The last chapter explored some general principles of health care organization, including levels of care, regionalization, physician and other practitioner roles, and patient flow through the system. This chapter looks more closely at actual structures of medical practice.
The traditional dispersed model of the US medical practice has been referred to as a “cottage industry” of independent private physicians working as solo practitioners or in small groups. A number of alternative organizational forms have existed in the United States, ranging from community health centers to prepaid group practices. The traditional model is in competition with a system of larger practice organizations and networks structured along a more integrated model of health care delivery.
Dr. Harvey Commoner finished his residency in general surgery in 1956. For the next 30 years, he and another surgeon practiced medicine together in a middle-class suburb near St. Peter’s Hospital, a nonprofit church-affiliated institution. Dr. Commoner received most of his cases from general practitioners and internists on the St. Peter’s medical staff. By 1965, the number of surgeons operating at St. Peter’s had grown. Because Dr. Commoner was not getting enough cases, he and his partner joined the medical staff of Top Dollar Hospital, a for-profit facility 3 miles away, and University Hospital downtown. On an average morning, Dr. Commoner drove to all three hospitals to perform operations or to do postoperative rounds on his patients. The afternoon was spent seeing patients in his office. He was on call every other night and weekend.
Dr. Commoner was active on the St. Peter’s medical staff executive committee, where he frequently proposed that the hospital purchase new radiology and operating room equipment needed to keep up with advances in surgery. Because the hospital received hundreds of thousands of dollars each year for providing care to Dr. Commoner’s patients, and because Dr. Commoner had the option of admitting his patients to Top Dollar or University, the St. Peter’s administration usually purchased the items that Dr. Commoner recommended. The Top Dollar Hospital administrator did likewise.
During the period when Dr. Commoner was practicing, most medical care was delivered by fee-for-service private physicians in solo or small group practices. Most hospitals were private nonprofit institutions, sometimes affiliated with a religious organization, occasionally with a medical school, often run by an independent board of trustees composed of prominent people in the community. Most physicians in traditional fee-for-service practice were not employees of any hospital, but joined one or several hospital medical staffs, thereby gaining the privilege of admitting patients to the hospital and at times acquiring the responsibility to assist the hospital through work on medical staff committees or by caring for emergency department patients who have no physician.
For many years, the physicians were the dominant power in the hospital, because physicians admit the patients, and hospitals without patients have no income. Because physicians were free to admit their patients to more than one hospital, the implicit threat to take their patients elsewhere gave them influence. Under traditional fee-for-service medicine, physicians used informal referral networks, often involving other physicians on the same hospital medical staff. In metropolitan areas with a high ratio of physician specialists to population, referrals could become a critical economic issue. Most surgeons obtained their cases by referral from primary care physicians (PCPs) or medical specialists; surgeons like Dr. Commoner who were not readily available when called soon found their case load drying up.
The dispersed structure of independent fee-for-service private practice was not always the dominant model in the United States. When modern medical care took root in the first half of the twentieth century, a variety of structures blossomed. Among these were multispecialty group practices, community health centers, and prepaid group practices. Some of these flourished but then wilted, while others became the seeds from which the future health care system of the twenty-first century may germinate.
In 1905, Dr. Geraldine Giemsa joined the department of pathology at the Mayo Clinic. The clinic, led by the brothers William and Charles Mayo, was becoming a nationally renowned referral center for surgery and was recruiting pathologists, microbiologists, and other specialized diagnosticians to support the work of the clinic’s group of surgeons. Dr. Giemsa received a salary and became an employee of the group practice. With time, she became a senior partner and part owner of the Mayo Clinic.
Together with their father, the Mayo brothers, who were general practitioners skilled at surgical techniques, formed a group practice in the small town of Rochester, MN, in the 1890s. As the brothers’ reputation for clinical excellence grew, the practice added several surgeons and physicians in laboratory-oriented specialties. By 1929, the Mayo Clinic had more than 375 physicians and 900 support staff and eventually went on to open its own hospitals (Starr, 1982). Although the clinic paid its physician staff by salary, the clinic itself billed patients, and later third-party insurance plans, on a fee-for-service basis. The Mayo Clinic was the inspiration for other group practices that developed in the United States, such as the Menninger Clinic in Topeka, KS, and the Palo Alto Medical Foundation in California. These clinics were owned and administered by physicians and featured physicians working in various specialties—hence the common use of the term multispecialty group practice to describe this organizational model. As in the case of the Mayo Clinic, these multispecialty group practices were innovative in the manner in which they brought a large number of physicians together under one roof to deliver care.
