Hospitals lose $150,000 to $250,000 per year over the first 3 years of employing a physician according the May 12, 2011 NEJM article “Hospitals’ Race to Employ Physicians – The Logic Behind a Money-Losing Proposition”.

So “What’s the best way to align with my community physicians without having to incur the financial losses necessary to employ them?” is a question some CEO’s are asking us. One alternative is to develop a clinically integrated hospital-based physician-led network to implement financially aligned contracts with payers. This approach allows the hospital and physicians to align their incentives, even if the physicians are not employed.

Clinical Integration is a “safe harbor” within which disparate independently owned entities can jointly negotiate with payers according to the FTC and DOJ.They define clinical integration as “… an active and ongoing program to evaluate and modify practice patterns by the network’s physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality.”

How do you know if you’re clinically integrated sufficiently to allow joint negotiations? There is no “cookie-cutter” model for achieving the sort of clinical integration that the antitrust enforcement agencies or the courts would find sufficient to justify joint contracting, but HSG consultants have found the important characteristics of such a program to be:

1.   Substantial contributions of financial and “sweat” capital by participating physicians.

2.   Careful selection of participating physicians by the network based on their willingness, history, and interest in providing high-quality care in an efficient manner and their likely willingness to participate fully in, abide by the policies of, and implement the network’s clinical-integration program.

3.   A system, preferably electronic, by which all members of the network exchange relevant medical information about the network’s patients, such as clinical notes, test results, and prescriptions.

4.   A network process that assures that patient referrals remain in-network to the maximum extent possible rather than referrals from network physicians to out-of-network providers.

5.   Development by the network physicians of practice guidelines sufficient to improve quality and utilization, sufficient to cover the services of all medical specialties represented in the network, and sufficient to cover diagnoses representing a high percentage of the network’s medical costs.

6.   Formal adoption of the guidelines by the network’s board of directors and dissemination of the guidelines to participating physicians.

7.   Agreement among the participating physicians and formal agreement between each physician and the network (through, for example, the network provider participation agreement) to apply the guidelines to network patients.

8.   Development by the network physicians of quality, efficiency, and cost goals or benchmarks reflecting improvement by network physicians over their current performance with respect to quality, utilization, and cost.

9.   Development and implementation of a formal process by which participating physicians will report their compliance with the guidelines (or other benchmarked activities) to the network.

10.   Development and implementation of a formal review program by network physicians for reviewing and assessing the performance of individual network physicians in complying with the guidelines and improving their performance.

11.   Development and implementation of a formal program by network physicians for reviewing and assessing the aggregate performance of all network physicians in relation to the network benchmarks.

12.   Development and implementation of a formal program by network physicians for identifying individual network physicians who fail to apply the guidelines or otherwise fail to achieve the network’s benchmarks.

13.   Development and implementation by network physicians of individual corrective-action programs for individual network physicians failing to achieve the network’s goals or benchmarks.

14.   Development and implementation by network physicians of a network program to monitor such physicians’ performance under their corrective-action plans.

15.   Development and implementation by network physicians of a process to sanction network physicians who habitually fail to meet network goals or refuse to follow the network’s policies, including possible expulsion from the network and, possibly, financial sanctions.  Related to this, it is helpful if the program includes some financial penalties or rewards based on performance to help induce physicians to participate fully in the program and improve their performance.
(Note:  It is worth noting that these 15 characteristics provide guidance for clinical integration and improvement for employed groups as well.)

The FTC and Antitrust Division have explained that “commentators primarily focus on four indicia of clinical integration:  (1) the use of common information technology to ensure an exchange of all relevant patient data; (2) the development and adoption of clinical protocols; (3) care review based on the implementation of protocols; and (4) mechanisms to ensure adherence to the protocols”. Additionally, the agencies have emphasized the importance of having a performance-monitoring process.

Developing a clinical integration program at your facility is no easy task, but it can be facilitated with HSG consultants who have successfully developed and/or operated clinically integrated IPAs, PHOs and OWAs.


David W. Miller

Founder, Board Member