C A L I FOR N I A H EALTH C ARE F OU NDATION Physician-Hospital Integration 2012 How Health Care Reform Is Reshaping California’s Delivery System Prepared for California HealthCare Foundation By Cleo Burtley, MBA Laura Jacobs, MPH The Camden Group April 2012 About the Authors Cleo Burtley, MBA, is a manager at The Camden Group. Ms. Burtley’s expertise is in the areas of physician-hospital relationships, health care strategic planning, service line development, and bundled payments and other health care reform initiatives. Laura Jacobs, MPH, is executive vice president of The Camden Group. Ms. Jacobs’ expertise is in the areas of physician-hospital relationships, physician group development and management, clinical integration and ACO strategies, health care strategic planning, physician compensation, and payer strategy. The Camden Group, with offices in Los Angeles, Chicago, New York, and Boston, is a national health care business advisory firm. Its advisory services include strategic and business planning, regulatory compliance, physician-hospital relationships, feasibility studies, and provider performance improvement and turnaround. Acknowledgments The authors would like to thank Mary Witt, MSW, vice president of The Camden Group, Dan Cusator, MD, MBA, vice president of The Camden Group, and Richard Goddard, MHSM, consultant at The Camden Group, for their support and contributions to this paper. ©2012 California HealthCare Foundation Contents 2 I. Executive Summary 5 II.Introduction 6 III. The Physician-Hospital Economic Environment 9 IV. Emerging Integration Initiatives in the Wake of the ACA 1 6 V. Impact of Health Care Reform on Physician-Hospital Integration 2 4 VI. Integration Case Studies: Six California Provider Organizations 4 0 VII.Conclusion 4 2Appendices 4 6Endnotes Implementing National Health Reform in California: Payment and Delivery System Changes   | 1 I. Executive Summary For several decades, most physicians and Muir Health, Presbyterian Intercommunity Hospital, hospitals have worked with each other independently, Scripps Health, and the University of California, San in arm’s length, fee-for-service arrangements. Over Francisco Medical Center — about their current and time, however, these arrangements have come to be future integration plans in light of recent trends. viewed as contributing to rising health care costs and significantly driving uncoordinated care, duplication Impact of the Affordable Care Act of services, and inadequate patient access. In addition, The passage of the ACA has propelled issues regarding physicians and hospitals alike have faced increasingly physician-hospital integration onto the national stage. challenging economic conditions, particularly since the During 2011, many specifics emerged regarding how recession of the late 2000s. The economic outlook for health care reform will be implemented, spurring providers has further been challenged by provisions of physicians and hospitals to change and accelerate their the Patient Protection and Affordable Care Act (ACA) alignment structures with one another. Across the and by continued cuts in Medicare and Medicaid state, providers of all stripes have been evaluating how reimbursement that have taken the form of reductions the ACA’s mandates — quality excellence, population both in the volume of Medicare patients that providers health management, efficiency, and cost savings — see and in reimbursement rates. Finally, issues related to can be realized in light of economic, political, and physician income and work/life balance have caused a market constraints. In many cases, organizations are shift in the types of specialties physicians choose, as well implementing pilot projects to assess the impact and as in the availability of physicians to practice medicine sustainability of alignment models prior to broad in California, driving hospitals and other provider adoption. The future landscape of care providers and organizations to develop mechanisms to aggregate models of care delivery in California will be shaped by physicians in their medical staff models. these efforts. In response, physician organizations’ interest in Federal Spurs to New Integration integrating or partnering with other entities has Mechanisms markedly increased, in particular to limit their exposure In early 2011, the Centers for Medicare & Medicaid to financial risks. This paper explores the impact of the Services began to define the future mechanisms by economic environment and of recent health care reform which Medicare and Medicaid providers will be initiatives on physician-hospital integration activity in evaluated, structured, and compensated. The Center for California. It builds on a 2010 California HealthCare Medicare & Medicaid Innovation (CMMI), created by Foundation paper, Physician-Hospital Integration the ACA, launched a series of voluntary initiatives that in the Era of Health Reform, and presents not only implement the vision of the Institute for Healthcare research findings but also perspectives gleaned through Improvement’s Triple Aim™: better population health, interviews with leaders at hospitals, physician groups, better patient experience, and reduced health care costs. health plans, and provider industry associations, which Future integration efforts in California and across the shed light on how these organizations are approaching nation are likely to be defined, in part, by the following integration. In addition, the paper offers case studies on federal payment initiatives: six provider organizations across the state — Adventist Health, Arrowhead Regional Medical Center, John 2  |  C alifornia H ealth C are F oundation n Health Care Innovation Challenge. Awards up to $1 Integration Brings Together billion in grants to fund innovative service delivery Unexpected Partners and payment models to support sustainable patient Regulatory, quality, and financial demands have driven care improvement projects. physicians — in particular, solo practitioners and n Comprehensive Primary Care Initiative. Works with specialty groups — to seek alignment opportunities commercial and state health insurance plans to in ever increasing numbers. Some small- to medium- offer bonus payments to primary care doctors for size physician groups have sought to merge or close initiatives that improve patient care coordination. their practices, often seeking to participate in a larger physician group, health system-based medical n Federally Qualified Health Centers (FQHC) Advanced foundation, or other integrated structure such as Primary Care Practice Demonstration. Tests the an outpatient clinic. The majority of health care effectiveness of doctors and other health professionals organization leaders interviewed for this paper believe working in teams to improve care coordination for that this integration trend by physician practices is Medicare patients at FQHCs. likely to continue for the foreseeable future. n Bundled Payments for Care Improvement. Allows providers to use bundled payments as a way to California’s prohibition on the direct employment increase efficiency and value in clinical care delivery. of physicians by entities other than professional In particular, provider organizations may apply corporations has historically limited hospitals from to receive Medicare Part A and Part B payments closely integrating with physicians. Over the last several for specified clinical services in a single “bundled” years, however, hospitals and health systems have payment. increasingly turned to medical foundations and other mechanisms for formal alignment. For example, among n Accountable Care Organization (ACO). Within an the six hospitals and health systems featured in this ACO, primary care physicians use care management paper’s case studies, only one does not have a medical processes to efficiently meet the health care needs of foundation or exclusively contracted medical group. Medicare beneficiaries. Most ACOs are separate legal However, new models of care have not been uniformly entities composed of provider organizations such as embraced among California providers. Elements of independent physician practice networks, medical integration — including care management models, group practices, and integrated delivery systems. participating organizations, performance standards, and financial incentives — vary widely between geographic According to the California Department of Health Care regions and segments of providers. Services, the insured patient population in the state is expected to increase by nearly 4 million by 2016; it is Payers, too, have increasingly aligned with providers anticipated that the above-described initiatives will help in management and administrative arrangements. alleviate capacity constraints across many sites of care. In some instances, this has taken the form of ACOs or other shared-risk models between payers and provider organizations. In other cases, payers have actually acquired physician organizations or invested in their management companies. Among insurers with significant enrollment in California, UnitedHealth Group and Wellpoint (Anthem Blue Cross of California) have announced acquisition strategies to form stronger relationships with physician practices. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 3 Implications for Policymakers subsidized insurance. Many of these providers also While many benefits may be realized from physician- lack the infrastructure and mechanisms necessary to hospital integration, there are a number of matters that successfully enable physician-hospital integration. California policymakers will need to consider with On the positive side, government grants, such as respect to current trends. those offered by CMMI through the Innovation Challenge, may provide avenues to jump start n Impact of Provider Consolidation on Pricing programs that will improve access to care for for Patient Services. Consolidation of provider vulnerable patient populations. organizations could increase the price of patient n Strain on Safety-Net Providers from Increased services. As hospitals, medical groups, and other Patient Demand. The expansion of insurance provider organizations form collaborative networks coverage to previously uninsured populations, such as ACOs, or merge with one another, patients plus the implementation of the California Health will have fewer choices from which to receive clinical Benefit Exchange, will likely increase operational care. Market consolidation may give remaining stress on safety-net providers such as FQHCs, rural competitors leverage to increase prices. In California, health clinics (RHC), and public hospitals. To date, the net impact of increasing provider consolidation these providers have not been able to meet patient on pricing remains to be seen. Ultimately, the demand, due to limitations in physician coverage impact of provider consolidation may be mitigated and facility space. The 2011 introduction of state somewhat by payers, who are stepping up pressure funding to address infrastructure constraints and to reduce prices and increase transparency of cost development opportunities is expected to help and quality reporting. In addition, the rollout of address these issues, but other steps may be needed benefit models that encourage use of lower-cost to ensure timely access to care. providers may further dampen the market effects of n Uncertainty for Safety-Net Providers Regarding integration. Newly-insured Medi-Cal and Commercial n Appropriate Patient Access to Clinical Services. Patient Populations. While some providers that Alignment of provider and payer incentives and the serve safety-net populations are concerned about pressure to reduce costs may have the unintended staffing shortages, others fear that patients covered consequence of reducing access to needed medical by richer health insurance benefits will be referred services. Regulations requiring disclosure of health to “mainstream” health care providers because plan performance regarding access to care will of improved reimbursement. If so, the financial continue to be of great importance. Further, the impact on providers who serve uninsured and actions of payers and providers in the coverage and underinsured populations would be significant. management of clinical services will need to be While the magnitude of this issue is not yet known, monitored and evaluated. providers that serve the safety net should take steps n Effect of State Budget Cuts. Ongoing state budget to improve their care delivery and relationships with cuts may limit the ability of providers to realize the physicians through enhanced clinical, financial, goals of their integration efforts. Pediatric and safety- and technological integration strategies. Initiatives net providers, in particular, have withstood recent underway as part of the Bridge to Reform program reimbursement cuts but are vulnerable to future are designed to facilitate these improvements, but reductions, particularly in light of increased demand their adequacy is yet to be determined. due to rising Medi-Cal and Healthy Families enroll­ ent, which is likely to be exacerbated in m 2014 as eligibility expands for Medi-Cal and other 4  |  C alifornia H ealth C are F oundation II. Introduction Over the past decade, economic pressures on physicians and hospitals have generated increased attention by both on the need to create structures and systems that enhance integration and collaboration between providers. The passage of the Patient Protection and Affordable Care Act (ACA) in 2010 further propelled issues regarding physician-hospital integration onto the national stage. Though the policy and regulatory specifics of the ACA are still being developed, providers who are mindful of the law’s implications for improved care coordination, quality, and efficiency are evaluating new models of alignment. This paper builds on a 2010 California HealthCare Foundation report, Physician-Hospital Integration in the Era of Health Reform, and explores the impact of the current economic environment and of recent ACA-related initiatives on physician-hospital integration activity in California. In addition to research findings, this paper presents perspectives from leaders at hospitals, physician groups, health plans, and provider industry associations about how these organizations are approaching integration.1 The paper concludes with case studies on six provider organizations across the state about their current and future integration plans in light of recent trends. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 5 III. he Physician-Hospital T Economic Environment Eroding Provider Revenue A changing economic landscape for physicians and from the Office of Statewide Health Planning and hospitals, exacerbated by the most recent economic Development (OSHPD), overall hospital discharges in downturn, has accelerated their interest in provider California were relatively flat between 2008 and 2010, integration, according to research and interviews increasing by only 0.4%, meaning that volume growth conducted for this report. The economic downturn has failed to offset lower revenue per discharge. changed the mix of insurance enrollment in many regions in California. During the last several years, With regard to physicians’ reimbursement for the both physicians and hospitals have seen greater large Medicare patient population, in most years proportions of uninsured and Medi-Cal patients: between 2002 and 2011 Medicare’s annual update Medi-Cal enrollment increased nearly 13% between to the physician fee schedule has trended at or below 2007 and 2010, while enrollment in commercial the Medicare Economic Index (MEI), a measure of insurance plans fell.2 This shift has negatively affected physician practice operating costs. Over the entire the financial picture for providers, since many depend period, annual updates in the physician fee schedule on revenue from commercial insurance to offset losses averaged 0.8%, compared to an average for the from government payers. Moreover, according to data MEI of 2.2%.3 (See Figure 1.) Figure 1. Medicare Physician Fee Schedule Annual Updates, 2002-2011 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ——— Physician Fee Update ——— Medicare Economic Index Note: Physician fee schedule update figures include all legislation impacting payment updates but exclude updates related to risk adjustment. Sources: 2011 Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, and The Camden Group. 6  |  C alifornia H ealth C are F oundation Medicaid fees, especially for California’s Medi-Cal program, have also fared badly. In late 2011, the Insurers Continue to Do Well Centers for Medicare & Medicaid Services (CMS) While reimbursement to physicians and hospitals has continued to fall, the nation’s largest payers have approved a 10% reduction to the Medi-Cal physician maintained considerable financial success despite fee schedule. California currently has the fourth lowest declining membership enrollment across the health Medicaid rates in the nation, paying 56% of Medicare insurance industry. This implies that payers have rates on average.4 become more effective at utilization management and at provider contracting tactics, thus improving Medicare margins for hospitals are also on the decline. their profitability.13 According to a 2011 report issued by the Medicare Commercial insurers have been under greater Payment Advisory Commission, margins on Medicare pressure by state regulators to mitigate excessive patients for nearly all major hospital groups, including rate increases, particularly for individual and small group insurance products. Further, the ACA critical access hospitals and major teaching hospitals, mandates a minimum medical loss ratio (the amount remained negative in 2010.5 About 64% of hospitals of health care premiums spent on medical costs) reported financial losses on Medicare patients.6 of 80% for the individual and small group market (For-profit hospitals broke even in 2010.) and 85% for large employers. One of the ways that insurers have maintained their profitability during Additional risks to physician reimbursement loom. difficult economic times and this government oversight has been to take an increasingly tough Congress has yet to find a permanent solution to stance in provider contract negotiations. In a 2011 Medicare’s sustainable growth rate (SGR) formula, a national survey of hospital leaders responsible for cost control method introduced in 1997 that limits payer contracting, 64% of respondents reported Medicare beneficiary expense growth to a level not having annual average reimbursement increases of exceeding annual Gross Domestic Product growth. 