By formally integrating specialists into a single clinic structure, group practice attempted to promote a collaborative style of care. Lacking a strong role for the PCP as coordinator of services, the specialty-oriented group practice model attempted to use the structure of the practice organization itself as a means of creating an environment for coordinated care among specialist physicians. Enhancement of quality of care was also expected from the greater opportunity for formal and informal peer review and continuing education when colleagues worked together and shared responsibility for the care of patients. Critics of group practice warned that large practice structures would jeopardize the intimate patient–physician relationship possible in a solo or small group setting, arguing that large groups would subject patients to an impersonal style of care with no single physician clearly accountable for the patient’s welfare.
In 1932, the blue ribbon Committee on the Costs of Medical Care recommended that the delivery of care be organized around large group practices (Starr, 1982). The eight physicians in private practice who were members of the committee dissented from the recommendations, roundly criticizing the sections on group practice. An editorial in the Journal of the American Medical Association was even more scathing in its attack on the committee’s majority report:
The physicians of this country must not be misled by utopian fantasies of a form of medical practice, which would equalize all physicians by placing them in groups under one administration. The public will find to its cost, as it has elsewhere, that such schemes do not answer that hidden desire in each human breast for human kindliness, human forbearance, and human understanding. It is better for the American people that most of their illnesses be treated by their own physicians rather than by industries, corporations, or clinics. (The Committee on the Costs of Medical Care, 1932)
Several multispecialty group practices flourished during the period between the world wars, and to this day remain among the most highly regarded systems of care in the United States. Yet multispecialty group practice did not become the dominant organizational structure. In part, resistance to this model by professional societies blunted the potential for growth. In addition, as hospitals assumed a central role in medical care, group practice lost some of its unique attractions. Hospitals could provide the ancillary services physicians needed for the increasingly specialized and technology-dependent work of medicine. Hospitals also served as an organizational focus for the informal referral networks that developed among private physicians in independent practice.
One of the most far-reaching alternatives to fee-for-service medical practice is the community health center, emphasizing primary and preventive care and also striving to take responsibility for the health status of the community served by the health center. An early twentieth-century example of such an institution was the Greater Community Association at Creston, IA. The association brought together civic, religious, education, and health care groups in a coordinated system centered on the community hospital serving a six-county area with 100,000 residents. The plan placed its greatest emphasis on preventive care and public health measures administered by public health nurses. In describing the association, Kepford (1919) wrote:
The motto of the Greater Community Association is “Service.” Among the principles of the hospital management are the precept that it shall be a long way from the threshold of the hospital to the operating room. . . . We have a hospital that makes no attempt to pattern after the great city institutions, but is organized to meet the needs of a rural neighborhood. The Greater Community Association has been taught to regard the hospital as a repair shop, necessary only where preventive medicine has failed. (Kepford, 1919)
In 1928, Sherry Kidd joined the Frontier Nursing Service in Appalachia as a nurse midwife. For $5 per year, families could enroll in the service and receive pregnancy-related care. Sherry was responsible for all enrolled families within a 100-mile radius. She referred patients with complications to an obstetrician in Lexington, KY, who was the service’s physician consultant.
Another pioneering model, the Frontier Nursing Service was established by Mary Breckinridge, an English-trained midwife, in 1925 (Dye, 1983). Breckin-ridge designed the service to meet the needs of a poor rural area in Kentucky that lacked basic medical and obstetric care and suffered from high rates of maternal and infant mortality. The Frontier Nursing Service shared many of the features of the Creston, IA, model: regionalized services planned on a geographic basis to serve rural populations with an emphasis on primary care and health education. Like the Creston system, the service relied on nurses to provide primary care, with physicians reserved for secondary medical services on a referral basis.
These rural programs had their urban counterparts in health centers that focused on maternal and child health services during the early 1900s (Rothman, 1978; Stoeckle and Candib, 1969). The clinics primarily served populations in low-income districts in large cities and were often involved with large immigrant populations. As in the rural systems, public health nurses played a central role in an organizational model geared toward health education, nutrition, and sanitation. Both the urban and rural models of community health centers waned during the middle years of this century. Public health nursing declined in prestige as hospitals became the center of activity for nursing education and practice (Stevens, 1989). A team model of nurses working in collaboration with physicians withered under a system of hierarchical professional roles.
The community health center model was revived in 1965, when the federal Office of Economic Opportunity, the agency created to implement the “War on Poverty,” initiated its program of community health centers. The program’s goals included the combining of comprehensive medical care and public health to improve the health status of defined low-income communities, the building of multidisciplinary teams to provide health services, and participation in the governance of the health centers by community members.
