VideoFor years now, physicians and hospitals have been talking about, and to some extent creating, their own organizations to do an end-run around health maintenance organizations (HMOs). These so-called physician hospital organizations (PHOs) have had some success, but they have failed to attract employers in large numbers, because they are often poorly capitalized and too small to have much of an impact.
But that hasn't stopped providers from merging, forming alliances, and forging joint ventures at a feverish pace. A 1996 survey by Deloitte & Touche LLP revealed that in only two years, the number of hospitals that belonged to larger health care organizations had grown from 24 percent to 40 percent. Only 21 percent of respondents said their hospitals will remain stand-alone facilities through the next five years. "The last 18 months have been pretty frenzied," says Thomas C. Billet, vice president, national practice, for The Medstat Group Inc., an Ann Arbor, Michigan-based health care consulting firm. "And the phenomenon has by no means run its course." Ultimately, Billet believes, providers that don't affiliate with the megaplexes may be forced to close down.
The largest of these provider-sponsored networks (PSNs) offer medical services that cover every need, from brain surgery to pediatrics, and they have supplemented their capabilities with such ancillary health care components as specialized clinics, rehabilitation centers, and home health care units. Detroit's Henry Ford Health System, for example, has assembled a system in southeastern Michigan that includes six hospitals, four affiliated hospitals, and 30 ambulatory-care centers. The physicians are all employees of the system, which also owns a managed-care organization. Ultimately, Ford could compete directly with traditional HMOs for premiums, says Thomas McNulty, CFO and senior vice president.
Ford has emerged as a model for the health care organization of the future: a single entity that not only provides all medical services, but also administers, markets, and insures those services.
Left unanswered is the question of how these new models will affect the cost and quality of health care. McNulty believes that by directly contracting with purchasers, he can cut costs by 3 to 5 percent. "Your whole cost structure changes because you're removing an entire layer." On the other hand, by placing the financial incentives to cut costs into the hands of providers, these structures may actually work against patient interests.
Meanwhile, corporate purchasing groups are finding their own ways to bypass the HMO in the middle.
Creating a Market In Minneapolis
In the Minneapolis/St. Paul area, one corporate purchasing group could not wait for health care providers to take the next step, so it forced the issue. Last year, with only three managed-care companies--Allina Health System, Blue Cross and Blue Shield of Minnesota, and HealthPartners Administrators Inc.--dominating the metropolitan area, purchasers had few options. So the Buyers Health Care Action Group (BHCAG), which purchases health care for 26 companies, including 3M Co., Norwest Bank, and General Mills Inc., went directly to providers and asked them to organize into what it calls "care systems" and submit proposals. From the 19 it received, BHCAG selected 15 as health care options for the more than 100,000 employees it covers. The BHCAG contract encouraged many of the care systems to organize specifically for the bid. In order to create physician accountability and reduce redundancy in provider networks, BHCAG specified that no primary-care physician could belong to more than one network.
The purchasing group says the arrangement aligns incentives with those that provide medical services. "In the past, [employers] tried to hold a health plan responsible for care that was delivered by someone else," says Ann Robinow, executive director of care systems and finance at BHCAG. Now the responsibility lies directly with those who provide care.
BHCAG hasn't altogether eliminated the need for a middleman. It turned to HealthPartners, a Minneapolis/St. Paul health plan, which also owns an HMO, to be its third-party administrator. For a monthly, membership-based fee, HealthPartners takes care of record keeping, claims processing, and other services. The employers are all self-insured, and they do not ask providers to share insurance risk. That, says BHCAG's executive director of policy and public affairs, Steve Wetzell, insulates members from the dangers of a care system becoming insolvent.
The program has transformed the dynamics in the Twin Cities market. Instead of kowtowing to the demands of a few large managed-care organizations, BHCAG has created its own market for health care at the provider level. "We went from being a market taker to a market maker," says Wetzell. "As buyers, we want to make sure there is enough competition." Minneapolis has long been ahead of the curve in the development of health care systems, but Wetzell believes employers in any other market can also organize to create the same sort of system. "If you give physicians incentives to manage their own business and to be more accountable to consumers, they will respond."
Buying at the provider level is the second step of BHCAG's move away from HMOs. In 1993, the purchasing group left an insured HMO for a self-insured preferred provider organization (PPO), and, Wetzell says, premiums dropped by 11 percent. Last year's bids from care systems, he adds, were 9.5 percent lower than BHCAG would have paid if it had continued with the PPO.
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