Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California's Delivery System

CHCF Logo – 4C Process / Vertical 45C 0M 80Y 35K 0C 100M 64Y 33K C A LIFORNIA HEALTHCARE FOUNDATION Physician-Hospital Integration 2012 How Health Care Reform Is Reshaping California’s Delivery System Prepared for CALIFORNIA HEALTHCARE FOUNDATION By Cleo Burtley, MBA Laura Jacobs, MPH The Camden Group April 2012 About the Authors Cleo Burtley, MBA, is a manager at The Camden Group. Ms. Burtley’s expertise is in the areas of physician-hospital relationships, health care strategic planning, service line development, and bundled payments and other health care reform initiatives. Laura Jacobs, MPH, is executive vice president of The Camden Group. Ms. Jacobs’ expertise is in the areas of physician-hospital relationships, physician group development and management, clinical integration and ACO strategies, health care strategic planning, physician compensation, and payer strategy. The Camden Group, with offices in Los Angeles, Chicago, New York, and Boston, is a national health care business advisory firm. Its advisory services include strategic and business planning, regulatory compliance, physician-hospital relationships, feasibility studies, and provider performance improvement and turnaround. Acknowledgments The authors would like to thank Mary Witt, MSW, vice president of The Camden Group, Dan Cusator, MD, MBA, vice president of The Camden Group, and Richard Goddard, MHSM, consultant at The Camden Group, for their support and contributions to this paper. ©2012 California HealthCare Foundation Contents 2 I. Executive Summary 5 II. Introduction 6 III. The Physician-Hospital Economic Environment 9 IV. Emerging Integration Initiatives in the Wake of the ACA 16 V. Impact of Health Care Reform on Physician-Hospital Integration 24 VI. Integration Case Studies: Six California Provider Organizations 40 VII. Conclusion 42 Appendices 46 Endnotes Implementing National Health Reform in California: Payment and Delivery System Changes | 1 I. Executive Summary FOR SEVERAL DECADES, MOST PHYSICIANS AND Muir Health, Presbyterian Intercommunity Hospital, hospitals have worked with each other independently, Scripps Health, and the University of California, San in arm’s length, fee-for-service arrangements. Over Francisco Medical Center — about their current and time, however, these arrangements have come to be future integration plans in light of recent trends. viewed as contributing to rising health care costs and significantly driving uncoordinated care, duplication Impact of the Affordable Care Act of services, and inadequate patient access. In addition, The passage of the ACA has propelled issues regarding physicians and hospitals alike have faced increasingly physician-hospital integration onto the national stage. challenging economic conditions, particularly since the During 2011, many specifics emerged regarding how recession of the late 2000s. The economic outlook for health care reform will be implemented, spurring providers has further been challenged by provisions of physicians and hospitals to change and accelerate their the Patient Protection and Affordable Care Act (ACA) alignment structures with one another. Across the and by continued cuts in Medicare and Medicaid state, providers of all stripes have been evaluating how reimbursement that have taken the form of reductions the ACA’s mandates — quality excellence, population both in the volume of Medicare patients that providers health management, efficiency, and cost savings — see and in reimbursement rates. Finally, issues related to can be realized in light of economic, political, and physician income and work/life balance have caused a market constraints. In many cases, organizations are shift in the types of specialties physicians choose, as well implementing pilot projects to assess the impact and as in the availability of physicians to practice medicine sustainability of alignment models prior to broad in California, driving hospitals and other provider adoption. The future landscape of care providers and organizations to develop mechanisms to aggregate models of care delivery in California will be shaped by physicians in their medical staff models. these efforts. In response, physician organizations’ interest in Federal Spurs to New Integration integrating or partnering with other entities has Mechanisms markedly increased, in particular to limit their exposure In early 2011, the Centers for Medicare & Medicaid to financial risks. This paper explores the impact of the Services began to define the future mechanisms by economic environment and of recent health care reform which Medicare and Medicaid providers will be initiatives on physician-hospital integration activity in evaluated, structured, and compensated. The Center for California. It builds on a 2010 California HealthCare Medicare & Medicaid Innovation (CMMI), created by Foundation paper, Physician-Hospital Integration the ACA, launched a series of voluntary initiatives that in the Era of Health Reform, and presents not only implement the vision of the Institute for Healthcare research findings but also perspectives gleaned through Improvement’s Triple Aim™: better population health, interviews with leaders at hospitals, physician groups, better patient experience, and reduced health care costs. health plans, and provider industry associations, which Future integration efforts in California and across the shed light on how these organizations are approaching nation are likely to be defined, in part, by the following integration. In addition, the paper offers case studies on federal payment initiatives: six provider organizations across the state — Adventist Health, Arrowhead Regional Medical Center, John 2 | CALIFORNIA HEALTHCARE FOUNDATION n Health Care Innovation Challenge. Awards up to $1 Integration Brings Together billion in grants to fund innovative service delivery Unexpected Partners and payment models to support sustainable patient Regulatory, quality, and financial demands have driven care improvement projects. physicians — in particular, solo practitioners and n Comprehensive Primary Care Initiative. Works with specialty groups — to seek alignment opportunities commercial and state health insurance plans to in ever increasing numbers. Some small- to medium- offer bonus payments to primary care doctors for size physician groups have sought to merge or close initiatives that improve patient care coordination. their practices, often seeking to participate in a larger physician group, health system-based medical n Federally Qualified Health Centers (FQHC) Advanced foundation, or other integrated structure such as Primary Care Practice Demonstration. Tests the an outpatient clinic. The majority of health care effectiveness of doctors and other health professionals organization leaders interviewed for this paper believe working in teams to improve care coordination for that this integration trend by physician practices is Medicare patients at FQHCs. likely to continue for the foreseeable future. n Bundled Payments for Care Improvement. Allows providers to use bundled payments as a way to California’s prohibition on the direct employment increase efficiency and value in clinical care delivery. of physicians by entities other than professional In particular, provider organizations may apply corporations has historically limited hospitals from to receive Medicare Part A and Part B payments closely integrating with physicians. Over the last several for specified clinical services in a single “bundled” years, however, hospitals and health systems have payment. increasingly turned to medical foundations and other mechanisms for formal alignment. For example, among n Within an Accountable Care Organization (ACO). the six hospitals and health systems featured in this ACO, primary care physicians use care management paper’s case studies, only one does not have a medical processes to efficiently meet the health care needs of foundation or exclusively contracted medical group. Medicare beneficiaries. Most ACOs are separate legal However, new models of care have not been uniformly entities composed of provider organizations such as embraced among California providers. Elements of independent physician practice networks, medical integration — including care management models, group practices, and integrated delivery systems. participating organizations, performance standards, and financial incentives — vary widely between geographic According to the California Department of Health Care regions and segments of providers. Services, the insured patient population in the state is expected to increase by nearly 4 million by 2016; it is Payers, too, have increasingly aligned with providers anticipated that the above-described initiatives will help in management and administrative arrangements. alleviate capacity constraints across many sites of care. In some instances, this has taken the form of ACOs or other shared-risk models between payers and provider organizations. In other cases, payers have actually acquired physician organizations or invested in their management companies. Among insurers with significant enrollment in California, UnitedHealth Group and Wellpoint (Anthem Blue Cross of California) have announced acquisition strategies to form stronger relationships with physician practices. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System | 3 Implications for Policymakers subsidized insurance. Many of these providers also While many benefits may be realized from physician-

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