Physician-system alignment: introductory overview.

The papers in this Special Supplement are based on research funded by the participating members of the joint Center for Health Management Research (CHMR) and Center for Organized Delivery Systems (CODS), and supported by the National Science Foundation under its Industry-University Cooperative Research Center Program. This 3-year research initiative from 1996 through 1999 involved 69 physician organizations (primarily organized medical groups as opposed to IPAs) associated with 14 organized delivery systems. The groups ranged in size from three to 958 with an average size of 76.4 and a median size of 25.0. Comparisons of the study groups with United States physician groups overall are shown in Table 1. The study groups are larger and more likely to be multispecialty than all groups in the United States. The organized delivery systems range in size from one hospital to 80 hospitals with an average of 21 hospitals per system and a median of 11 hospitals per system. They average 4.6 affiliated medical groups with a range from one to 23. The organized delivery systems range in total revenues in 1998 from $340 million to $6.2 billion with an average of $2.1 billion. All the study systems are not-for-profit. Most are located in single market areas, but several are located in multiple markets. For the most part, they represent some of the larger most experienced organized delivery systems in the country. Among the primary objectives of the study was to identify the factors most strongly associated with physician alignment with the health care system and the consequences for the implementation of evidence-based care management practices. The study was also designed to identify the barriers and facilitators to achieving such alignment and its consequences.

The ties that bind: interorganizational linkages and physician-system alignment.

OBJECTIVES: To examine the association between the degree of alignment between physicians and health care systems, and interorganizational linkages between physician groups and health care systems. METHODS: The study used a cross sectional, comparative analysis using a sample of 1,279 physicians practicing in loosely affiliated arrangements and 1,781 physicians in 61 groups closely affiliated with 14 vertically integrated health systems. Measures of physician alignment were based on multiitem scales validated in previous studies and derived from surveys sent to individual physicians. Measures of interorganizational linkages were specified at the institutional, administrative, and technical core levels of the physician group and were developed from surveys sent to the administrator of each of the 61 physician groups in the sample. Two stage Heckman models with fixed effects adjustments in the second stage were used to correct for sample selection and clustering respectively. RESULTS: After accounting for sample selection, fixed effects, and group and individual controls, physicians in groups with more valued practice service linkages display consistently higher alignment with systems than physicians in groups that have fewer such linkages. Results also suggest that centralized administrative control lowers physician-system alignment for selected measures of alignment. Governance interlocks exhibited only weak associations with alignment. CONCLUSIONS: Our findings suggest that alignment generally follows resource exchanges that promote value-added contributions to physicians and physician groups while preserving control and authority within the group.

Implementing evidence-based medicine: the role of market pressures, compensation incentives, and culture in physician organizations.

OBJECTIVES: To assess the extent to which market pressures, compensation incentives, and physician medical group culture are associated with the use of evidence-based medicine practices in physician organizations. METHODS: Cross-sectional exploratory study of 56 medical groups affiliated with 15 integrated health systems from across the United States, involving 1,797 physician respondents. Larger medical groups and multispecialty groups were overrepresented compared with the United States as a whole. Data are from two sources: (1) surveys of physicians assessing the culture of the medical groups in which they work, and (2) surveys of medical directors and other managerial key informants pertaining to care management practices, compensation methods, and the management and governance of the medical groups. Physician-level data were aggregated to the group level to attain measures of group culture and then merged with the data regarding care management, incentives, and management and governance. Stepwise multiple regression was used to examine the study hypotheses. RESULTS: As hypothesized, the number of different types of compensation incentives used (cost containment, productivity, quality) was positively associated with the comprehensiveness of care management practices. The degree of salary control (ie, market-based salary grades and ranges versus the use of bookings or fees and individual negotiation) was also positively associated with the deployment of care management practices. As hypothesized, market pressures in the form of percentages of health maintenance and preferred provider organization patients seen were generally positively associated with the use of care management practices. Organizational culture had no association except that a patient-centered culture in combination with a greater number of different types of compensation incentives used was positively associated with greater use of care management practices. CONCLUSIONS: Both compensation incentives and managed care market pressures were significantly associated with the use of evidence-based care management practices. The lack of association for culture may be due to the relatively amorphous nature of most physician organizations at this point.

