Clinical Integration and Bundled Payment

The alignment between hospitals and physicians which is sought to produce better value –- improved outcomes at lower cost with a better patient experience of care --  takes a range of forms. These include new phenomena like accountable care organizations (ACOs), clinically integrated networks (CINs)-- a non-specific characterization of a range of provider networks-- bundled payment, gainsharing, pay for performance, and probably the most widely deployed: hospital employment of physicians.  As Alice reports, the latter has proven not only a profound failure – losing hospitals by many estimates $100,000 and more per physician, it has also now been shown to cost the Medicare program much more money on just four outpatient procedures alone.  A different model of leasing the physician practice to the health system or hospital has been little examined, analyzed or reviewed.  Alice has created a fair number of these transactions around the country, with different specialties.  She first presented a teleconference and wrote an initial article on the subject in 2012.  In 2017 she published another article, and presented a longer teleconference addressing both what makes this approach potentially better than hospital employment and the fundamental elements of the relationships.  Now, going far further,  in an in-depth presentation of a specific guide on how to structure such an arrangement in her article “Lessons Learned from Leasing: A Blueprint for Physician-Hospital Alignment", she presents the lessons she has learned from multiple transactions that have now been in effect long enough to have involved second negotiations.  These transactions can garner all the alignment the parties want allowing the physician group to retain its cohesion, while producing more value when they are founded on clinical integration principles. If they go wrong, the termination is far easier since it is merely the termination of a contract. These leasing arrangements deserve far more attention than they have received to date.
While we have been touting clinical integration as the sine qua non for physicians and those who would work with them, it is little appreciated that undertaking true clinical integration can lower fraud and abuse risksin an article in Compliance Today, the magazine of the Health Care Compliance Association (HCCA) directed at compliance officers, Alice has elucidated how this consequence of clinical integration only further bolsters the business case for physicians to embark on these efforts.
While some participants are dropping out of the Medicare shared savings program of accountable care organizations (ACOs), others continue to step up and commercial payors continue to announce their burgeoning networks of ACOs.  Physicians end up being bombarded with requests to participate with these organizations. There are risks and potential rewards in joining these untested vehicles.  In "What to ask if an ACO comes callingAlice and Dan provide some ammunition to physicians seeking to understand with whom and around what they are dealing.
Chief Financial Officers of health systems are increasingly coming to understand that alignment with physicians will help their bottom line. But in a recent survey, only 20% of them said they were "very prepared" for new collaborations. Clinical integration among physicians, and between physicians and others, will be the key to success in the near and far term. Understanding the role of the CFO in clinical integration will be fundamental. In "Clinical Integration and The Chief Financial Officer" Alice sets forth five specific tactics the CFO can deploy so as to meaningfully contribute to and support efforts to clinically integrate physicians affiliated with their institutions.
Many physicians across the country are still struggling with whether to remain independent or be employed by a health system (see 1, #57). While we have decried many of the employment transactions as having no content (see 1, #54) the real issue for most physicians is in which context -- their current setting, a larger group practice, a new network,  alignment with a health system or employment by a health system -- they stand the best chance of being able to clinically integrated effectively with their colleagues (See 1, #70, #67). In "Is Physician Employment by Health Systems an Answer?" Alice elucidates the real questions for oncologists in particular, but the analysis is relevant to all physicians.
Primary care physicians, in particular, are feeling real pressure from the developing context because they have traditionally been under-reimbursed for what they do. While many are familiar with primary care capitation, fee for service remains the predominant mode of payment throughout the country.  Today, though, there is undoubtedly change afoot. For physicians to respond to the emerging environment, at a minimum they need to understand the new forms of payment which are being launched, as distinguished from new delivery models. In "Understanding the new payment models" Alice elucidates concepts associated with ACOs, bundled payment, patient centered medical home and capitation. It is fundamental reading for physicians who have not begun to address these issues.
Physician practices in communities where ACOs are being launched or payors are beginning to innovate with bundled payment initiatives will be offered contracts by which such innovations will be implemented. There are pitfalls in not understanding the real issues in bundled payment contracts. But the health plans offering these opportunities have themselves very little experience with bundled payment. In an article directed at the plans, Alice suggests "What's Fair In Bundled Payment Contracting?"

The Patient Safety and Quality Improvement Act was enacted in 2005. It was three years before any regulations were published regarding who would qualify as a Patient Safety Organization (PSO) to which providers could report safety and quality data which would be protected from discovery in almost any setting. In thinking about the type of work that real clinical integration entails, those who engage in the required intense self scrutiny that is essential to change clinical processes to deliver safer, better, more valuable health care will have to generate highly sensitive data about their own performance. To invoke the protections of the law, the data must be generated within a Patient Safety Evaluation System (PSES) which is specific to the reporting provider. Providers include any kind of health facility or practitioner licensed or authorized under state law to provide health care services. Interestingly, providers do not include IPAs, PHOs or ACOs which are rarely licensed or authorized under state law to deliver care. This does not mean they are outside the bounds of the law. This means good lawyers can be creative about how to structure relationships between providers and these new delivery vehicles so that data can be protected through a PSES for reporting to a PSO.

