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Elements and strategies of an effective provider integration strategy.

The integrated system has become the latest in a series of strategies that are deemed to be essential components of the successful health care system in the future. Unfortunately, too many hospitals and physicians are embarking on such sufficient understanding of why it is necessary. It seems clear that there are several major reasons why provider integration is absolutely crucial to the health care system of the future.(1)

* Access to Organized Provider Services. It is exceedingly difficult to develop a systems strategy with entities that are organized as small enterprises (i.e., physician practices). Strategic decisions that affect the overall directions of the corporation are too frequently delayed, and the ability to be responsive to an increasingly prudent buyer is compromised. An organized provider network allows not only for much greater freedom in meeting the expectations of buyers, but also for the addition of substantially better management in physician organizations.

* Enhanced Geographic Market Presence and Capacity. A more stable, predictable market share can be sustained through integrated systems. The greater geographic capacity also allows for greater market penetration if strategic plans are implemented in an effective manner. Also, the various subspecialties can be offered a greater degree of protection through collaboration with an organized primary care referral base.

* Managed Care Contracting. Through an integrated provider structure, bargaining clout can be maintained, with an enhanced ability to negotiate price. Furthermore, managed care contracting is a complex enterprise and the managerial talent that can be identified for an integrated system is often much better than for smaller, individual practices.

* Cost Elimination. Capitation, a priori, requires efficiency and high productivity from the system. As a result, the development of protocols, benchmarking strategies, and quality initiatives becomes a crucial component of preparing for a capitated environment. An integrated system allows the organization to pursue economies of scale and program implementation that meet these objectives.

* Access to Technology. Allocation of resources for traditional technology will become a major issue during the coming decade. As funds shrink, it will become increasingly important to evaluate the return on investment of every major capital expenditure. Clearly, an integrated system is much better prepared to consider efficient utilization of such resources. Furthermore, information technology and its appropriate use will be the hallmark of the successful system in the future. Integrated systems are better equipped to implement information systems that span the entire spectrum of services important in capitated environments.

* Greater Access to Capital. Access to capital will be the other major determinant of the successful system. The marginal difference of small percentages will be crucial in a cost-constrained environment. Through better bond/market rating and the ability to spread risk over a larger base of operations, the integrated system benefits from economies of scale applied to capital resources.

* Approach to Developing Provider Integration. First and foremost, the cornerstone of an effective systems integration strategy must, a priori, use a pluralistic model.(2) Such a model is required because physicians and other health care providers are in different places at different times. A "cookie-cutter" mentality to provider integration does not recognize the substantial diversity of attitude, perspective, and desire for change that exists among providers relative to the changing health care marketplace.

Second, the basic approach to physician/provider integration includes vertical and horizontal strategies effected through alliances, mergers, and acquisitions. These strategies will ultimately be unsuccessful, however, if hospitals engage in a strategy of purchase/acquisition of practices without attending to culture and philosophy. When a provider's practice is purchased, the purchaser holds the assets of the practice, not the patient loyalty of the practice. Therefore, attention to other core elements of provider practices is crucial if true integration is to be facilitated.

There seems to be a core set of essential characteristics in the organization embarked upon a successful integration strategy:

* Seamless Flexibility. Because providers are not in the same place at the same time, it is imperative that a degree of flexibility exist for moving the providers along the continuum. The movement of providers toward a tight relationship requires a structure where the adaptation of systems is seamless between the various levels of integration within the corporation.

* Continuous Reconsideration of Models. There is no one best integration model. Rather, there are multiple experimental models. A process of continuous reassessment and reconsideration of the most appropriate models for adaptation within the corporation is a prudent approach to the inevitable change that will continue to occur for at least a decade.

* Acceptance of Mistakes as Learning. If mistakes are not being made, the corporation is not engaged in a sufficiently aggressive strategy to maintain market share. Furthermore, the acceptance of mistakes implies that the corporation is willing to consider multiple models.

* Regional Focus. Control is shifting to local or regional, geographically proximate regions. Systems with strong, national, centralized strategies are at risk in such an environment.