Dr. Franklin Jefferson was professor of hematology at a prestigious medical school. His distinguished career was based on laboratory research, teaching, and subspecialty medical practice, with a focus on sickle cell anemia. Dr. Jefferson felt that his work was serving his community, but that he would like to do more. In 1965, with the advent of the federal neighborhood health center program, he left his laboratory in the hands of a well-trained assistant and began to talk with community leaders in the poor neighborhood that surrounded the medical school. After a year, the trust that was developed between Dr. Jefferson and members of the neighborhood bore fruit in a decision to approach the medical school dean about a joint medical school–community application for funds to create a neighborhood health center. Two years later, the center opened its doors, with Dr. Jefferson as its first medical director.
By the early 1980s, 800 federally funded community health centers were in operation in the United States, administered by governing boards that included patients enrolled in the health center. Many of the centers trained community members as outreach workers, who became members of health care teams that included public health nurses, physicians, mental health workers, and health educators. Some of the health centers made a serious attempt to meld clinical services with public health activities in programs of community-oriented primary care. For example, the rural health center in Mound Bayou, MS, helped organize a cooperative farm to improve nutrition in the county, dig wells to supply safe drinking water, and train community residents to become health care professionals. By improving the care of low-income ambulatory patients, the centers were able to reduce hospitalization and emergency department visits by their patients. Community health centers also had some success in improving community health status, particularly by reducing infant and neonatal mortality rates among African Americans (Geiger, 1984). In the past decade, the federal government invested in a new period of expansion of community health centers, and these health centers are viewed as a critical access point for the reforms enacted in the Affordable Care Act of 2010. In 2008, more than 1000 community health centers at 7500 sites were serving 17 million people, three-quarters of them uninsured or covered by Medicaid (Kaiser Commission, 2010).
Historically, one alternative to small office-based, fee-for-service practice became the major challenge to that traditional model: prepaid group practice, one of the models upon which the modern HMO is based.
In 1929, the Ross–Loos Clinic began to provide medical services for employees of the Los Angeles Department of Water and Power on a prepaid basis. By 1935, the clinic had enrolled 37,000 employees and their dependents, who each paid $2 per month for a specified list of services. Also in 1929, an idealistic physician, Dr. Michael Shadid, organized a medical cooperative in Elk City, OK, based on four principles: group practice, prepayment, preventive medicine, and control by the patients, who were members of the cooperative. In the late forties, more than a hundred rural health cooperatives were founded, many in Texas, but they tended to fade away, partly from the stiff opposition of organized medicine. In the 1950s, another version of the consumer-managed prepaid group practice sprang up in Appalachia, where the United Mine Workers established union-run group practice clinics, each receiving a budget from the union-controlled, coal industry–financed medical care fund. Meanwhile, the Group Health Association of Washington, DC, had been organized in 1937 as a prepaid group practice whose board was elected by the cooperative’s membership. A few years later in Seattle, Group Health Cooperative of Puget Sound acquired its own hospital, began to grow, and by the mid-1970s had 200,000 subscribers, a fifth of the Seattle-area population. In 1947, the Health Insurance Plan of New York opened its doors, operating 22 group practices; within 10 years, Health Insurance Plan’s enrollment approached 500,000 (Starr, 1982).
The most successful of the prepaid group practices that emerged in the 1930s and 1940s was the Kaiser Health Plan. In 1938, a surgeon named Sidney Garfield began providing prepaid medical services for industrialist Henry J. Kaiser’s employees working at the Grand Coulee Dam in Washington State. Rather than receiving a salary from Kaiser, Garfield was prepaid a fixed sum per employee, a precursor to modern capitation payment. Kaiser transported this concept to 200,000 workers in his shipyards and steel mills on the West Coast during World War II (Garfield, 1970; Starr, 1982). In this way, company-sponsored medical care in a remote area gave birth to today’s largest alternative to fee-for-service practice. Kaiser opened its doors to the general public after World War II. Kaiser now operates in nine states and Washington, DC, with nearly 9 million patients enrolled.
The contemporary systems that grew out of the Kaiser and consumer cooperative models share several important features. Rather than preserving a separation between insurance plans and the providers of care, these models attempt to meld the financing and delivery of care into a single organizational structure. Paying a premium for health insurance coverage in this approach does not just mean that a third-party payer will reimburse some or all the costs of care delivered by independent practitioners. Rather, the premium serves to directly purchase, in advance, health services from a particular system of care. This is the notion of “prepaid” care that is one component of the prepaid group practice model. (As discussed in Chapter 2, the Baylor Hospital plan in the 1930s was a parallel attempt to develop a model of prepaid hospital care.) The second component is care delivered by a large group of practitioners working under a common administrative structure—the “group practice” aspect of prepaid group practice.