7% or less.14 Despite state regulation, insurers have In every year since 2003, Congress has temporarily also increased employer and beneficiary premiums to increase their profitability. postponed these reductions to the following year. In November 2011, CMS announced 27% in cuts to Medicare physician payments effective January 1, 2012.7 The following month, Congress Other cuts are expected in 2013, the result of federal passed a measure that delayed the onset of the cuts deficit reduction efforts. In November 2011, the until March 1, 2012, to buy legislators time to find congressional Joint Select Committee on Deficit a long term solution to the SGR. In February 2012, Reduction, tasked with developing a plan that might Congress passed legislation freezing current rates include a solution to the SGR formula, failed to come until 2013.8 That same month, President Obama also up with a proposal.10,11 The failure of this deficit introduced a federal budget proposal that includes reduction “super committee” to recommend a plan a provision giving physicians a two-year reprieve from means Medicare Part A and Part B payment cuts of 2% SGR payment cuts.9 each year from 2013 through 2021 will go into effect automatically, though Congress could still prevent some or all of the cuts by passing other deficit reduction measures before 2013.12 Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 7 Physician Workforce Issues Across the nation, the physician workforce has A study by the Association of American Medical weathered challenges that are fundamentally changing College’s Center for Workforce Studies found that the way medical groups and hospitals relate to each the effects of health care reform will likely compound other. Issues related to physician income and work/life national physician shortages. Projected need for balance have caused a shift in the types of specialties additional physicians across the United States will chosen, as well as in the availability of physicians to increase from 39,600 to 62,900 by 2015. Of those practice medicine in the state. In a 2007 survey, more physicians needed, 33,100 are non-primary care than 40% of primary care physicians in California specialists.22 reported dissatisfaction with both medical practice income and time spent per patient.15 According to These changing workforce dynamics have compelled analysis by Dartmouth College researchers, today’s leaders of provider organizations to develop new models physicians work four fewer hours per week than for physician alignment and leadership, in part to physicians practicing in 1976, a reduction equivalent improve medical staff recruitment and retention. Many to having 36,000 fewer doctors in the national hospitals, facing physician recruitment challenges and workforce.16 shortages, have embraced integration as a means of improving patient access to care and solidifying their Statistics on the number of active physicians in competitive positions. Likewise, increasing numbers of California indicate that, while the current count physicians have sought refuge in larger medical groups minimally meets the state’s population needs, patient and hospital-sponsored medical foundations in order access issues persist due to uneven geographic to mitigate financial pressures and provide a more distribution of physicians across the state. According to secure platform for responding to new payment models the California Medical Association, 74% of California and competitive strictures. In addition to increasing counties report primary care physician shortages, and alignment between physicians and hospitals, provider 45% of counties report specialist shortages.17 As of shortages are fostering the development of new care 2010, California ranked 20th nationally in the number delivery models that are less reliant on face-to-face of active physicians by population, and 26th in terms encounters and build on technology-based solutions of active primary care physicians.18 Finally, Medi-Cal such as e-visits, as well as more fully utilizing the patients in many communities have reported difficulty skills of the entire care team to reduce time pressure in obtaining appointments with specialists.19 Medi-Cal on physicians. Larger physician groups and medical beneficiaries are more likely to be turned down by foundations are better able to craft such solutions physicians and are four times more likely to receive because of their medical leadership oversight, more treatment in a hospital emergency department because highly developed process improvement skills, and access they could not get doctor or clinic appointments.20 to more sophisticated technology. California’s lower-than-average reimbursement rates are a contributing factor to the state’s primary care physician shortage. Revenue for primary care physicians in California is 12% less than for comparable physicians in other states.21 8  |  C alifornia H ealth C are F oundation IV. merging Integration Initiatives in the E Wake of the ACA In early 2011, CMS began to define Emergence of Medicare Accountable the future mechanisms by which Medicare and Care Models Medicaid providers would be evaluated, structured, Within a Medicare Accountable Care Organization and compensated. The Centers for Medicare and (ACO), primary care physicians use care management Medicaid Innovation (CMMI), created by the ACA, processes to efficiently meet the health care needs launched a series of voluntary initiatives to implement of Medicare beneficiaries. Leaders of provider the vision of the Institute for Healthcare Improvement’s organizations initially embraced the concept of ACOs Triple Aim™: better population health, better patient as an opportunity to facilitate Medicare population experience, and reduced costs. Future integration efforts health management. However, response was mixed, will be defined in light of these national initiatives. The at best, to proposed regulations by CMS on the following sections describe how each of these models requirements for Medicare ACOs, to begin in 2012. influences physician-hospital integration. Among organizations’ primary concerns were patient “attribution,” organizational complexity, extensive quality measures, limited opportunity for sharing Ongoing Pre-ACA Integration Efforts savings, requirements to take risks for losses, and Well before passage of the ACA, economic and other factors were impelling many physicians to compliance standards. Many organization leaders explore alternative relationships with hospitals estimated that the capital investment requirements and other provider organizations. Among these to meet information technology and compliance integration strategies, physicians have increasingly guidelines could outpace potential ACO savings for sought to align with provider organizations that many providers. (For a general description of the offer employment-like arrangements, such as two Medicare ACO programs, see “Overview: CMS medical foundations. Other arrangements, such as co-management for specific hospital services Accountable Care Programs,” on page 10.) and provider organization mergers, have also been developed. For a detailed discussion of pre-ACA In particular, the initial Shared Savings Program integration models and the factors that have driven (SSP) ACO models included elements that limited cash them, see The Camden Group’s Physician-Hospital flow and increased financial obligations to well beyond Integration in the Era of Health Reform, published the risk thresholds for many organizations. Overall, by the California HealthCare Foundation in 2010.23 Also, to help curtail financial losses, physicians and concern about the financial risk required of ACOs, hospitals alike have increased activity seeking to coupled with both limited shared savings potential eliminate inefficient medical practices. Examples and organizational complexity, created skepticism of such areas of inefficiency include variation in among many about whether the CMS ACO initiative physician practices, lack of standard protocols, and would be pursued by more than just a handful of lack of communication between providers. organizations. On the other hand, some California systems and medical groups experienced in managing patients under Medicare Advantage and commercial capitation arrangements were encouraged by the Pioneer ACO Program, introduced by CMMI in August 2011. Many providers with capitation experience, specifically Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 9 with Medicare Advantage plans, have infrastructure care delivery — including Mayo Clinic, The Cleveland in place to connect and coordinate providers. The Clinic, Geisinger Health System, and Intermountain Pioneer model can reward these organizations with a Healthcare — declined to participate in the Pioneer large financial “upside.” The model can also provide ACO program.24 a means for these organizations to transition fee-for- service Medicare patients to partial population-based The final SSP regulations, released in October payment arrangements in the third year of program 2011, addressed industry concerns by significantly participation. Six providers in California were initially reducing the number of quality measures ACOs are approved as Pioneer ACOs, making it the state with required to report, and by reducing electronic health the most providers participating in the program; record eligibility and other eligibility and compliance Massachusetts ranks second with five providers requirements. Patient attribution was also modified to approved for the program. (For a list of approved improve confidence in identifying individuals for whom California Pioneer ACO providers, see Table 5, on page the organization would be responsible. The prospect 20 of this paper.) Outside of California, however, some of financial risk for providers was also addressed, by organizations touted as national leaders in integrated eliminating the “downside” risk for those organizations Overview: CMS Accountable Care Programs As defined by the ACA, Medicare ACOs are legal organizations across the nation, based on those entities composed of provider organizations that organizations’ perceived readiness to take on use primary care physicians and care management additional risk and large populations (at least 15,000 processes to efficiently meet the health care needs Medicare fee-for-service beneficiaries). of Medicare beneficiaries. Eligible organizations may n Shared Savings Program. The SSP is intended include independent physician practice networks, for provider organizations that have less care medical group practices, acute care hospitals that coordination and patient management experience but employ ACO-eligible physicians, joint venture that nonetheless have the ability to coordinate care arrangements between hospitals and professionals, and meet quality reporting requirements. The SSP critical access hospitals, rural health clinics, and has two shared savings tracks for ACOs to choose FQHCs. (For details about Medicare ACOs and from: Track One offers only shared savings, while comparison with other federal government initiatives, Track Two offers sharing in both savings and losses. see Table 1 on page 12.) Beginning in 2012, providers To foster program participation among critical access, may qualify to participate in two Medicare ACO rural, and physician-owned organizations, CMMI has programs: instituted the Advance Payment Model initiative. n Pioneer ACO. This model is intended for provider Upfront and ongoing payments to support development organizations that have robust processes of care and care coordination initiatives will be awarded and the infrastructure and experience necessary under this initiative, to test whether such payments to eventually assume responsibility for enrolled will encourage SSP participation among safety-net Medicare beneficiaries in a population-based providers.27 A participating ACO may qualify for payment model. Participating ACOs must meet payments based on either one of the following eligibility the same quality reporting and other organizational requirements: requirements as do SSP ACOs. Compared to the n It does not include any inpatient facilities, and has SSP, the Pioneer ACO program has higher shared less than $50 million in total annual revenue. savings and loss rates. It also allows providers n It includes critical access hospitals and/or Medicare the option of changing the reimbursement model from fee-for-service to partially capitated payments low-volume rural hospitals, and has less than $80 in the third year of the program. This program million in total annual revenue. is managed by CMMI, which has selected 32 10  |  C alifornia H ealth C are F oundation that prefer a lower risk option. These changes effectively for discrete services, into those that provide a shared opened the door for organizations with less experience incentive to meet the Triple Aim™, physicians, in population-based health management to begin the hospitals, and other providers are rewarded for collabor­ process of care delivery transformation through the SSP. ating and exploring new innovative models of care. Health care industry associations — including Health Care Innovation Challenge the American Medical Association, the National Designed to test creative ways of improving health Association of Public Hospitals and Health Systems, care quality and lowering costs, the Health Care and the American Hospital Association — applauded Innovation Challenge will award funds to projects that the changes CMS made in the final SSP rules.25 Leaders leverage new service delivery and payment models. of provider organizations, however, continued to be Up to $1 billion in total grants is to be awarded, cautious about the feasibility of program participation. with preference given to projects focused on high-risk According to a HealthLeaders Media article, many patient populations. The initiative is open to a broad provider leaders expressed “serious concern” with array of applicants, including health systems, payers, the final SSP regulations. Leaders cited the cost and community collaboratives, for-profit organizations, local difficulty of establishing the ACO infrastructure, the governments, public-private partnerships, and private complexity of the system, and the three-year time sector organizations. Applications were due in January commitment as the primary roadblocks. Many also 2012, with awards to be announced in March and questioned whether the savings, if realized, would August of 2012. justify investment in an ACO.26 Comprehensive Primary Care Initiative Other CMS Integration and Payment Scheduled to launch in 2012, this initiative is focused Reform Initiatives on providing incentives to primary care physicians ACOs are only one of numerous tools the federal for improved coordination of patient care. Public and government has recently developed to facilitate payment private payers can apply for funds to support wellness reform and to achieve the Triple AimTM with regard programs, proactive patient health management, to Medicare populations. CMS has developed and referring physician communications. Physicians other pilot projects with three aims: to improve the and payers have the opportunity to share in savings availability of primary care, to facilitate new care generated for the duration of the program. models (e.g., the Health Care Innovation Challenge, the Comprehensive Primary Care Initiative, and the FQHC Advanced Primary Care Practice Federally Qualified Health Center Advanced Primary Demonstration (also known as the FQHC Care Practice Demonstration), and to directly reduce Medical Home Demonstration) the costs associated with acute care and post-acute To support the transformation of FQHCs into care services (e.g., the Bundled Payments for Care providers of team-oriented, coordinated, patient- Improvement Initiative). For a side-by-side comparison centered care, participating practices can receive a of these initiatives, see Table 3 on pages 14 -15. monthly care management fee of $6 per eligible Medicare beneficiary in addition to the established These voluntary initiatives have brought together all-inclusive visit payment. Nationally, more than providers to focus on care delivery processes and effec­ 500 FQHCs are participating in the three-year tive medical management for Medicare bene­­ ciaries. fi­ demonstration project, which began November 1, These initiatives do not require physicians, hospitals, 2011; in California, 70 FQHCs are participating in or other providers to be joined through a single legal the program. (For participating sites in California, see entity. As CMS moves away from traditional fee-for- Appendix A.) service payment models, which pay individual providers Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 11 Bundled Payments for Expanding Participation in Care Improvement Initiative Health Insurance This initiative is focused on encouraging acute and As a result of the ACA, the number of people insured post-acute care hospitals and other providers to in California will significantly increase. California’s effectively manage the utilization of services and care Bridge to Reform program has reallocated state funds delivery costs through collaboration with physicians to pay for enrollment expansion in Medi-Cal and state and other providers. Beginning in 2012, participating insurance programs through 2016. Further, enrollment hospitals receive a single “bundled” payment for services in Medi-Cal and Healthy Families is expected to provided for an entire episode of care (as defined by increase by 1.7 million beginning in 2014, to nearly 8.5 each bundle). Hospitals propose Medicare Severity- million.28 Federal subsidies for individuals and families Diagnosis Related Groups (MS-DRG) to be included with incomes within 400% of the Federal Poverty Level in the episode. An episode may include readmissions (FPL) will increase commercially insured enrollment by and post-acute care services provided after discharge. nearly 2 million by 2016. (See Table 2 on page 13.) Depending on the types of clinical episodes selected, hospitals may participate in one of four models. To ensure that all eligible citizens are able to access (See Table 1.) Applications for Model 1 were due in affordable health care insurance, the ACA authorized November 2011; applications for the other models are the creation of state-based health insurance exchanges. due in late April 2012, with bundled arrangements Scheduled to be operational by the annual enrollment expected to begin in October 2012. Table 1. Bundled Payment Models Model 2: Inpatient Stay Plus Model 3: Model 1: Post-Discharge Post-Discharge Model 4: Inpatient Stay Only Services Services Inpatient Stay Only Pricing Method Discounted payments, Retrospective Retrospective Prospectively set no separate target comparison of target comparison of target payments price price and actual price and actual fee-for-service fee-for-service payments payments Clinical Conditions All MS-DRGs Applicant to propose Applicant to propose Applicant to propose based on MS-DRG for based on MS-DRG for based on MS-DRG for inpatient hospital stay inpatient hospital stay inpatient hospital stay Expected To be proposed by To be proposed by To be proposed by To be proposed by Discount Provided applicant applicant applicant applicant to Medicare CMS requires CMS requires a Subject to a minimum minimum discounts, minimum discount of discount of 3% increasing from 0% 3% for episodes of Larger discounts in first six months to 30 to 89 days post- for MS-DRGs in 2% in Year 3 discharge, and 2% for Acute Care Episode episodes of 90 days Demonstration and longer Sources: Centers for Medicare & Medicaid Services and The Camden Group. 