New governance for a new era: issues and challenges for integrating systems.

Health care organizations have evolved to manage one kind of financing for health care services--fee-for-service payment for procedures. In past decades of the 20th Century, most physicians were in solo practice and employed office managers to expedite and routinize scheduling of patients and management of financial transactions. Hospitals, nursing homes, home health agencies, urgent care clinics, ambulatory surgery centers, and diagnostic and therapeutic radiology offices invested in management systems primarily to expedite the delivery of services to patients and the processing of financial transactions after treatment. Governance of the revenue and expenses of an organization of physicians, a group practice, dealt with managing the resources required to enable physicians to treat patients and collect revenue for their services. Governance of the revenue and expenses of a health care facility not a part of a group practice was designed to facilitate the production of services for physicians, to help them treat their patients, and for patients directly. For services rendered in medical facilities that are not physicians' offices, insurers and patients pay professional and facility fees.

Under the fee-for-service arrangement, the revenue of physicians is defined by the professional fees they produce and the revenue of facilities depends on the facility fees they produce. If physicians own facilities to which they refer patients, they may produce professional and facility fees for themselves, but most insurers and government agencies now are trying to eliminate this practice, except for large group practices that own their own in-house diagnostic and treatment facilities.

Why are these details important for governance? Because, in a capitalist economy, we govern entities defined by profit and loss statements. In health care, under fee-for-service financing, hospitals, individual physicians' offices, group practices, home health agencies, nursing homes, urgent care centers, diagnostic radiology centers, therapeutic radiology centers, regional laboratories, etc. usually are governed separately, because usually each is represented by a separate profit and loss statement that is defined by the revenues generated by billing for its procedures and the expenses generated to maintain the business in a form that physicians and patients will use for medical care services. Hospitals and physicians may choose to collaborate for joint marketing purposes--for instance a group of oncologists and a hospital both may benefit from a cancer center located at the hospital, or a group of infectious disease specialists and a hospital may both benefit from a home infusion therapy program that the hospital owns or that they own together--but, regardless of how cooperative they may be, in all likelihood the physicians work within one corporate entity, a group practice, and the hospital managers work within another corporate entity, the hospital, and each entity sends separate bills for separate services, defined by facility fees and professional fees, to the patients (or their insurers) that they treat together. In this case, the organizations of physicians are governed by their own managers and physicians, and the facilities are governed by their own managers and directors.

In short, separate sources of funding lead to separate organizations, each with its own processes for governance, and for management of profits and losses. Hospitals and physicians may work with the same patients, but send separate bills. Among the physicians, various primary care physicians and subspecialists may work with the same patient, but, if they represent more than one group practice, they will send that patient (or his insurer) more than one bill for the services they rendered. A patient treated in hospital by a primary care physician, three subspecialists in three different medical practices, and then at home by home health care, will probably receive bills from at least each physician, the hospital, and the home health agency, not to mention anesthesiologists, radiologists, and referral laboratories that performed analyses of tissue.

Here's the governance rub in all of this. Under fee-for-service payment, each physician and each facility that participates in the treatment of a patient is probably a separate economic entity, representing its own profits and losses, managing its own business affairs, and filing its own tax returns. Those separate units process information, and invest in automated information systems, to make their business and clinical affairs run as efficiently as possible. Unfortunately, information processing for their clinical affairs are usually circumscribed by the procedures they perform for which they produce itemized bills for payment. The clinical records of each economic entity, whether on paper or in computer, are limited to the services rendered by that economic entity. Providers' organizational structures, financial and clinical record-keeping, and governance of the resources for patient care, are segregated by the methods used to finance care. As providers, we are what we bill for. As payers, we are what we pay for. Unfortunately, the patient gets lost in the procedures and claims, and information about each person who receives care remains in the small islands of incomplete medical and financial records that pertain to the economic units that have produced procedures for them.

Providers enjoy the independence that fee-for-service payment allowed them. They can govern their own revenue and expenses for the services they perform inside their own economic units and transmit clinical information about patients between providers by mail and telefacsimile, because their electronic information systems are usually dedicated to business processing for the economic units in which they work. But fee-for-service payment by indemnity insurance is inherently inflationary, and employers and government are forcing providers to share the financial risk for the services they deliver. When the financing of care changes, the economics change, the organizational structures best suited to produce goods and services for the economy (health care) change, and the information systems needed to make the production of goods and services as efficient as possible also must change.

That's the rub. We have a whole lot of small economic units of providers, with incompatible information systems, trying to coalesce into larger, more standardized organizations that will help them manage the financial risk of health care services more successfully. The information systems need to change, the governance needs to change. In the shift from fee-for-service to capitation, and from small independent providers to larger, integrated delivery systems, we will see many tens of billions of dollars spent by providers and insurers to process information in new ways that will help them manage the production of services for their patients and health plan members more efficiently. Those necessary changes in governance to support the requisite changes in information systems to automate the flow of information in the new integrating health care systems are the subject of this paper.

Seven Success Factors

I can identify seven key success factors that an integrated delivery system (IDS) needs to emphasize in order to succeed in competing for health plan members and in managing the care of defined populations of people over time, under fixed budgets:

* The IDS is defined by the numbers and kinds of clinicians, especially physicians, who work within it. The more skilled and committed to the success of the IDS the clinicians are, the more likely the IDS is to manage the health care of services of health plan beneficiaries and patients effectively and efficiently. The more clinicians who are a part of the IDS, the larger the numbers of health plan members and patients the IDS can manage, and the larger the IDS can grow in revenue, facilities, and locations. Physicians, especially primary care physicians, are in great demand now by integrated delivery systems. Those systems with the most appealing working conditions will attract and retain them, and grow with their numbers.