Systems such as Kaiser and Group Health Cooperative of Puget Sound were commonly referred to as prepaid group practices until the 1970s, when terminology underwent a transformation as part of a political effort to sell the public and Congress on this model of care as a centerpiece of health care reform under the Nixon administration. Paul Ellwood, a Minnesota physician and advisor to President Nixon, suggested that prepaid group practices be referred to as “health maintenance organizations” (Ellwood et al, 1971; Starr, 1982). This change in name was intended in part to break from the political legacy of the prepaid group practice movement, a legacy colored with populist tones from the cooperative plans and tainted by organized medicine’s common criticism of prepaid group practice as a socialist threat. The term health maintenance was also designed to suggest that these systems would place more emphasis on preventive care than had the traditional medical model. Although HMOs were initially synonymous with prepaid group practice, by the 1980s, several varieties of HMO plans emerged that departed from the prepaid group practice organizational form. We describe the Kaiser model to fully illustrate the first-generation HMO model, and then proceed to discuss the second-generation HMOs known as independent practice associations (IPAs) or network HMOs.
Mario Fuentes was a professor at the University of California. He and his family belonged to the Kaiser Health Plan, and the university paid his family’s premium. Professor Fuentes had once fractured his clavicle, for which he went to the urgent care clinic at Kaiser Hospital in Oakland; otherwise, he had not used Kaiser’s facilities. Mrs. Fuentes suffered from rheumatoid arthritis; her regular physician was a salaried rheumatologist at the Permanente Medical Clinic, the group practice in which Kaiser physicians work. One of the Fuentes’ sons, Juanito, had been in an automobile accident a year earlier near a town 90 miles away from home. He had been taken to a local emergency department and released; Kaiser had paid the bill because no Kaiser facility was available in the town. Three days after returning home, Juanito developed a severe headache and became drowsy; he was taken to the urgent care clinic, received a CT scan, and was found to have a subdural hematoma. He was immediately transported to Kaiser’s regional neurosurgery center in Redwood City, CA, where he underwent surgery to evacuate the hematoma.
Dr. Roberta Short had mixed feelings about working at Kaiser. She liked the hours, the salary, and the paucity of administrative tasks. She particularly liked working in the same building with other general internists and specialists, providing the opportunity for frequent discussions on diagnostic and therapeutic problems. However, she was not happy about seeing 4 or 5 patients per hour. Such a pace left little time to talk to the patients or to make important phone calls to patients or specialists. It was tough for Dr. Short’s patients to get appointments with her, and it was even harder to arrange prompt appointments with specialists, who were as busy as she was. Moreover, the rules for ordering magnetic resonance imaging scans and other expensive tests were strict, though by and large reasonable. Overall, Dr. Short felt that the Kaiser system worked well but needed more physicians per enrolled patient.
The Kaiser–Permanente Medical Care Program is the largest of the nation’s prepaid group practice HMOs, consisting of three interlocking administrative units:
1. The Kaiser Foundation Health Plan, which performs the functions of health insurer, such as administering enrollment and other aspects of the financing of care.
2. The Kaiser Foundation Hospitals Corporation, which owns and administers Kaiser hospitals (the same individuals sit on the boards of directors for the Health Plan and the Hospitals Corporation).
3. Permanente medical groups, the physician organizations that administer the group practices and provide medical services to Kaiser plan members under a capitated contract with the Kaiser plan.
The organizational model typified in the Kaiser–Permanente HMO has come to be known as vertical integration. Vertical integration refers to consolidating under one organizational roof and common ownership all levels of care, from primary to tertiary care, and the facilities and staff necessary to provide this full spectrum of care (Figure 6–1). Although structures differ somewhat across Kaiser’s regional health plans, most Kaiser–Permanente regional units own their hospitals and clinics, hire the nurses and other personnel staffing these facilities, and contract with a single large group practice (Permanente) to exclusively serve patients covered by the Kaiser health plan.
Figure 6–1. Vertical integration consolidates health services under one organizational roof.
The Kaiser form of HMO differs from traditional fee-for-service models in how it pays physicians (salary) and hospitals (global budget). It also differs in how health services are organized. Most obvious is the prepaid group practice structure that contrasts with the traditional US style of solo, independent private practice. In addition, Kaiser has typically regionalized tertiary care services at a select number of specialized centers. For example, Northern California Kaiser has centralized all neurosurgical care at only two hospitals; patients with spinal cord injuries, brain tumors, and other neurosurgical conditions are referred to these centers from other Northern California Kaiser hospitals. The distribution of specialties within the physician staff in The Permanente Medical Group is approximately half generalists and half specialists. Most regions have also integrated nonphysicians, such as nurse practitioners and physician assistants, into the primary care team.