12  |  C alifornia H ealth C are F oundation Table 2: Projected Impact of ACA on California’s exchange is expected to offer plan options Commercially Insured Populations (2016) within five coverage levels, from “platinum” plans with Pre-ACA Post-ACA Change high premiums that cover 90% of medical expenses, to (millions) (millions) (millions) “bronze” plans with low premiums that cover 60% of U.S. 190 206 16 medical expenses. Aside from the variation in medical services covered by each coverage level, there may be California 21 23 2 distinct variation in provider networks offered. Federal Source: J. Gruber and P. Long, “Projecting the Impact of The Affordable Care Act on subsidies will help individuals and families between California,” Health Affairs 30, no.1 (2011): 65. 133% and 400% of the FPL; the majority of these enrollees may choose to purchase insurance plans in period for calendar year 2014, it is anticipated that lower coverage levels to save money.31, 32 Payers offering these insurance exchanges will facilitate insurance plans via the Health Benefit Exchange will be able to coverage for millions of patients, including low- and define the provider networks for each coverage level as middle-income families. To support the process, the a means of controlling costs. Plans in lower coverage federal government has awarded more than $235 levels, such as “bronze” plans, will also likely restrict million in grants to fund the development of exchanges covered benefits; access to certain providers may allow at the state level. only for out-of-pocket fees, or present other restrictions. Network strategies such as this would alter physician Individual states have latitude whether to develop an and hospital referral patterns and patient volumes. insurance exchange and, if they do, on how best to implement it. States that fail to implement their own In light of these changes, hospitals and physicians exchanges will be required to give residents access share an interest in jointly pursuing payer strategies to the federal health insurance exchange. Across the to preserve existing referral and patient relationships. nation, 17 states have so far established plans to build Concerns about being excluded from a network a health insurance exchange.29 In some cases, governors developed by a payer for participation in a state health have issued executive orders to adopt health insurance benefit exchange are compelling many physicians and exchanges, bypassing state legislative politics to advance hospitals to develop inclusion strategies. This means exchange development. Another 11 states have either looking at cost reduction strategies, evaluating primary failed to pass laws establishing an exchange or do not care access points, and pursuing ACO-like initiatives plan to launch a state-based insurance exchange. with payers to share in cost savings and patient outcome achievements. Further, initiatives to redesign California has embraced the health benefit exchange care processes and staffing to improve capacity, in concept. The state was the first in the nation to approve preparation for increased numbers of insured patients, legislation to establish a state health insurance exchange. require collaboration between hospital and physician Information technology enhancements to improve ease providers. These factors, in combination with other of access to health benefit information, particularly components of payment reform, serve to reinforce the for low-income enrollees, plan options and costs, and need for all types of providers (including hospitals, expedited eligibility and enrollment processes, have all physicians, and post-acute providers) to form new or become priorities for the state. By November 2011, reinforced alliances in order to remain relevant in the California had received nearly $40 million in federal evolving health care market. planning and establishment grants for its Health Benefit Exchange.30 Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 13 Table 3. CMS Integration and Payment Reform Programs FQHC Advanced Health Care Comprehensive Primary Care Bundled Payments Innovation Primary Care Practice for Care ACO Challenge Initiative Demonstration Improvement (Pioneer and SSP) Description Awards up to $1 Works with commer- Tests the effective- Develops models of Presents opportunity billion in grants to cial and state health ness of doctors and bundling payments for gain-sharing fund innovative insurance plans to other health profes- through four broadly from savings that service delivery and offer bonus payments sionals working in defined models of result from improve- payment models to to primary care teams to improve care, three of which ments in care delivery support sustainable doctors to support care coordination for involve a retrospec- for Medicare fee-for- patient care improve- initiatives that Medicare patients at tive bundled payment service patients ment projects improve patient care FQHCs arrangement with through the effective coordination a target payment deployment of primary amount for a defined care services episode of care Model Attributes Awards expected to Encourages collabora- Delivery of timely, Flexible, may include Providers assume be $1 million to $30 tion between primary coordinated medical acute hospital and responsibility for cost million each care physicians and care follow-up care, and and quality for defined payers to test two all inpatient services population Care improvement Multi-disciplinary models to improve or select clinical to be demonstrated team led by primary Requires entity that care quality and costs episodes within six months of care physicians has Tax Identification award Emphasis on Hospital or convener Number to accept Emphasis on high-risk development of determines services shared savings Should enable rapid patients care coordination included in the care (or losses) deployment of health processes bundle care workforce Specific initiatives at Does not require Emphasis on high-risk the discretion of the crea­ion of a separate t patients payer legal entity to participate Payment Implications Limited; projects Fee-for-service Per-member, Fee-for-service Fee-for-service for may include payment payment for Medicare per-month care payments or bundled initial length of arrange- redesign or other services plus monthly coordination payment for all ment; Pioneer program reimbursement- management fee payment, increase services (Medicare includes partial popula- related initiatives per enrollee; shared in fee-for-service Parts A and B) in a tion-based payment savings for payers rates, or access to clinical episode Shared savings, and and physicians savings may participate in shared losses Physician Impact Varies depending on Primary care Centralizes referral Requires cooperation Strengthens primary care scope of awarded physician financial and care communica- with specialists and by providing incentive projects incentives for patient tions with primary ancillary caregivers to focus on disease and management initia- care physicians to enact episode- care management tives, and on-site care based payment May create incentive for manager methodology use of medical home Requires active physi- cian participation to lead cost reduction and meet quality standards 14  |  C alifornia H ealth C are F oundation Table 3. CMS Integration and Payment Reform Programs (cont.) FQHC Advanced Health Care Comprehensive Primary Care Bundled Payments Innovation Primary Care Practice for Care ACO Challenge Initiative Demonstration Improvement (Pioneer and SSP) Degree of Physician-Hospital Integration Required Likely encourages None required Infrastructure require- Requires coordi- May require formal physician alignment ments, such as nation, but not integrated structure via service delivery or electronic health necessarily formal depending on bundled payment innovations records, may drive integration, although payment model that support patient formal integration integration makes it selected care coordination easier Implementation Challenges Must be self-sustain- Largely dependent Capital requirements Hospital typically Large capital invest- ing following the on payer to imple- for information assumes majority of ments may be needed initial grant period ment programs that technology downside financial for infrastructure; data (three years) impact Medicare risk mining and manage- Does not create fee-for-service and ment resources incentives for special- Discount thresholds commercial patient required ists, hospitals, or may be unachievable populations other providers to for some hospitals Confusion over patient participate in care attribution (patients coordination do not “select” to be in an ACO, but are Requires care model “attributed” based on redesign, which their use of primary may be difficult to care services) accomplish Potential for financial losses Cost Improvement Opportunity Projects required Reduces costs Reduces costs Expects discounts Reduced costs, to lower total costs of through decreased ER through decreased greater than 3% on decreased ER visits, care to qualify visits and decreased ER visits and lower usual Medicare fees and decreased inpatient for funds inpatient utilization inpatient utilization utilization Does not address Varies depending on Low to moderate frequency of cases scope of awarded impact depending on projects the initiatives imple- mented by payer Benefit to Patients Improved care Improved communi­ Improved care Defined clinical Improved care coordination cation and more coordination and pathways expedite coordination efficient coordination access to providers patient care and lead Proactive health Proactive health of care to more consistent management Proactive health management outcomes Proactive health management management Provider must meet quality guidelines Source: The Camden Group. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 15 V. mpact of Health Care Reform I on Physician-Hospital Integration Physicians Seek Opportunities to Integrate The ACA and other recent national initiatives to in California, see the 2010 report Physician-Hospital improve health care quality and efficiency, primary care Integration in the Era of Health Reform, published by the and specialist workforce shortages, diminishing financial California HealthCare Foundation.34 performance, and competitive pressures have combined to compel hospitals to initiate or expand existing Similarly, regulatory, quality, and financial realities have aligned medical staff structures. California prohibits driven physicians — in particular, solo practitioners and direct employment of physicians by entities other specialty groups — to seek alignment opportunities in than professional corporations in most cases, so many increasing numbers. Physician interest in employment, hospitals and health systems use medical foundations, as well as other alignment structures, is strong, with as well as other models, as a mechanism for formal more than 50% of cardiology, surgery, and obstetrics/ alignment. Nationally, the American Hospital gynecology (ob/gyn) specialists expressing interest in Association reported that 65% of hospitals surveyed hospital employment in a recent national study.35 in 2010 planned to increase the number of employed (See Figure 3.) physicians in the upcoming year.33 (See Figure 2.) For details and analysis of medical foundation activity Figure 2. Hospitals Increasing the Number of Employed Physicians, National, 2010 80% 65% 43% 41% 28% 23% 19% 19% 18% 13% 13% Overall Primary Hospitalists General Ob/gyn Emergency Ear, nose, Intensivists Psychiatry Neuro- Vascular physician care surgery medicine and throat surgery surgery total Making efforts to increase number of employed physicians Source: American Hospital Association, Rapid Response Survey: Telling the Hospital Story (March 2010). 16  |  C alifornia H ealth C are F oundation Figure 3. Physician Interest in Employment, by Specialty, National, 2010 63% 53% 50% 49% 48% 48% 48% 46% 31% 25% Cardiology Surgery Ob/gyn Internal Emergency Pediatrics Anesthes- Family Radiology Orthopedics medicine medicine iology medicine Source: PricewaterhouseCoopers Health Research Institute, Physician Survey (2010). Accelerating Consolidation Activity Figure 4. Physician Practice Closure Activity, California, 2007-2011 in California As a result of economic pressures and expected future Total Closures Each Year capital obligations, some small- to medium-size 8 16 13 14 10 20 physician groups have sought to merge or close their practices. Industry association and senior hospital leaders interviewed for this paper noted a marked 15 1 increase in the number of physician organizations that 2 have approached hospitals, health systems, 9 10 and other medical groups with alignment proposals. 6 1 9 Frequently, these physicians seek to participate 3 4 in the organization’s medical foundation or other 5 2 2 5 integrated structure, such as an outpatient clinic, to 1 merge with an existing medical group, or to work in 4 4 3 3 2 an alternative shared-risk arrangement. The majority of 0 executives interviewed for this paper hold the view that 2007 2008 2003 2009 2010 YTD2011 physician practices will continue the trend of pursuing I Mergers I Purchased I Other I Financial Difficulties integration, particularly as a means of limiting their Note: “Other” closure explanation includes small enrollment, ceased HMO contracting, exposure to financial risk. no reason given, and other. Closures listed for 2011 include activities through November 1, 2011. Source: Cattaneo & Stroud, List of Closed Medical Groups, Report 2A (2011). Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 17 Data bears out the view that, across California in recent The Evolving Role of Payers years, mergers and acquisitions of medical groups have In an effort to effectively manage claims expenses, become more frequent. Between 2008 and 2011, 53 many payers have sought out new ways to influence medical groups in the state closed, merged, or were physician practice decisions. In some instances, this purchased. (See Figure 4.) Among recent transactions, has meant exploring ACOs or other shared-risk models large independent practice associations, medical founda- with provider organizations. In other cases, payers have tions, and academic practices have been consolidating actually acquired physician organizations or invested in to increase market presence and to position themselves their management companies. for impending CMS and commercial integration models. (See Table 4.) Among insurers with significant membership enroll­ ent m in California, UnitedHealth Group and Wellpoint, which operates Anthem Blue Cross of California, have each announced acquisition strategies to form stronger relationships with physician practices. Although California state law prohibits direct employment of Table 4. Major Physician Practice Acquisitions, California, 2010-2011 Physicians in Acquired Practice Acquired Physician Practice Acquiring Organization Acquired Practice HMO Enrollees Affiliated Doctors of Orange County Heritage Provider Network 907 50,500 AppleCare Medical Group (Coast Alliance Physicians Medical Group 173 15,900 Healthcare Management) Alta Bates Medical Group Brown & Toland Physicians 610 46,500 Axminster Medical Group Providence Medical Institute 136 27,800 Santa Monica Bay Physicians Medical Bay Area Community Medical Group 320 38,200 Group Bristol Park Medical Group Memorial Care Medical Foundation 687 74,900 Lakeside Community Healthcare Heritage Provider Network 1,752 134,100 Mills-Peninsula Medical Group Sutter Medical Foundations (a) 330 35,000 Northridge Medical Group HealthCare Partners 305 27,200 Pacific Alliance Medical Group AltaMed-Clinica Medica San Miguel 201 1,000 Physicians Integrated Medical Group Hill Physicians 250 14,800 Santa Monica Bay Physicians Medical UCLA Medical Group (UCLA–Santa 40 - (b) Group Monica Bay Physicians) Talbert Medical Group HealthCare Partners 379 66,000 (a) The medical groups that comprise the panel of Sutter Medical Foundation are: Sutter East Bay Medical Foundation, Sutter Gould Medical Foundation, Sutter Medical Foundation–Central Division, Sutter Medical Foundation–Central Division/Sutter West, Sutter Medical Foundation–West Division/Solano Regional, Sutter Pacific Medical Foundation, and Palo Alto Medical Foundation. (b) Number of covered enrollees not available. Note: Includes announced and completed transactions. Source: Cattaneo & Stroud, Report 2A (2010). 18  |  C alifornia H ealth C are F oundation physicians by most entities, a payer can effectively developed strategies to enable clinical integration and control an independent practice association (IPA) by business model transitions for hospitals and physician purchasing the IPA’s non-clinical assets and overseeing groups nationwide. The company recently formed the its management. In 2011, for example, Wellpoint Accountable Care Solutions unit, which will work with completed the purchase of Southern California-based both contracted and non-contracted providers. The Medicare Advantage plan and medical group unit proposes to support physician-hospital alignment CareMore Health Group. Similarly, Optum, the health in three ways: new care and business models, such services unit of UnitedHealth Group, announced as payment models and private label health plans; the purchase of Monarch HealthCare, an IPA with consulting services; and tools and operating capabilities, 2,300 physicians based in Orange County. In addition such as advanced clinical decision-support technology, to Monarch, Optum has also recently assumed disease management, wellness programs, and traditional management responsibilities for two smaller IPAs in health plan underwriting and administration services. the state, AppleCare Medical Group and Memorial Healthcare IPA.36 Aetna views provider need for health information technology as a key strategic opportunity for health In California, IPAs are of particular interest to payers plans to expand the scope of services they can provide, due to the IPAs’ extensive population-management in particular to fulfill the data-sharing and analytical experience. In addition, many IPAs and other medical needs of integrating providers. Aetna views some groups have experienced growth constraints in recent other strategies, such as reference pricing (in which years, in terms of both enrollment and access to capital, beneficiaries are required to pay for any provider costs due to the decline in commercial HMO enrollment. beyond the “reference” price) as less important. (See Figure 5.) In such circumstances, an arrangement “Most organizations are still trying to figure out with a payer can be a viable means of securing access what to do,” Charles Kennedy, MD, head of Aetna’s to capital. Accountable Care Solutions unit, told researchers for this study. “There is a significant thirst for information Other payers have implemented different approaches about what other providers are doing, how they are to lowering costs and developing new revenue streams doing it, and most importantly, why they are doing in response to the ACA. For example, Aetna has what they are doing.” Figure 5. California Medical Group HMO Enrollment, 2004-2010 14,000 12,000 Enrollment (in thousands) 10,000 -14% ——— Commercial 8,000 ——— Medi-Cal 6,000 ——— Medicare 4,000 +50% 2,000 +13% 0 2004 2005 2006 2007 2008 2009 2010 Sources: Cattaneo & Stroud and The Camden Group. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 19 Health plans are also experimenting with network organizations. Further, a few leaders interviewed for this and contracting strategies to drive down health care study noted that while some hospitals and physician costs. Leaders interviewed for this study reported organizations in the state have rapidly formed new, that the major payers are seeking to leverage narrow formal partnerships with each other, FQHCs, rural networks, tiered benefit plans, and other strategies health clinics (RHC), and other safety-net providers to drive increasing cost transparency to members, have not been as quick to integrate. hence encouraging the use of more cost-effective providers. Physician organizations and hospitals are Accountable Care Organizations often thrust together to respond to these strategies in in California order to preserve referral patterns, relationships, and Based on anecdotal information gathered for this study, market share. Blue Shield of California, for instance, hospitals and physician groups across California are is beginning to focus on bundled payment models, in evaluating the feasibility of forming Medicare ACOs addition to specialty “centers of excellence” and ACOs under the SSP. (For details about Medicare ACOs, see as levers for integration. Based on the success of Blue “Overview: CMS Accountable Care Programs” on page Shield’s existing ACOs, the insurer plans on rolling 10 of this report.) CMS is expected to announce the out between five and eight additional accountable care initial provider organizations participating in the SSP in provider initiatives in California in 2012. Spring 2012. An executive from a California health insurer noted As of December 2011, CMS announced that six that many plans are exploring ways to limit access to provider organizations in the state will be participating large, high-cost providers that dominate local markets. in the Pioneer ACO program, beginning in 2012. Many of these strategies, which seek to reduce excessive (See Table 5.) utilization and lower costs, bring together hospitals and physicians in new arrangements, such as bundled payments, ACOs, and other shared-risk structures to Table 5. California Providers in the CMS Pioneer ACO align incentives for reducing costs and achieving quality Program, 2012 benchmarks. Organization Service Area Current Physician Integration Activity Brown & Toland Physicians San Francisco Bay Area in California HealthCare Partners Los Angeles and Orange Medical Group Counties Among providers in California, new models of care have not been uniformly embraced. Physicians and Heritage California ACO Southern, Central, and Costal California hospitals alike feel compelled to integrate, but the elements of integration — from the care management Monarch HealthCare Orange County model and participating organizations to performance PrimeCare San Bernardino and standards and financial incentives — vary widely Medical Network Riverside Counties between geographic regions and segments of providers. Sharp HealthCare San Diego County For instance, IPAs or medical groups with significant Source: Centers for Medicare & Medicaid Services, December 2011. market presence and experience in managed care contracting have implemented strategies that largely circumvent hospital integration by forging direct, formal relationships with payers or other provider 20  |  C alifornia H ealth C are F oundation Compared to the caution with which organizations Integration Efforts Among California are approaching CMS’s Medicare ACO programs, Pediatric Providers activity surrounding commercial ACOs has been more Integration activities among pediatric providers in the substantial, at least in some markets. Many partnerships state have been less pronounced than those of their between hospitals, medical groups, and payers integrate adult care counterparts. Numerous health care leaders processes of care and leverage the payer’s claims with interviewed for this study noted that the absence of the providers’ electronic health records data to assess pediatric provider participation guidelines for CMS opportunities for care management improvement. programs has stalled integration activities. In particular, Physicians and their hospital partners, in effect, adopt providers that serve predominantly pediatric Medi-Cal the role of an at-risk payer; financial responsibility for and Healthy Families program populations cannot patients included in the ACO is shared or transitioned participate in the SSP as it is currently defined, since it to the providers. In all, this model enables integration is focused on the traditional Medicare population. through local physician accountability, shared financial responsibility, and use of timely performance The increasing proportion of patients insured by information. Early returns from the first commercial Medi-Cal, coupled with declining local government ACOs show promise: the California Public Employee budgets, has increased the fragmentation of pediatric Retirement System pilot ACO, formed in partnership health care delivery. Primary care access deficiencies with Hill Physicians, Dignity Health (formerly Catholic lead to children with serious medical conditions seeking Healthcare West), and Blue Shield of California, treatment in high-cost sites of care, such as children’s reported a 14% drop in total patient days and a 17% hospitals. Recently, these providers have increasingly reduction in 30-day readmissions. Estimates suggest come under pressure by payers to reduce costs. Further, that this ACO is likely to result in $15.5 million in slow adoption of information systems has hampered total savings in its first year.37 evaluation of service utilization, costs, and gaps in the continuum of care. In addition, the potential In many markets outside of California, the vast elimination of the State Children’s Health Insurance majority of ACOs are led by hospitals or integrated Program and Disproportionate Hospital Share subsidies delivery networks, in partnership with a local payer that has made many providers cautious about changes to has the resources to shift focus toward comprehensive the existing care delivery model for fear of additional population management. (For details on selected budgetary shocks. commercial ACOs across the United States, see Appendix B.) In California, the experience of IPAs and Medi-Cal is a significant source of payment for most medical groups with HMO delegated risk (professional children’s hospitals, and with Medi-Cal budgets at capitation) positions them well for taking leadership continuing risk of annual reduction, groups of children’s positions in commercial ACO products. Examples are hospitals have joined forces to assess the applicability of HealthCare Partners and Sharp Community Medical accountable care models for the pediatric population. Group in Anthem’s ACO pilot. Aetna, Blue Shield In 2011, the California Children’s Hospital Association of California, and Anthem Blue Cross have formed began evaluating the potential for a statewide children’s ACOs with integrated medical groups and IPAs. pediatric ACO or specialty health plan, with the Many of these ACOs have expanded enrollment goal of developing an integrated model of care in beyond traditional HMO members to include PPO which primary care physicians and preventative care members, in order to realize potential savings by providers would work in close clinical and economic steering patients to the most appropriate settings of relationships with children’s hospitals. Results from this care.38 (For information regarding selected commercial assessment were not publicly available at the time of ACOs operating in California, see Appendix C.) this publication. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 21 Leaders interviewed for this study were skeptical On the other hand, the need to manage the care of about the application of the ACO model to children’s patients for whom lifelong attention is necessary, in hospital care delivery. Many children’s hospitals lose order to follow up on congenital or other complex money on pediatric cases insured by Medi-Cal or the conditions, may create opportunities for ACO-like Healthy Families program. While interview participants initiatives. For example, pediatric community providers agreed that there are inefficiencies likely across the are taking steps to use the patient-centered medical continuum of pediatric care, the ability of the ACO home model as a means of fostering integration among model to effectively reduce costs in children’s hospitals clinicians, hospitals, county health plans, and local is untested. According to Cindy Ehnes, president and agencies. During the first half of 2012, children’s CEO of the California Children’s Hospital Association, hospitals, county providers, and health plans in five children’s hospitals see the sickest patients, many of counties will participate in a regional pilot program to whom require extensive inpatient care. Typically, ACOs test the effectiveness of various integration models in leverage primary care physicians to achieve quality overcoming barriers to providing multidisciplinary and cost improvement by keeping patients out of care for children with special needs.39 (See Table 6.) the hospital, a strategy that may not be effective for Under the pilot, a pediatric ACO in San Diego County, children’s hospitals that treat non-chronic, highly acute to be initiated by Rady Children’s Hospital, will patient populations. coordinate care for 600 children who have one of three chronic conditions: cystic fibrosis, hemophilia, or sickle cell anemia. The Rady pediatric ACO hopes to improve Table 6. California Children’s Services (CCS) Regional Pilot Program, 2012 County Leading Organization Integration Model Participating Organizations Alameda County Alameda County Health • M edical home • P hysicians, specialists, Care hospitals, and other programs • C are coordination and managed through EHR linkages Los Angeles County LA Care Health Plan • M edical homes for each partici- • Three children’s hospitals pating acute care provider • E ventual transition to county- wide CCS system of care for eligible children Orange County Children’s Hospital of • M edical home • Specialty care centers Orange County (CHOC) • E ventually transition into a • CHOC specialty-specific ACO • CHOC community clinic • CHOC-affiliated physicians San Diego County Rady Children’s Hospital • ACO • County CCS program of San Diego County • Rady • Rady-affiliated physicians San Mateo County San Mateo County Health • O perational improvement and • E xisting managed care system Care care management • County CCS program • P rimary care and specialty physicians Source: California Department of Health Care Services. 22  |  C alifornia H ealth C are F oundation care coordination for patients insured by Medi-Cal and utilization initiatives. In addition, California does managed care plans who seek specialty care. Such not require reporting of specific quality measures at the care is reimbursed for qualified children under fee-for- clinic or individual physician level, and overall quality service arrangements by California Children’s Services, reporting is limited.41 Updating the payment method a program administered by the California Department to incorporate a performance-based approach would of Health Care Services, which provides care manage­ accelerate integration activities in the future, according ment services for children with chronic conditions to these sources. and infectious diseases.40 Based on the outcomes from these initial pilots, the program may be rolled out Lack of funding for information technology, care across the state. navigators, and other tools to enable better care coordination has limited integration progress Integration Efforts by California among safety-net providers. Expanded funding for Safety-Net Providers infrastructure development through California’s Bridge Prior to the ACA, the complexity and economic to Reform legislation will improve matters somewhat, challenges of California’s health care safety net impeded with support for county clinics, public hospitals, integration efforts. The landscape of safety-net pro­ iders v and other local government health service programs. — FQHCs, RHCs, and physicians and other providers Other funds have also been made available, such as that accept patients regardless of their ability to pay — the Medicare FQHC medical home demonstration, crosses geographic and political boundaries, making which made awards to nearly 70 FQHCs in California clinical partnerships difficult. Now, encouraged by newly to implement population-focused care management available funding from both federal and state sources, initiatives. These programs will encourage further provider organizations and county health services consideration of integration activities among providers departments are evaluating integrated part­ erships. To n who serve safety-net populations. date, many of these emerging arrangements have focused on transitions in care, improved referral communication, To support the efforts of safety-net organizations and and overall patient management. other types of providers, CMMI launched the Health Care Innovation Challenge, a grant program to provide Among these integrated delivery and ACO-like $1 billion for public and private care improvement models beginning to emerge is the Accountable Care initiatives focused on high risk/high need populations Network (ACN), a partnership in the Los Angeles nationwide. The program will begin in 2012, and will region that is bringing together hospitals, FQHCs, provide subsidies to projects for a three-year period. and IPAs. Participating organizations include AltaMed Health Services Corporation, Citrus Valley Health It should be noted that questions regarding the Partners, Hollywood Presbyterian Medical Center, and competitive implications of integration have yet to be White Memorial Medical Center. Thus far the ACN resolved. Geopolitical and organizational boundaries has focused on defining a physician-led approach to have slowed the ability of counties, nonprofit clinics, improving communications and patient hand-offs and other providers to form close partnerships due among the participating providers. to concern about the budgetary impact of changing patient referral patterns. In particular, county hospitals A number of individuals interviewed for this study stand to lose inpatient volume as a consequence of noted that safety-net integration efforts have been slow stronger primary care-based health initiatives. Initiatives to take shape due to structural, capital, and competitive aimed at increasing efficiency that, as a byproduct, issues. Since the payment system for community clinics reduce inpatient admissions are of lower priority to is one in which all reasonable costs of care for visits are these organizations, as these changes have a direct covered, providers lack incentive to pursue efficiency impact on patient revenues and their bottom lines. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 23 VI. ntegration Case Studies: I Six California Provider Organizations Introduction The providers highlighted in these case studies typify The following case studies describe how six different the diversity of health care markets across California, provider organizations in California are approaching and the breadth of variation in local physician physician-hospital integration in light of health orientation to integration, competition among care reform. These organizations represent different providers, and strategic opportunities and challenges geographic areas across the state and different in each market. While a few of the providers profiled care delivery models, and are in different stages operate in a single region, three of the organizations of development toward accountable care or other must integrate the resource needs, competitive population-based payment models. (See Table 7.) challenges, physician culture, and other elements of multiple geographies, communities, or hospitals. Table 7. Case Study Provider Organizations Presbyterian Arrowhead Intercommunity UCSF Medical Adventist Regional John Muir Hospital Center Health Scripps Health Medical Center Health County Los Angeles San Francisco Multiple in San Diego San Bernardino Contra Costa Northern, Central, and Southern California, includ- ing Los Angeles, Kern, Kings, Mendocino, Napa, Tuolumne, Ventura, and Butte Metropolitan Areas Suburban Urban Urban, suburban, Urban, Suburban Suburban Suburban rural Organization Type Nonprofit Academic medical Health system Nonprofit integrated County-owned Nonprofit integrated com­munity center (hospi- (community delivery system hospital delivery system hos­pital and tals and faculty hospitals, critical (hospitals, clinics, (community hospi- medical practice medical access hospitals, outpatient centers, tals, clinics, and foundation group) RHCs, and medical and medical outpatient centers) foundation) foundation) Source: The Camden Group. 