The PHO in 2013: More Flexibility, Less Risk Than Eighties Model

Thursday, January 31st, 2013
This post was written by Patricia Donovan

Unlike the hospital-dominated physician-hospital organization (PHO) prominent 30 years ago, today’s PHOs are largely physician-centric, notes Travis Ansel, manager of strategic services for the Healthcare Strategy Group. And make no mistake: in the new fee-for-value healthcare universe, payors and employers understand that physicians are the one that control process and control cost, he asserts.

“Hospitals and physicians have a great incentive right now to figure out how they should be working together going forward, and how they need to align legally and what model to use in order to engage those populations,” Ansel notes. Providers unable to provide efficient quality care that’s going to help hospitals survive under value-driven reimbursement will face losses in market share and reimbursement, he continues.

Ansel and Greg Mertz, director of Healthcare Strategy Group, recently explored the key contractual elements to consider when creating a PHO during a webinar on Physician Hospital Organizations: Developing a Collaborative Structure for Shared Savings Agreements.

Today’s PHOs are jointly governed by physicians and hospitals, they explain, with the common goals of quality and cost management and the sharing of savings from any joint contracts or arrangements — elements that weren’t necessarily part of the eighties’ PHO equation.

Compared to other emerging shared savings arrangements — the Medicare Shared Savings Program, commercial accountable care organizations (ACOs) and public and private bundled payments — PHOs offer more flexibility, notes Mertz. For example, a PHO has the option of expanding into an ACO in the future, as well as target multiple populations, something that can be more challenging in an ACO due to its reporting requirements. “Today’s PHO is scalable. It can start with a single client and grow to ACO.”

But flexibility doesn’t preclude serious considerations around forming a PHO, he continues, including its legal structure, number and type of participating physicians, size of the patient population, compensation plans, data support, and most importantly, evidence-based protocols against which to measure PHO performance. And while cost reduction is paramount, patient satisfaction levels are getting equal attention.

“The big difference between today’s programs and the gatekeeper HMO’s back in the eighties is that nobody worried about whether the patient was happy with the HMO,” says Mertz. “Now within public programs, there’s a formal process of monitoring and reporting on patient satisfaction.”

What will the typical PHO look like? Owner physicians and hospitals, plus contracted providers such as imaging, pharmacy and other ancillary services. The PHO team will also rely heavily on nurse case managers, nurse navigators to really interact with the patients as they help to coordinate their care. “It’s cheaper to intervene now than in the emergency room,” Mertz notes.

It is also important to have an accurate picture of the patient population. “Diabetes, pulmonary, cardiac, and depression are the top cost drivers, but dual eligibles (Medicare-Medicaid patients) and patients with behavioral issues are chronically non-compliant and are the biggest cost consumers. It’s important to identify those people up front and develop a patient registry-managed plan for those patients.”

Of course, key to any shared savings model is quantifying the cost of services and then savings gleaned from the PHO’s clinical protocols and quality efforts — then distributing the savings equitably.

The challenge for fledgling PHOs will be changing provider behaviors. “Participants have to believe that the PHO is better than the alternative,” says Mertz. “Creating a culture of collaboration is key; success hinges on provider engagement.”

And not just the physicians that are part of the PHO. “The PHO is really a vehicle to involve all physicians, including community doctors,” concludes Ansel. “Community physicians that aren’t a part of employed networks are just as important and have just as much insight as to how the industry succeeds under this new reality.”

Listen to an expanded interview with Travis Ansel and Greg Mertz about today’s physician-hospital organizations.

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