Many observers consider this ability to coherently plan and regionalize services to be a major strength of vertically integrated systems (Figure 6–1). Unlike a public district health authority in the United Kingdom, an HMO such as Kaiser–Permanente is not responsible for the entire population of a region, but these private, vertically integrated systems in the United States do assume responsibility for organizing and delivering services to a population of plan enrollees. The prepaid nature of enrollment in the Kaiser plan permits Kaiser to orient its care more toward a population health model.
As more and more of her patients switched from fee-for-service health plans to the new HMO plans run by commercial insurers that were capturing a growing share of the private health insurance market in California, Dr. Westcoast figured she had no choice but to start contracting with these HMOs if she wanted to retain her patients. She joined the Good Health Independent Practice Association (IPA), an organization that helped solo practitioners like Dr. Westcoast contract with different HMOs. Within 3 years, 30% of the patients in her internal medicine practice were covered by 4 HMO plans that contracted with the Good Health IPA.
Although having HMO contracts was clearly proving to be important for the viability of her practice, Dr. Westcoast found much of the new arrangements frustrating. Each HMO sent her annual reports on various quality-of-care measures for the diabetic patients that the HMO showed as having Dr. Westcoast as their PCP. The trouble was that, many of the patients were not actually patients in her practice, and it was hard to reconcile the reports for a few diabetic patients from each of the 4 HMOs with all the diabetic patients she saw, including many not enrolled in HMOs, to understand how she really was doing in meeting quality standards for all the diabetic patients in her practice. Good Health IPA sent her its own quality report about the diabetic patients that Good Health thought had Dr. Westcoast as a PCP, and the information in that report didn’t match the data sent by the HMOs. To make matters worse, each HMO had a different formulary of the diabetic medications that were covered by the health plan, and Dr. West-coast spent a lot of time helping exasperated patients who needed their prescriptions changed to a different medication. She wondered about giving up her practice to join Kaiser, where she would be less independent but at least she wouldn’t have to deal with so many different HMOs, each with their different set of rules.
In 1954, the medical society in San Joaquin County, CA, fretted about the possibility of Kaiser moving into the county. Private fee-for-service patients might go to the lower cost Kaiser, and physicians’ incomes would fall. An idea was born: To compete with Kaiser, the San Joaquin Foundation for Medical Care was set up as a network of physicians in independent private practice to contract as a group with employers for a monthly payment per enrollee; the foundation would then pay the physicians on a discounted fee-for-service basis and conduct utilization review to discourage overtreatment (Starr, 1982). It was hoped that the plan would reduce the costs to employers, who would choose the foundation rather than Kaiser.
When the Health Maintenance Organization Act of 1973 was enacted into law as the outcome of President Nixon’s health care reform strategy, network model HMOs were included along with prepaid group practice as legitimate HMOs. The HMO law stimulated HMO development by requiring large- and mediumsized businesses that provided health insurance to their employees to offer at least one federally qualified HMO as an alternative to traditional fee-for-service insurance if such an HMO existed in the vicinity (Starr, 1982). Network-model HMOs were far easier to organize than prepaid group practices; a county or state medical society, a hospital, or an insurance company could simply recruit the office-based, fee-for-service physicians practicing in the community into network, and thereby create the basis for an HMO. The physicians could continue to see their non-HMO patients as well. The inclusion of the network form of HMO in the 1973 legislation ensured that the HMO movement would not produce rapid alterations in the traditional mode of delivering medical care.
Some of the initial network-model HMOs were organized on the two-tiered payment model described in Chapter 4. Under this model, an HMO contracts with many individual physicians to care for HMO enrollees. Some network-model HMOs have evolved into models that use a three-tiered payment structure whereby the HMO does not contract directly with individual physicians but rather with a large group of physicians. These groups may take several forms. The San Joaquin Foundation for Medical Care was an early example of the Independent Practice Association (IPA) model, consisting of a network of physicians who agree to participate in an association for purposes of contracting with HMOs and other managed care plans. Physicians maintain ownership of their practices and administer their own offices. The IPA serves as a vehicle for negotiating and administering HMO contracts.
Unlike the “monogamous” arrangement between each Kaiser region and its respective Permanente medical group, in network models physicians can establish contractual relationships with numerous HMOs and IPAs. A physician may participate in more than one IPA, and each IPA may in turn have contracts with many HMO and managed care plans. The result of this more open HMO–physician relationship is a series of physician panels in the same community that overlap partially, but not completely, for patients covered by different HMOs. While this more open-ended network approach may have some appeal to physicians and patients in contrast to more tightly integrated HMO models like Kaiser, it can also produce the types of frustrations experienced by Dr. Westcoast. A PCP, who may see patients from several HMOs and participate in more than one IPA, often finds that a specialist or hospital participates in the network for one HMO or IPA but not another, causing disruption and confusion when it comes to figuring out which specialist or hospital is eligible to accept a referral (Bodenheimer, 2000). Patients may find that their PCP is in one IPA but their preferred specialist is not in the same network—with physicians often moving in and out of various networks as contracts are renegotiated.
