Making integrated health care work.

Is integrated health care for real? If we bet the future of our medical practice on strategies that involve physicians, hospitals, and health plans coming together into a new organization, how can we be sure that it is the right thing to do?

A respected physician asked this question during a presentation to the medical staff and board of a community hospital. Our response: If the movement toward integration doesn't enhance the value offered by health care organizations, it will be a flash in the pan.

By itself, the process of forming a physician-hospital organization or an independent practice association, or selling a practice to a hospital or practice management company does little to add value. How these ownership and organizational changes lead to adding value to customers (patients and payers) and improving the competitive positioning of physicians and hospitals is the key progression to consider, the raison d'etre, if you will.

What is value added?

What are examples of the major strategies being implemented by integrated systems across the United States to increase their value and improve their competitive positioning? In order to achieve their promise and be worth the substantial investment in time, energy, and dollars required to create them, integrated health care systems must deliver:

* Value added to their patients and the purchasers of care (payers).

* A sustainable competitive advantage to their sponsors (usually physicians and hospitals).

* Better working circumstances for physicians and others involved in the delivery of care.

* These three goals are mutually dependent. Success in adding value almost always leads to stronger positioning. And, in a competitive market for physician and other provider services, competitive advantage for the overall system translates into more benefits for physicians and employees. Conversely, it is tough for a system to deliver advantages to its doctors if it does not have superior positioning in the market.

Based on interviews with physician leaders, such as Dr. JohnLucas, CEO of Lovelace Health Systems and Dr. James Reinertsen, CEO of Health System Minnesota and a review of the general business literature, we believe that value added in health care can be defined as a combination of the seven attributes described below (please see Figure2):

(1) Improve quality of care. Systenms can add value and/or improve quality by reducing clinical variation, improving outcomes or otherwise improving the long-term health status of the population under their care. Ironically, this aspect of value added is the primary reason customers want to purchase health care in the first place. Yet many current customers, both patients and health care purchasers (payers), assume the presence of quality. They proceed to evaluate health care systems based on other value-added factors, including service, accessibility to physicians, and cost.

(2) Emphasize service. An increasing number of health eare industry observersmostly from other sectors of the economy, such as retailing and financial services--focus on the convenience (or lack of it) in health care. Examples of improved services from a patient perspective include longer hours, ease of getting appointments, faster turnaround on tests, shorter waiting times, more choice, treatment with respect and dignity, personal touch, use of telephone rather than personal visit, and lack of paperwork. When it comes to service, employers (payers) focus on fewer employee complaints; timely, understandable reports; accurate billing; fast response to inquiries; and ease of administration.

(3) improve accessibility. For patients and purchasers (payers), accessibility means a broad choice of physic.ans in convenient locations. This is driving the development of primary care networks, one of the key strategies of every integrated health care system.

(4) Reduce unit costs. Reducing unit costs means lowering the cost of a given unit of service (for example, a hospital's cost per admission, or a physician's cost per visit). Improving productivity, introducing more effective joint buying, consolidatinglacilities or services, rightsizing/ downsizing under-utilized facilities and services, or growing in order to spread the organization's fixed costs over a larger number of coy. ered lives or patients served can also reduce unit costs.

Lowering unit costs is a powerful force in creating a competitive advantage. A cost advantage may be used to deliver a lower price to the customer, thus directly conveying a universally recognized form of added value. Or, it can be used to generate funds to invest in developing new facilities or services.

(5) Improve operating efficiency. Beyond reducing its unit costs, an organization can reduce total costs by becoming more efficient or improving utilization. This includes reducing inappropriate or unnecessary care, using less costly resources where possible (primary care physicians instead of specialists and physician exteinders instead of physicians), or scheduling resources (operating rooms) more efficiently.

(6) Strengthen customer ties. Customer loyalty is coming back in health care. A common saying among physicians in the early 1980s was, "My patients will never leave me." By the mid-'80s, when health plans began to steer patients in large numbers, this saying became, "Patient loyalty exists, but only when the difference in cost is less than $12 per month." However, many health plans are separated in the marketplace by less than $12 per month, and physician loyalty is back in vogue.

There is a renewed emphasis on developir.g and sustaining a long-term relationship between patient and physician. fender changes coming in the Twin Cities, for example, more patients will be able use physicians of their choice. Patients in this developing model may be allowed to go directly to specialists, finding alternatives to using primary care gatekeepers.

(7) Enhance product offerings. This includes offering a variety of health plan products or arrangements (i e., with an increasing number of employers moving to self-insurance, they want their own tailor-made plan and provider network). One of the case study organizations ofiJers more than 70 variations to its basic HMO product.

