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Physician-hospital integration in a community hospital: a case study.

Saint Joseph Health System is a small hospital system (table 1, page 16) with a big vision. Saint Joseph Health Center is an acute care facility with 300 licensed beds. It is one of 20 hospitals and health facilities networked as the Carondelet Health System under the sponsorship of the Sisters of Saint Joseph of Carondelet. St. Joseph Health System also owns two nursing homes, with a total of 300 skilled nursing beds (including 25 hospice beds and adult day care); a child development center; a community center focused on education and health-related programs; a primary care network of satellite clinics; and a foundation. Additionally, the holding company has partial ownership in a physician management company. Further, Carondelet Health System has recently acquired a 130-bed acute care hospital 30 miles away, along with a skilled nursing facility and home health program.
Table 1. Saint Jodeph Health
 Center (SJHC)
* Carondelet Home Health Resources
* Carondelet Manor
* Villa Saint Joseph
* Carondelet Child Development
* Community Center for Health
 and Education
* Carondelet Primary Care Network, Inc.
* Cooperative Physician Services, Inc.
* SJHC Foundation

Geographically, the system is in the southern part of the metropolitan Kansas City area, situated in Missouri on the state line, although several facilities serve the Kansas side as well. There are 43 acute care and specialty hospitals in the greater Kansas City area, two within a four-mile radius of the hospital. Recently, St. Joseph Health System has been central in development of a new eight-hospital consortium of community hospitals of acknowledged quality, attractive geographic distribution, and extensive continuity of care.

Prior to 1986, the Saint Joseph Health Center environment was dramatically different than at present. Although a minority of board members strove for an appropriate role and attitude, the hospital board of trustees' attitude was characterized by an emphasis on control, a "real estate" approach to institutional properties, and a noncollaborative attitude toward the medical staff. The administration's attitude was decidedly passive and heavily consensus-oriented, with little senior leadership and massive bureaucracy.

The medical staff attitude was one of alienation, independence, and uncooperativeness. There were no large groups represented in the medical staff. This presented both a problem and an opportunity regarding integration. Overall, the institution had no coherent plan and experienced little growth or development, other than a passive response to market demand. In retrospect, it appears that the institutional leadership was unaware that it was falling strategically behind, while other competitors in the marketplace were positioning themselves.

In 1986, a new president and CEO came on board and brought a new, positive, active, strategic "system" approach to the institution. The administrative staff was reduced by half; a new obstetric unit was built, along with a new hospital entrance; a new medical office building was constructed; and the existing medical office building was purchased from physician staff members. In 1988, a strategic planning retreat was attended by hospital board members, administration, and physician leaders. One of the key determinations resulting from that retreat was the need for a medical staff development plan. During that year, physician leaders and the CEO recognized the need and initiated a search for a medical director; the author was recruited and began in 1989.

In contrast to the circumstances during the early 1980s, the institution's direction has changed dramatically. The hospital board's strategic planning committee redefined the driving forces as physicians, payers, and patients. This did not diminish patients' roles, although it did recognize the critical roles of physicians and payers.

Likewise, the hospital board's strategic planning committee redefined the business concept: "We will attract and support a staff of competent, caring, loyal physicians with state-of-the-art equipment and support services in a caring, responsive, and collaborative environment." This new concept formally recognized physicians as central to the hospital's future. Two words in the statement are particularly important: "support" and "collaborative." Both words imply a change in attitude and institutional culture.

Hospital Medical Staff of the Future

The hospital medical staff of the future will be organized differently, but it will remain an important part of the organization. Physician-hospital organizations (PHOs), management services organizations (MSOs), and other integrational vehicles will supplant the hospital medical staff in terms of strategic influence. As hospital and physician incentives become congruent, contracts of varying types will become the rule rather than the exception. With these contracts will come influence and disputes over privileges, along with antitrust and "fraud and abuse" questions.

Saint Joseph Health System has a large high-quality medical staff--nearly 600, approximately one-third active. A larger-than-usual courtesy staff reflects the very competitive nature of the Kansas City health care environment, stimulating the need for physicians to have appointments and privileges on multiple hospital staffs. Figure 1, below, characterizes the medical staff age analysis as of March 31, 1993. At that time, the total medical staff was 579, with a mean age of 46.5 years and a median age of 44.2 years. Nearly 70 percent of the staff is 49 years old or younger.

