Other than small private practices, what other models are seen in medical practice? 

  • Large physician-owned networks
  • Hospital-owned networks
  • Direct primary care
  • Concierge medicine
  • Telemedicine

Examples of Collaborative Options

Collaborative Options for Integrating Services of Hospitals and Physicians:

  • Management Service Organizations (“MSO’s) – basically a business entity that contracts directly with managed care companies on behalf of providers
  • Physician-Hospital Organizations (“PHO’s) – a contracting entity designed to get more managed care business. Physicians and hospitals are typically equal partners
  • Practice Acquisition Models – such as a staff model where doctors work as employees for hospitals on salary or a foundation model where doctors work as independent contractors for hospitals
  • Equity Models – doctors work for doctor groups and doctors get an equity share of the profits

Physician-Hospital Organizations (“PHO’s) considerations include: How strong is physician and administrative leadership, what is hospital’s commitment, what is right provider mix, are there responsible contracts, what is the risk sharing, what are the referrals and incentives involved, what is the physician education involved, and how experienced is management

Practice Acquisition Model considerations include: Physicians should consider what is the economic security provided and for how long; is there a salary base plus a productivity or bonus system involved and what are the terms; what is the degree of control relinquished by Dr. Smith; what is the governance involved; consider administrative services including billing supervising office staff, paying salaries; what is the business plan involved such as including operating budget, volume, performance, and quality standards.

Management Service Organizations (“MSO’s) – legal entity that provides practice management, administrative and support services to individual physicians or group practices. An MSO may be a direct subsidiary of a hospital or may be owned by investors.

FOUR COLLABORATIVE OPTIONS FOR INTEGRATING SERVICES OF HOSPITALS AND PHYSICIANS – Class 8

Currently, the four collaborative options for integrating services of hospitals and physicians (with variations among each of these available) are:

(1) Management Service Organizations (“MSO’s) – basically a business entity that contracts directly with managed care companies on behalf of providers.

(2) Physician-Hospital Organizations (“PHO’s) – a contracting entity designed to get more managed care business. Physicians and hospitals are typically equal partners.

(3) Practice Acquisition Models –

  • Staff: doctors work as employees for hospitals on salary.
  • Foundation: doctors work as independent contractors for hospitals.

(4) Equity Models – doctors work for doctor groups and doctors get an equity share of the profits.

Key: Analyze advantages and disadvantages when considering options

A. MANAGEMENT SERVICE ORGANIZATIONS (MSO)

Management Service Organization (“MSO”)

  • Legal entity that provides practice management, administrative and support services to individual physicians or group practices
  • May be a direct subsidiary of a hospital or may be owned by investors

Traditionally, MSOs are an entity that usually acquires the tangible medical practice assets and provides administrative and practice management services to physicians.

Advantages:

  • For hospitals – MSO’s allows hospital an initial opportunity to establish a strong relationship with medical practices unwilling to be acquired or to more fully integrate.
  • For physicians – MSO’s can be a source of capital to the physician and reduce administrative burden in the operation of their practices by enabling them to focus on seeing their patients and by helping to provide efficiencies in practice management. In some cases, MSO”s provide an opportunity for income guarantees to the physician by off-loading the overhead percentage of risk to the management service organization. Control of patient care is left largely to the physician.

Disadvantages:

  • For hospitals – physicians participating in MSO’s are not contractually obligated to use inpatient and outpatient services exclusively at the hospital that provides them with management services.

B. PHYSICIAN HOSPITAL ORGANIZATIONS (PHO)

In Analyzing Physician Hospital Organizations (“PHOs) Success – consider, among other things:

  • How strong is physician and administrative leadership
  • What is hospital’s commitment
  • What is right provider mix
  • Are there responsible contracts
  • What is the risk sharing
  • What are the referrals and incentives involved
  • What is physician education involved
  • How experienced is management

PHOs are a joint venture between a hospital and an organized group of physicians (who typically form an independent practice association) designed to achieve certain business objectives, usually for the purpose of coordinated managed care contracting.

PHO – Advantages:

  • For hospitals – PHO can be a useful vehicle for hospitals to begin to organize physicians practicing in solo practice or in small groups.
  • For physicians – PHO’s can provide an effective contracting vehicle that allows physicians and hospitals to enter the managed care arena. Physicians have considerable control over the organization through a self governing all physician independent practice association board. PHO board which most often has equal representation from the hospital and the IPA allows for shared governance.

When PHOs started it was the “domino effect” – hospitals were told that if they did not create one they would go bankrupt and most hospitals around the country hurried to create one – Some say, in retrospect, it was not necessary 

PHO – Some Anticipated Benefits:

  • Coordinate patient services to deliver more effective and efficient care.
  • Integrate clinical and financial resources as required to assume risk for the full range of hospital and physician services.
  • Reorganize care by consolidating overhead and fixed costs to maximize buying power of purchase dollars.
  • Measure and improve patient satisfaction and outcomes.
  • Develop the business and clinical support for managed care products.
  • Balance goals of strong-willed hospitals and fiercely independent physicians with those of purchasers.
  • Nurture shared values of economy as fostered by collegiality, trust, and united spirit among independent providers.

