The Physician Integration Journey

Kris Drake ,  MHA, FACHE

This article aims to explore strategies for effective physician integration within hospitals and health systems. The article provides definitional context to physician integration, rationale for physician integration, various models for integration and examples of application for practitioners’ consideration. More research should be conducted on the most effective approach to physician integration.

What is physician integration?

The literature providers voluminous examples regarding what health systems are doing to integrate physicians. However, very little attention has been dedicated to establishing a widely accepted definition of physician integration. For sake of simplicity, physician integration refers to a relationship between physicians and health systems. In essence, physician integration is a formal arrangement that brings physicians and health systems together under an agreed upon framework to accomplish shared goals and objectives.

Why is physician integration important?

Physician integration is not a new concept. Recent data suggests that hospitals and physicians represent more than 50 per cent of all healthcare expenditures. However, physicians exert significant influence over health system finances by determining which patients are referred to the hospital, which services their patients will receive at the hospital and the duration of the patient’s hospitalisation. Cognizant of physicians’ influence, health systems have experimented with physician integration efforts since the 1990s, with mixed results. At that time, hospitals were structured in a manner that insulated physicians from hospitals financial and market position. In today’s environment, amid economic changes, shifting payment models and healthcare reform, health systems are ramping up their efforts to integrate physicians within their organisational structures to drive high performance in areas of quality, access, safety, cost effectiveness and patient experience.

What does physician integration look like?

Physician integration arrangements can take on various forms. Further, there is no ‘one size fits all’ solution. The literature features the following integration models:

1)    Technology solutions
2)    Contractual arrangements
3)    Joint ventures
4)    Direct employment

How does it work?

The mechanics of physician integration depends on the model selected and implemented. The aforementioned models work as follows:

Electronic Medical Records (EMRs) support – In scenarios where health systems have relationships with non-employed physicians, an effective way to align them is through partial subsidisation of EMR systems for private practices. Under this approach, health systems and non-employed physicians are aligned on improving patient care.

Contractual arrangements – Depending on the health systems strategic objectives and market position, a contractual arrangement may be a better approach to integrate physicians. Contractual options include, but are not limited to, the following:

1)    Professional service agreements
2)    Physician hospital organisations
3)    Co-management agreements
4)    Management service organisations
5)    Clinically integrated networks

Joint Ventures – This arrangement entails a financial investment from physicians and health systems to own and operate facilities. A common example of joint venture arrangements is ambulatory surgery centers. However, there are inherent risks to this arrangement. If the endeavor is profitable, each investor receives a financial return in accordance with their ratio of investment. If the endeavor is unprofitable, each investor is exposed to financial losses.

Direct employment – Under the employment approach, physicians become direct employees of the health system. This can happen in a variety of ways. Physicians can become employees as new graduates, transfers from other health systems or private practices, or practice acquisition. Physicians seek employment with health systems in return for stable income, other benefits such as medical malpractice coverage and participation in organisational decision-making.

What are today’s health systems doing?

Given that all healthcare markets have employed and non-employed physicians, health systems are taking a hybrid approach to physician integration. The hybrid model comprises any combination of integration methods that position health systems for high performance in areas of quality, access, cost effectiveness, safety and patient experience. Examples are provided below.

Health System A is located in a very competitive market and has a strong financial position. The health system employs physicians. Further, a significant number of non-employed physicians are on the health system’s medical staff. To maximise physician integration, the health system established a clinically integrated network for loyal non-employed physicians, while simultaneously managing its employed physicians through a fully-owned subsidiary, multi-specialty medical group. The health system deemed this approach to be the appropriate organisational configuration to achieve its strategic goals and objectives.

Health System B is located in a rural area and generates a slight profit every year. The nearest health system is located 75 miles away. Majority of the area’s physicians are non-employed and work in private practices. However, these physicians are members of the health system’s medical staff and refer all their patients to the health system for services as needed. To further align with community physicians, the health system established a clinically integrated network. In response to community need for certain services, and limited financial resources, the health systems established co-management agreements with key non-employed specialists who anchor specific service lines. Lastly, the health system partnered with non-employed physicians via joint venture to build an ambulatory surgical center.

Each example represents a complex health system faced with different market realities. In each case, the health system pursued a combination of physician integrations that positioned it best for success in its geographic service area.

Closing remarks

As the healthcare industry shifts from volume to value-based reimbursement, health systems continue to explore effective methods of physician integration to achieve competitive advantage in their respective service areas. This article presents the definition of physician integration, rationale for physician integration, models of physician integration and examples of physician integration in practice. As the article highlights, physicians are key stakeholders in the healthcare industry. And, health systems are heavily dependent on physician referrals, physician usage of their hospitals and equipment, and physician input on decision-making on clinical processes and procedures. Proactive health systems are exploring creative approaches to integrate physicians within their organisational structure to secure competitive advantage and drive excellence in areas of quality, access, cost effectiveness, safety and patient experience. These health systems are primed for successful participation in value-based programs. Reactive health systems, on the other hand, should consider adoption of the physician integration options provided in this article. Otherwise, these health systems are at risk of losing their market and financial position in a value-based reimbursement environment.

Kris Drake

Kris Drake, FACHE, is founder and president of Drake Strategic Services LLC, a management consulting firm specialised in business planning, governance and physician alignment. Drake has been featured in the Journal of Healthcare Management and American College of Healthcare Executives (ACHE) newsletter. He is a recipient of the ACHE Regent Award and graduate of the ACHE Executive Program. Drake is board-certified in healthcare management and masters prepared in health administration. He is a member of the Great Lakes ACHE Board of Directors and serves as President-Elect.

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