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Creating Value through Clinical Integration

August 27, 2019

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As one of the central strategic initiatives of nearly every hospital and health system today, physician alignment has captured the minds, time, and attention of healthcare executives around the country. The healthcare industry has evolved—new entrants, massive consolidation, and payment reform continue to be top of mind.

Many provider organizations have tried to insulate the impact of the changing industry by “aggregating” physicians with a menu of alignment mechanisms; employment, ACOs, professional service arrangements, medical directorships, and other vehicles have all flourished over the last five years. Each of these strategies has its own set of benefits and risks, but nearly all organizations have aimed to implement them to strengthen their ability to create “clinical integration” with key components of the healthcare delivery system (e.g., physicians, hospitals, etc.).

However, it is unclear whether the real motive aligns with the goal of creating “value” for all stakeholders across the healthcare ecosystem. With over 500 clinical integration “networks” in operation today, are these entities really creating the “value” that underlies their definition?

What is Clinical Integration?

By definition, clinical integration is a legal arrangement meant to create the ability for groups of physicians, health systems, and other care delivery stakeholders traditionally viewed as competitors to negotiate with healthcare payers (e.g., CMS, third-payer payers) in the interest of creating quality and efficiency gains. It is an alternative to complete financial integration generally achieved through a merger/acquisition. Clinical and financial integration is required to avoid conflicts with federal and state regulatory requirements particularly relating to antitrust, fraud and abuse, and tax-exempt organizations.

Limitations of Today’s Clinically Integrated Networks

While many healthcare organizations have developed clinically integrated networks (CINs) as a central pillar of their overall strategy, it is unclear how many have been able to achieve the goals of lowering costs and improving quality and satisfaction (for both consumer and providers). Even if they have not created the visionary goals of “value,” it doesn’t mean healthcare leaders view these vehicles as unsuccessful. Many executives really rely on these large networks as “leverage” in contracting negotiations. More scale = more bargaining power.

While this strategy of using CINs to increase organizational scale may have been enough benefit to healthcare organizations in the past, if health systems do not begin to create meaningful and sustainable value for their participants, they face significant risk of losing the most important members—the physicians.

New Entrants are Carving out Primary Care

As the healthcare industry has evolved, a number of models have developed that provide physicians new options that do not always align with the interests of their local hospitals. These new entrants can offer attractive salaries (often with smaller patient panel sizes) with extensive MSO/practice management services. The material benefit and significant value proposition, however, comes from the expansive upside many of these entities offer through performance-based incentives tied directly to value-based (total cost of care) contracts.

These new physician organizations are often funded by private equity firms or investment banks, and many payers have also launched their own or acquired these assets. Collectively, these physician organizations and all of the other CINs that may exist in a given market offer physicians increasing optionality, especially to primary care providers which are the target of many of these companies.

Failing to Align with Physicians has Great Risks 

Without highly aligned physicians, especially primary care, the business model for health systems is at increased risk. Aligned physicians are needed to have an attributed patient population, ensure referrals are managed within the network, and engage patients across the continuum of care.

That being said, there is a scenario for hospitals and health systems that don’t have a highly aligned physician organization to be successful: be the lowest cost, highest quality provider in the market. This is a scenario where some of the large national health systems could be well suited, given their economies of scale and significant focus on operational efficiencies. The downside of this model is that the health system will have allowed the physician organizations in the market to disintermediate them from the payers, and the system will be less influential over the healthcare supply chain.

So How do Health Systems Create a Network Focused on Value?

What is this “value” we believe is absolutely necessary? Value can be viewed as improved quality, patient and provider satisfaction, and the generation of financial surplus by lowering the overall total cost of care for the patient populations under the CIN’s purview. To achieve these outcomes, health systems must think of the CIN in the broader context of the overall healthcare system and align the business differently to enable the organization to shift segments of their covered populations to value-based care. But what does this mean? This is a complicated process and one that is not achieved in short order.

Critical factors that can drive success in your CIN:

  • Rethink Governance: First and foremost, organizations must create a governance model that empowers the administrative and clinical leads of the CIN to make real decisions—decisions that will impact the entire business.
  • Align Around Performance, not Size: Focus on narrowing the membership to become a high-performing network, not just the largest.
  • Building the Right Value-Based Business: Negotiating contracts that the CIN can perform against and create value. Suggested starting point: Medicare and Medicare Advantage.
  • What Success Looks Like: Keeping an eye on the larger goal of achieving improved clinical and financial outcomes is essential to executing on your population health strategy.

 

Where to start?

Okay, so my organization already has a CIN… how do we start moving in this direction?

Focus initial efforts on understanding key market dynamics (population growth, payer mix trends, payer partners, competition) as well as addressing the core question: have we and can we commit at the highest levels to move to value in key products (Medicare Advantage, employee population)? The team must examine and understand the existing infrastructure that is in place:

  • How do we most effectively sculpt the network?
  • Do we need to centralize/rationalize resources to support value-based contracts?
  • How do we realign incentive structures?
  • What gaps exist to enable success in VBC?

Lastly, organizations must move away from thinking about their physician partners on an exception basis (allowing individual groups or physicians to negotiate their own deals) and move to an approach that enables true physician involvement, engagement, and ultimately accountability.

The path to generating “value” through a CIN is complex and multi-dimensional, but health systems are in an advantageous position to create and capture significant value through their respective CINs. Successful health systems will commit to changing how the senior leadership team views the CIN as a strategic asset and enable and empower the CIN to invest in the people, process, and technology that can unlock the “value” which is fast becoming the true measuring stick for creating a sustainable physician enterprise.

Easy? Not by a long shot. Necessary? Absolutely.

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