24  |  C alifornia H ealth C are F oundation These particular organizations are not offered as representing the full spectrum of organizational Provider Profile: Presbyterian Intercommunity Hospital (Whittier, CA) response to health care reform or physician-hospital A nonprofit, freestanding acute care hospital, PIH integration. However, these organizations do illustrate serves a population of 1.5 million in its service area. the types of changes, organizational evolution, and The hospital’s mission is to provide high quality competitive responses that are being addressed in health care without discrimination, and to contribute communities across the state. to the health and well-being of the communities it serves in an ethical, safe, and fiscally prudent manner Presbyterian Intercommunity Hospital: in recognition of its charitable purpose. Integration Brings New Challenges and Key Statistics Opportunities n Number of beds: 444 In recent years, economic conditions in Presbyterian n Annualvolume (self-reported): 17,475 discharges, Intercommunity Hospital’s (PIH) primary service 321,682 outpatient visits, and 69,145 emergency department visits area have eroded the hospital’s financial performance, n Clinical services offered: creating the need for more effective methods of cost management. According to 2010 U.S. Census l Oncology — cancer program, radiation therapy estimates, communities that PIH serves, including l C ardiovascular — cardiac catheterization Whittier, Hacienda Heights, Norwalk, and Pico Rivera, laboratory, cardiac surgery, vascular intervention are predominantly Latino and have lower incomes l E mergency care compared to Los Angeles County as a whole and to l H ome health and hospice the state. As of October 2011, the unemployment l Radiology, nuclear medicine — CT Scans, SPECT, rates in PIH’s nearby community of West Whittier MRI, IMRT, CTA, MRA therapies Los Nietos was 13.5%, higher than the Los Angeles l R ehabilitation services County unemployment rate of 11.9% and California’s l Intensive care — intensive care unit, neonatal overall unemployment rate of 11.7% during the intensive care same month.42 PIH has seen the amount of its bad Physician Organization debt burden (i.e., patient revenues that cannot be n Medical staff: Between 550 and 600 physicians collected due to inability or unwillingness to pay) rise n Physician composition: aligned with Bright substantially in recent years as a byproduct of the poor Health Group, a medical foundation composed of economy. To add to PIH’s financial challenges, Kaiser approximately 150 primary care and 206 specialty Permanente, which operates hospitals and clinics within physicians; the remaining physicians with hospital privileges are physicians in independent and PIH’s service area, has recently been “more aggressive in solo practice advertising than ever before” according to PIH leaders, efforts aimed particularly at the commercially insured population. their local contracting strategies. PIH believes that some Effect of Payer Control over Provider Groups payers are favoring physicians in its networks instead In addition, management takeovers of physician of groups purchased by other payers. Specifically, the practices by payers in the local market have added a acquisition of AppleCare Medical Group by United sense of confusion and uncertainty to the competitive Healthcare’s Optum division has pushed competing landscape. Some of these changes have had a positive health plans to change their referral arrangements. financial impact on PIH. For example, PIH has Following the announcement, BlueShield of California experienced higher patient volumes, which hospital and Anthem Blue Cross have directed patients away leaders attribute to changes that payers have made to from AppleCare, referring patients to PIH’s Bright Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 25 Health Group. While this is a positive development Structural Changes to Cultivate Physician for PIH, the impact of the 2011 acquisition of Leadership CareMore Health Group by Wellpoint has yet to be In the four years since the creation of its medical played out within PIH’s market. CareMore operates foundation, PIH has developed mechanisms and physician clinics in PIH’s service area and has a long initiatives to cultivate physician leadership within the term contractual arrangement with PIH, but hospital foundation and across the hospital’s medical staff. For executives interviewed for this study noted that the instance, PIH changed its clinical service management effect of this change remains to be seen. structure to give physicians direct responsibility for clinical strategy and operations. It also instituted Increasing Strength of Its Medical strategic business units to allow joint management Foundation of clinical service lines. In these, a physician, medical Other trends have yielded additional opportunities director, and designated hospital administrator serve and challenges for PIH. Independent physicians have as the co-chairs of a committee that oversees a clinical been reluctant to join medical foundations, but many business unit, such as orthopedics. Decision-making for of these physicians are beginning to see employment the units includes representation from the independent in a foundation as a viable and welcome alternative physician community, primary care physicians, and to independent practice. Bright Health Physicians, physicians of Bright Health. This broad participation the hospital’s medical foundation, is the result of a encourages increased communication, collaboration, merger of Bright Medical Associates and Presbyterian and awareness around issues related to patient hand-offs Health Physicians in 2008. The foundation has grown and ongoing post-discharge care management. to more than 150 primary care and 206 specialty physicians. Recent foundation growth has been due, ACOs and Other Integration Activity in part, to independent specialty physicians who Although PIH leaders have followed the traditional increasingly appear to see economic benefit in joining a California medical foundation model as their main well-positioned medical foundation. physician alignment vehicle, the hospital is selectively pursuing other alignment models with its independent With regard to foundation growth, the hospital plans medical staff. These initiatives seek to provide on leveraging its managed care experience to change alternatives for the independent medical staff while the behavior of independent physicians. Historically, addressing some concerns about financial feasibility. these physicians have been less aware of the impact of The organization has opted not to pursue creation their practice patterns on overall patient care costs due of a Medicare ACO through CMS, at least for the time to fee-for-service contracting arrangements. The PIH being. And while the hospital has had conversations community has been dominated by small, independent with some commercial PPO payers about an physician practices that typically are skeptical of accountable care concept, PIH does not have formal control by larger physician groups or hospital–physician plans to launch an ACO. integration structures such as medical foundations. As the marketplace consolidates around them, however, the economic security of being part of a larger medical group and hospital system has compelled a growing number of physicians to reevaluate the medical group- foundation model. The advantages of economic security and relevance in the market have begun to outweigh the autonomy and self-determination that come with a small independent practice. 26  |  C alifornia H ealth C are F oundation Bright Health physicians have always incorporated the Physicians (Brown & Toland), an IPA with more than Triple Aim™ and value-based purchasing frameworks 850 physicians at the time in the San Francisco area, into their initiatives, but progress in this regard changed UCSF faculty from in-network to a referral with independent physicians in the community has agreement in 2009.43 Later, Brown & Toland acquired been slower. According to William Stimmler, MD, Alta Bates Medical Group, partnering with Sutter president of Bright Health Group, physicians will Health medical foundations. In turn, UCSF aligned become frustrated with the additional administrative with Hill Physicians and with a hospital partner, and clinical requirements of health care reform. While Dignity Health (formerly Catholic Healthcare West), he believes his group is already functioning as an which operates facilities in the city of San Francisco ACO with PIH, at some point in the future it will and San Mateo County. Today, UCSF and Brown & partner directly with its most important health plans. Toland maintain a loose relationship for adult and Dr. Stimmler indicated that overcoming the current pediatric referrals. prevailing culture of physicians within the foundation and in the community is a potential roadblock for Across the market, tough economic conditions have future integration plans with PIH. also driven physicians into larger provider organizations and regional payer initiatives, such as commercial In an effort to demonstrate that effective care can ACOs and narrow provider networks. Further, Kaiser be provided via alternate payment models and delivery Permanente’s strong presence in the region means that arrangements, PIH has plans to develop significant fewer commercially insured patients are seen by other physician engagement and leadership integration providers, affecting those other providers’ payer mix and activities. The hospital plans on applying for the financial performance. CMMI Bundled Payment for Care Improvement Initiative for cardiac and orthopedic services, to start UCSF executives interviewed for this study noted that in fiscal year 2013. To enable connectivity and providers across the region are uncertain about their knowledge-sharing, electronic health records (EHR) future ability to deliver care in light of the regulatory will be deployed in all physician practices in 2012. requirements and economic conditions they now In addition, the hospital has included members of the face. Although UCSF’s academic practice model has medical staff in the development and implementation fostered an impressive clinical reputation and patient of the hospital’s strategic plan. quality track record, the ongoing national discussion about health care costs has focused the organization on University of California, San Francisco opportunities to reduce avoidable admissions and to (UCSF) Medical Center: Forming New improve patient access and management. In all, UCSF’s Partnerships While Focusing on Patient leadership team believes that in order to succeed in the Access and Quality coming years, providers need to overcome the historical Despite its relatively small geographic size, the San culture of medical practice, look for alignment Francisco Bay Area is a crowded, dynamic environment opportunities with competitors, and embrace new for health care providers, dominated by large physician payment models. “We are at the end of an era in terms practice organizations and regional health systems. of how we’ve made money,” said Mark Laret, CEO of In the face of declining reimbursements, numerous UCSF Medical Center and UCSF Benioff Children’s provider organizations broke existing partnerships or Hospital. He indicated that, while many providers formed new alliances after the passage of the ACA. rushed to partner or merge with other organizations The securing of patient volume played an important in the year following passage of the ACA, it appears role in these changes, as many organizations sought that leaders of hospitals, health systems, and physician to lock in referral relationships in preparation for practices are now taking a more methodical approach to anticipated economic conditions. Brown & Toland evaluating future partnership opportunities. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 27 ACOs and Other Integration Activity Provider Profile: University of California, San Francisco (UCSF) Medical Center UCSF does not anticipate participating in Medicare (San Francisco, CA) accountable care programs in 2012. The organization UCSF Medical Center operates with about 7,000 plans to build on its experience with its commercial employees on two campuses, with a third scheduled payer bundled payment arrangements for orthopedic to open in 2014. services by applying for Model 4 of the Medicare Key Statistics bundled payment initiative in early 2012. In March n Numberof beds: 600 hospital beds at Parnassus 2011, UCSF launched a commercial ACO to campus and 90 hospital beds at Mount Zion coordinate care for 6,000 San Francisco city and county campus employees. According to a joint press release, the n Annual volume (OSHPD 2010 and self-reported): initiative brings UCSF together with Hill Physicians l P arnassus campus: 25,171 discharges, 33,640 Medical Group and Dignity Health facilities, St. Mary’s emergency department visits Medical Center, Saint Francis Memorial Hospital, l Mount Zion campus: 3,602 discharges, and Blue Shield to reduce emergency department and 0 emergency department visits inpatient care costs. Patients will be encouraged to use l Approximately 805,000 outpatient visits primary care physicians from USCF, Hill Physicians, (combined campuses) and Dignity Health for preventative care and nLocations: non-emergency health care needs. The group believes l U CSF Medical Center at Parnassus this will drive efficiencies by reducing unnecessary n UCSF Benioff Children’s Hospital emergency room visits, admissions, and readmissions. l U CSF Medical Center at Mount Zion l UCSF Medical Center at Mission Bay (under In addition, UCSF is evaluating ways to best construction, opening planned for 2014) position itself amidst the diversity of large health care n Clinical services offered: providers in Northern California. Although UCSF l UCSF Transplant Center, new in 2010, intended has a reputation as one of the world’s leading centers to serve 3,000 patients in its first year for patient care, the organization seeks to further l U CSF Helen Diller Comprehensive Cancer Center distinguish its market position from Sutter Health — oncology services and Kaiser by improving its cost position. Dubbed the l Orthopaedic Institute, opened in 2009 in “Third Way” strategy, the health system has teamed up Mission Bay with health plans Blue Shield and HealthNet, and with Physician Organization Dignity Health and Hill Physicians, to evaluate the In addition to physicians in UCSF Medical School development of a new provider network. faculty practice, the medical center works with the following physicians: Internal System Initiatives n UCSF Primary Care To reduce appointment wait times for primary care l E ight primary care clinics that offer services in physicians, the health system recruited a new medical family medicine, internal medicine, women’s director, established UCSF Primary Care on its Mount health primary care, and weight management care Zion campus, and opened clinics around the Bay Area. l One Medical Group, affiliation with UCSF Physicians in the primary care group are not obligated specialty referrals to perform teaching and research, freeing them to n Hill Physicians dedicate more of their time to patient care. In addition, l R ecent partnership with Hill Physicians to provide the health system is exploring the medical home primary and specialty care to the Northern concept to be deployed through its network of primary California region community care clinics. 28  |  C alifornia H ealth C are F oundation Clinical infrastructure investments are anticipated to In addition, Adventist system leadership has developed significantly improve UCSF’s ability to document, internal management structures and processes to foster monitor, analyze, and identify best practices among physician leadership and engagement at each facility physicians throughout the organization. As of late within the health system. System leaders indicated that 2011, 75% of UCSF’s community practices had EHR the company has implemented initiatives to encourage systems; UCSF hospitals are expected to come online physician collaboration within and among facilities, in 2012. UCSF leaders anticipate that improved data in hopes that leaders will share ways of breaking down collection and access will allow the organization to barriers toward care improvement and accelerating the better assess clinical practice outliers and will help change process. determine whether these variations had an impact on clinical outcomes. UCSF leaders noted that, while the ACOs and Other Integration Activity organization has achieved high performance on quality In 2010, the system created a medical foundation, and safety standards, the use of EHR will enable greater the Adventist Physicians Health Network (APHN), focus on individual physician performance. to consolidate affiliated physician groups that operate throughout California. The group currently Across UCSF, medical directors are responsible for consists of over 60 physicians, with plans to expand establishing and meeting patient safety and quality in the years ahead. AHPN allows Adventist to have goals. To date, these goals have focused on specific greater physician alignment and provides a vehicle clinical initiatives, such as hand hygiene and reduction for physician-hospital integration and consolidated in hospital-acquired infections. Programs that target managed care contracts. In less populated areas, such breakdowns in the care continuum, such as emergency as Kings County, Adventist operates rural health room visits and avoidable readmissions, are starting to clinics staffed with primary care physicians. In addition, come into focus. UCSF’s faculty practice physi­ ians c Adventist contracts with physician groups to administer have shown some reluctance to embrace the organ­za­ i services at hospital outpatient clinics, known as tion’s renewed interest in primary care and prevention. 1206(d) clinics under the California Health and Safety Although such initiatives improve community health, Code. Clinics operating under this statute are licensed they also divert faculty physician attention away from hospital entities. clinical research and teaching, which are key attributes of the academic faculty practice model. The health system’s experience with managed care contracting and patient management varies from region Adventist Health: On the Road to to region. Overall, Adventist leaders interviewed for this Physician Leadership study indicated that the collapse of physician practice With its broad network of hospitals, outpatient clinics, management companies and hospital performance rural clinics, home health agencies, and physician with capitation in the past has discouraged the system networks, Adventist’s leadership team is cultivating from pursuing population health management strategies a flexible approach to physician-hospital integration on a larger scale. At the time of the interviews, that varies among each of its major regions in Adventist’s leadership team did not have plans to pursue California. Various opportunities to develop integrated applications for the CMS accountable care programs. relationships with physicians exist in Adventist’s rural However, the company received a grant from Blue and urban markets, based on differences in its existing Shield to develop a commercial ACO with Adventist relationships with physicians, number of competitors in Medical Center – Hanford and two other markets, the market, and number of patients in the community. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 29 Provider Profile: Adventist Health six Adventist Health hospitals and one behavioral (Roseville, CA) health center within Mendocino County, Napa Adventist Health is a faith-based, nonprofit, County, and Butte County: integrated health care delivery system that operates l F eather River Hospital, Paradise (101 beds) 18 hospitals, 14 home health care agencies, and l F rank R. Howard Memorial Hospital, Willits (25 more than 130 outpatient centers and rural health beds) clinics across California, Hawaii, Oregon, and l S aint Helena Hospital Region, St. Helena (151 Washington. beds) In California, the system operates facilities in three l S aint Helena Hospital, Clear Lake (25 beds) regions with vast differences in population size, l S aint Helena Hospital Center for Behavioral demographics, and location: the Central Valley, Health (61 beds) Northern California, and Southern California (greater Los Angeles area). Given the geographic diversity l U kiah Valley Medical Center, Ukiah (78 beds) of its service areas, Adventist acute care hospitals, n Southern California — Adventist Health provides rural health clinics, and home health agencies health care services in suburban and urban settings are supported by a medical care foundation and within Kern, Ventura, and Los Angeles Counties. independent affiliated physician groups. l S an Joaquin Community Hospital, Bakersfield Key Statistics (255 beds) n Central California — Three critical access hospitals l Simi Valley Hospital, Simi Valley (201 beds) and one general acute care hospital serve l W hite Memorial Medical Center, Los Angeles communities within Kings County, Tuolumne (354 beds) County, and south Fresno County: l G lendale Adventist Medical Center, Glendale l C entral Valley General Hospital, Hanford (49 (457 beds) beds, full service, NICU, clinics) l Adventist Medical Center, Hanford (142 beds, Physician Organization new full-service hospital opening in 2012) n Adventist Health Community Care is a network of l Selma Community Hospital, Selma (57 beds, clinics that provides general and specialty medicine rural hospital) throughout Kings, Fresno, and Tulare Counties. Each of these clinics has a team of physicians that l S onora Regional Medical Center, Sonora (152 provides multi-disciplinary care to the communities beds) they serve. l A dventist Medical Center, Reedley (formerly n AdventistHealth Physicians Network (AHPN) is Sierra Kings District Hospital) (44 beds) a newly created medical foundation composed of n Northern California — Adventist Health has several multi-specialty physician practices. rural/suburban hospitals within its network in Northern California (north of the Bay Area), with among other commercial ACO opportunities. In Adventist’s cautious approach toward ACOs appears to addition, various hospitals in the system are pursuing be based, in part, on the recognition among its leaders the Bundled Payment for Care Improvement Initiative that proper resources need to be in place to make any for orthopedic and cardiac services. With its extensive accountable care arrangement successful. “If we get into network of primary care physicians that supports its 35 population management, we need the infrastructure rural health clinics throughout California, the system to sufficiently manage risk,” reported Mark Ashlock, has not ruled out Medicare ACO plans in the future. senior vice president of physician and network strategy for Adventist Health. 30  |  C alifornia H ealth C are F oundation Internal System Initiatives and local levels. Physicians from across the system may Recognizing that individual facilities and physicians participate in non-clinical management training to are responsible for the health of their communities, develop key leadership skills. Physicians also participate Adventist’s system leadership has implemented in ongoing system forums to advance department, programs and initiatives with the goals of increased service line, and other initiative-specific goals. A system quality of care and patient safety. Reduction in performance council is in place, which encompasses physician practice variation has become a key area the clinical, strategic, financial, and capital plans to of focus for medical executive leadership. Within strengthen the connection between clinical performance each facility, “micro-systems” of physician practices and the company’s overall targets and performance. and processes exist, and understanding differences in treatment patterns among clinicians within each Scripps Health: Building a Population hospital and across the system is a priority, said Keith Health Care Delivery System Doram, MD, vice president of clinical effectiveness and Scripps Health, a nonprofit integrated delivery chief medical officer at Adventist Health. “Our system, views the current state of provider economics challenge has been: How do we drive clinical as an opportunity to enhance its population health performance across the different types of provider management capabilities and care delivery network. In environments in the system?” both areas of change, system leaders believe physicians play crucial roles. “No matter what form that health The system has leveraged information technology as a care reform takes, we know that there’s far less money tool to gather and assess quality and safety data. The coming from the government to pay for care,” said system began deploying inpatient EHR in 2002 and June Komar, corporate executive vice president of has begun to deploy EHR in its outpatient clinics with strategy and administration at Scripps Health. “To an ultimate goal of a seamless information technology manage with lower reimbursement, we need to have platform across all sites of care. With these tools coming a fully engaged group of physicians to identify best online, the system is exploring evidence-based medicine practices, areas to reduce inappropriate variation, and practices, including deployment of physician order sets, areas to deliver better value.” to improve their ability to effectively manage patients. According to Dr. Doram, the goal is to ensure that The system is based in San Diego County, where every facility has an order set for each major patient the provider landscape is marked by relatively high population. Clinical information management and HMO enrollment, high quality health care providers, real-time analysis are critical components of the system’s and highly competitive provider organizations. future success. To steer these efforts, in late 2010 Large provider organizations, which include Sharp Adventist recruited Steve Margolis, MD, to lead clinical HealthCare, University of California, San Diego, Rady informatics for the system as assistant vice president and Children’s Hospital San Diego, and Kaiser Permanente, chief medical information officer. operate facilities in the county. Although enrollment in managed care health plans in the county is significant, To ensure that physicians play an active role in the Scripps’ volume of HMO patients is relatively small development and execution of patient-centered compared to Sharp’s and that of other area providers. care and quality improvement processes, Adventist instituted a matrix physician leadership structure. A corporate medical executive committee, composed of the chief medical officers and the vice presidents of medical affairs for each facility in the system, is used to enhance dialogue between clinicians at the corporate Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 31 Integration Activities Provider Profile: Scripps Health (San Diego, CA) The proportion of managed care enrollment in the area Scripps Health is an integrated delivery system contributes to competitive pressures: Managed care composed of five acute care hospital campuses and contracts depress reimbursement rates, so providers 23 outpatient centers and clinics throughout San become more focused on market share as a means of Diego County. maintaining financial viability. In addition, leaders from Key Statistics Scripps Health interviewed for this study indicated n Number of beds: 1,409 that, while the hospital landscape has been relatively n Annual volume (combined OSHPD 2010 and stable in San Diego in recent years, physician groups in self-reported): 75,207 discharges, 2,028,323 the region have been increasingly interested in formal outpatient visits, 165,058 emergency department hospital and health system affiliations. For Scripps, this visits has taken the form of mergers with Scripps medical n ScrippsHealth inpatient facilities are located on groups through its medical foundation and the creation five campuses throughout San Diego county: of a physician-hospital contracting organization for l Scripps Green Hospital, La Jolla participation in emerging health reform models. l Scripps Memorial Hospital Encinitas, Encinitas l Scripps Memorial Hospital La Jolla, La Jolla While the ACA propelled integration considerations l Scripps Mercy Hospital (two campuses), San to the forefront of Scripps’ strategic considerations, the Diego and Chula Vista health system had already made a number of changes n Outpatient Centers (23 clinics) over the last decade to more closely align sites of care Physician Organization with clinical practitioners. Two groups that are part of n Medical its medical foundation, Scripps Coastal Medical Group Foundation (composed mostly of primary care physicians) and l Scripps Coastal Medical Group (141 primary care physicians, 9 specialists) Scripps Clinic Medical Group (composed of multi- specialty physicians), ensure clinical coverage and access l Scripps Clinic Medical Group (82 primary care physicians, 440 specialists) to care throughout San Diego’s urban and outlying n Affiliated Physician Groups suburban areas. l Connect the Docs Multi-Specialty Network (165 primary care physicians, 149 specialists) Internal System Initiatives l Mercy Physicians Medical Group (77 primary Scripps’ five hospital campuses and affiliated medical care physicians, 291 specialists) groups historically were organized and operated in l San Diego Physicians Medical Group clinical silos. In 2011, Scripps leaders implemented (100 primary care physicians, 300 specialists) a matrixed systems management structure coupled l XiMED Medical Group (22 primary care with system-wide physician co-management. In this physicians, 206 specialists) model, physician leadership teams work with system l Scripps Mercy Physician Partners Medical Group administrators to identify and drive clinical workflow (64 primary care physicians, 192 specialists) improvement across the continuum of care for the l Primary Care Associates Medical Group system as a whole. Additional teams manage service (55 primary care physicians) lines within each hospital. While the creation of these structures was a departure from the system’s previously decentralized system of care, physicians embraced the change. “When we talked about horizontal management across the care environment, the doctors got it right away,” said Komar. Within each 32  |  C alifornia H ealth C are F oundation hospital there were some managers who, accustomed to site-specific processes and reporting relationships, Provider Profile: Arrowhead Regional Medical Center (Colton, CA) experienced difficulty adjusting to the new practices, ARMC is a 456-bed teaching hospital that serves San which included more shared data reporting, Bernardino County and surrounding communities. As collaborative decision-making, and implementation of one of the few certified primary stroke centers in the system best practices for quality clinical care and cost region, ARMC offers the community a much needed management. Despite the difficulties to be expected resource for reducing disability and death associated with any significant change, Scripps Health reported with stroke. dramatic savings within the first year. Key Statistics n Number of beds: 456 To help Scripps and its affiliated medical groups prepare n Annualvolume (OSHPD 2010 and self-reported): for and implement contracting and care delivery 23,971 discharges; 260,600 outpatient visits, models initiated by the federal government and private 148,269 emergency department visits insurers, the parties created ScrippsCare. A California n Clinical services offered: nonprofit mutual benefit corporation, ScrippsCare l L evel I primary stroke center members include Mercy Physicians Medical Group, l 2 4-hour emergency department (Level II trauma Connect the Docs Multi-Specialty Network, Scripps center) Mercy Physician Partners, Primary Care Associates l B urn center serving San Bernardino, Riverside, Medical Group, Scripps Clinic Medical Group, Scripps Inyo, and Mono Counties Coastal Medical Group, and XiMED Medical Group, l A dult and neonatal intensive care units in addition to Scripps Health. In a joint venture, l A n outpatient facility that offers 60 different Scripps and North American Medical Management specialty services, including pediatrics, are developing the infrastructure to respond to and orthopedics, internal medicine, women’s health, support alternative care management arrangements rehabilitation services, and geriatrics n Family Health Centers: of ScrippsCare. ScrippsCare is also planning on participating in bundled payment programs in l A RMC has three family health centers (clinics) 2012, and is evaluating how best to incorporate and throughout the county. These clinics offer primary medical services, ob/gyn, pediatrics, and implement medical home and ACO development geriatric care. opportunities into its future strategic direction. l L ocations include: Arrowhead Fontana, Fontana Arrowhead Regional Medical Center: Arrowhead McKee, San Bernardino Improving Its Care Delivery System Arrowhead Westside, San Bernardino As a public hospital owned and operated by San Bernardino County, Arrowhead Regional Medical Center (ARMC) faces the challenge of serving a large volumes during the last fiscal year. As a consequence, population of patients who have limited resources: ARMC has struggled with increasing bad debt. The At 12.1%, unemployment in the county is among the organization is also preparing to deal with even more highest in California, and more than 75% of ARMC’s patients in the years ahead, as implementation of the patients are uninsured or covered by Medi-Cal plans, a ACA will increase the number of patients insured by number that has grown as a result of recent economic both Medi-Cal and commercial health plans, most conditions. At the same time, emergency department likely at coverage levels consistent with those generally visits have increased since 2008, and hospital accepted by safety-net providers. administrators report a marked increase in patient Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 33 Delivery System Reform occurs in 2014. ARMC sees its role as a safety-net Since ARMC’s patient population is primarily provider for San Bernardino County continuing uninsured or covered by Medi-Cal, physician-hospital for the foreseeable future. Reimbursement rates for integration initiatives touted by CMS and commercial these groups are expected to be at Medi-Cal levels, payers have had little impact on the hospital. However, which typically do not cover patient care costs. As a California’s new Medi-Cal 1115 Waiver, also known as result, ARMC believes competing providers in its local the Bridge to Reform program, focuses the attention market will focus on aggressively increasing market of public hospitals such as ARMC on goals similar shares for commercially insured patient populations. to those of the IHI Triple Aim™.44 (See “California’s Retooling its care delivery model to more efficiently Bridge to Reform Program: An Overview,” below.) deliver patient care will help alleviate the anticipated operational strains. California’s Bridge to Reform Program: Care Model Redesign An Overview To prepare for higher patient volumes, ARMC is The Bridge to Reform program allows patients who undertaking a two-pronged approach. The county would become eligible for Medi-Cal coverage or has implemented ArrowCare, its Low Income Health commercial insurance subsidies in 2014 to get a head Program (LIHP) , effective January 1, 2012. ARMC start by accessing coverage starting in 2011-2012 will administer ArrowCare, which leverages ARMC through the Low Income Health Program (LIHP). The program supports comprehensive, coordinated clinics, physicians, and inpatient and outpatient care for vulnerable populations by moving them services as primary caregivers. The program has also into Medi-Cal managed care plans. LIHP also tests established relationships with independent physicians various strategies for strengthening and transforming throughout San Bernardino County to serve this the public hospital delivery system in order to help population. In conjunction with its Delivery System prepare state agencies and providers for increased Reform Incentive Payments (DSRIP) program efforts health plan enrollment when health care reform laws are fully implemented in 2014. (see below), ARMC is also embarking on a major care model redesign process during 2012 by improving To facilitate these goals, the program established a access and implementing patient-centered medical Delivery System Reform Incentive Pool (DSRIP) to create incentives for efforts in four areas: home and chronic care initiatives in its three primary n Infrastructure development care clinics. ARMC leaders anticipate that care model redesign will facilitate better care coordination, improve Innovation n and redesign quality for patients with chronic disease, and decrease n Population-focused improvement costs over time. They also believe these efforts will n Urgent improvement in care decrease emergency department utilization, especially for patients with chronic diseases and multiple comorbidities. ArrowCare intends to work further with Leaders at ARMC interviewed for this study indicated its contracted physicians to spread these care process that it is especially important for the organization to tenets into their practices. aggressively move toward reforming its delivery system. Due to competitive dynamics specific to its service area, ARMC leaders expect other health care providers in the community to have little interest in serving newly insured patient populations when insurance expansion 34  |  C alifornia H ealth C are F oundation At the same time, ARMC is actively working to capacity. Because the contract model has worked well accomplish its DSRIP initiatives. In addition to the for ARMC, leaders do not have plans to move to an primary care redesign initiatives discussed above, other employed medical staff model. areas of focus include the following DSRIP-funded