Factors associated with physician involvement in care management.

BACKGROUND: Enthusiasm for the concept of care management (CM) has led to unprecedented growth in the number of guidelines and protocols, but provider organizations have struggled to enlist the active support and participation of physicians in CM activities. OBJECTIVES: To empirically examine the factors influencing physician participation in and attitudes toward CM activities. METHODS: Data on 1,514 physicians were used to predict physician attitudes toward CM and their perceptions of group CM behaviors. Dependent variables were modeled using two-stage Heckman selection bias models with fixed effects corrections. Independent predictors included physician- and group-level controls as well as six potential CM participation and attitude facilitators. RESULTS: Physician participation in the implementation phase of CM activities was positively related to participation and attitude. However, physician participation in the development phase may be negatively related to later participation in CM activities. Management involvement in development phase has mixed effects (positive or no effect), but their involvement in the implementation phase was somewhat negatively related to CM participation and attitude. Financial incentives for participation in CM activities and presence of a useful management information system also appeared to be positively related to attitude and participation. CONCLUSIONS: Appropriate physician and management involvement, as well as financial incentives and useful management information systems may facilitate physician participation in CM activities. Physician involvement in implementation of CM practices appears to be important, whereas their involvement in the development phase may be negatively related to later attitudes and participation. The findings call for a more in-depth understanding of the timing of physician input in CM activities.

Physician commitment to organized delivery systems.

BACKGROUND: Health care systems have developed many types of contracting vehicles with physicians. The immediate aim of these vehicles has been to foster physician commitment and alignment to the system. The ultimate aim of these vehicles has been to garner managed care contracts, reduce costs, and improve quality. To date, most of these vehicles have failed to improve physician commitment. This may be one reason why the ultimate outcomes have not been observed. Consequently, systems are experimenting with new methods to partner with physicians. One new method is to segment physicians into tightly linked and loosely linked strategic alliances and devote different levels of resources and attention to each. OBJECTIVES: This study evaluates whether the segmentation of physicians into tightly linked versus loosely linked strategic alliances improves the commitment of physicians to the system. The study then investigates which constituent elements of the tightly linked strategic alliances exhibit the greatest association with commitment. DESIGNS AND SUBJECTS: The study uses a cross-sectional design and survey data drawn from 1,965 physicians affiliated with 14 health care systems around the country. Tightly linked physicians typically practiced in hospital-sponsored group practices, whereas loosely linked physicians typically used the system's hospitals as their primary site of inpatient practice. MEASURES: Commitment is measured by seven different scales drawn from the literature on organizational commitment, loyalty, and identification. Some of the scales refer to physician attitudes, whereas others describe physician behaviors. The literature suggests that commitment is associated with both instrumental/utilitarian considerations (eg, older age, tenure with system, admissions to system, receipt of a stipend, etc.) as well as administrative involvement/participation considerations (eg, decision-making roles). A series of physician background and practice characteristics are used here to model these two types of factors. RESULTS: The study finds small but significant differences in commitment between physicians in tightly linked versus loosely linked alliances. Multivariate analyses suggest that instrumental/utilitarian factors (eg, age, receipt of stipend, percent of admissions to the system) may exhibit stronger associations with commitment than the physician's administrative involvement in the organization. CONCLUSIONS: To the degree that physician commitment is possible, systems should appeal to physicians' calculative motivations using extrinsic rewards rather than normative involvement in the organization.

Risk assumption and physician alignment with health care organizations.

OBJECTIVES: To examine the association between risk assumption by individual physicians and physician groups and the degree of alignment between physicians and health care systems. METHODS: A cross sectional comparative analysis using a sample of 1,279 physicians practicing in loosely affiliated arrangements and 1,781 physicians in 61 groups closely affiliated with 14 vertically integrated health systems. Measures of physician alignment were based on multiitem scales validated in previous studies and derived from surveys sent to individual physicians. Measures of risk assumption were developed from surveys sent to the administrator of each of the 61 physician groups in the sample and to physicians affiliated with these groups. Two stage Heckman models with fixed effects adjustments in the second stage were used to correct for sample selection and clustering respectively. RESULTS: After accounting for selection, fixed effects, and group and individual controls, physicians in groups with larger proportional revenue from managed care displayed greater normative commitment and system loyalty than physicians in groups with lower proportional managed care revenue. Individual-level managed care risk was also positively related to both normative commitment and group behavioral commitment to the system. Physicians in groups with larger physician equity positions expressed lower levels of normative commitment to the system. Physician productivity compensation was negatively related to all measures of alignment. Finally, group emphasis on individually-based incentives for staff physicians was negatively related to system identification. CONCLUSIONS: Our findings suggest that organizations must balance individually-based risk schemes with those that emphasize the performance of the group and the system to achieve long-term goals of loyalty, identification, and commitment to the system.

