TSA Bulletin - July 2012
A Nexus of Provider, Facility, Risk Taker: IPA, PHO, HCC, CI, FI
By David E. Bryant, M.D.
Economics Editor
There seems to be momentum for the convergence of Provider, Facility, and Risk Taker. There are plenty of examples of where these have already converged such as HMO’s, multi-specialty groups who have their own health plans, or teaching institutions. What seems to have changed is the inertia driving other parts of the market toward this convergence.
My goal is to look at just a couple of these that I see emerging, understand what they are and outline their differences. I will also make reference to a few other types without spending any time exploring them. I want to make it clear that I am not an authority on what I am about to speak. This column only represents my own superficial quest to better understand these emerging concepts. But because I see these trends emerging now, I want to share with you what I have discovered searching the internet. My comments should not be construed as advice. Further, I was advised to pare down the historical aspects of the collective bargaining piece, which I have done. But I do think the detail is important, allowing the reader to see the emergence of clinical and financial integration. Further, many of us are familiar with IPAs, which emerged out of the same process.
In my own neck of the woods, the Baylor Health Care System is rolling out its version of integrated health care through the creation of Baylor Quality Alliance (BQA). As the introductory presentations were rolling out, I asked myself if I understood what this organization is and where it falls in the spectrum of similar organizations sprouting up in the market. We have heard of ACOs as a mantra for the Affordable Care Act. We are hearing of Health Care Collaboratives (HCCs) as a part of Senate Bill 7 passed in Texas in the summer of 2011. I just didn’t understand it all, so I had to do some research.
I want to be sure to thank several individuals who gave me input regarding this issue, including Asa Lockhart, M.D., Clayton Devin, J.D., and Sherif Zaafran, M.D. However, please note that all of the opinions and content expressed in this piece are mine.
The Concept of the Nexus of Provider, Facility, Risk Taker:
A classic example of the merging of provider, facility, and payer (risk taker) is the Mayo Clinic or the Kelsey-Sebold Clinic in Houston. Another example in Texas is Scott and White of Temple. I don’t profess to know the ins and outs of these systems, but as I understand it, the providers are in an integrated, non-fee for service, and risk assuming profile. Yet they can achieve a high quality of care at a lower cost.
Those trying to change the health care environment are trying to bottle up that pixie dust and sprinkle it everywhere. They want to roll this out across America, changing the landscape.
History of Organizations that Arose from the Struggle to Achieve Collective Bargaining: IPAs and PHOs using Financial and Clinical Integration:
There is a story of evolution of this nexus of provider, facility, and payer (risk taker) through the collective bargaining process. It is mainly driven by a desire to collectively bargain for payment, the anti-trust laws, and the federal agencies that regulate them. These types of organizations don’t necessarily derive from statute defined by a law, as much as they do from evolution and bureaucratic interpretation over time.
IPA (Independent Practice Association): Consists of a network of physicians who agree to contract with HMOs and other managed care plans. These practices are not combined.
PHO (Physician-Hospital Organization): Is a joint venture between one or more hospitals and a group of physicians which can act as a single agent for managed care contracting.
The Sherman Antitrust Act was established in 1890 to deal with the country’s domination by a few companies or trusts in each industry, like Standard Oil. It was effective. However, physicians and lawyers were excluded by the phrase, “learned professionals.”
Physicians were largely ignored by Sherman until the 1970s. In 1975, the Supreme Court abandoned the “learned professional” exception, as antitrust cases started to emerge against doctors. These efforts largely arose out of efforts of organizing medical staffs and peer review processes. Claims that these were being used for nefarious purposes arose.
By the early 1980s, the courts started to establish precedent regarding the collective bargaining of independent physicians and practices, and b the 1980s, managed care started to rise on the scene. The HMO Act of 1973 established the HMO.
Any time a physician or medical group attempts to negotiate a price in conjunction with another group, the antitrust laws say they are competitors. But as managed care grew and consolidated into several large entities, payments were forced down for small and independent physician services. Independent practices desperately needed some mechanism in which to collectively bargain without the complex requirements to merge their independent practices into the larger group practices.
In 1982 and 1988 the courts further refined the concept of a “joint venture” through two cases: Arizona v. Maricopa Medical Society and Hassan v. IPA. This refinement created the requirement that the joint venture must bring something “new” to the market space and could not just be an effort to collectively bargain. In general though, the courts were lenient on IPAs through the 80s, and they blossomed.