expansion projects during the next five years: As ARMC focuses more intently on efficiency, quality, and the patient experience, it recognizes that it will n Expansion of its family medicine and internal have to more actively involve its medical staff in medicine residency programs by six residents day-to-day decision-making to achieve its DSRIP n Strengthening of its chronic disease management goals and to more effectively manage patient-related through implementation of a disease registry costs. ARMC’s medical director has served as the focal point for these initiatives within the organization, n Expansion of its specialty care capacity by developing and the organization is considering ways to further best practice clinical guidelines that delineate the involve the medical staff in planning and ongoing roles, services, and referral processes provided by management of hospital services. primary care and specialty physicians for high referral clinical conditions John Muir Health: Evolutionary Change to Adapt to Changing Payment Models Given its unique position as the county’s major safety- net provider, ARMC leaders indicated that there has For the past 15 years, John Muir Health (JMH) has been little interest on the part of other local providers focused on managing growth through expanding its in forming collaborative relationships. Instead, ARMC primary care network, enhancing relationships with anticipates that other providers will seek to maximize independent specialists, and investing in resources that Medicare and commercially insured patient volumes. improve clinical services and facilities. Also during that ARMC has a strong working relationship with Inland time, features of the system’s culture and operational Empire Health Plan (IEHP), the primary Medi-Cal focus have evolved, according to those interviewed for managed care plan in the county, and expects their joint this study. That evolution has created an environment endeavors to expand over time. ARMC has contracted that the system leaders believe better positions it with IEHP to administer provider credentialing for the for adopting new payment models, such as ACOs, ArrowCare program. that require a population-based approach to patient management. ARMC administrators describe its working relationships with its medical staff as one of collaboration. While Located in the competitive East Bay in Northern many public hospitals employ their physicians, as California, JMH competes with highly integrated authorized by Section 1206 of the California Health systems such as Kaiser Permanente and Sutter Health. and Safety Code, ARMC made the decision many Hill Physicians, an IPA acclaimed for its early success years ago to contract with independent community with Blue Shield’s ACO in the Sacramento market, physicians to serve its patients. This arrangement also operates in JMH’s service area. While operating allows more flexibility for the organization in meeting in a mature managed care environment is not new to the specialty needs of its patients because it provides the JMH system or its physicians (the system’s medical a mechanism for accessing physicians who are not foundation, John Muir Physician Network, takes required on a full-time basis. The major disadvantage professional fee capitation in its arrangements with to this approach is that it is not always easy to expand HMOs), system leadership is preparing for a future coverage if demand grows, because the contracted where the vast majority of its total revenue will likely physician group may not have the required additional include some form of population-based patient revenue. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 35 Evolving Internal Systems Provider Profile: John Muir Health (Walnut Creek, CA) JMH’s management team has increased the JMH serves the suburban communities of Concord organization’s focus on reducing costs, adhering to and Walnut Creek in the San Francisco Bay Area, evidence-based protocols, exploring alternative payment and operates as a nonprofit integrated system of and delivery models, and positioning for continued physicians, hospitals, and other services. JMH has growth. JMH leaders recognize that active involvement two of the largest medical centers in Contra Costa of physicians at all levels is critical to achieving success County and also operates a behavioral health center. in these areas. For the first time, JMH is recruiting for a Key Statistics newly created system chief medical officer to coordinate Facilities: clinical improvement initiatives across its continuum n JohnMuir Medical Center — Walnut Creek of care. More than 400 clinicians were involved in the (Walnut Creek, CA). Serves as Contra Costa selection of both physician and hospital EHR systems. County’s only designated trauma center Michael Kern, MD, senior vice president and medical l N umber of beds: 330 director of the John Muir Physician Network, has l A nnual volume (OSHPD 2010 and self-reported): witnessed the organization’s shift in the managed care 17,310 discharges, 70,600 outpatient visits; arena and notes that recent years have brought 44,069 emergency department visits “a greater focus on integrating efficiency with quality.” n John Muir Medical Center — Concord (Concord, CA). A Magnet hospital. In November 2010, Several specific initiatives demonstrate the system’s opened the Hofmann Family Patient Care Tower providing 12 cardiovascular ICU beds as well as 39 push for evolving its operating, financial, and clinical private telemetry rooms models. A patient-centered medical home has been l Number of beds: 254 piloted by 12 physicians at a practice site operated l A nnual volume (OSHPD 2010 and self-reported): by the John Muir Physician Network and John Muir 9,003 discharges, 28,000 outpatient visits, Medical Group. The results of this pilot are consistent 41,918 emergency department visits with those in other parts of the country: Admissions n John Muir Behavioral Health Center (Concord, CA). decreased in JMH hospitals, and higher levels of Offers complete inpatient and outpatient behavioral physician and patient satisfaction were reported. The health programs for its 73-bed psychiatric hospital system’s practices with a high proportion of Medicare located in Concord patients, many of whom have complex chronic l Number of beds: 73 conditions, will be the focus of this medical home l Annual volume (OSHPD 2010): 2,792 discharges project. With greater patient and physician engagement Physician Organization in proactively managing chronic diseases, the John Muir n JohnMuir Physician Network (900 affiliated Physician Network expects to roll out the medical home physicians). Operates 24 locations throughout model in additional practices over the next few years; Contra Costa County and parts of Alameda Dr. Kern expects that over 50% of the foundation’s County: patients will be managed via a medical home practice l J ohn Muir Medical Group (more than 100 primary model by 2015. care physicians, nurse practitioners, and physician assistants, combined), operates four urgent care centers in Contra Costa County l M uir Medical Group, IPA (more than 200 independent primary care physicians and over 600 specialists) 36  |  C alifornia H ealth C are F oundation Reducing readmission rates is a focus of many hospitals. interconnectivity and ability to share information in In 2012, Medicare will begin penalizing hospitals for real time. The organization hopes that implementing high readmission rates for heart failure, heart attack, particular information technology tools through the and pneumonia patients. In preparation for this change, vendor Medventive, along with other initiatives, will in 2010 JMH instituted an interdisciplinary forum enable greater interconnectivity and thus will better composed of hospitalists, independent cardiologists, support population management and quality reporting hospital case managers, primary care physicians, and across the continuum of care. other members of the hospital team. The forum is charged with identifying process and care improvements To evolve into a truly integrated delivery system, to reduce readmissions. To date, this effort has resulted JMH must face challenges related to patient care in a 5% reduction in the readmission rate for heart coordination and medical management. Mr. Swenson failure patients. One of these care improvements is noted the need to invest in initiatives, such as efforts a Care Transitions Team that facilitates patients’ care to reduce length-of-stay or increase case management from the hospital to home. Another is a telemedicine resources. However, these could result in reduced program that has helped heart failure and chronic inpatient volume and thus a drop in revenue, or require obstructive pulmonary disease patients stay connected additional investment, which would run counter to with clinicians, who monitor their answers to key most organizations’ need to demonstrate a positive questions daily via a website. “net present value” for such initiatives. Without strong financial performance and a long term perspective, it ACOs and Other Integration Activity would be difficult for provider organizations to make Similar to other provider organizations in California, these investments, limiting their ability to adapt to the JMH is evaluating participation in the Medicare SSP. post-reform environment. In the meantime, it continues to leverage its experience with managing risk in Medicare Advantage as a JMH also needs to establish structures and decision- springboard to effectively deliver cost-effective care making processes that engage independent physicians, to Medicare fee-for-service patients. Paul Swenson, who still make up the majority of physicians in JMH’s chief executive officer of the medical foundation and market. “How do we give independent physicians executive vice president of JMH (at the time of the greater authority and involvement in decisions within interviews for this study), noted that commercial the integrated delivery system?” Mr. Swenson queried. health plans are actively sharing ideas for ACO-like During the last 15 years, the governance structures initiatives, which the JMH system is also evaluating. In within John Muir Medical Group and Muir Medical this regard, JMH has agreed to participate with Blue Group IPA have transformed the culture from “a group Shield in its ACO initiative.45 JMH has established an of individuals that didn’t really know each other” to ACO Steering Committee, co-chaired by leaders of its one that can determine strategy and make immediate, medical group and IPA, to determine the organization’s difficult financial and operating decisions. Leaders are future direction with accountable care efforts. contemplating ways that independent physicians and foundation physicians alike can engage in the system’s The challenge for making these initiatives successful, evolution to population-based payment systems. as noted by the John Muir leaders interviewed for this paper, is ensuring access to good quality data. Although independent physicians, foundation physicians, and the hospitals are all implementing EHR, each is implementing a different platform, with limited Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 37 Comparison of Case Study Alignment Initiatives to improve medical management and Structures non-fee-for-service payment arrangements were While the providers described in the preceding case prominent among the providers highlighted in the case studies operate in different markets, serve different studies. Several organizations indicated that improving patient populations, and have different clinical care coordination and management of HMO patients operational challenges, some key commonalities is another area of developmental focus. Nearly all of exist with respect to how they are integrating with the providers included in the study indicated that physicians. (For a side-by-side comparison, see Table 8.) they are pursuing bundled payment or medical home initiatives as a stepping stone toward the development First, among the six hospitals and health systems of institutional medical management competencies. profiled, only one — Arrowhead Regional Medical For many, CMS proposals for shared savings ACOs Center — does not have an established and aligned for Medicare patients are being considered, but not medical foundation, physician faculty practice, or aggressively pursued at this time. It should be noted, employed medical staff. This is indicative of the move however, that all of these organizations have managed of acute care providers toward formalizing aligned, care experience through HMO capitation arrangements dedicated regional physician networks. in which their physicians participate, and many participate in shared-risk arrangements. Further, to drive efficiency and quality improvements, the majority of these organizations are contemplating expanding integration with their aligned physician groups by developing physician leadership and management structures within their hospitals. Of the six organizations profiled, only two have yet to enact some form of physician leadership structure, and all the organizations are actively considering ways to enhance physician leadership. 38  |  C alifornia H ealth C are F oundation Table 8. Physician-Hospital Integration Characteristics, Case Study Organizations Presbyterian Arrowhead Intercommunity UCSF Medical Adventist Regional John Muir Hospital Center Health Scripps Health Medical Center Health Organization Type Nonprofit Academic Health system Nonprofit County-owned Nonprofit community hospi- medical center (community integrated hospital integrated tal and medical (hospitals, and hospitals, delivery system delivery system foundation faculty practice critical access (hospitals, (community medical group) hospitals, RHCs, clinics, outpatient hospitals, clinics, and medical centers, and and outpatient foundation) medical centers) foundation) Physician Alignment Structure Medical Academic faculty Medical Medical Contracts with Medical foundation physician practice foundation foundation physicians foundation with medical group and community physi- cian affiliations Managed Care Patient Management Experience Leveraging Leveraging Development Leveraging Development Leveraging managed care managed care focus managed care focus (care model managed care experience for experience for experience for redesign) experience for future population future population future population future population management management management management Medicare/Medi-Cal Initiatives Bundled payment ACO (commercial ACO (considering Considering Patient-centered Patient-centered populations) commercial various initiatives medical home in medical home ACO (commercial development) development pilot populations) Bundled payment Bundled payment ACO (commercial populations) Physician Leadership and Management Joint physician- Academic faculty System-wide Joint physician- Developing Developing administrator practice leader- physician leader- administrator physician leader- physician leader- service line ship structure ship structure service line ship model ship model leadership with (“matrix”) leadership community (system “matrix”) physician representation Source: The Camden Group. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 39 VII. Conclusion As more specifics regarding the leveraged their market power to increase prices. Within implementation of health care reform legislation come California’s health care landscape, the net impact of to light, physicians and hospitals are shifting their increasing provider consolidation on pricing remains positions with respect to integration. Even before ACA to be seen. It should be noted that the ultimate impact implementation regulations were developed, large of provider consolidation may be mitigated by payers, provider organizations with strong delivery networks who are stepping up pressure to reduce prices and began expanding partnerships with other providers. increase transparency of cost and quality reporting for Today, many providers of all types, serving varied providers. In addition, the rollout of benefit models populations, are evaluating how reform’s mandates — that encourage use of lower-cost providers may further quality excellence, population health management, dampen the market effects of partnerships and mergers. efficiency, and cost savings — can be realized in light of economic, political, and market constraints. In Appropriate Patient Access to many cases, organizations are taking a step-by-step Clinical Services approach to integration, experimenting with models Alignment of provider and payer incentives may and arrangements to build organizational competency reduce health care spending but may also have the and to determine the feasibility of broad adoption. The unintended consequence of reducing access to needed future landscape of care delivery in California will be medical services. Increased coordination of patient shaped by these efforts. care and monitoring of quality and patient experience have the potential to bring significant improvement Implications for Policymakers to how patients interact with their care providers While there are many benefits to be realized from and to the health status of communities. At the physician-hospital integration, there are a number same time, pressures to reduce costs may limit the of matters that California policymakers will need to ability of patients to access certain medical services. consider with respect to current trends. Regulations requiring disclosure of health plan network performance around access to primary and specialty Impact of Provider Consolidation on Pricing care will continue to be of great importance. Further, for Patient Services the actions of payers and providers in the coverage and management of clinical services will need to be Consolidation of provider organizations across the state monitored and evaluated to ensure that patients are not could increase the price of patient services. As hospitals, denied necessary care. medical groups, and other provider organizations form collaborative provider networks, such as ACOs, or merge with one another, patients will have fewer distinct choices from which to receive clinical care. When market consolidation has occurred in other industries, the remaining competitors have often 40  |  C alifornia H ealth C are F oundation Effect of State Budget Cuts Uncertainty for Safety-Net Providers Although California’s Bridge to Reform waiver and Regarding Newly-insured Medi-Cal and other ACA-related programs have expanded funding Commercial Patient Populations for providers and patients, additional state budget cuts While some providers that serve safety-net populations may limit the ability of providers to realize the goals are concerned about staffing shortages, others fear that of their integration efforts. Pediatric and safety-net these patients, once they are covered by richer health providers, in particular, have withstood recent cuts in insurance benefits, will be referred to “mainstream” reimbursement but are vulnerable to future reductions. health care providers because of improved reim­ urse­ b Today, many of these providers have begun to see ment. Should this come to pass, the financial impact increased demand due to rising Medi-Cal and Healthy on providers who serve uninsured and underinsured Families enrollment, which is likely to be exacerbated populations would be significant. While the magnitude in 2014 as eligibility for Medi-Cal and other subsidized of this issue will not be known until 2014, providers insurance becomes available to a broader population. that serve the safety net should take steps to improve Many of these providers also lack the infrastructure and their care delivery and relationships with physicians mechanisms necessary to successfully enable physician- through enhancing clinical, financial, and technological hospital integration. Development and infrastructure integration strategies. Initiatives underway as part planning at facilities that serve these populations is of the Bridge to Reform are designed to facilitate vulnerable to near-term changes in funding. Federal these improvements, but whether or not they will be grants, such as those offered by CMMI through the adequate or widespread enough is yet to be seen. Innovation Challenge, may provide avenues to jump start programs that will improve access to care for vulnerable patient populations. Strain on Safety-net Providers from Increased Patient Demand The expansion of insurance coverage to previously uninsured populations, plus the implementation of the California Health Benefit Exchange, could further strain the health care safety net throughout California. Growth of the insured population is likely increase operational stress on safety-net providers, such as FQHCs, RHCs, and public hospitals, who provide primary care services to uninsured and underinsured patients across the state. To date, these providers have not been able to meet patient demand, due to limitations in physician coverage and facility space. The 2011 introduction of state funding to address infrastructure constraints and development opportunities is expected to help address these issues, but other steps may need to be undertaken to ensure timely access to care. