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.

Capitated contracting of integrated health provider organizations.

This paper examines global capitation of integrated health provider organizations that link physicians and hospitals, such as physician-hospital organizations and management service organizations. These organizations have proliferated in recent years, but their contracting activity has not been studied. We develop a conceptual model to understand the capitated contracting bargaining process. Exploratory multivariate analysis suggests that global capitation of these organizations is more common in markets with high health maintenance organization (HMO) market share, greater numbers of HMOs, and fewer physician group practices. Additionally, health provider organizations with more complex case mix, nonprofit status, more affiliated physicians, health system affiliations, and diversity in physician organizational arrangements are more likely to have global capitation. Finally, state regulation of provider contracting with self-insured employers appears to have spillover effects on health plan risk contracting with health providers.

Assessing the extent of integration achieved through physician-hospital arrangements.

In this article we examine management service organizations (MSOs), physician-hospital organizations (PHOs), hospital-affiliated independent practice associations (IPAs), and hospital-sponsored "group practices without walls" (GPWWs) that allow physicians to retain their practices and link hospitals and health systems to physicians through contractual arrangements. Also examined were medical foundations (MFs), integrated salary models (ISMs), and integrated health organizations (IHOs) that own the physical assets of physician practices and contract with payors for physician and hospital services. The research provides several new insights for understanding the structure and process of physician-hospital integration. It was found that the extent of processual integration in physician-hospital organizational arrangements can be measured along six dimensions: administrative and practice management services; physician financial risk-sharing; joint ventures to create new services; computer linkages; physician involvement in strategic planning; and salaried physician arrangements. These dimensions are consistent with the conceptual and empirical dimensions developed by others. These findings refute the notion raised by some industry observers that the new physician-hospital organizational models simply formalize integrative activities already in place. Earlier studies from the 1980s reported that hospitals integrated physicians through involvement in governance, capital planning, and the provision of practice management services. In contrast, we found that current integration.

Managed care, market stages, and integrated delivery systems: is there a relationship?

This DataWatch evaluates four-stage models of market evolution developed initially by the University HealthSystem Consortium (UHC). Such models suggest that increasing health maintenance organization (HMO) penetration is linked with increases in hospital consolidation and vertical integration between physicians and hospitals. These claims are tested using national data for 1992-1995. Results suggest that such models accurately classify the markets of UHC member hospitals according to their levels of HMO penetration only. Moreover, they do not discern evolutionary stages of market development and may not be generalizable to the markets of non-UHC member hospitals. Researchers and policymakers should exercise caution in applying such models.