By the 1990s, the federal government started to define collective bargaining activities further now through the Federal Trade Commission (FTC) and the Department of Justice (DOJ). We see the emergence of two new concepts: Financial and Clinical Integration. They are defined and delivered two joint statements.
Financial Integration (FI) established-1993: Statements of Antitrust Enforcement Policy for Health Care Areas. These statements collectively established a “safety zone” for antitrust, if the “joint venture” shared substantial financial risk or capitation and did not dominate any market. This established the concept of “financial risk.” The justification for using the phrase “shared financial risk” was because the FTC/DOJ felt that this proves an adequate level of integration and efficiencies to warrant the exclusion from the antitrust laws. Shared risk creates the incentives needed to control costs and improve quality.
Clinical Integration (CI) established-1996: FTC/DOJ revised their 1993 statement and used the term “clinical integration” for the first time. They stated that an entity that is sufficiently “clinically integrated” can also obtain exclusion from antitrust laws. To be clinically integrated the FTC/DOJ gave a laundry list of the types of activities that they would want to see. These surrounded concepts of establishing goals or quality and good utilization, protocols, individual and network performance, case management, etc., etc. They wanted to see a clear investment of money and human capital in these processes.
Emergence of secondary qualities: So, IPAs and PHOs were not created, but rather they emerged from the evolution of the imbalance of negotiation power between large payers of managed care and providers. And from their creation we have other functions that start to show themselves, leading to ever more complicated organizations that must achieve quality and efficiency for the right to have collective bargaining.
Types of Contracting Allowed between Payer and IPA/PHO: Risk versus Non-Risk
At-Risk Financially Integrated IPA/PHO Contracts: Through the 1980s and 1990s, IPAs and PHOs exploded through the use of the FTC/DOJ joint statements, mainly through the use of “Financial Integration.” At-risk means that the IPA or PHO is assuming or being “delegated” risk associated with the patients’ healthcare. These are capitated contracts. Providers are essentially being promised non-fee for service payments to deliver whatever health care is needed. Because payments are capitated, quite literally the provider is assuming or being “delegated” the financial risk from the payer.
Because risk contracts do imply real “risk,” many IPAs went belly up in the 80s and 90s, primarily due to reduced Medicare payments and downward pressure from payers. As of 2001, 1/3 of California’s At-Risk IPAs folded. Closer to home, in 2001 System Health Providers (SHP) of Richardson, Texas shut down its At-Risk component. Because of prior financial collapse of some At-risk IPAs, California requires significant financial reserves. These reserve requirements also serve as a barrier to the use of financial risk as a method to achieve collective bargaining. Financial risk contracts were not as good as they seemed for collective bargaining.
Non-At-Risk Contract IPAs: FTC/DOJ joint statements also allow Non-At-Risk Collective Bargaining. Many IPAs and PHOs use this method. The FTC/DOJ joint statements create the guidelines for using what is known as the “messenger model.” This type of model does allow contracting with payers for non-risk, fee for service PPOs or non-risk HMOs.
“Messenger Model” for Non-At-Risk Contract IPAs: The 1996 FTC/DOJ statement gave guidelines for the function of the “messenger.” This was a reprieve from the requirement of financial integration with all of its inherent risk. But in this model, the “messenger” only conveys information back and forth between participants and the payer. They cannot share payment requirements between provider groups, nor can they negotiate on behalf of the provider, individually or collectively. The Federation of Certified Surgeons and Specialists, Inc. (“the Federation”) of Tampa, Florida were forced to stop utilizing the illegal use of the “messenger” model in a case settled with the DOJ in 1999. This model had not been very effective in raising payments for providers.
Many IPAs/PHOs had the belief that the FTC was either lenient or the sanctions were not steep enough to warrant following the “messenger model” for non-risk financial integration. They negotiated directly with PPOs for Fee for Service contracts, as these contracts were non-risk. But the FTC has taken action against 22 IPAs and 7 PHOs since the joint statements were released. These organizations had claimed to use a “messenger model” or that they were clinically integrated. Close to home, the 500 physician North Texas Specialty Physicians (NTSP) was also delivered a consent decree by the FTC in 2001.
So, At-Risk and Non-At-Risk IPA/PHO contracts clearly offer many advantages for collective bargaining. But, they are also clearly not a panacea to managed care pressure. They either involve significant financial risk or in non-risk contracts, a complicated, and non-effective “messenger system.” Of course, the third option is just to assume the FTC/DOJ will look the other way for non-risk contracts. Past experience has shown that the FTC and DOJ have not looked the other way.
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