Integrated health systems: They will set benchmarks for performance
Here's why you should worry if you're not in an IHS
You've probably heard the beat of health systems across the country linking up in an effort to cut costs, improve care, and, ultimately, survive. If it seems that everybody's doing it, it's because they are: The most recent data show the nationwide number of health systems in the process of integrating is now approaching 600. And 97 systems with at least four components of care are now based in rural areas, a jump of 72% in just one year.
That means 43.5% of all systems with at least four components are based in metropolitan statistical areas of fewer than a million people, according to the 1998 Hoechst Marion Roussel Integrated Health Systems Digest, part of the Kansas City, MO-based pharmaceutical company's Managed Care Digest Series. And that means the trend already has reached the heartland; in fact, more than half of all highly integrated systems are in the Midwest and Southeast. In 1997, 20% more systems (a total of 228) met Hoechst's definition of being "highly integrated": having at least one systemwide managed care contract and at least three components of health care delivery (an acute care hospital, a physician component, and at least one other major delivery component).
Why the push to develop integrated systems? The primary reason is diminishing resources brought on by restricted reimbursement, says Stephen Shortell, author of Remaking Health Care in America: Building Organized Delivery Systems (San Francisco: Jossey-Bass Publishers; 1996). "Independent hospitals have fewer resources to deal with the resource constraints that are coming down the pike," says Shortell, who is also the Blue Cross of California distinguished professor of health policy and management at the Univer sity of California, Berkeley.
"It's going to be very difficult for freestanding hospitals to continue to do very well in this country, and they very much need to look toward developing some alliances," he says. "There are always exceptions - a hospital in a rural area with strong community support might be able to survive for a while, but it's going to be increasingly difficult."
David Nash, associate dean and director of health policy and clinical outcomes at Thomas Jefferson University Hospital in Philadelphia, agrees that hospitals must consider integrating. "You'd better start worrying if your hospital is not in a system and you're in a managed-care penetrated market," Nash says.
"That would be a problem. There clearly is a market move toward integrated delivery systems, spurred on by the notion that bigger is better in order to compete and leverage against managed care. It's a widespread phenomenon. Hospitals are finding they need to unite to take on managed care and achieve economies of scale," he explains.
The other issue driving the trend is that rising health care costs are forcing employers to demand change, says Matt Kerr, marketing manager for Hoechst Marion Roussel. "For many small to mid-size businesses, health care is a bigger expense than payroll, and they're pushing providers to get costs down," Kerr says. "The providers' response is to integrate." Many providers also have worked to integrate to beat the threat of government control.
Forming an alliance is not enough
It makes sense that health care facilities could save tremendously on such big expenses as laundry and food by joining forces. And it certainly makes sense that patients would be better served if their providers could give them care across the continuum. But it's a mammoth task for which there's no guarantee of success. In fact, while there's no evidence that integrated systems are a bad idea, there's also no body of published evidence that proves they will work in the long run.
What the experts do know is that the success of integrated health systems depends on myriad factors from the particulars of the market to how strong the information technology is to how well the administrators get along. That gives you a lot more to worry about than whether to integrate. (For more on what you should and shouldn't do to succeed, see p. 149.)
"The whole issue is being explored," Shortell says. "We don't have a clear-cut knowledge base yet on whether systems that are more or less integrated are more or less better off under managed care." But the theory, he says, is that systems highly integrated to include the full range of services patients need will indeed achieve higher quality care and lower costs. Forming an alliance is not enough: The system must reach full clinical integration to achieve the desired results.
How do you get to that point? For starters, you have to look at your individual market. In areas where there is less managed care penetration and fewer competing providers, it wouldn't make sense to go through the work of integrating, Shortell says. But in most cases, it does make sense and could mean the difference between survival and financial ruin. "What it will hinge on is the extent to which purchasers - Medicare, Medicaid, private carriers, and managed care plans - start purchasing on value criteria, which means benefits like patient satisfaction, clinical outcomes, and functional health status," Shortell says. "Then integration makes sense. If purchasers still plan to purchase based solely on the lowest cost, it doesn't make sense."
If lower costs are your only goal, then you can achieve that in other ways, such as through specialization, he says. "It will vary market by market, but I would have to agree with the people who are betting the farm that they're right and that the purchasers are going to begin to recognize this kind of value. Those providers want to be there first to capture that as it happens."
Shortell points out that there are two models of integration: vertical, in which the system owns all of the components, and virtual, in which the components have alliances or contractual relationships. Hybrids that contain a mixture of ownership and alliances will probably be most successful because they will promote continuity without tying up too many assets, he says.
'Clinical integration is the battlefield'
Once a system decides on its approach, three basic building blocks have to be in place:
o The bricks and mortar: putting together the entities, the information systems, and the total quality management.
o Economies of scale: using purchasing power to save on food, laundry, security, and other items and services.
o Clinical integration: aligning physicians, achieving continuity of care, sharing clinical services, and reducing variation.
Nash says the success of integrated delivery systems depends on getting to that third level of clinical integration. "That's going to be an uphill battle. It's complicated - doctors are not going to voluntarily change what they do for anybody, so it's an issue of aligning incentives," he says. "Clinical integration is the battlefield, and how we do that will predict the success or failure of the integrated delivery system model. Anybody can merge two organizations; very few people can make the physician culture work. Nobody I'm aware of has done it."
Systems making progress, say Shortell and Nash, include Detroit's Henry Ford Health System; Intermountain Health Care in Salt Lake City; Sen tara Health System in Norfolk, VA; Group Health Cooperative of Puget Sound, WA; and Fairview Health System in Minneapolis/St. Paul. Systems like these have tremendous market leverage because they have integrated to the point where they have continuity in physician practices, one balance sheet, and strong govern ance, Kerr says.
"In other communities, the fact that they're trying to integrate is really a hindrance to competing because they're just a bunch of hospitals that have aligned but haven't improved the health care," he says. "What we have are pockets of innovation. Some organizations, like Henry Ford Health System, have it down to a science; for others, it's just getting in the way of what they're supposed to be doing."
Systems increase ownership
Kerr pointed out some other interesting trends highlighted in the Integrated Health Systems Digest:
o Of the 228 most highly integrated systems, 81.6% had four or more delivery components.
o The number of facilities tied to highly integrated systems rose nearly 44% in 1997, from 3,243 in 1996 to 4,666.
o Average occupancy at hospitals in highly integrated systems exceeded that of nonsystem hospitals by more than five percentage points (51.5% vs. 46.3%).
o Average length of stay at hospitals in physician-initiated systems was 4.9 days, 9.3% shorter than the industry average.
o Of the 749 licensed HMOs at the end of 1996, 12.6% were tied to highly integrated systems. These plans enrolled 22% of all HMO members.
o Highly integrated systems had signed an average of 8.2 capitated contracts per system.
o The percentage of owned provider units in highly integrated systems increased by 7%, to 49.3% in 1997.
o Overall, systems are increasing ownership in hospitals and physician practices while concentrating on contractual relationships with HMOs and other provider units.
[To receive a copy of Hoechst Marion Roussel's Integrated Health Systems Digest, call (888) 242-9321. Information from the digest also can be viewed on the Internet at the following address: www.managedcaredigest.com.]
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