The concept of physician-hospital alignment, also referred to as integration, has captured the healthcare industry's attention for nearly 25 years, since the earliest initiatives were launched in the early 1990s.
Many transactions have occurred since then, mostly to accomplish market share from the hospital's view, and for security and financial reasons from the physician's perspective. Now, physician-hospital alignment is driven by another factor: cost control and quality outcomes in response to the initiatives prompted by the accountable care era. Physician-hospital alignment transactions that occur in this era are based on achieving cost control and quality outcomes, which is the foundation for accountable care reimbursement.
One of the most interesting aspects of working in this dynamic healthcare industry, here and abroad, are the constant adjustments driven by change within the private sector, the U.S. federal government and foreign governments. As we consider physician-hospital alignment — version 2013 — it is imperative to stay current on the available information and the structure of change and to be responsive to the anticipated shift in the reimbursement paradigm. The following section outlines these changes in the industry as observed in working with physician groups across the country.
Physician-hospital alignment in 2013: The physician perspective
Key areas of emphasis relative to physician-hospital alignment strategies, based on our observations, include the following:
- Physicians are interested in alignment for many of the same reasons as before. As in the 1990s and the first decade of the 21st century, many physicians seek alignment for monetary gain and for more security and stability in their careers. Financial security is not always possible, however, as financial arrangements must meet fair market value commercially reasonable parameters.
- Larger physician groups are not rushing to employment. Though larger groups are interested in developing an alignment strategy, usually with one or more health systems, they realize that employment is not a prerequisite for alignment. Entering professional services agreements and other contractual relationships like clinical co-management agreements may be more beneficial than employment.
- Institutional investors may be a viable consideration for larger groups. While this does not typically include a health system partner, in a three-way transaction, this option may be possible and can provide opportunity for alignment. In addition, it is possible that this type of relationship could allow for financial/fiscal gain.
- Payers are becoming investors in physician practices. As an increasing alternative to traditional alignment strategies, payers and large groups are finding ways to affiliate and to partner, including practice ownership.
- Accountable care integration is very prominent and will become even more so. This entails groups aligning with clinically integrated networks wherein those entities serve as the predominate link (i.e., integration) between health systems and private groups. We predict an increase in this type of alignment over the next two to three years.
- There is renewed interest in group mergers and overall consolidation. Group mergers and other consolidations do not always serve as the ultimate solution for meeting accountable care era requirements. Nevertheless, the number of physician groups that remain private and then contract with clinically integrated networks, etc., is increasing, and we anticipate that this structure will continue to grow.
Physician-hospital alignment in 2013: The hospital perspective
- Hospitals and health systems are still building their integrated delivery systems. Finding ways to partner with physician groups beyond employment is becoming more the norm. This may be due to economic feasibility and to share the risk between the physician group and the health system/hospital equally. We anticipate an increase in this type of structure in the future.
- Hospitals and health systems are developing a pluralistic approach to alignment. This is similar to the previous point as many health systems are not immediately choosing employment, but rather investigating other models such as professional service agreements, co-management and alignment through clinically integrated networks.
- Many health systems have essentially completed their stage I alignment and are moving into stage II. We define stage I as the specific structures of integration (i.e., employment, PSA, etc.) with physician groups. Stage II encompasses the accountable care alignment initiatives through both ACOs and clinically integrated networks.
- Economic terms and overall transaction structures are being refined. Essentially, this entails more realistic transaction values (within fair market value/commercially reasonable parameters). Alignment specialists are also introducing non-productivity based incentives, tied to both cost control and quality outcomes.
- Governance/leadership initiatives are moving to a dyad structure. Hospitals are recognizing the value of physicians and are empowering them in the decision making process. This dyad management model is proving to be successful as the two entities function more like partners than adversaries.
- There is, and will continue to be, much more hospital-to-hospital consolidation. We anticipate that many hospitals — both rural and urban and larger systems — will be acquiring smaller entities, resulting in more merger activity.
What's next?
Moving from 2013 to 2014, the following key areas appear to be on the horizon and are already occurring in many places:
- Federal and state governments (and politics in general) are alive and well. Many would argue that they are not necessarily "well," but definitely alive. The Patient Protection Accountable Care Act will undoubtedly have certain extensions and changes as the time arrives for implementation. As 2014 is a mid-term election year, we can expect more debate on the PPACA and potential political fallout.
- "Alignment" in advanced stages of accountable care structures will continue, analogous to what we have term the "stage II," above.
- Compensation and pay plans for physicians within alignment structures will be continuing to move away from fee-for-volume to fee-for-value.
- Bundling and shared savings programs will continue to increase; thus, measuring values among participating providers will become a greater issue.
- More of the same regarding physician-hospital alignment will continue. We believe many more deals will be consummated. As a result, physician-hospital alignment will be one of the most prominent initiatives on all providers' "to-do" lists for years to come.
In summary, we continue to function in a dynamic industry and physician-hospital alignment/integration — version 2013 — will continue to evolve along these lines. We will all continue to adjust, adapt and adhere to the evolution.
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