Clinical Integration as a Business Strategy

Las Vegas—With an evolving federal and state regulatory environment, pricing and payment models in the healthcare industry are changing, making it crucial that providers and payers collaborate and explore various business models, according to speakers at the Fall Managed Care Forum. Christopher J. Kalkhof, FACHE, and Francis LaMorte, MD, both directors in Alvarez & Marsal’s healthcare industry group, discussed those topics during a session titled Emerging Business Models for Hospitals and Physician Integration: Clinical Integration as a Business Strategy for Accelerated Growth. The speakers said the healthcare system is transitioning from volume-driven to value-driven, requiring more integrated care delivery models to manage patient populations. An increase in financial risk associated with bundled and capitation payment methodologies has led to a greater need for clinical integration as well as expanded information technology (IT) and operational support. Mr. Kalkhof warned many hospitals do not make money on patient care and are at serious risk of declaring bankruptcy, which could potentially gravely affect communities. For instance, he said hospitals in the metropolitan New York area lost $3 billion in 2009. Payment methodologies have undergone a fundamental restructuring because of budget deficits and the Patient Protection and Affordable Care Act (HR 3590). The cost shifting from government payers will not decrease in coming years, according to Mr. Kalkhof. The Centers for Medicare & Medicaid Services, state Medicaid programs, and health plans have already begun changing their payment methods regardless of the product type (commercial, Medicaid, Medicare). Under the healthcare reform bill, there will be multiple pricing and payment models within various regions. Mr. Kalkhof mentioned a few critical success factors that will determine how well providers adapt to the changes, including their business model and ability to manage patients, their ability to align and integrate physicians, and whether they have a collaborative or adversarial relationship with payers. In a value-driven, outcomes-based reimbursement system, providers will be held accountable for their performance in terms of patient quality, safety, and outcomes as well as the cost and setting of care delivery. The new environment will also create significant financial incentives for physicians, hospitals, health insurance plans, and other healthcare providers to better align and coordinate care and require that providers enhance their decision support capabilities and contracting strategy across all contracts. Mr. Kalkhof said several market forces have led to uncertainty in the industry. Although many legislative components of the healthcare reform bill will go into effect between 2010 and 2014, most of the guidelines are not yet completed, so organizations do not know how the rules will impact their businesses. However, according to Mr. Kalkhof, the reform laws include provisions that will pressure health plans’ historical pricing and assumptions about managing provider costs, providers’ net revenue with the assumption of increased risk, and providers’ and health plans’ profit margins. Mr. Kalkhof said providers have 3 options: maintain the status quo and expect different results; implement a horizontal merger market strategy in which they consolidate similar operations, share services, and achieve economies of scale; or implement a vertical clinical integration strategy in which they develop strengths along the continuum of care to manage patient populations. The clinical integration model requires enhanced quality of care and coordination across the care continuum as well as support from the IT department. In the next few years, Mr. Kalkhof envisions clinical integration systems that will require an interdependence and collaboration among practitioners, an emphasis on disease management and corresponding clinical protocols, and an integrated IT infrastructure that allows for an efficient and effective information exchange among patients. When starting a clinical integration model, Dr. LaMorte suggested stakeholders align their incentives, determine the design of the care delivery system, care management and business processes, and create a value proposition for physicians to become engaged in the change process, take leadership roles, and establish a system-wide culture focused on delivering high quality, safe, effective and efficient care. Dr. LaMorte said the 3 most common questions asked about the clinical integration system will be: Why should I care? What’s in it for me? Can you prove what you say? The planning process involves determining the medical staff’s readiness and motivation in developing a collaborative clinical integration system, devising organizational project team roles to carry out the plan, building a model emphasizing value-driven care, identifying and validating metrics to define success, determining regulatory compliance, and implementing utilization management strategies that can help collaboration between physicians and managed care organizations. Mr. Kalkhof said clinical integration strategies are expensive, so it is important for organizations to undergo scenario planning to determine the best options. He said organizations should define their clinical integration strategy, obtain input from senior management and physician leadership, prioritize strategic alternatives, and identify and validate growth objectives to achieve clinical integration objectives.