When sensitive data is managed within this system, it cannot be introduced, discovered or used by anyone else in any federal, state or tribal court or administrative setting, subject to very limited exceptions. The law provides both a privilege enforced by the courts as well as broad confidentiality, the breach of which is enforced by the Office of Civil Rights of DHHS. It is both flexible and potentially sweeping in its effects. The system is reminiscent of the principles for tort reform that Alice set forth in an article in 2000. In "Physicians and Patient Safety Organizations: Furthering Clinical Integration" Alice presents the context for PSOs, what the regulations require for reporting to a PSO, what caselaw teaches us and then explores some ways in which deploying this mechanism can protect the hard work physicians will have to do to make their care better. This is an opportunity all physician groups and facilities should explore. It has the potential to bring to smaller entities the experiences and learning from others, thereby multiplying the power of engagement with the PSO. We will be working with our clients to help them develop their Patient Safety Evaluation Systems and the contracts with the PSOs to which they will report.

The drumbeat for insurers to move to value-based payments cannot be ignored. However, both experience and expertise at the health plans which are touting their programs are widely variable. A recent survey reports that 82% of health plans consider the development of new payment models a major priority. They are, however, all over the ballpark in what they are doing. Many of the national plans now claim to have many ACO projects in the works, although these vary widely as well. Almost all of the new value payment propositions that are not mere pay-for-performance turn on some concepts of bundling budgets or bundling payments. Typically, providers are paid in the ordinary course, with a gainsharing bonus available based upon reconciliation at some pre-determined point in time. The contracts that create these arrangements are the most critical foundation of potential success. As Medicare moved into this arena with the Bundled Payment for Care Initiative (BPCI) they engaged consultants to provide contracting advice. Mitre and Brookings acknowledge in the Foreword to their material their extensive reliance on Alice's input and review of their document. The Manual is oriented around the Medicare program, but essentially highlights what is necessary to make one of these bundled payment contracts work.

The health reform legislation called on the Secretary of HHS to develop a pilot program under Medicare to evaluate bundled payment. The Bundled Payment for Care Improvement (BPCI) initiative has launched. The law says the pilot will last five years, must be budget neutral, and if the Secretary finds it to be beneficial to do so can be extended in time and scope. In other words, bundled payment could become mandatory for Medicare for categories of conditions, after 2017! Commercial payors are also experimenting with bundled payment, but with relatively tepid results. In "Bundled Payment: Avoiding Surprise Packages", Alice explores what we know about bundled payment, bringing to bear her experience with the PROMETHEUS Payment® model which is the most sophisticated of these programs. She describes Medicare's previous experience with bundled payment and presents some of the methodological problems with the way the new program is unfolding. Following on her previous work on contractual and governance issues in bundled payment, she addresses those and also issues in payor-provider contracts. There are ways to avoid trouble in these transactions; and bundles for the sake of bundles alone are not worth experimenting with if the bundles are not designed properly. Caveat emptor!

Bundled payment has been touted as the next, new aligned incentive payment model. Although rarely defined in the many discussions about it, bundled payment by definition combines two different providers, typically traditionally paid differently, into one budget or, in more radical versions, subject to a single prospective payment. Today's bundled payment models usually include an episode based payment. The Medicare ACO program anticipates a bundled payment model in its requirement that participating entities have the ability to allocate dollars to the disparate participants. In fact, though, in that program hospitals, physicians and others will be paid on a business as usual basis, and then, at the end of three years, if they have saved money over a benchmark there will be one payment to share. PROMETHEUS Payment offers a different model. If providers want to be paid separately, they are at risk together in a single budget, but PROMETHEUS Payment has a software program that can allocate savings appropriately to the diverse participating providers, based on good clinical practice guidelines which form the basis for the case rate. The incentives are the same, but the payment methods differ. Many commercial bundled payment and ACO programs follow the Medicare model. Herein lies the rub. Unless there are clear rules at the outset, providers may end up in the rancorous fights that characterized the few instances in the 1990s when PHOs received dollars, usually held by the hospital. CMMI asked Alice to present a technical assistance webinar for potential participants in their Medicare Bundled Payment Initiative on contractual and governance issues among providers in administering bundled payment models, and in "Avoiding Food Fights: The Value of Good Drafting to ACO Physician Participants" she elucidates the types of policy decisions that should be made today and documented governance documents and contracts among providers to avoid the problems of tomorrow. The third of our Three Tuesday Teleconferences addresses many of these issues with an opportunity for participants to ask questions.