Figure 2, page 17, defines the provisional category of the staff. The provisional category of a medical staff is critically important because it is the "lifeblood" of the future. The total number of physicians in this category is 104 (18 percent of total staff), with a mean age of 41.3 and a median age of 38.5 years. More than 90 percent of the physicians are 49 years of age or younger and nearly 60 percent are 39 years of age or younger.

The mean age of Saint Joseph's family practitioners (figure 3, page 18) is 45 years, but the median age is 41.6 years and 78 percent are 49 years of age or younger. Since these data were computed, Saint Joseph's has added approximately 10 percent to the family practice rolls. The important issue here is that if something dramatic isn't done in a hospital with an aging medical staff, it will perish. An aggressive attempt to increase primary care physicians has been made by the St. Joseph Health System. The staff of several specialties was increased as well.

Physician Integration Activities

A major focus of Saint Joseph's efforts has entailed integrating medical staff members into the hospital's institutional boards and committees. Currently, 12 physicians serve on these various boards and committees, only one of which (president of the medical staff) is present in an ex officio capacity. The current hospital board chair is a senior physician.

In most institutions, physicians make their way through various positions as committee chairs, department chairs, and finally staff officers and president of the staff. They then suddenly finding themselves "out of the loop." Saint Joseph's was no exception. Consequently, a past presidents' council, made up of past presidents of the medical staff, was established. This group meets monthly and reports to both the medical staff executive committee and the joint conference committee of the board (i.e., the committee through which the medical staff reports to the board). This council takes on independent projects and provides another avenue for physicians to communicate with those in authority.

To assist department chairs and medical staff officers, the hospital developed position descriptions that clearly define these individuals' responsibilities, authority, and reporting relationships.

To strengthen medical management within the medical staff, the hospital is developing a management training program for chairs, potential chairs, officers, and interested physicians. Both in-house and outside speakers will be used. Topics covered will deal with medical economics, health care law, organizational management, budget preparation, dealing with difficult physicians, and the very practical issues of leading meetings and day-to-day management. Further, each department chair and medical staff officer receives one paid (by the medical staff organization) management-related meeting per year.

The physician relations program has become a critical element of the hospital's integration activities. It focuses on bonding physicians to the institution and its programs, primary market area physician relations, outreach, medical office staff relations, recruiting, and "splitter" conversion (i.e., influencing the practice patterns of physicians who have privileges at several hospitals). Currently, the program is staffed by a manager, an assistant, and two physician services representatives.

As previously indicated, one of the outcomes of the 1988 hospital board/administration/physician leader retreat was the identified need for a medical staff development plan (MSDP). After a tremendous amount of interviewing, data review, and discussion by a combined medical staff/hospital board task force, MSDP was approved by the medical staff and hospital board in spring 1991. The major elements of MSDP include a primary care network of satellite clinics, a physician services organization (a management services organization), a family practice residency, and a managed care organization.

Primary Care Network

The MSDP process identified the need for more widely distributed primary care sites in the market area. Consequently, the plan called for the establishment of a number of family practice satellites. This network is a for-profit sister corporation of the hospital, under the holding company. To staff these family practice satellites, a physician group has been established. Each medical specialty has its own medical director, and each physician has an employment contract with the network.

An internal medicine group has also been developed as part of the primary care network. There are currently five primary care satellites--three family practice and two internal medicine (one as a "group without walls"). There are plans to add several more in the near future. This network is growing more rapidly than anticipated and will soon be at its target strength.

Realizing that employment contracts are a struggle for physicians to accept philosophically, special attention has been paid to the negotiation process. For example, there are no noncompete clauses in contracts. This was done because, whether the physician desires to remain in the network, a continuing relationship with the physician and the physician's patients is desired. Additionally, the contract allows physicians with established practices to retain ownership of the medical records they bring into the association. If physicians decide to terminate their relationship, their practices remain intact. Along with the hospital's organizational philosophy (which is very mission-oriented), these contractual elements and other factors have been very effective at allaying physician concerns.

Another MSDP process finding was the need for some mechanism that would decrease practice costs and eliminate the problems of current medical practice. These problems include day-to-day office, employee, and financial management; third-party payer relationships and contracts; and precertification requirements. Additionally, management services needed to be provided to the proposed primary care network of satellites. A new corporate entity, Cooperative Physician Services, Inc., provides total management services for the primary care network satellites and a complete cafeteria menu of management services for other physicians on the staff and in the market area.