IPAs initially did little more than to act as brokers between physicians and HMOs, replacing the need for physicians to negotiate contracts on an individual basis. As IPAs took on a larger portion of financial risk for care (see Chapter 4), they became more active in attempting to control costs and assumed responsibility for authorizing utilization of services, profiling physicians’ practice patterns, and administering other cost control strategies. Some IPAs have attempted to fashion themselves into more than simply contractual and financial intermediaries by facilitating quality improvement efforts and adoption of electronic medical records among participating practices.
Another structure related to second-generation HMOs is the integrated medical group. Integrated medical groups have a tighter organizational structure than IPAs, consisting of groups in which physicians no longer own their practices and office assets, but become employees of an organization that owns and manages their practice. Some modern-day integrated groups are survivors of the original breed of multispecialty group practices, such as the Mayo Clinic and Palo Alto Medical Foundation described earlier. Others lack these clinics’ historical genesis and consist of new organizations created in the managed care era. Some of these newer organizations were created by large, for-profit companies buying up the practices of formerly independent physicians and hiring these same physicians to work as employees of the medical group (Robinson and Casalino, 1996). Others are owned by hospitals or medical schools or are privately held companies with physician partners as owners. Similar to IPAs, integrated medical groups contract with multiple managed care plans and also typically care for patients in fee-for-service private insurance plans and Medicare.
Yet another organizational structure to have emerged is the Physician Hospital Organization (PHO). PHOs developed in the 1980s as an alternative to the IPA model. Instead of creating a physician association to negotiate health plan contracts, physicians partnered with a hospital to jointly contract with health plans for both physician and hospital payment rates. The physicians participating in PHOs often consisted of both private practitioners on the hospital’s medical staff and physicians directly employed by the hospital. Formation of PHOs received a setback in the 1990s when the Federal Trade Commission deemed that some PHO arrangements constituted collusion in price setting between physicians and hospitals to an extent that violated anti-trust laws.
The network model HMO represents an alternative to the vertically integrated HMO. As shown in Figure 6–2, managed care relationships involving IPAs and medical groups consist of a network of contractual links between HMOs and autonomous physician groups, hospitals, and other provider units, rather than the “everything-under-one-roof” model of vertical integration. Observers have dubbed the network forms of managed care organization “virtual integration,” signifying an integration of services based on contractual relationships rather than unitary ownership (Robinson and Casalino, 1996). In these virtually integrated systems, HMOs do not directly provide health services through their own hospitals and physician organizations.
Figure 6–2. Virtual integration involves contractual links between HMOs and physician groups, hospitals, and other provider units.
In 2009, about one in four people in the United States was enrolled in some type of HMO, including Medicare and Medicaid beneficiaries participating in HMOs (Kaiser Family Foundation, 2011) (Figure 6–3). There is wide variation across states in HMO enrollment, ranging from more than half of insured people in California to under 10% in many other states. For many years, policy analysts predicted that the organizational efficiency and coherence of vertically integrated, first-generation HMOs would position these systems of care to prevail as health care entered a more competitive era. These predictions have not come true, as enrollment in virtually integrated systems has surpassed that of traditional HMOs. Whereas most vertically integrated HMOs are regionally based, non-profit health plans, national for-profit commercial insurers operate the plans enrolling the majority of patients in virtual HMO models.
Figure 6–3. Trends in HMO enrollment in the United States. Enrollment includes individuals enrolled through Medicare and Medicaid HMO options, as well as through employment-based and other privately insured HMO plans. (MCOL Managed Care Fact Sheets, 2011; http://www.mcareol.com/factshts/factnati.htm.)
In response to the reluctance of many patients to be locked into a limited panel of physicians and hospitals in conventional HMO plans, insurers have developed a variety of other products, such as the Preferred Provider Organization (PPO), which allow patients to see physicians not in the insurer’s physician network, with the stipulation that patients pay a higher share of the cost out of pocket when they use non-network physicians and hospitals. Physicians joining the PPO network agree to accept discounted fees from the health plan with the hope that being listed as a “preferred” provider will attract more patients to their practice. PPO enrollment was about 50 million in 2009, compared with HMO enrollment of 70 million. Although both HMOs and PPOs are considered forms of “managed care,” PPOs are essentially a variation on insurance product benefit structure and, unlike HMOs, involve very little in the way of change in the organization of the delivery of care.