* No Limit on Provider Definitions. The most appropriate providers are not always physicians. A fully integrated system or one moving in that direction should continuously consider the spectra of services and of providers most appropriate to provide the services.

* Long-Term Focus. The focus of the corporation must be on a long-term, not a short-term, return on investment (ROI). The building of integrated systems will require a substantial investment of time.

* Provider Focus. Integrated systems recognize that providers are the locus of control for many decisions in the organization. Rather than attempting to resist this phenomenon or to control it, the integrated system embraces it to enhance the effectiveness of decision making.

* Leader, Not Management Focus. All levels of the integrated system must give up control to maintain a degree of control over their lives. This is the major reason why providers and institutions will come together over the coming decade. To accomplish this objective, it will be substantially more important for an organization to possess strong leadership rather than simply managerial skills.

* Appreciation of Process. The integrated organization must maintain a focus on organizing all participants for the common good, so that a process perspective is imperative.

Elements of Provider Integration

Beyond the core characteristics, there are specific decisions that must be made in the formative stages of integration initiatives. Too often, these areas are not well understood by providers and administrators. However, insufficient attention to these core areas often is the undoing of integration efforts.

Definitions of a vision and a culture are among the first crucial steps for an organization seriously pursuing the development and implementation of a physician integration strategy. Of necessity, they emanate from corporate leadership. Too frequently, insufficient time is devoted to "the vision thing," and the directions of the integration effort are not clear to participants. Without clear vision and culture, problems will occur; it is simply a matter of when!

A second and equally important task is values clarification. Values and norms must be clearly stated, a priori, using a defined process that facilitates consensus among all investors in the integration strategy on the content of the values statement. Value in the health care delivery process should be defined to include verifiable cost and quality, management activities, access, cost management, and clinical outcomes measurements.

Third, organizational unity will evolve from clear goals and objectives that operate in concert with the organizational culture. Too frequently, the goals and objectives outlined for an annual strategic plan do not coincide with the long-term needs of the organization. A recognition of the need for coherence between vision or culture and actual investments of time, people, and resources is crucial.

Fourth, education and reeducation of physicians, nonphysician providers, administrators, and managers must be a top priority if the organization is to achieve true integration. By and large, physicians are inadequately prepared for administrative roles, and administrators do not fully understand the clinical perspective. The role of the physician executive in such a circumstance becomes even more crucial for the success of an integration effort.

Fifth, it is important for physician executives to provide leadership to governance of the organization on integration strategies. Regular discussions about the integration strategy and how it is progressing are important. It is equally important, however, to not get too far in front of governance. A strategy that incorporates continuous education of governance related to integration is therefore a critical strategy for success.

Finally, any integration process will involve a strategic planning process. To be effective, however, the period for the traditional process must be shortened to take into account the rapidity of change in the health care marketplace. The physician executive can contribute substantially to the strategic planning process by becoming involved in environmental scanning. Through scanning the national environment for effective ideas, approaches, and methods in physician/provider integration, the process of continuously reassessing models can become a reality for the integration effort.

Clinical Services Integration

Clinical efficiency will be the hallmark of the strong, competitive health care corporation within the next five years. Clinical efficiency implies high-quality outcomes with reliable access in a cost-efficient manner. Several key considerations need to be addressed by providers to facilitate an effective integration of clinical services:

* Preventive Focus. The delivery focus of the organization must move as far upstream as possible to prepare for capitation. Because it is highly likely that capitation will be the major method of payment in the future, adapting strategies now that are focused on long-term health objectives is important, particularly as the actual implementation of preventive strategies will take time. Such an approach requires the adoption of a loss leader strategy that recognizes that preventive services may not be entirely cost-effective in the short term because of inherent incentives of the current reimbursement system.

* Control Technology. A fee-for-service mentality has allowed the health care system to adapt new technology without much consideration of effectiveness. New management systems will be required that will force maximal utilization of existing or new technology. The leadership for these initiatives must come from physicians. In fact, this may very well be one of the test areas for the effectiveness of physician leadership in integrated health care systems.

* Protocols. Protocols are important not only for actual clinical services but also in relation to human resources. In the future, it will be important for effective integrated systems to develop clinical workforce protocols that define the types of health care workers needed in given situations. Once again, maximal utilization of resources is the driving force and will require physician leadership.