PHO – Disadvantages:

  • For hospitals – There is no long-term tie to an individual physician or physician group nor is there exclusivity of participation with one hospital.
  • For physicians – PHO’s do not guarantee economic security for physicians.
  • Inability to guarantee that PHO providers can serve all patients of contracted purchasers.

PHO will not necessarily:

  • reduce fixed assets and overhead and thus the cost base of services.
  • change provider behavior since much of the physicians and hospitals activities remain outside the scope of contracts arranged through the PHO.
  • eliminate duplication in utilization management and quality improvement activities.

In addition, consider the following:

(1) Advantage of PHO: PHO seek direct contracting with local employers.

  • Disadvantage: Employers do not contract with PHO, or new laws are enacted substantially changing PHO structure.

(2) Advantage: Ensure flow of patients through managed care contracts.

  • Disadvantage: The numbers must be right. If physicians don’t see enough managed care patients, they won’t change their practice behaviors, and progress will stall.

(3) Advantage: Providers starting their own insurance product may give them more control over payment and free them from another organization’s utilization review.

  • Disadvantage: Providers with their own insurance products are almost certain to alienate current payers. Researching the market, lining up financing, crunching numbers on patient utilization and marketing the product all should be completed before offering the insurance product.

It has been suggested that there are eight essential factors for PHO success involving: (1) Strong physician and administrative leadership, (2) Hospital commitment, (3) Right provider mix (4) responsible contracts, (5)Risk sharing, (6) Referrals and incentives , (7) Physician education, and (8) Experience management.

C. PRACTICE ACQUISITION MODEL

Practice Acquisition Model is a model where the hospital or hospital related organization acquires both the tangible and intangible assets of a medical practice and the physicians either become employees of that organization (staff model) or maintain their status as independent contractors (foundation model) and establish a professional services agreement with the foundation for the provision of medical services.

In Analyzing Practice Acquisition Model – consider, among other things:

  • What is economic security provided and for how long
  • Is there a salary base plus a productivity or bonus system involved and what are the terms
  • What is degree of control relinquished by physician
  • What is governance involved
  • Consider administrative services including billing supervising office staff, paying salaries
  • What is business plan involved including operating budget, volume, performance, and quality standards

Advantages:

  • For hospitals – Hospital now “owns” the physician group and the practice revenue streams. This allows hospital to control the flow of patients. The hospital must possess or obtain the necessary skills in physician practice management and must nurture the relationship with those physicians.
  • For physician’s – may provide economic security physicians desire, in some cases this is the model physicians most actively resist. In this model physician income is reasonably certain, at least for the short term, with a salary base plus a productivity or bonus system (staff model). In the foundation model, there is a contractual commitment on the part of the foundation to compensate the medical group at a fixed amount for the provision of medical services.

Disadvantages:

  • For hospitals – This option can be costly. The prospect of owning a group of dissatisfied physicians is highly unattractive.
  • For physicians – In exchange for economic security, physicians relinquish some degree of control, both in the staff model, where they are employees of a corporation and the foundation model where if the foundation is not for profit physician governance is usually limited to 20 percent.

An article describes four lessons learned from practice acquisitions by hospitals, insurance groups or others as: (1) Practice management is detail intensive – someone has to mail bills, supervise office staff, pay salaries, and manage other administrative services, (2) Primary care practices are fragile – an error in billing or the addition of an unnecessary staff person could have immediate financial repercussions, (3) Physician compensation should be tied to measurable standards – factors to consider when negotiating standards and a corresponding compensation agreement with physicians include the number of patients treated, treatment outcomes, physician resource utilization, patient access, and patient satisfaction, (4) Practices require individual business plans – the plan should include an operating budget, volume, performance, and quality standards. For example: physicians might be required to see three to five patients per hour, six hours per day, five days per week, 225 days per year, the key is to be specific about physician expectations and consistent in requirements to meet them.

D. EQUITY MODEL

The Equity Model is an organization owned and governed by physicians who are shareholders in an enterprise that contracts to provide care and either includes a hospital as an integral part of the organization or treats the hospital as a subcontractor of services.

Advantages:

  • For hospitals – A variation of this model is the ability of an investor owned hospital chain to provide investment opportunities for physicians – an option usually unavailable to not-for-profit hospitals.
  • For physicians – At first glance the equity option appears to best satisfy the control and economic needs of physicians. Physicians are the governance and physician shareholders are in control of the distribution of the dollars.

Disadvantages:

  • For hospitals – This model places the physicians in control and reduces the hospital to a subsidiary role. The greatest risk to hospitals is that a large equity group holding significant payer contracts may view the hospital as a commodity and seek out the least costly hospital to provide inpatient care.
  • For physicians – The downside of this model may be the physician’s inability to raise capital over time without relinquishing some control. In addition, as healthcare reform surfaces, these physicians may need to align themselves more closely to vertically integrated healthcare systems and/or payers, which will likely result in some loss of control and possible income dilution in the future.

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