Vertically integrated HMOs clearly represent a significantly different organizational model than the traditional dispersed cottage industry model. Are IPAs and PHOs and the other organizational forms that predominate under network model HMOs a meaningful break from the dispersed model, offering a better framework for the delivery of health care? Or, are these virtual organizations just that—loose confederacies of providers organized primarily for contracting and business objectives that offer little in the way of tangible gains in organizational coherence in the actual provision of health care?
Research suggests that more integrated organizational models have their advantages. Vertically integrated HMOs of the traditional prepaid group practice model tend to rank higher than network model HMOs on various measures quality of care, such as evidence-based care of chronic illnesses (Himmelstein et al, 1999). Integrated medical groups have been shown to perform better than IPAs in delivering up-to-date preventive care such as mammograms and Pap tests (Mehrotra et al, 2006). On general health plan satisfaction ratings, patients tend to rate integrated HMOs such as Kaiser ahead of network-model HMOs. Compared with physicians in IPAs or those not affiliated with any network, physicians in prepaid group practices report greater adoption of tools for quality improvement, such as more structured systems for planning and following through on care of patients with diabetes and other chronic illnesses (Rittenhouse et al, 2004). Size also seems to matter when it comes to the ability of medical groups to adopt the infrastructure for creating patient-centered medical homes; larger medical groups are more likely than small groups to have systems in place for care coordination, enhanced patient access, and related processes (Rittenhouse et al, 2008).
There is also evidence that moving from a completely dispersed model to a somewhat more organized model, even if only of a virtual network variety, can yield improvements in the delivery of care, especially when the network emphasizes linking patients with primary care clinicians and supports better coordination of care. An example is Community Care of North Carolina. Community Care linked North Carolina Medicaid and State Children’s Health Insurance Program recipients with a primary care medical home at more than 1000 small private offices and community health centers and provided technical assistance to practices to improve chronic care services including a cadre of nurses to collaborate with practices in care management of high-risk patients. This model resulted in both better patient outcomes, such as reductions in emergency hospitalizations for children with asthma, and reductions in health care costs (Steiner et al, 2008).
The dispersed model does appear to have one important strength from the patient perspective, which is the satisfaction that comes from receiving care from a small practice where patients have a sense that clinicians and staff know them personally and the patient–clinician relationship is less encumbered by organizational bureaucracy. Studies of patient preferences have found that satisfaction is highest when care is received in small offices rather than larger clinic structures (Rubin et al, 1993). People value having a familiar receptionist at the end of the line when they call about a child with a fever rather than experiencing the frustration of navigating impersonal HMO and clinic switchboard operators and voicemail systems—what has been described as the “chain store” persona of some HMOs and large delivery systems (Mechanic, 1976). The computer era may be allowing many large medical groups and vertically integrated HMOs to jump ahead of small practices in providing the means for patients to communicate personally with their clinicians. Many large groups have implemented electronic medical records systems that allow patients to securely e-mail their clinicians and to promptly receive diagnostic test results through web-based “patient portals” providing patients direct access to their personal medical record.
As discussed in Chapter 5, the Affordable Care Act of 2010 is propelling not only an expansion of health insurance coverage, but also reform in how health care is organized and delivered. During the policy debates leading up to passage of the Affordable Care Act, the concept of Accountable Care Organizations (ACOs) emerged as a centerpiece of delivery system reform. ACOs have been defined as “a provider-led organization whose mission is to manage the full continuum of care and be accountable for the overall costs and quality of care for a defined population” (Rittenhouse et al, 2009). The Affordable Care Act authorized Medicare to initiate an ACO program beginning in 2012 (Health Policy Brief, 2010)
ACOs are envisioned as spanning a spectrum of organizational structures. On one end of this spectrum lie vertically integrated HMOs, with their medical groups and facilities well suited to provide comprehensive care to a defined population of enrolled patients under capitated payment. At the other end of the ACO spectrum lie loosely knit affiliations of providers in the traditional dispersed structure discussed at the beginning of this chapter, consisting of a hospital and the collection of private practice physicians who admit their patients to that hospital and maintain informal referral networks. Proponents of the ACO concept have proposed that Medicare could encourage such an informal hospital-physician network to function in a more cohesive and efficient manner by creating a “shared savings” program. Under the shared savings program, Medicare would still pay physicians by fee-for-service and hospitals by DRG, and patients would be allowed free choice of physician and hospital. However, Medicare would compare the costs and quality for the Medicare patients cared for by this virtual network; if the physicians were able to achieve certain targeted quality goals and keep costs below the predicted expenditures for these patients, Medicare would share a portion of the cost savings with the physicians and hospitals in this loosely affiliated ACO network. To qualify for such a shared-savings program, physicians and hospitals would have to create a formal ACO entity to accept shared savings payments. The variety of other organizational models discussed in this chapter, such as IPAs and PHOs, that fall between the poles of the hospital staff model and vertically integrated HMO would be other candidates for ACOs (Shortell et al, 2010).
