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The accelerated growth of integrated health systems has been fueled by a sink-or-swim scenario in which many hospitals struggle to fill beds and adjust to managed care pressures. These pressures have translated into an 18.9% increase in the number of integrated delivery systems across the country, according to a new report published by Hoechst Marion Roussel in Kansas City, MO.
But is the integrated delivery system concept working? The answer is: It depends.
Integration that is done correctly can increase hospital occupancy rates and help hospitals survive the financial diet forced on them by managed care pressures.
Integration that is done incorrectly can lead to physician group-hospital clashes, lower revenues, and an eventual collapse of the system.
More providers are integrating, the Hoescht Marion Roussel report points out. In 1996, there were 189 health systems that were highly integrated, meaning they own or contract with three or more health care components, including an acute care hospital, a physician group or PHO, and an HMO, nursing home, home health agency, or surgery center.
The report states there were 570 systems at the end of 1996 that were in the process of integration. This showed a 7.3% increase from 1995.
The 1998 report, which is scheduled to be released in March, is expected to show an even greater increase for 1997, says Anne Ladd, director of statistical publications for The Business Word in Englewood, CO. The publishing firm was commissioned by Hoechst Marion Roussel to analyze data and produce the report.
The number of highly integrated health systems climbed to 228 in 1997, a 20.6% increase from 1996, Ladd says.
So why are integrated delivery systems becoming so popular? For one thing, many health systems have little choice, experts say.
Payers no longer are content with a diverse health system in which they have to purchase separate pieces, so integration is a response to the market, says Marjorie A. Satinsky, MBA, FACHE, executive director of ReXMeD, a PHO in Raleigh, NC. Satinsky has written a book about integrated delivery systems titled, The Foundations of Integrated Care: Facing the Challenges of Change, published by American Hospital Publishing Inc. in Chicago.
"Payers are looking for accountability on the part of providers of health care; they want them to measure quality and document improved quality," Ladd says. She adds that quality improvement and cost effectiveness measures are easier for integrated systems.
Hospitals, the study showed, initiated most of the most highly integrated systems last year, a fact that should surprise no one given the market pressures most hospitals now face.
Occupancy rates of hospital beds may continue to fall until they dip below one-third, and concern about this trend is pushing many hospitals toward integration, says Randy Killian, MBA, MS, executive vice president of the National Association of Managed Care Physicians and the American Association of Integrated Healthcare Delivery Systems in Glen Allen, VA. "The point is we have a health care delivery system where the hospitals have excess capacity. And in financial terms, it’s a nonperforming asset," he says. "So how do you turn a nonperforming asset of empty hospital beds into a performing asset?"
Integration is the answer because this allows for creative options, such as turning acute care beds into subacute care beds or using them for outpatient services, he adds.
It appears to be working. Integrated hospitals reported a higher average occupancy rate (52.2%) than hospitals that are not in systems (48.1%), according to the Integrated Health Systems Digest. Interestingly, this higher occupancy rate was achieved even though the average length of stay in an integrated hospital was one-half day shorter than it was for hospitals that were not in systems. (See average LOS chart, above left.)
"As the demand for acute care decreases, the hospitals are seeing their patient base shrink, and they’re looking to protect themselves and ally themselves with other kinds of providers," Satinsky says.
Another trend, noted in the Hoechst Marion Roussel report, was that the most highly integrated health care systems are turning more to contractual relationships and avoiding growth by acquisition and ownership. These negotiated contracts align shared financial risks and incentives among all providers, define practice standards, document patient outcomes, and maximize use of all capital resources, the report states.
Nearly one-fifth (1,035) of all hospitals (5,494) in the United States were either owned by or contracted to highly integrated systems, according to the report. (See map of hospitals in integrated health systems, above.)
States that have the most integrated health systems are California, Michigan, Florida, Washington, Georgia, Tennessee, Ohio, Arizona, Illinois, New York, Massachusetts, Texas, Oregon, and others in the Northeast and Midwest. (See map of integrated health systems by state, p. 4.) "Those are the areas of the most managed care concentration," Ladd says.
Massachusetts has a 51.9% HMO penetration; California has a 45.6% HMO penetration; Oregon comes in at 41.7%; Arizona has a 40% HMO penetration; Ohio’s HMO penetration is 25%; and Florida has a penetration of 33.8%, according to another Hoechst Marion Roussel study, titled HMO-PPO/Medicare-Medicaid Digest. (See story on HMO-PPO report, p. 9.)
"Certainly, the West and Midwest are leading the way because with managed care and capitation; it forces you to do business differently," Killian says.
Satinsky explains, "The market in the far West is so far along that the expectation of employers and managed care plans is much more influential than in other parts of the country."
The rapid growth of integrated delivery systems has created some of their own problems, and that’s why some integrated systems fail within a few years of being formed.
For one, many hospitals have not given enough thought to what it is they hope to accomplish, Satinsky says. "So they’re in a hurry to create structures they call integrated delivery systems, and the structures are not always what a payer is looking for."
Most problems occur when the system fails to set a clear goal and support that goal. "Creating a system is a process, and it’s evolutionary and takes a long time to do it," Satinsky says. "You don’t have a system tomorrow by putting two organizations together."
Another big issue facing new integrated systems is how they will identify leaders, recruit talent, and train employees to meet their needs. "It’s a revolving door all over the country," Satinsky says. "They clean house and start all over, and I don’t think that’s such a wonderful idea," she explains.
For example, Satinsky says, the health system might have some important talent in its own backyard that is being wasted instead of being channeled into essential positions.
Killian says a major challenge for integrated delivery systems is for physicians to start thinking like MBAs. "What you’re seeing is the corporatization of American medicine," Killian explains. "And as I go around the country, I tell physicians to get out of the emotionalization of health care, put on an MBA hat, and run it like a business."
What works best, he says, is making sure the patient is seen by "the right provider in the right setting at the right time."
[Editor’s notes: For more information about the Hoechst Marion Roussel Managed Care Digest Series 1997, which is listed at $95, call (800) 552-3656. Or visit the company’s U.S. Web site at http://www.hmri.com.
For more information about Marjorie Satinsky’s book, The Foundations of Integrated Care: Facing the Challenges of Change, published in 1997 by American Hospital Publishing Inc. in Chicago, call (800) 242-2626. The hardcover book costs $45 or $38 for members of the American Hospital Association.]