Will your PHO kill your hospital? Give MDs power
PHOs have life span of a fruit fly’
"Competition-induced facility suicide." That’s how some view a hospital-heavy PHO in a maturing managed care market, compared to a physician-lead PO in the same aggressive market.
If the "H" as in hospital is dropped due to bad relations between doctors and the hospital, the hospital administrators should expect to start looking for another line of work, warns Matthews E. Ward, vice president of Med Cap Resources Inc., a Richmond, VA-based consulting firm. Not only that the hospital may fail along with them.
Not that Ward dislikes PHOs. In fact, he’s helped establish them, including one at Mary Washington Hospital in Fredericksburg, VA. The key is for hospitals to give physicians the power they want and require to stay motivated and to be effective, Ward explains.
That opinion is shared by Robert Lively, executive vice president of managed care and integration at Mary Washington. "Absolutely," doctors are in charge, says Lively. "We have developed our PHO so that [the hospital] has minority membership. We believe physicians have to drive it. They are the ones really making it happen. [Hospital and PHO officials] are there to remove the barriers they may have in their way."
Hospitals, doctors have power struggle
No doubt, hospital officials can claim they give doctors the power, but it doesn’t always happen that way. As the market matures, hospital officials better back off from a power struggle, or the entire organization will suffer, Ward says.
Clearly, the rate of PHO growth is remarkable. (See related story on specific numbers, p. 112.) Ward traces their growth in the context of evolution along a time continuum of managed care market maturity, (see stages chart, at right) as explained below:
• Stage one: Minimal managed care surfaces.
At this early stage, managed care is barely a blip on the screen. "No one cares because there isn’t enough of it," Ward says.
• Stage two: Discounted fee for service spreads.
HMOs are making dents in several hospitals’ market share in a community, making hospital officials nervous. "If a large HMO picked up all their business and moved to another hospital, hospitals will care a lot," he explains. "At this stage, the hospital offers discounts to HMOs. You see networks of all sorts forming, and toward the end of stage two, the hospital has given every discount it can."
• Stage three: Early capitation takes root.
"The first hospital in town decides to form a PHO," Ward says. Administrators begin to understand that the plan has to spend money to organize and deliver the physicians. "It’s a completely rational thing to do. The hospital brings the doctors in, and it gets its first risk contract. Every article in every magazine says, We ought to be taking risk.’"
• Stage four: PHOs split power 50-50 with doctors, capitation increases, and physician leaders become disgruntled.
Now that the hospital has several risk contracts, it has to form a care management committee. In that committee, the agenda is written by hospital people, Ward explains. They discuss care management and cost management and develop numerous innovative ways to make the new system profitable.
"The doctors get energized, but later they stop and think, Did the hospital guys say anything? They had pads of paper, and they wrote it all down,’" but they can’t contribute the nuts and bolts of care management, much less innovations in clinical care management.
"In these PHO processes, doctors find out that doctors manage care," Ward says. "The scary thing is it takes so long for people to figure this out." Hospitals can bring physicians together to discuss clinical care with the intent of improving outcomes, reducing costs, etc. But only the doctors have the clinical expertise to work out those methods. In some cases, PHOs gather the doctors, essentially have the doctors do the clinical innovation, and then share the profits that physicians could have made without a hospital, argues Ward.
A true story
This was the experience of Minneapolis-based Allina Health System, which has 18 hospitals, a 400-physician clinic, and an HMO of one million enrollees, says Barbara LeTourneau, MD, MBA, vice president of medical affairs for Allina’s north region. "We had a PHO, but it didn’t really work out that well," says LeTourneau, referring to the two specific hospitals she oversees in the system.
In brief, the PHOs required every member to sign off on every contract, which was too cumbersome. But even more important, she says, the physician clinic was the best vehicle to actually manage clinical care. "The clinic could do that on its own," she says.
Different roles for hospitals, doctors
Institutions’ and physicians’ roles vary greatly. "Hospitals do facility side; doctors do doctor side: That’s what we have missed in all of this," Ward says. "Facilities can’t practice medicine. Physicians are the ones who are going to manage the care, and you have to give them the authority."
During the transitional phase, the big mistake hospitals make is not giving up control. Failure to let go can result in "competition-induced facility suicide," says Ward.
• Stage five: "Enlightened PHOs" emerge, or physicians mutiny and take their business with them.
This is when PHOs, in order to survive, basically throw out the "H." PHOs holding on to 50-50 hospital-physician vote are being passed up by organizations that are 100% physician-governed, Ward says. "When doctors leave the room of a care management committee meeting and they realize they are managing the care and doing the work they ask themselves, Why is the hospital getting 50% of the revenue?’"
Trade-offs help
Because PHO officials at Mary Washington Hospital hope to achieve enlightened PHO status, they are willing to offer financial capital in exchange for "medical capital" doctors and other clinical staff. You cannot achieve all the latest clinical management innovations disease management, access management, managing a population, for example unless doctors take the lead, says Lively. Hospitals still benefit from relinquishing power because physicians will see those hospitals as good partners and bring contracts to them. Physicians will always need hospitals, but only the ones they feel they can trust and work with.
"We have set it up so that [the hospital] has 40% of shares and 20% of voting rights on the board," says Lively.
Structure is still important, says Ward. "If a hospital decided it wanted to find the physician leadership and develop the structure, there really isn’t a better structure. The hospital gives [doctors] some money and a forum." Over time, the hospital-heavy PHO "has the life span of a fruit fly," Ward says.
In 1983, a small hospital in Allentown, PA, reported a case mix severity index to the Health Care Financing Administration that ranked it among the top 25 hospitals in the country with the highest average patient severity, says Ward. The hospital remained profitable despite the higher risk population it served. "Their [hospital officials’] entire focus was, I am going to do what the doctors say for me to do.’ All the doctors wanted to use that hospital. The hospital administration had to accept the fact that there is a physician customer, and if you aren’t reaching them, you are always vulnerable."
Or an enlightened PHO is what one expert describes as, "the training wheels of an integrated delivery system." For PHOs everywhere, the question is, "Who will be in the driver’s seat?"
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