* Information Systems. Development of state-of-the-art information systems must be one of the top corporate priorities of an evolving integrated system. Without the infrastructure of accessible, reliable, and current information, any attempts at developing an integrated system will fail. Coordination of the managerial and clinical components of the management system is also crucial. Most systems are rudimentary but evolving rapidly. Information systems should be designed for growth beyond expectations.

Levels of Integration

Effective integration strategies fall along the entire spectrum of health care activities (table, right). Although levels are defined, it is not a requisite that each level precede the following level. The various levels are somewhat fluid and are rough estimates of divisions or categories. Some would argue that a continuum of services exists in systems integration. It may be more advantageous to think in terms of a spectrum of services that can be included in an integration strategy. A continuum implies some degree of hierarchy, whereas a spectrum implies use of best approaches in meeting particular strategic needs of the health organization. Level I: Physician/Provider

Leadership Education and Training (Support). Often, the most neglected integration strategy is a defined and regular process of physician education that includes the use of outside experts and advisors. Specific elements include:

* Health Services Education Initiative - Providers are generally deficient in their understanding of health systems. The focus of education would be on health services.

* Management Development - The greatest liability of most systems is the insufficient number of trained clinician managers.

* Physician Discussion Groups - The provision of support for ongoing dialogue among providers may result in intragroup education.

Level II: Individual/Small Group Practice Assessment (Support).

Many physicians/providers, even in aggressive marketplaces, are not yet prepared to engage in active integration activities. Rather than neglecting these individuals or small groups, however, it is prudent to provide ongoing support and assessment services. The inevitability of the marketplace will no doubt force these providers to collaborate, then integrate, with a system. This category includes all of the items listed for Level I, plus:

* Practice Valuation - Providers often possess unrealistic expectations of the value of a practice. A practice valuation program based on a specific philosophy can provide valuable insight for the provider.

* Staffing Analysis - Efficiencies can be highlighted as part of the process.

* Practice Management Advice-Allows the provider to test the abilities and expertise of the corporation while maintaining an arm's length relationship.

Level III: Medical Service Organization (Coordination). The MSO provides a cafeteria of selections for physicians/providers from which to augment their practices. This category includes all of the items listed for previous levels, plus:

* Joint Purchasing - A reduction in the cost of goods and services can often be accomplished through a joint purchasing program. Although many hospitals have participated in such efforts, such approaches are often very new to ambulatory care practices.

* Marketing - Mutually beneficial joint marketing can promote the interests of physicians and the institution in a coordinated fashion to maximally benefit the participant's practice or services.

* Recruitment - Physician and non-physician provider recruitment is an invaluable service to smaller groups because of the economies of scale that can be achieved.

* Management Contracts--Involves IPA or medical group management contracts.

Level IV: Integrated Primary Care and Specialty Networks (Collaboration). Integrated networks are an interim step between MSOs and a fully integrated group practice organization. It is a step that entails much greater collaboration, with recognition that unification of goals is on the horizon. This category includes all of the items listed for the previous levels, plus:

* Strategic and Business Planning - Coordination of business planning is critical to the success of joint efforts at this point and beyond.

* Capitation Management - Assignment of capitation risk with appropriate management oversight is often one of the first elements that lead to greater integration of the system with providers.

* Credentialing - A reduction in the process required for credentialing can be accomplished through a joint effort.

* Program Development - Program development often focuses on areas where there is a common need and mutual involvement benefits the overall success of the initiative (e.g., cardiac education programs).

* Financial Systems Support - Shared financial systems infrastructure to reduce capital outlays for systems support is a key approach.

* Collaborative Program and Systems Service Development - Codevelopment of programs or services is the most common approach to this area.

* Common Pathways - The focus on pathways can be both clinical and nonclinical in nature.

* Coordinated Information Systems - Sharing of information is maximized, although some elements may remain confidential and proprietary.

* Coordinated Capital Investments - The capital investment strategy can take the form of joint ventures or sharing of capital investments for mutual support, with final control retained by the individual entities.