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 41 Appendix A FQHC Advanced Primary Care Practice Demonstration Sites (Medicare Patients) in California Practice Name California City Practice Name California City American Indian Imperial Beach Community Clinic Imperial Beach Health & Services Corporation Santa Barbara LifeLong Medical Care Oakland Asian Pacific Health Care Venture Los Angeles Marin Community Clinic Novato Borrego Community Health Foundation Cathedral City Marin Community Clinic San Rafael Borrego Community Health Foundation El Cajon Mendocino Community Health Clinic Willits Centro De Salud De La Comunidad National Health Services Bakersfield De San Ysidro Chula Vista National Health Services Wasco Centro De Salud De La Comunidad De San Ysidro National City Neighborhood Healthcare Escondido Centro De Salud De La Comunidad North East Medical Services San Francisco De San Ysidro San Diego North East Medical Services San Francisco Chapa-De Indian Health Program Auburn North East Medical Services San Francisco Clinica Sierra Vista Arvin North East Medical Services San Jose Clinica Sierra Vista Bakersfield Open Door Community Health Center Arcata Clinica Sierra Vista Bakersfield Operation Samahan National City Clinica Sierra Vista Fresno Operation Samahan San Diego Clinica Sierra Vista Fresno Queenscare Family Clinics Los Angeles Clinica Sierra Vista Lake Isabella Queenscare Family Clinics Los Angeles Clinica Sierra Vista Lamont Redwoods Rural Health Center Redway Clinica Sierra Vista Lebec Salud Clinic West Sacramento Clinica Sierra Vista Wofford Heights Salud Para La Gente Watsonville Clinicas De Salud Del Pueblo Blythe Santa Barbara County County Auditor Carpinteria Clinicas De Salud Del Pueblo Niland Santa Barbara County County Auditor Santa Barbara Clinicas De Salud Del Pueblo Winterhaven Shasta Community Health Center Redding Clinicas Del Camino Real Oxnard Shasta Community Health Center Shasta Lake Clinicas Del Camino Real Ventura South Central Family Health Center Los Angeles Community Health Centers United Health Centers of the Of The Central Coast Cambria San Joaquin Valley Kerman Community Health Centers United Health Centers of the Of The Central Coast Lompoc San Joaquin Valley Orange Cove Community Health Centers United Health Centers of the Of The Central Coast Nipomo San Joaquin Valley Sanger Community Health Systems Fallbrook Valley Health Team Kerman County Of Monterey Salinas Vista Community Clinic Oceanside Darin M. Camarena Health Center Chowchilla Vista Community Clinic Vista Fall River Valley Health Center Fall River Mills Vista Community Clinic Vista Golden Valley Health Center Los Banos West County Health Centers Guerneville Golden Valley Health Center Planada West County Health Centers Sebastopol Golden Valley Health Centers Modesto West Oakland Health Council Oakland Golden Valley Health Centers Modesto Western Sierra Medical Clinic Downieville Hill Country Community Clinic Round Mountain Source: CMMI 42  |  C alifornia H ealth C are F oundation Appendix B Commercial Accountable Care Organizations in the U.S., 2011 (Select) Participating Participating Patient Physician Start Payment Provider(s) Payer(s) State Structure Population Network Date Model (Undisclosed) Horizon Blue NJ Medical 1,000 to 2,000 4th Shared Cross Blue group-payer patients with Quarter savings Shield of New commercial self- 2010 Jersey insured PPO coverage Advocate Blue Cross Blue IL Medical Commercial PPO 2,700 (multi- January Shared Physician Shield of Illinois group-payer members in the specialty) 2011 savings Partners greater Chicago (Advocate area Health Care) Carilion Aetna VA Integrated 17,000 Carilion 600 (multi- January Partnership / Clinic delivery employees specialty) 2012 collaboration system- payer Eastern Maine CIGNA ME Hospital- 4,000 PPO, OAP, 50 Primary care January Medical Center payer and network/ physicians 2010 and Blue Hill managed care Memorial members Hospital Hackensack QualCare NJ Hospital- 13,200 insured September PCP financial University managed employees 2011 incentive risk Medical Center care MaineGeneral Maine State ME Integrated 4,400 (In 116 (primary), February Risk-sharing Health Employees delivery MaineGeneral 112 (specialists) 2010 FFS Collaboration Health system- self-insured popula- Commission state tion), 8,000 (SEHC (SEHC) employee insured population) commission Methodist CIGNA TN Hospital- 31,000 aligned 1,000 Physicians June 2011 Partnership / HealthCare payer CIGNA members collaboration (2,000 Methodist/ HealthChoice) Montefiore Emblem- NY Hospital- 90,000 FFS shared Medical Center Health payer EmblemHealth savings members Multiple Blue Cross MA Payer- IPA, Massachusetts January FFS, partial Providers Blue Shield PHO, BCBS members 2009 capitation, of integrated state-wide and shared Massachusetts system savings (upside and downside risk) Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 43 Appendix B: Commercial Accountable Care Organizations in the U.S., 2011 (Select) (cont.) Participating Participating Patient Physician Start Payment Provider(s) Payer(s) State Structure Population Network Date Model Norton Humana KY Integrated 10,000 Norton and 2,000 August Shared Healthcare delivery Humana market (multi-specialty) 2010 savings FFS system- employees payer Piedmont CIGNA GA IPA/medical 13,300 Aligned 117 primary June 2010 Pay-for- Physicians group-payer CIGNA members care physicians performance Group (3,100 Piedmont FFS plus employees) Incentives St. John's Mercy CIGNA MO IPA/medical 9,000 PPO, OAP, 160 primary July 2010 Medical Group group-payer and network/ care physicians managed care members St. John MI IPA/medical Pending In Providence group- development Health - The hospital Physician Alliance Tucson Medical United AZ Hospital- 75 (primary), January FFS Shared Center Healthcare payer 10 (medical 2008 savings specialty), model 15 (surgical specialty) Source: ACO Learning Network, Beckers Hospital Review, Cigna, Inc., The Commonwealth Fund, Medical Health Plan, and Montefiore Medical Center. 44  |  C alifornia H ealth C are F oundation Appendix C Commercial Accountable Care Organizations in California, 2011 (Select) Participating Participating State Patient Physician Provider(s) Payer(s) Region Structure Population Network Monarch Healthcare OptumHealth- Southern IPA/medical In development 2,300 (multi-specialty) United California group-payer HealthCare (Greater Los Angeles Area) Healthcare Partners Anthem Southern IPA/medical 42,000 Anthem 1,000 (primary), (Wellpoint) California group-payer PPO enrollees 1,462 (medical specialty), (Greater Los 240 (surgical specialty) Angeles Area) CalPERS - Catholic Blue Shield of Northern IPA/medical 40,000 CalPERS Healthcare West, and Hill California California group-payer/ members Physicians (Bay Area) retirement system Sharp HealthCare (Sharp Anthem Southern IPA/medical 17,000 eligible Sharp Community Medical Community Medical Group (Wellpoint) California group-payer PPO members, Group (700 primary and specialty or Sharp Rees-Stealy (Greater San 22,121 ACO physicians) Sharp Rees-Stealy Medical Centers) Diego Area) participating Medical Centers (400 primary members and specialty physicians) Brown & Toland Physicians Blue Shield of Northern IPA/medical 21,000 800 (multi-specialty) Group, and California Pacific California California group/hospital - members of San Medical Center (Bay Area) payer Francisco Health Service System Hill Physicians Medical Blue Shield of Northern IPA/medical 5,000 members Group, Catholic Healthcare California California group/hospital - of San Francisco West, and University of (Bay Area) payer Health Service California San Francisco System Medical Center John Muir Health Northern California (Bay Area) Hoag Memorial Hospital TBD Southern IPA/medical Hoag Memorial Hospital Presbyterian/ Greater California group/hospital - Presbyterian (1,300 medical staff) Newport Physicians payer Greater Newport Physicians (500 affiliated physicians) South Los Angeles Safety N/A Southern Hospital 5,000 initial Net ACO (Metro Care, MLK California network enrolleees Hospital, St. Francis Medical (Greater Los Center, LA Care, California Angeles Area) Hospital Medical Center) Individual Practice Anthem Blue Northern IPA-Payer 284 primary care physicians, Association Medical Group Cross California 550 specialists of Santa Clara County (Bay Area) Saint Joseph Health System Blue Shield of Southern Health system- 30,000 Blue Saint Joseph Hospital (1,000 California and Northern payer Shield HMO medical staff), Saint Jude Medical California enrollees Center (700 medical staff), Mission Hospital (700 medical staff) Source: ACO Learning Network, Anthem Blue Cross, Blue Shield of California, CalPERS, Cattaneo & Stroud, National Health Foundation, Saint Joseph Health System, United Healthcare, Inc., and The Camden Group. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 45 Endnotes 1. eaders from the following organizations were interviewed L 13. Carl McDonald, ACAP CEO Summit: View From Wall as part of the research for this paper: California Children’s Street —The Outlook For Medicaid & Medicare, Citigroup Hospital Association, Contra Costa County, The Center Investment Research & Analysis, June 27, 2011, for Studying Health System Change, San Mateo County, www.communityplans.net. University of Southern California Keck School of Medicine, 14. Revive Public Relations, 2011 National Payor Survey, February California Association of Public Hospitals, California Primary 2011, www.revivepublicrelations.com. Care Association, BlueShield of California, Aetna, COPE Health Solutions, UCSF Medical Center, Presbyterian 15. Harris Interactive, Health Perspectives in California, 2007 Intercommunity Hospital, Arrowhead Regional Medical Survey of Primary Care Physicians, June 2007, www.chcf.org. Center, Adventist Health, Scripps Health, and John Muir Health. 16. A ndis Robeznieks, “Docs working fewer hours, study finds,” Modern Healthcare, February 23, 2010, 2. alifornia Budget Project, “Recent Cuts to the Medi-Cal C www.modernhealthcare.com. Program Have Impaired Access to Services,” June 10, 2011, www.cbp.org. 17. Mark Kashtan and Christina Lee, “CMA Issue Brief: California Physician Workforce,” California Medical 3. he Boards of Trustees, Federal Hospital Insurance and T Association, 2011. Federal Supplementary Medical Insurance Trust Funds, 2011 Annual Report, www.cms.gov. 18. A ssociation of American Medical Colleges, “California Physician Workforce Profile,” 2011 State Physician Data Book, 4. California Medical Association, “CMA responds to www.aamc.org. CMS Medi-Cal reimbursement cuts,” November 10, 2011, www.cmanet.org. 19. George Lauer, “Austerity Won’t Help Physician Shortage, Experts Predict,” California Healthline, November 3, 2011, 5. Jeff Stensland, Craig Lisk, and Dan Zabinski, “Assessing www.californiahealthline.org. payment adequacy: hospital inpatient and outpatient services,” Medicare Payment Advisory Commission, December 15, 2011, 20. Fairbank, Maslin, Maullin, Metz & Associates, “Key Findings www.medpac.gov. From California Health Care Issues Survey,” September 8, 2011, www.cmanet.org. 6. edicare Payment Advisory Commission, “Report to the M Congress: Medicare Payment Policy,” March 2011, 21. K ashtan and Lee, “California Physician Workforce.” www.medpac.gov. 22. A ssociation of American Medical Colleges, News Alert, 7. Charles Fiegl, “Medicare 27.4% doctor pay cut set for 2012 “AAMC Releases New Physician Shortage Estimates unless Congress acts,” American Medical News, November 14, Post-Reform,” September 30, 2010, www.aamc.org. 2011, www.amednews.com. 23. Mary Witt and Laura Jacobs, “Physician-Hospital 8. Jessica Zigmond, “Details of SGR deal released,” February 16, Integration in the Era of Health Reform,” California 2012, www.ModernHealthcare.com. HealthCare Foundation, December 2011, http://www.chcf.org/publications/2010/12/physicianhospital- 9. ori Montgomery, “Obama budget projects record $1.6 trillion L integration. deficit,” The Washington Post, February 14, 2012, www.washingtonpost.com. 24. Jenny Gold, “‘Poster Boys’ Take A Pass On Pioneer ACO Program,” Kaiser Health News, September 15, 2011, 10. ouise Radnofsky, “As Super Committee Fails, ‘Doc Fix’ L http://www.kaiserhealthnews.org/Daily-Reports/2011/ Looms,” Health Blog, The Wall Street Journal. November 21, September/15/2khnstory.aspx?print=1. 2011, http://blogs.wsj.com. 25. Matthew Weinstock, “Bringing ACOs Back to Life,” 11. Janet Hook and Naftali Bendavid, “Deficit Panel Folds Its Hospitals & Health Networks, October 21, 2011, Tent,” The Wall Street Journal, November 22, 2011, http://www.hhnmag.com/hhnmag/HHNDaily/ http://online.wsj.com. HHNDailyDisplay.dhtml?id=670007292. 12. Charles Fiegl, “Super committee gone, 27% Medicare pay cut 26. HealthLeaders Media Staff, “ACO Final Rule: 10 Healthcare threat remains,” American Medical News, December 5, 2011, Leaders Sound Off.” HealthLeaders Media, October 25, 2011, www.amednews.com. http://www.healthleadersmedia.com/content/LED-272477/ ACO-Final-Rule-10-Healthcare-Leaders-Sound-Off.html. 46  |  C alifornia H ealth C are F oundation 27. enters for Medicare & Medicaid Services, Advance Payment C 41. The National Health Foundation, Integration of Emerging Accountable Care Organization (ACO) Model Fact Sheet, Healthcare Delivery Systems in South Los Angeles, Summary October 20, 2011, www.cms.gov. Report of Key Stakeholder Interviews Presented to the California Endowment, June 7, 2011, http://www.nhfca.org/ 28. eter Long and Jonathan Gruber, “Projecting The Impact P reports/Integration_of_Emerging_Healthcare_Delivery-_S_ Of The Affordable Care Act On California,” Health Affairs, LA.pdf. January 2011, http://content.healthaffairs.org/content/30/1/63. 42. State of California Employment Development Department. 29. aiser Family Foundation, “State Action Toward Creating K Monthly Statistics for California and Los Angeles County, Health Insurance Exchanges, as of November 9, 2011,” November 2011, www.edd.ca.gov. www.statehealthfacts.org. 43. Chris Rauber, “UCSF threatens to sever ties to B&T,” San 30. nited States Department of Health and Human Services, U Francisco Business Times, February 15, 2009, Creating a New Competitive Marketplace: Health Insurance http://www.bizjournals.com/sanfrancisco/stories/2009/02/16/ Exchange Establishment Grants Awards List, 2011, story9.html?page=all. www.healthcare.gov. 44. K aiser Family Foundation, “California’s ‘Bridge to Reform’ 31. alifornia Health and Human Services Agency, Health C Medicaid Demonstration Waiver,” October 24, 2011, Benefits Exchange: Frequently Asked Questions, accessed http://www.kff.org/medicaid/8197.cfm. December 5, 2011. 45. ince interviews were conducted for this paper, Mr. Swenson S 32. Ibid. has resigned from JMH and has been appointed senior vice 33. A merican Hospital Association, AHA Rapid Response Survey, president/chief strategic planning officer at Kaiser Permanente. “Telling the Hospital Story Survey,” March 2010, www.aha.org. 34. itt and Jacobs, Physician-Hospital Integration. W 35. ricewaterhouseCoopers Health Research Institute Physician P Survey, December 7, 2010, www.pwc.com. 36. mily Berry, “Physicians wonder about United’s IPA deals,” E American Medical News, September 22, 2011, http://www.ama-assn.org/amednews/2011/09/19/bisf0922. htm. 37. alPERS press release, Integrated Health Care Pilot Exceeds C Expectations, April 12, 2011, http://www.calpers.ca.gov/index. jsp?bc=/about/press/pr-2011/april/integrated-health.xml. 38. James Robinson, Accountable Care Organizations for PPO Patients: Challenge and Opportunity in California, Integrated Healthcare Association, November 1, 2011, http://www.businesswire.com/news/home/20111101007337/ en/Integrated-Healthcare-Association-Examines-Accountable- Care-Organizations. 39. isa Zamosky, “State Pilot Prompts Children’s Hospital to L Form ACO,” December 22, 2011, California Healthline, a publication of the California HealthCare Foundation, http://www.californiahealthline.org/features/2011/state-pilot- prompts-children-s-hospital-to-form-aco.aspx. 40. alifornia Department of Healthcare Services news release, C “Department of Health Care Services Announces Regional Pilot Projects to Enhance Delivery of Health Care to Children,” October 12, 2011, http://www.dhcs.ca.gov/ formsandpubs/publications/opa/Documents/11-05%20 CCS%20Pilot%20Projects.pdf. Physician-Hospital Integration 2012: How Health Care Reform Is Reshaping California’s Delivery System   | 47