* Most integrating delivery systems are forming from previously independent collections of providers and provider organizations. In some cases, large health insurers are assembling the providers, including recruiting and employing physicians and acquiring facilities in which they treat patients. But most IDS in the USA will emerge from provider organizations, most likely hospital systems, that have grown by merger of assets to achieve economies of scale in purchasing and market influence in managed care contracting. Unfortunately, the component hospitals, group practices, home health agencies, urgent care clinics, nursing homes, and other provider organizations of most integrated delivery systems naturally try to maintain as much of their operating autonomy as they can once they have merged with a larger organization. The sooner the IDS learns to standardize and streamline governance, capital investment, and operations, including information and communication systems procurement, the sooner the IDS will begin to operate as one efficient organization, instead of as an ineffectual loose confederation of many entities.

* The expressed goal of most integrated delivery systems is to integrate health care services and become higher quality, more efficient health care delivery organizations in the process. Most of the time, such talk is window dressing for the real purpose of integration, maximization of the market influence of providers. Unfortunately, if the constituent parts of the IDS do not take integration seriously and do not integrate services, health plan members and patients do not benefit from better health care services as they move within the IDS for consultations, laboratory studies, surgery, home health care, rehabilitation, and other services.

To my way of thinking, an integrated health care system means integrated care. Integrated care means well-informed care, where the various providers inside the IDS have access to all the information about patients collected anywhere within the IDS, and treatment is not delayed, repeated, or erroneous for lack of sharing of data about patients among providers. The IDS that is capitated and takes financial as well as clinical responsibility for the care of health plan members and patients cannot afford the costs of delayed, erroneous, or repeated diagnostic studies and treatments. Patients prefer that each provider know what has happened to them earlier in their care, and providers attentive to minimizing unnecessary health care costs have the same incentive to integrate care from provider to provider as thoroughly as possible.

* Conserving capital is important for any business, but when health care organizations lose the fee-for-service opportunity to shift their costs to patients and insurers and must manage capitation that fixes their revenues, so that profits depend on cost management instead of revenue management, conserving capital becomes more important. Organizations that call themselves integrated delivery systems but behave as loose consortiums of affiliated providers, allowing each operating unit to maintain its own governing board and budgeting process, tend to squander capital on inconsistent and incompatible information and communication systems that may meet their immediate local needs but that frustrate the goals of the larger organization. The hallmark of emerging integrated delivery systems in Minneapolis-St. Paul, Boston, California, and northern Virginia, where competition for patients among provider organizations is keen, is the massive investments being made in information technologies so the integrated delivery systems can behave as integrated health care systems and can implement computer-based patient records that transcend the organizational boundaries of their various operating units.

* The growth of regional health care systems is usually opportunistic and horizontal. The integrated delivery systems that are emerging in many parts of the United States start from group practices, or hospitals, or academic health centers and add complementary provider or payer organizations to have all parts of the continuum of care represented internally. Hospitals and academic health centers create group practices of physicians and physician-hospital organizations and start, or acquire, health maintenance organizations. Multispecialty group practices that own hospitals add satellite clinics in distant communities, start health plans, and ally with other hospitals from which they want to obtain patients on referral. The opportunistic growth may be less sustainable than the judicious, complementary growth, because insurance functions, facilities, and physicians are all required to produce an integrated delivery system. Growing strategically, acquiring complementary resources and skills, and expanding an institution's base of operations while carefully standardizing the methods and information processing for those operations seems a more prudent and permanent strategy, because the health care of populations of patients is a local and regional business.

* Under capitation, controlling costs is the only way to produce profits, which must exist for an organization to acquire capital with which to grow, modernize services, and implement automated medical and financial record systems that are standardized in all operating units of the organization. Controlling costs means studying the outcomes of the organization, especially patients' outcomes, and the processes of care that lead to the outcomes to establish the most efficient and effective processes for producing the best outcomes, and then promoting the adoption of those processes among all members of the organization. If one group of clinicians, or one facility, produces much lower complication rates, and/or much better functional status scores, for patients, the processes of care they use need be studied, compared to the less successful norm, and promoted among all clinicians and facilities by practice guidelines derived from their work. The same methodology applies to managerial processes. Systematic study and documentation of the steps of processes, and their outcomes, are the key to continuous quality improvement and will appear much more important to organizations that are capitated in competitive markets than such discipline may have appeared to them before. The importance of electronic information systems for clinical care cannot be overemphasized.

* Proficiency in processing information requires standardization of data definitions, hardware, software and networks, and processes of care, so that data are collected in the same way in multiple locations within the IDS, and can flow quickly from one location to another with accuracy and validity. Without proficient (meaning electronic) information management, the IDS will not be able to avoid redundant data collection, unnecessary repetition of diagnostic tests, delays in treatment, omissions in treatment, and lack of clinical data repositories for retrospective health services and clinical research necessary for outcomes management and quality improvement studies. If the medical record is in paper form, analysis of charts to identify opportunities for clinical process improvement will founder on the costs of manual chart review and data abstraction. If the data about patients are collected electronically, and stored in electronic form for later study, opportunities for efficient clinical quality and outcomes research will be abundant.

In the second part of this column in the September 1995 issue of Physician Executive, the author will elaborate on the seven factors for success in an integrated delivery system.