To allay the medical staffs fears about institutional control of their practices by this organization, the organization was established as a stock company completely outside the parent holding company organization, with medical staff physicians owning the majority of the stock. The organization does not purchase practices. Stock ownership and a practice management contract for a physician's practice are totally distinct and independent. The organization has been extremely successful and is expanding, both in medical staff stock ownership as well as in providing services to additional physicians.

Family Practice Residency

Being extremely cognizant of the long-term strategic need for young family practice physicians, MSDP called for a family practice residency or affiliation. Such an affiliation has been developed with the Department of Family Practice at the University of Kansas. The affiliation began in June 1991 and rotates family practice residents to Saint Joseph's on a monthly basis. This relationship allows Saint Joseph not only the opportunity to observe and assist in the training of family practice residents, but also the philosophical opportunity to show young physicians how an outstanding community hospital actually functions on a day-to-day basis.

Managed Care

The final major element of MSDP was the identified need for a more formal managed care organization. Saint Joseph's Carondelet Medical Plan, established in 1985, functions principally as a preferred provider organization provider (PPO) for the health system. The physicians in the Carondelet Medical Plan are organized into a loose independent practice association (IPA) because of the freedom that the physicians have within the organization. It was felt that another structure was needed that better organized the physicians and integrated them into the overall system. The new organizational model selected was a physician-hospital organization (PHO).

The PHO will have rather stringent requirements for physician participation. It is being designed to participate in a capitated reimbursement climate. Physicians will be invited into the PHO by specialty according to statistical predictions of patient volumes. The PHO will be a major step in the development of an integrated delivery system (IDS) and will, because of capitation, further stimulate the development of practice protocols, clinical pathways, care maps, etc.

Medical Mall[TM]

A major institutional initiative in which significant physician integrational activity is involved is the development of a Medical Mall[TM]. The Medical Mall[TM] will be the first in the region and will emphasize outpatient care. The structure will be located adjacent to the Saint Joseph Health Center and will enclose approximately 200,000 square feet on four floors. It will be connected to one of the office buildings via a tunnel and to each level of the hospital. The first floor of the structure will house a food court, a convenience store, a small bank facility, a retail pharmacy, and other health-related outlets. The second floor (the entry level because of the terrain) will house outpatient ambulatory services, including nine day surgery operating rooms, 18 dressing rooms, urgent care services, multiple other clinical services (e.g., pulmonary, rehabilitation, pain management, neurodiagnostics, laboratory and radiology), as well as centralized admitting and business office functions. The third floor will be entirely for primary care, housing primary care network satellites for family practice and internal medicine, along with office space for pediatrics and obstetrics/gynecology. The connection from this floor is into the OB suite. The fourth floor will provide office space for subspecialty physicians and programs related to inpatient activity on the same floor of the hospital. The target date for completion of the Medical Mall[TM] is winter 1994.

Impediments to integration

There are many possible impediments to physician integration. Probably the most significant is a nonthreatening economic environment. If physicians don't perceive any threat to the "status quo," most will not be motivated to be receptive to integration. The institutional board attitude may also impede physician integration. This occurs not only as a result of decisions that directly and negatively affect physicians, but also more subtly as a negative or noncollaborative attitude that finds its way from the board, through the administration, to the medical staff leadership and the larger medical staff.

These attitudes result in a negative hospital institutional culture that does not recognize (from a business point of view) the physician as a critical customer. Further, this culture will not allow for win-win relationships or for shared control. This environment is often created by vacillating, unsophisticated leadership at the board or administrative level and, occasionally, in the medical staff leadership as well.

One final impediment to physician integration is institutional unwillingness to invest in the medical staff--specifically, a lack of investment in the physical environment and in leadership training and assistance and generally not doing what makes physicians efficient. It must be remembered that the only things physicians have to "sell" are their time and expertise. We must help them enhance the value of each.