Physician-system relationships: stumbling blocks and promising practices.

OBJECTIVES: To identify the barriers, facilitators, and potential better practices to achieving physician-system alignment. METHODS: Interviews using a semi-structured, open-ended protocol were conducted during a total of 18 site visits, each usually 2 days in length, covering multiple topics of physician group-system alignment. Interviews were conducted with members of the target physician group, key leaders of the health care system, and representatives of physicians not in the target group. The summary of the interviews for each of the site visits was analyzed to determine barriers, facilitators, and better practices for achieving more effective relationships between physician groups and health care systems. RESULTS: A number of barriers to more effective relationships between physician groups and health systems were identified. Barriers related to environment, culture, and information systems were most prevalent. Other major general areas of barriers encountered were physician leadership, group-system relationship, compensation and productivity, care management practices, group strategy, and accountability. Examples of practices that may help to resolve some of these issues were also identified. CONCLUSIONS: Physician-system relationships can and do cause problems for improving health care. The evidence from the conducted site visits suggests that specific strategies may help improve these relationships but more research is needed in order assess the actual impact of these strategies.

CEO perceptions of competition--and strategic response in hospital markets.

Physician-organization integration (POI) has emerged as a key issue for hospitals and health systems seeking to improve the quality and cost-effectiveness of care. Although competition and managed care are often cited as primary market drivers of the adoption of POI strategies, prior research has shown only weak associations between these market attributes and POI. This article argues that the role of key organizational decision makers has not been adequately accounted for in explaining strategic change. The study examines the role of hospital CEO perceptions of competition in predicting the adoption of five different approaches to POI. CEO perceptions of general market competition are explained by a combination of market and organizational attributes. Furthermore, when controlling for objective characteristics of the environment and organization, CEO perceptions of competition have consistent, statistically significant associations with four of five measures of POI examined.

Institutional and economic influences on the adoption and extensiveness of managerial innovation in hospitals: The case of reengineering.

In the recent past, a number of managerial innovations--including product line management, total quality management, and reengineering--have swept through the hospital industry. Given their pervasiveness and their cost, understanding the mix of factors that influences their adoption is of theoretical interest and practical relevance. The research reported here focuses on this general question by examining influences on the adoption and extensiveness of a particular managerial innovation, hospital reengineering. The results suggest that while economic and institutional factors have influenced the adoption and extensiveness of hospital reengineering, institutional forces play a more important role. The greater influence of institutional forces may be attributed to the high degree of uncertainty in health care, the causal ambiguity of the innovation, and the anticipatory actions of hospitals attempting to position themselves in a rapidly changing environment.

Just how integrated are integrated delivery systems? Results from a national survey.

This article examines three emergent processes in physician-hospital integrated delivery systems (IDSs). We find these processes are underdeveloped based on data gathered from a national sample of hospitals drawn from nine health care systems. These processes are also loosely coupled with the structures used to integrate physicians and hospitals, as well as with the environmental context in which they occur. Such loose coupling entails both advantages and disadvantages for IDSs.

Why provider-sponsored health plans don't work.

Integrated delivery systems (IDSs) that assume risk directly by starting their own health plans need to ensure that they have set realistic goals. Many provider-health plan integrations fail because either the conditions under which they are started are not optimal or the integration is faulty. Successful provider-plan integrations generally have developed in rural areas where they faced limited competition, had higher utilization rates, and enjoyed greater profit margins because of lower price competition and employers' acceptance of premium rates. These factors are uncommon today. IDDSs sponsoring health plans can face problems in partnering with physicians, who may not demonstrate concern for the success of the healthcare system as a whole. For these and other reasons, IDDSs should consider partnering with existing health plans rather than starting their own plans.

