By Thomas W. Reinke
Many hospitals and physician networks call themselves integrated delivery systems. For the physician groups that have come together under one tax ID number, and for the hospitals that have acquired physician practices, the term “integrated” is probably premature. For the most part, the merger of physicians or the acquisition of physicians by hospitals represents only a half step toward integration.
The most common physician integration model pursued to date can be tagged “as is, where is.” Under this model, doctors remain in their offices and continue to function largely as they did in the past. The organizations function more as a confederacy than a single unified entity. True integration has been elusive. From a financial, administrative and clinical perspective, it has been extremely difficult to make the as-is-where-is model work. The reason is intuitively obvious: the notion of an integrated group is often in direct conflict with operating multiple small sites that separate doctors, allow variability in operations and require duplication of facilities, personnel and overhead expenses.
The paramount objectives of capturing patients and advancing primary care have quickly been forgotten as networks have struggled to achieve a basic level of operating efficiency and effectiveness. Physician networks and multi-site merged groups have been struggling with inherent operational problems such as high overhead expenses from the duplication of facilities and personnel. Moreover, most networks and merged group practices have centralized functions such as billing, purchasing and accounts payable, creating bureaucracies which have had a negative impact upon billing, cash receipts and other daily operations.
Some of the bureaucracy and many of the operating problems are due to the use of regional practice administrators who are assigned to multiple practices. These administrators substitute for on-site practice managers. Unfortunately, the regional administrator approach has been unable to advance the state-of-the-art of practice management because they are spread too thinly and are not consistently available on-site.
Practice managers have been taken out of the practices precisely at the time when they are needed most. In today’s environment, sophisticated managers are required on-site to comply with the greater complexity of operations dictated by managed care, and to implement leading edge practice management techniques.
The problems encountered by networks and merged groups can be resolved in several ways. One approach is to consolidate sites into strategically located ambulatory care or family care centers. The ambulatory care center concept has a number of advantages, with the potential to provide a competitive advantage to the sponsoring organization.
In the world of consumer goods manufacturing, businesses that have been successful in producing smaller, lighter, cheaper, faster products have enjoyed a sustainable competitive advantage for decades. One example is computers. Since Eniac, the most successful computer manufacturers are the companies that have made them smaller, lighter, cheaper and faster. The equivalent focus in health care is outpatient services. Providers that are successful in expanding outpatient services have been successful in the past and will be able to stay ahead of the pack forever.
Ambulatory care centers provide the opportunity to maximize the utilization of clinical space, eliminate duplication in personnel, reduce bureaucracy and cut overhead expenses in areas such as computer communications. Centers that consolidate several practices into one to achieve a critical mass are able to financially support the wide range of personnel needed to attain the forgotten objectives of capturing a target population and enhancing the delivery of services.
More importantly, ambulatory care centers offer the potential for true integration of health care services. Among hospital owned primary care networks, integration has been viewed simply as a process of acquiring physicians. The primary care practices that have come together on their own have done little to redesign primary care. Both types of organizations need to be more creative about expanding the scope of services defined as primary care and about delivering these services in new ways.
For example, under capitation, primary care physicians often have expanded responsibility in treating simple low back pain. This is one of the most common conditions seen in physician offices. An ambulatory care center is a great setting to establish a back pain center that can be staffed predominantly by primary care physicians who screen and treat simple low back pain, while appropriately using orthopods or neurosurgeons for the difficult or complex patients. Furthermore, such a center can be marketed to the occupational health case management companies and become a source of additional revenue for primary care physicians. Primary care reimbursement rates are decreasing and the long-term financial viability of primary care physician networks requires new thinking about an expanding the scope of services defined as primary care. The most viable setting for such programs is not a traditional physician’s office but an ambulatory center.
True integration among providers must include the specialists. In the current era of corporate downsizing, many companies in a variety of industries have learned you cannot shrink to greatness. Being successful and becoming a leader requires growth through expansion or differentiation of your products and services. In health care, the analogy is that neither hospitals nor physician groups should spend their capital dollars on a circumscribed set of primary care services. Specialty services and unique programs are one key to differentiation and growth. Specialty services and unique programs require specialist physicians. Any provider organization intending to grow and become an integrated delivery system must have plans for including the specialists.
Data from the Health Care Financing Administration indicates that, if recent trends continue, services provided by specialist physicians will be a growth industry. The HCFA data shows that increasing admission rates for the elderly have offset the trend of reductions in admission rates for under 65 population. Thus, in 1995, admission rates for the entire population actually increased for the first time in several years. HCFA also reports that the total number of surgical operations performed annually continues to rise at fairly significant levels. Both of these situations indicate an increased demand for specialist services. The real opportunity for a provider organization to obtain a competitive advantage is to provide more specialist services in an ambulatory setting, showing payors ways to beat high inpatient costs.
One of the objections to the establishment of ambulatory care centers that consolidate neighborhood practices is the potential loss of patients who are inconvenienced by extra travel time. This concern may be overemphasized. The midwest is characterized by larger group practices and ambulatory care centers that are able to draw patients from significant distances. Many factors such as hours of operation, the level of customer service and the quality of the physicians enter into the equation. Strategically located centers with state-of-the-art operations are successful.
One factor that seems to influence the acceptance of ambulatory care center is the age of the patient. Older patients seem to prefer physicians in traditional private practice settings. But families where both spouses work have shown a real attraction to family or ambulatory care centers. This is particularly true when the center has expanded hours, expanded services and is located close to major roadways. Patients in today’s families need to be seen on short notice, early or late in the day.
It is possible to develop and operate an ambulatory center that meets the needs of a broad age range of patients. The most advanced centers combine traditional private physician office suites with expanded services and facilities, producing the best of both worlds. The acceptance on the part of patients is high because they eventually come to identify the center as the facility where they receive the majority of their care
The reality is that the jury is still out on whether the trend of vertical integration in health care will be successful. Vertical integration has worked in the oil industry, but it hasn’t worked in transportation industries. In health care, integration of multispecialty services in ambulatory settings has worked in the past and it offers the potential to be even more successful in the future.
Thomas W. Reinke is with the Health Care Consulting Department of Miller, Glusman, Footer & Magarick, P.C. in Philadelphia.