For the competitive health entity of the future to prevail, the fundamental elements will include physicians, a broad nonphysician service continuum, an integrating organization, and risk-bearing capability. If our national system of health care remains pluralistic, there will be opportunities for a wide variety of organizations to fulfill the role of an integrator of health care delivery elements. Organizations composed of, and mutually controlled by, hospitals and integrated physicians can be potent competitors. There will be multiple buyers of integrated health care delivery networks' services, and they will develop criteria by which they will compare services. These integrating organizations must be aggressive in helping them to develop these criteria. Integration must include clinical, administrative, and financial integration; must allow for a diversity of providers; and must provide a comprehensive continuum of care.[2] Although it is possible to develop a very specific list of critical success factors for each local environment, table 2, page 19, represents an attempt to generically define these factors.
Table 2. Critical Success Factors[3]
* Ability to assume/manage risk.
* Integrated finance and service delivery,
* Comprehensive, integrated clinical and administrative information systems.
* Demonstrated clinical and value-based oufcomes,
* Cost-effective petient care management,
* Clinically, adminisfratively, and financially integrated physicians,
* Cost-effective service mangement.
* Integrated health care functions.
* Focus on primary care and prevention.
* A continuum of education and health care, provided for appropriate acuity
levels, in distributed settings.
* Broad geographic coverage.
* A strong financial position.


If you haven't accomplished much yet regarding integration of physicians into your programs, don't be too gloomy. This is an extremely difficult and complex project. The restructuring of the American health care system will occur at a brisk pace, but we in the health care industry will be charged with making it happen. We must take time to assess our local circumstances and make serious efforts to develop trust and be consistent with our physicians. In order to succeed, we must ask the right questions, put past successes and failures behind us, and open our minds and hearts to new relationships and new ways of doing things. Beyond asking the right questions, deciding which relational models best fit for each of us, and what our success will look like, we must decide what we will do with success. Finally, we must always remember why we chose health care as our profession.

Further Reading

The following citations from the literature on physician-hospital relations have been gathered through a computerized search of electronic databases. For further information on the research process or the citations, please contact Gwen Zins, Director of Information Services, at College headquarters.

Burns, L., and Thorpe, D. "Trends and Models in Physician-Hospital Organization." Health Care Management Review 18(4):7-20, Fall 1993.

Burns, L., and others. "Trends in Hospital/Physician Relationships." Health Affairs 12(3):213-23, Fall 1993.

Caesar, N. "Medical Staff Contracting: Legal Issues in Physician-Hospital Arrangements." Medical Staff Counselor 7(4):39-54, Fall 1993.

Coile, R. "Partnering: Creating a New Model of Physician-Hospital Collaboration." Hospital Strategy Report 5(10):1-8, Aug. 1993.

Coile, R. "Health Networks: Hospitals, Physicians, and Insurers Must Get on Board

Now or Miss the Train." Hospital Strategy Report 5(12, Spec. No.):1-8, Oct. 1993.

DeMuro, P. "Provider Alliances: Key to Healthcare Reform." Healthcare Financial Management 48(1):26-30, 32, Jan. 1994.

Giffin, R. "PHOs" The past or the Future of Physician Alliance Strategies?" Health Care Strategic Management 11(12):1, 20-4, Dec. 1993.

Jennings, M., and O'Leary, S. "The Role of Managed Care in Integrated Delivery Networks." Journal of Ambulatory Care Management 17(1):39-47, Jan. 1994.

Ogden, D. "Physician/Hospital Organizations in Managed Care Contracting." Medical Group Managment Journal 40(3):12, 17, May-June 1993.

Pasternak, D., and others. "Creating a Satisfying Practice Setting for Physicians.

The Experience of a Hospital-Based Group Practice." Hospital Topics 71(3):20-8, Summer 1993.

Roberts, W., and Harper, C. "Vertical Integration, Clinic without Walls, Physician-Hospital Organizations: What It Means and Is It Right for You?" Journal of the Mississippi State Medical Association 34(12):411-8, Dec. 1993.

Wegmiller, D. "Hospitals Need to Look at IPNs (Integrated Provider Networks) through Doctors' Eyes." Modern Healthcare 24(1):28, Jan. 3, 1994.

Wowk, P. "Mission Possible: Building PHO Partnerships That Work." Hospitals and Health Networks 68(4):56, Feb. 20, 1994.


[1.] Report on Physician Trends, March 1993, p. 12. [2.] Cummings, K., and Abell, R. "Losing Sight of the Shore: How a Future Integrated American Health Care Organization Might Look." Health Care Management Review 18(2):39-50, Spring 1993. [3.] McManis, G., and Stewart, J. "The Intergator of Care: A Coordinated Health Care System." Health Care Strategic Management 10(2):1,17-19, Feb, 1993.

Kenneth C. Cummings, MD, FACPE, is Vice President for Medical Affairs, St. Joseph Health System, Kansas City, Mo. He is Chair of the Editorial Advisory Board of Physician Executive.
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Author:Cummings, Kenneth C.
Publication:Physician Executive
Date:Jun 1, 1994
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