Level V: Integrated Group Practice Organization (Integration). The result of physician/ provider integration should be a multispecialty group practice that is totally integrated with other elements of the health care delivery system. This category includes all of the items mentioned for previous levels,

* Clinical Capitation - The health care financing system will move quickly along the continuum of financing mechanisms toward capitation over the remainder of the 1990s. Capitation implies a new paradigm in process and methods for most health care organizations, including new definitions of the types of providers who can and will provide services.

* Pathways Unification and Standardization - Clinical and nonclinical pathways are defined. However, less tolerance of deviations will exist in a totally integrated system.

* Systems Integration - The managerial infrastructure of the organization can be consolidated for such areas as financial, human resources, purchasing, and other related areas. At the same time, it is critical to recognize that systems must be customer-focused and provide added value, not necessarily centralized.

* Unified Information Systems - The hallmark of the future integrated system will be the integration of information.

* Unified Governance - A unified governance structure allows for the decision-making process to support service integration to the fullest possible extent.

* Integrated Capital Investments - All capital investments are made from a systems perspective rather than a provider or an institutional perspective. Value-added assessments will become the norm of such decisions.

* Education - Under integrated systems, education can be added under the new cost-constrained environment. Unless education is an inherent function of the corporation, it will have difficulty in being sustained in a capitated environment.

* Research - The education issues also apply to research.

Level VI: Integrated Health System (Consolidation). Once provider integration is accomplished, a more systems approach to health care can be the primary objective of the health organization. Services in an integrated health system extend beyond the traditional services provided in a medical environment and relate more to the health of the community. This category includes all of the items listed for previous levels, plus:

* Total Capitation - The entire spectrum of health services can be provided to patients under a total capitation arrangement.

* Allied Provider Integration - With the successful integration of physician providers, other services can be effectively integrated to provide a full spectrum of health services (e.g. dental, chiropractic, social, health education, etc.).

* Community Interagency Coordination - Certain services within the community provide focal, niche services that cannot be readily replicated as internal functions of the integrated delivery system. They can, however, be fully coordinated with the system (e.g., planned parenthood).

* Community Agency Integration - The full spectrum of services beyond traditional medical services can be integrated with the provider network, including such areas as adult day care, home health, hospice care, healthy heart programs, and other similar community agency efforts that relate to the traditional health care system.


(1.) Most organizations are moving in the direction of physician integration. Although physicians are crucial to the process of health care services integration, they are by no means the only players on the field. In fact, as we move toward a capitated health system, it will be imperative for health care organizations to integrate with a host of providers in order to provide the best quality care at the lowest cost in the most accessible manner.

(2.) Because physicians are clearly of different mindsets on the continuum of integration, it is important from a corporate perspective to offer a cafeteria plan of integration opportunities. Each opportunity must be clearly tied to the next step so that, as physicians evolve in their thinking, they can take advantage of integration in as seamless a fashion as possible. Such an approach will also offer the corporation the greatest latitude in moving quickly to respond to local conditions.


Dr. Sheikee is Medical Director of a large IPA-model HMO in a large southern city. The parent HMO company, with offices on the east coast, has HMOs in other cities and is owned by a large insurance company. After he took the position, Dr. Sheikee noted little staff awareness, other than among nurses in utilization and quality management, of the need to keep patient information confidential. With the local chief executive's approval, he developed a written policy on confidentiality of patient information, which was adopted by the local HMO's management committee six months ago.

The HMO's corporate office has finally delivered on its promise to provide employers with better information on the care received by and on the associated costs. The new reporting system has finally reached the local HMO, and standard reports have been distributed. In addition to the standard information, special reports may be requested by employers. Dr. Sheikee did have some input into the design of the standard reports.

Kevin Fickenscher, MD, FACPE, is Senior Vice President for Physician Integration and Chief Medical Officer, Aurora Health Care, Milwaukee, Wis.
COPYRIGHT 1994 American College of Physician Executives
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Copyright 1994, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Fickenscher, Kevin
Publication:Physician Executive
Date:Dec 1, 1994
Previous Article:Health care reform: believe it or not, the ball is back in our court.
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