One key difference between the proposed ACO program and the existing Medicare Advantage Program, discussed in Chapter 2, is the role of insurance companies. Medicare Advantage involves Medicare contracting with insurance plans that operate as HMOs, including both network and traditional prepaid group practice model HMOs. The Medicare ACO program is envisioned as a more direct financial relationship between Medicare and provider organizations. Prepaid group practice model HMOs could qualify as ACOs because they consist of an integrated delivery organization attached to a single insurance plan. However, network model HMO insurers would not, and, under the ACO program, Medicare would look to establish financial arrangements directly with IPAs, PHOs, and other provider-led organizations.
Whether the Medicare ACO program will succeed in moving the US further along the road to more organized, integrated care structures that can improve quality and “bend the cost curve” remains to be determined. Regardless of whether the ACO program as articulated by its proponents will be fully realized, the ACO concept has stimulated considerable attention in the United States on reforming the delivery system to focus more on proactive care of a defined population of patients rather than just reactive care for individual patients, and on holding providers accountable for the quality and costs of care delivered.
In Chapter 5, we discussed the concept of medical homes. Much of what has been discussed in this chapter on delivery system organization could aptly be described as the attempt to create well-functioning medical neighborhoods. The medical neighborhood is a term coined by Fisher to describe the constellation of services, providers, and organizations in a health system that contributes to the care of a population of patients (Fisher, 2008). The primary care medical home resides in the medical neighborhood, but the medical neighborhood consists of much more than just medical homes and includes the secondary, tertiary, community, and related services needed by different patients at different times to meet their comprehensive health care needs. High-performing health care requires both excellent medical homes and excellent medical neighborhoods (Rittenhouse et al, 2009). The distinguishing feature of a hospitable medical neighborhood is care that is functionally integrated, but not necessarily structurally integrated along the lines of traditional HMOs. According to one definition, “Integrated health care starts with good primary care and refers to the delivery of comprehensive health care services that are well coordinated with good communication among providers; includes informed and involved patients; and leads to high-quality, cost-effective care. At the center of integrated health care delivery is a high-performing primary care provider who can serve as a medical home for patients” (Aetna Foundation, 2010).
Organizations that are structurally integrated have an advantage in being able to provide care that is functionally integrated. These organizations have assets such as multispecialty groups, a unified electronic medical record, interdisciplinary health care teams, and a quality improvement infrastructure equipped to promote care coordination and the free flow of information among all providers involved in a patient’s care. One of the ongoing challenges in the United States is whether organizations that are less structurally integrated than traditional prepaid group practice HMOs will be able to achieve the degree of functional integration needed to deliver more effective and efficient care and overcome what we cited in Chapter 5 as the “fragmentation, chaos, and disarray” that has long plagued the US health system.
Despite the admonitions of the dissenting JAMA editorialists in 1932 who warned physicians not to be “misled by utopian fantasies” of group practice, it appears that in the early part of the twenty-first century a tipping point has occurred in the United States and the health care cottage industry is rapidly giving way to larger organizations for delivering care. From 2002 to 2008, the percentage of medical practices that are doctor-owned fell from 70% to 48% while the percentage owned by hospitals grew from 24% to 50% (Figure 6–4). Most new residency graduates are eschewing the tradition of becoming autonomous proprietors of their own private practices and seeking employed positions, seeking what the New York Times has described as “regular paychecks instead of shopkeeper risks” (Harris, 2011). Hospitals are merging with one another and with physician organizations and creating large, regional delivery systems.
Figure 6–4. Ownership of medical practices. (Harris G. More doctors giving up private practices. New York Times, March 25, 2010.)
Will the rapid organizational changes occurring in health care in the United States result in a higher-quality, more affordable health system? Will patients be cared for at the proper level of care—primary, secondary, and tertiary? Will the flow of patients among these levels be constructed in an orderly way within each geographic region—a regionalized structure? Will a sufficient number of primary care providers—generalist physicians, physician assistants, and nurse practitioners—be available so that everyone in the United States can have a regular source of primary care that allows for continuity and coordination of care? Will HMOs, ACOs, and other organizations require their physicians to take responsibility for the health of their enrollee population, or will physicians be content to care only for whoever walks in the door? What is an ideal health delivery system? Different people would have different answers. One vision is a system in which people choose their own primary care clinicians in modest-sized, decentralized, prepaid group practices that would be linked to community hospitals, including specialists’ offices providing secondary care. Difficult cases could be referred to the academic tertiary care center in the region. In the primary care practices, teams of health caregivers would endeavor to provide medical care to those people seeking attention, and would also concern themselves with the health status of the entire population served by the practice.
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