environment - that means taking risk."

McManis believes that in the case of the independent group practices, the independent physicians, and the independent practice associations, the structure is not as important as the behavior of the physicians. "We've seen examples of IPA's on the West Coast that are very successful at managing care in a managed care environment," McManis notes. "Conversely, we've seen clinic's with employed physicians that are less successful. So the key that we are finding is the behavior of the physicians to adopt best practices, the behavior of physicians to manage that care, and to have the technology to give them the information to manage the episode of the illness and sickness through a whole continuum of care."

Canevaro said that independent practice associations growth seems to be occurring in both traditional, multispecialty independent practice associations as well as in the single specialty independent practice associations that are looking to carve out portions of the continuum of care to a specific specialty, such as cancer or heart disease. "They are continuing to grow and to mature," she adds. "And, they are certainly viewed as one of the key organizational ways in which physicians can structure themselves to work in a managed care environment. They are right up there with medical groups where the assets are owned by the group or by a management company, as well as the PHOs where the hospitals typically have provided the capital to support the physician organization effort."

Physician Hospital Organization

A physician hospital organization is comprised of physicians, or physician groups, and hospitals who join together together in a variety of ways for a variety of purposes, including negotiating and contracting with payers and marketing. One such form, according to Canevaro, is a foundation model in which the hospital typically buys the assets of a group of doctors, then forms a physician hospital organization to allow for contracting with health plans to include both hospital and professional services.

"These foundations typically then contract with a network that can be an independent practice association of other doctors, specialists, therapists and more to provide care for specialty services. It is really, if you will, a portion of an integrated delivery system," Canevaro said, noting that an integrated delivery system would normally also include home health care, hospice care, skilled nursing care and other components. "Typically a physician hospital organization may be an independent practice association and a hospital, or multiple independent practice associations and multiple hospitals that are looking to achieve some clout in the marketplace by volume and by price."

Sometimes viewed as a transitional model or a forerunner to an integrated delivery system, physician hospital organizations typically are owned by physicians and hospitals.

Like all delivery models, physician hospital organizations have had varying degrees of success. "There are examples where they have become successful and there are examples where they have been less than successful," McManis said, noting that physician hospital organizations were relatively easy to form in the late 1980s or early 1990s. They allowed physicians to band together and go into business with the hospital and have a vehicle with which to contract for managed care, yet still maintain their independence.

Provider Sponsored Organizations

In a generic sense, the term provider sponsored organization could encompass any number of existing health care systems. Today, however, the term most often refers to a concept developed by the 1997 Balanced Budget Amendment to allow providers meeting certain criteria to contract directly with Medicare.

"The idea behind [provider sponsored organizations] was that physicians and hospitals could align in a way so that they could set up provider sponsored organizations to address managed care issues in Medicare," said McManis, who believes the aim of the provider sponsored organization legislation was to create a way for providers to align in order to bypass intermediaries and set up their own insurance mechanisms.

Canevaro notes that creating a provider sponsored organization is really about managing risk.

No one is entirely certain as to what the future holds in the way of health care delivery systems. But change and growth will certainly continue.

"There are no magic bullets out there," Canevaro said. "There is no one organization that is emerging as the structure around which everyone else is now going to gather." PR

Tracy Baumann is a freelance writer in St. Paul, MN.