Payment and insurance reform have driven hospital/physician alignment over the past few years. With hospitals and physicians increasingly being held accountable for each other’s actions, the need for tighter integration has grown. The result: a spike in Physician-Hospital Organization (PHO) activity, with hospitals and health systems reviving PHOs that have languished since the ‘90s or starting new PHOs under their corporate umbrellas.

For hospitals or health systems planning to develop a PHO, HSG sees six key considerations as the organization is assembled:

Market Needs

Know who the payers in your market are and what they want. Talk to both payers and self-insured employers to get a firm grasp on the opportunities offered by insurance exchanges and narrow network products in your state. The outcomes payers want will drive the competencies needed within your PHO.

Ability to Deliver Services

Can your health system and PHO physicians cover the continuum of services needed in your market? Which services will the PHO deliver itself, and which will be delivered by other organizations outside the PHO? Some of these issues can be managed by who you invite to the PHO, but as always, politics are likely to come into play.

Legal Agreement

Does the legal agreement defining membership in the PHO support the pursuit of Clinical Integration? Key areas to define include:

  • how the governance structure will impact the organization’s performance on quality and cost measures; and
  • how physicians will be invited to and removed from the PHO based on the services they offer, their costs and their performance.

Physician-Driven Governance & Clinical Leadership

PHOs should be driven by clinical leadership. We typically see operating committees made up of a preponderance of physicians – both employed and independent – with administrative leadership in the minority.

Physician Composition

Which physicians should be included in the PHO? Five criteria should guide your decisions: specialty, location, affiliation, referral loyalty and quality/cost performance. There’s also a larger issue at stake. Do you want to be inclusive and invite all physicians to participate, knowing that down the road you’ll have to remove those who don’t meet quality or cost performance targets? Or do you want to be exclusive and develop a network of only high-quality providers – which means dealing with the political realities of excluding other current referral sources?

Internal Capabilities

Thinking about the PHO’s administrative capabilities, what is your “Have, Make or Buy?” strategy for: Contract Management, Credentialing, Marketing/Sales, IT Management, Utilization Review, Case Management, Disease Management, Pre-Authorization, Clinical Coordination, Claims Processing, and Reinsurance?

Terrence R. McWilliams, MD, FAAFP

Chief Clinical Officer and Managing Director, Employed Provider Networks