Capitated contracting roles and relationships in healthcare.

Capitated contracting of health providers has created substantial change in healthcare markets. This article assesses how capitation affects the roles and relationships of healthcare organizations. In-depth case studies were conducted of eight major hospital-led integrated health networks/systems and two large integrated medical groups. Types of capitated contracts employed, contract support capabilities developed, relationships among providers in the support services, and lessons learned about capitation were explored. The experiences of these organizations provide valuable guidance for health executives as they develop or refine capitated contracting strategies.

Impact of HMO market structure on physician-hospital strategic alliances.

OBJECTIVE: To assess the impact of HMO market structure on the formation of physician-hospital strategic alliances from 1993 through 1995. The two trends, managed care and physician-hospital integration have been prominent in reshaping insurance and provider markets over the past decade. STUDY DESIGN: Pooled cross-sectional data from the InterStudy HMO Census and the Annual Survey conducted by the American Hospital Association (AHA) between 1993 and the end of 1995 to examine the effects of HMO penetration and HMO numbers in a market on the formation of hospital-sponsored alliances with physicians. Because prior research has found nonlinear effects of HMOs on a variety of dependent variables, we operationalized HMO market structure two ways: using a Taylor series expansion and cross-classifying quartile distributions of HMO penetration and numbers into 16 dummy indicators. Alliance formation was operationalized using the presence of any alliance model (IPA, PHO, MSO, and foundation) and the sum of the four models present in the hospital. Because managed care and physician-hospital integration are endogenous (e.g., some hospitals also sponsor HMOs), we used an instrumental variables approach to model the determinants of HMO penetration and HMO numbers. These instruments were then used with other predictors of alliance formation: physician supply characteristics, the extent of hospital competition, hospital-level descriptors, population size and demographic characteristics, and indicators for each year. All equations were estimated at the MSA level using mixed linear models and first-difference models. PRINCIPAL FINDINGS: Contrary to conventional wisdom, alliance formation is shaped by the number of HMOs in the market rather than by HMO penetration. This confirms a growing perception that hospital-sponsored alliances with physicians are contracting vehicles for managed care: the greater the number of HMOs to contract with, the greater the development of alliances. The models also show that alliance formation is low in markets where a small number of HMOs have deeply penetrated the market. First-difference models further show that alliance formation is linked to HMO consolidation (drop in the number of HMOs in a market) and hospital downsizing. Alliance formation is not linked to changes in hospital costs, profitability, or market competition with other hospitals. CONCLUSIONS: Hospitals appear to form alliances with physicians for several reasons. Alliances serve to contract with the growing number of HMOs, to pose a countervailing bargaining force of providers in the face of HMO consolidation, and to accompany hospital downsizing and restructuring efforts. IMPLICATIONS FOR POLICY, DELIVERY, OR PRACTICE: Physician-hospital integration is often mentioned as a provider response to increasing cost-containment pressures due to rising managed care penetration. Our findings do not support this view. Alliances appear to serve the hospital's interest in bargaining with managed care plans on a more even basis.

Is provider capitation working? Effects on physician-hospital integration and costs of care.

BACKGROUND: Capitation holds health providers fiscally responsible for the services they deliver or arrange and thus provides strong motivation for physicians and hospitals to integrate activities and reduce costs of care. OBJECTIVES: The objective of this study was to assess 2 potential effects of capitation: (1) its effects on the integration of functional, financial, and clinical processes between hospitals and physicians and (2) its effects, in conjunction with process integration, on hospital costs. STUDY DESIGN: We studied a 1995 American Hospital Association (AHA) special survey that has information on 44 different physician-hospital integrative activities and on global capitation contracts held by management service organizations, physician-hospital organizations, and other similar entities. These data were combined with the AHA's Annual Survey of Hospitals, InterStudy HMO data, the area resource file, and state regulation data. Multivariate analysis was used to assess the relationship between capitation and integration and then to examine the influence of these factors and others on hospital costs. We studied 319 urban hospitals with complete data. FINDINGS: Provider capitation was found to promote integration between hospitals and physicians in relation to administrative/practice management, physician financial risk sharing, joint ventures to create new services, computer linkages, and an overall measure of physician-hospital integration. However, anticipated effects of integration and capitation on hospital costs were not evident. CONCLUSIONS: Global capitation is motivating tighter integration between physicians and hospitals in a number of respects. Although capitation is currently having the intermediate effect of encouraging process integration, it is not yet having the ultimate anticipated effect of lowering hospital costs.