As health reform unfolds for the public payment programs, and commercial payors get on the value bandwagon too, it is increasingly clear that the role of physicians in making change happen will be paramount. Although there is much that hospitals can do on their own to improve quality, patient safety and value, none of the promise of health reform will be met without the enthusiastic involvement of physicians. Why physicians deserve special attention and most importantly what they can do to help themselves, has been an increasing focus of Alice's writing and speaking. From a six minute YouTube excerpt of a presentation to the Pennsylvania Medical Society leadership to an hour YouTube clip of a presentation to the Texas Medical Association, she makes the point that the moment for physicians to step up and organize themselves for better performance and better results is now. Her editorials in Maryland Medicine and Medical Economics exhort physicians to recognize their unique role and unique responsibilities.
As the health care delivery system is reconfiguring, many physicians have sought employment by hospitals as a life preserver in uncertain times.  At the same time, traveling throughout the country, Alice has seen that there are a multitude of physicians who have no desire to be employed, but while remaining independent, also are coming to understand that they will have to clinically integrate with other like minded physicians, if they are to be successful in demonstrating real value in their care delivery. The Clinical Integration Self-Assessment Tool v 2.0 (CISAT) is oriented toward employed physicians – whether in their own groups or by hospitals – on one hand, or in the more hospital-centric settings of the organized medical staff or a newly forming ACO-like entity, on the other. Now in CISAT v 2.1, we have a self-assessment tool for groups of otherwise independent physicians to use in coming together to meet the clinical integration demands of the new environment. Designed to help them envision what a desired end state, or at least more evolved organization, might look like, as with v.2.0, it provides three scenarios for each of the 17 attributes of a clinically integrated entity from barely started, to making some headway, to more evolved. We hope physicians find it helpful in repositioning themselves for new challenges.

Clinical integration has increasingly been discussed as the vehicle to accomplish what is necessary to be accountable for care.  But even among those commentators who have gotten beyond the antitrust notions of clinical integration, few really describe the focus of change that can create a truly clinically integrated environment, nor how those changes can make a difference. For some time now, we have touted clinical integration as a way to reorganize clinical and administrative processes of care, particularly among physicians and the other clinicians who work with them, but also in relationship to hospitals. (See issues: #70, #67, #60) Now, Alice and Jim Reinertsen MD, have created a Clinical Integration Self Assessment tool which elucidates 17 distinct attributes of clinically integrated programs, whether within a physician group, by a hospital with its newly employed physicians, within the organized medical staff, or in a newly coalescing ACO-like entity.  All ought to take into account the range of issues identified, but in slightly different ways.  We are also explicitly calling for those who may use the tool, to revise, refine and add to it.

In her article in Medical Economics “Making Clinical Integration Work” Alice focuses on how clinical integration is meaningful to small physician practices.  In their brief piece for the Health Forum, “Clinical Integration: Getting From Here to There” Alice and Jim Reinertsen focus on the hospital-physician nexus of clinical integration.  Clinical integration of various kinds is going to be the sine qua non of health care delivery which will succeed in an environment of heightened quality expectations, the need for better patient safety, diminishing reimbursement, and pressure for contained costs.

The new environment makes it abundantly clear that physician engagement with hospitals will be essential to their ability to produce value.  At the same time, physicians themselves will have to find new ways to clinically integrate within their own groups.  Hospitals which have now moved significantly into the physician employment arena will have to figure out what to do with their physicians.  In their new paper, “Achieving Clinical Integration with Highly Engaged Physicians” Alice Gosfield and Jim Reinertsen elucidate the new basis for common cause, contrast the current environment with past clinical integration efforts, and offer a new definition of clinical integration

“Physicians working together, systematically, with or without other organizations and professionals, to improve their collective ability to deliver high quality, safe, and valued care to their patients and communities.”

We offer four vibrant examples of very different programs where self-motivated physicians have clinically integrated.  We reflect on the ways in which the organized medical staff can actually support and bolster clinical integration; and we introduce a new framework – the Four Fs – to help structure organized thinking about re-visioning the mission of the healthcare enterprise.  This paper is a significant resource to our new program of the same title for the Institute for Healthcare Improvement, “Achieving Clinical Integration with Highly Engaged Physicians”.  In the last analysis, this is an optimal moment for physicians to step up and take a leadership stance to improve care.

Clinical integration has been a vaguely understood topic since the antitrust regulators introduced the concept in 1996. Alice continues her focus on this issue in a new article which includes how clinical integration within groups may be an important first step before clinical integration with competitors or with hospitals. In “Clinical Integration Is Back”  she observes that the furtherance of clinical collaboration across the continuum of care will be essential to improve healthcare delivery. A broader understanding of clinical integration techniques can enhance physician performance and quality results both with hospitals and on their own.