How to provide value

What follows are the strategies most often pursued by the integrated systems we researched. Each of these eight strategies is having a significant impact on value added. Bome do more to improve quality and service, while others enhance product offerings or accessibility:

(1) Optimize primary care by increasing the proportion of primary care physicians in the system and developing a network of primary care practice sites.

(2) Integrate providers and health plans though acquisitions, mergers, joint ventures, gainsharing, or other means.

(3) Reduce clinical variation.

(4) Invest in management and clinical information systems.

(5) Develop a common systemwide culture.

(6) Align financial incentives.

(7) Reduce unit costs and improve operating efficiency.

(8) Develop an adequate capital base and flexible plans for deploying funds.

Two strategies of special interest to physicians--reducing clinical variation and information system development--are leading to added value. Analysis of the other strategies can he found in the authors, book Making Integrated Health Care Work.

Reducing clinical voriatisn

The strategies of the organizations studied for the 1993 research on integrated health eare systems compared to those included in the current study revealed a dramatic change: an increased emphasis on reducing clinical variation, primarily by developing and implementing clinical guidelines. Nearly all of the case study organizations were investing in these kinds of efforts, and early results are promising.

HealthSystem Minnesota, formed by a merger of the Park Nicollet Clinic and Methodist Hospital, developed and implemented more than 20 clinical guidelines. "We selected the most common illnesses and procedures and began to work with these," says Dr. Richard Migliori. Guidelines now in place are for asthma in children, breast cancer detection, hypertention diagnosis, low back pain, stable coronary artery disease, uncomplicated urinary tract infection in women, vaginal birth after Cesarean, and viral upper respiratoy infection in children. Other case study organizations reporting significant progress in reducing clinical variation include Lovelace Health Systems, Scott & White, and Intermountain Health Care.

Key areas for adding value through clinical guideline development (see Figure 3) include improving operating efficiency, strengthening customer relationships, and an improved reputation with payers. Clinical quality improvement initiatives often lead to more consistency in quality and continuity among different facilities and services within the system. These same quality enhancement proceEses invariably improve efficiency. They are also expected to lead to better performance under HEDIS, which should reinforce marketing efforts. The big opportunity is to take these programs and principles into the customer serviee improvement arena.

Integrating clinical and management information systems

The significant investments being made in information systems and the focus for each case study organization are summarized in Figure 4. Annual investments range from a low of $3 million at the Nalle Clinic, in Charlotte, NC, to $10 to $20 million at Advocate in Chicago. The objectives vary, but most involve the development of an electronic medical record, linking primary care offices within the system, and connecting health plan information with the financial and clinical systems.

Investing in information systems

This initiative truly touches every part of the integrated system and enhances possibilities for adding every form of value.

Improved quality of care. The quality part of value will be realized with a reduction in clinical variation and greater support of continuous quality improvement efforts. Organizations that can accomplish both goals will indeed be in a strong competitive position.

Improved service and access. Once systems are in place, the ability to call up lab tests or patient records at any point in the system is expected to be of enormous value in cutting patient's processing time and paperwork. This capability saves substantial physician time and staffing requirements at distant locations, thus making it economically feasible to operate more remote facilities.

Reduced unit costs and improving operating efficiency. Even though rigorous cost benefit analyses have not been conducted, there is a large body of anocdotal information--including staffing reductions inpaper processing functions--to suggest the cost savings through integrated information systems will be substantial. The front line of operating efficiency gains may be in paper work and staff time savings. However, there are other gains as well. For example, integrated management information systems support closer coordination of physician staffing, services planning, and optimizing primary care locations.

Strengthened customer relationship Integrated information systems enable a computer analyst to correlate variables such as patient satisfaction, membership losses, or member complaints with variables such as member diagnosis, residential location, site of services provided, and the physician providing the services. This can be useful information for improving relationships with patients. Patients also have a better chance of being recognized when they show up at a physicians, office.

Enhanced product offerings. Integrated information systems are used extensively to support the system's health plan product development and pricing processes. As physicians and hospitals develop better information on customer needs and more feedback on services provided, it should be possible for those health care systems with sophisticated information systems to reduce the churn (annual membership turnover) in their health plans. As health plan report cards come into more common use, these organizations should fare well.

Conclusion

Because of their variety (different markets and organizational models), integrated systems are a source of ongoing experimentation. Exciting new approaches that will affect all aspects of value added--from quality of care through enhanced product offerings--are being designed and implemented; and the future holds the promise of more to come.

Vertical integration per se does not create value. However, it enables the creation of value added by providing more incentives, fewer barriers, and a more conducive working environment. The closer relationships that develop between all the components of the integrated system (physicians, hospitals, and health plans) are certain to benefit consumers and payers in the years ahead.

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