Does reengineering really work? An examination of the context and outcomes of hospital reengineering initiatives.

OBJECTIVE: To examine the effect of reengineering on the competitive position of hospitals. Although many promises have been made regarding outcomes of process reengineering, little or no research has examined this issue. This article provides an initial exploration of the direct effects of reengineering on the competitive cost position of hospitals and the modifying effects of implementation factors. DATA SOURCES/STUDY SETTING: Obtained for primary data from a 1996/1997 national survey of hospital restructuring and reengineering sponsored by the American Hospital Association and the Leonard Davis Institute for Health Economics. Responses from approximately 30 percent of all U.S. acute care hospitals with 100 or more inpatient beds in metropolitan service areas were combined with American Hospital Association annual survey and InterStudy HMO data in this study. STUDY DESIGN: A first-difference multivariate regression was utilized to examine the effects of reengineering and other explanatory variables on the change in the cost position of a hospital's expenses per adjusted patient day relative to its market's costs per adjusted patient day. DATA COLLECTION/EXTRACTION METHODS: The survey of hospital restructuring and reengineering was mailed to hospital chief executive officers. The CEOs identified reengineering and restructuring hospital activities over the previous five years. The extensiveness and components of reengineering and internal restructuring were identified and used in the empirical analysis. PRINCIPAL FINDINGS: Results suggest that reengineering without integrative and coordinative efforts may damage an organization's cost position. The use of steering committees, project teams, codification of the change process, and executive involvement in core changes modifies the results of reengineering to improve an organization's competitive position. CONCLUSIONS: In a national sample of hospitals, reengineering alone was not found to improve the relative cost-competitive position. Organizations attempting to improve their cost competitiveness must consider the way in which change is implemented. This research suggests that the process of change may be as important as the change instrument. Additional research is needed to explore differences between early and late adopters.

The fall of the house of AHERF: the Allegheny bankruptcy.

The $1.3 billion bankruptcy of the Allegheny Health, Education, and Research Foundation (AHERF) in July 1998 was the nation's largest nonprofit health care failure. Many actors and factors were responsible for AHERF's demise. The system embarked on an ambitious strategy of horizontal and vertical integration just as reimbursement from major payers dramatically contracted, leaving AHERF overly exposed. Hospital and physician acquisitions increased the system's debt and competed for capital, which sapped the stronger institutions and led to massive internal cash transfers. Management failed to exercise due diligence in many of these acquisitions. Several external oversight mechanisms, ranging from AHERF's board to its accountants and auditors to the bond market, also failed to protect these community assets.

The effects of structure, strategy and market conditions on the operating practices of physician-organization arrangements.

Research to date has documented weak or inconsistent associations between market and organizational factors and the adoption of physician-organization arrangements (POAs) (e.g. physician-hospital organizations, management service organizations and independent practice associations) designed to increase physician integration. We argue that POAs may mask considerable variation in how these entities are operated and governed. Further, because the operating policies and practices of POAs are likely to influence more directly the behaviour of physicians than the structural form of the POA, they may be more sensitive to the market and organizational contingencies that encourage integration. This study attempts to test empirically the relative effects of POA type and market, strategic and organization factors on the operating policies and practices of market-based POAs. Results suggest that type of POA, and market, strategic and organizational factors affect risk sharing, physician selection practices, physician monitoring practices and ways in which monitoring information is used to influence physician behaviour in POAs.

Measuring community benefits provided by for-profit and nonprofit hospitals.

Nonprofit hospitals are expected to provide benefits to their community in return for being exempt from most taxes. In this paper we develop a new method of identifying activities that should qualify as community benefits and of determining a benchmark for the amount of community benefits a nonprofit hospital should be expected to provide. We then compare estimates of nonprofits' current level of community benefits with our benchmark and show that actual provision appears to fall short. Either nonprofit hospitals as a group ought to provide more community benefits, or they are performing activities that cannot be measured. In either case, better measurement and accounting of community benefits would improve public policy.