The challenge of engaging physicians in quality initiatives at the hospital often falls most heavily on the shoulders of the medical leadership in the C-suite, whether the chief medical officer or the VPMA or the chief of staff. In their article directed to these folks, “Finding Common Cause in Quality: Confronting The Physician Engagement Challenge”, Jim Reinertsen and Alice Gosfield dispute the metaphor offered by Jeff Goldsmith of the hospital-physician engagement continuum as a coral reef of predators and prey. From their continuing work with IHI and medical staffs and hospitals around the country, they continue to hold the firm belief that enormous strides can be made for better patient care and more activated physicians, when physicians are seen as the hospitals true partners and not mere customers.

Pay for performance programs show no signs of abating in popularity, yet their impact remains equivocal. Whether quality would be better if physicians within groups also paid themselves based on quality performance is unknown. If the incentives of P4P are to have impact, how are those monies distributed to the individual physicians once the group gets paid? There is virtually nothing in the literature on point. In “Physician Compensation for Quality: Behind The Group’s Green Door,” Alice looks at the data on P4P programs, the basics of traditional compensation within groups and then presents the findings from a unique survey which was sent out on her behalf by the AMGA producing responses from 14 groups around the country who are variably paying for quality as part of physician compensation. Some report significant improvement in quality performance too. Alice then looks at the payment reform models on the horizon and concludes that traditional notions of productivity, on which most current group compensation models turn, will not reward what the new systems, and most particularly the PROMETHEUS Payment® model ( is designed to generate. She examines whether the Stark rules on compensation will be a barrier to changed, creative approaches, concludes that it will not, and then looks at what employment contracts will have to accommodate to make physician compensation for quality within groups real and of value to both patients and physicians.

In its Jan/Feb 2005 issue, Health Affairs offered a range of articles confronting issues in evidence based medicine. One of them, by Timmermans and Mauck, cited a number of barriers to widespread physician adoption of clinical practice guidelines. Alice Gosfield and Jim Reinertsen noted that where guidelines are nothing but an add on to a system which imposes unmanageable administrative burdens already, there is little to motivate physicians to use them. Our letter to the editor, published in the May/June 2005 issue of Health Affairs, points out that to use CPGs as the foundation for all processes, both administrative and clinical, makes a far better business case for their use.

Clinical integration has been held out by the FTC in every physician network settlement into which they have entered in the last few years. "You can't do this, but if you were clinically integrated you could." Some have questioned whether clinical integration is really available as an option to facilitate providers bargaining with payors. Brown and Toland in California was the subject of an FTC enforcement action in 2003 for their PPO bargaining activities. When they eventually settled, they agreed not to undertake any PPO bargaining unless the FTC prior approved what they were doing as sufficient clinical integration. The FTC has now reviewed Brown and Toland's ( B & T) approach and has said it represents enough clinical integration to permit negotiations, but they will still be subject to review for conformity with the integration principles. B & T says that the elements of integration they have adopted are a utilization review program, disease management and case management activities and an electronic medical record. This is meaningful because until this point there has been only one advisory opinion which addressed acceptable elements of clinical integration and now the B & T program is different. The FTC says it will review their actual implementation; but this action stands for the proposition that clinical integration is alive and well. It also means clinical integration does not require a uniform approach consistent in every respect with the hypothetical facts set forth when its permissibility was first published by the FTC in 1996. We think that UFT-A offers an option which will, by its implementation, create appropriate clinical integration to qualify for joint bargaining.

One of the major thorns in the side of physicians confronting managed care payors has been their antitrust risk if they bargain for fees collectively. We have posited that ‘clinical integration’, which the antitrust regulators have said can permit otherwise collusive bargaining among competing physicians, is part of the business case for quality. In each of the physician and hospital network settlements in the last months, the FTC has noted that the physician groups were not sufficiently integrated financially or clinically. In the settlement with Brown and Toland, the FTC imposed a new requirement that if they chose to bargain based on clinical integration they would have to submit their approach to the FTC before implementation. Given the dearth of regulatory guidance on point, and only one advisory opinion to date, it is with great pleasure that we are able to make available an important article from our 2004 HEALTH LAW HANDBOOK by Bob Leibenluft who was the head of the health care division of the FTC when the clinical integration opportunity was made available. In “Clinical Integration: Assessing the Antitrust Issues” Bob and his colleague Tracy Weir, acknowledge that the antitrust regulators have not seen much real clinical integration. We think that is probably true since much of what we are familiar with as purported to demonstrate clinical integration, in fact, does not go far enough. Still his article supports our case that doing what we suggest in our ‘unified field theory’ work would likely meet the regulators’ criteria.