Robert J. Baudino, JD, is president of Baudino Law Group in Des Moines, Iowa, which primarily represents healthcare clients. Here, Mr. Baudino discusses how hospitals can prepare for accountable care organizations, noting that clinical integration is a good first step.
Q: What are hospitals doing to prepare for healthcare reform?
Robert Baudino: We are in an interesting transition. A lot of hospital executives are saying, "Something is coming. I don’t know exactly what, but I better start thinking in a different way." The reform law has been signed but nothing much has happened yet. It could be repealed, in part or in whole, but one part of the law, the accountable care organization, will probably come, in one form or another. We don’t know exactly how it will work because there are no implementing regulations yet.
Q: Hospitals have been buying up physicians' practices. Is that a good strategy?
RB: There is a feeling among many hospital executives that they have to buy up practices as a defensive measure. If you don't buy them, someone else will, and you will lose market share. They don’t want to be shut out of business. These fears are justified, in many cases. When hospitals are in a smaller market, and there's only one orthopedics group in town, I tell them, "You better buy that group. You better protect yourself." If the competing hospital bought that practice, it wouldn't be good for you. But in a large metropolitan area, no single hospital or system could buy up all the physicians in particular specialty, so there's less of a pressing need.
Hospitals have learned from the practice-buying binge of the 1990s. They are more cautious and are better managers. But even today, a hospital-owned practice loses $70,000-$90,000 per physician, per year. That loss represents the difference between the physician reimbursements and all the costs of the practice, including the facility, the equipment, the clinical staff and the billing operations. But it doesn't include the value of the referrals, which the hospital cannot count on. The physician can refer anywhere.
Q: Is there an alternative to buying up practices?
RB: Yes. A hospital can set up a clinically integrated system. This arrangement allows a hospital to band together with physicians on staff, share clinical data and negotiate managed care contracts without violating antitrust laws. Physicians can remain in small group practices and deal with the forces that have been driving them into hospital employment — that is, dwindling income and escalating paperwork.
Q: How does clinical integration work?
RB: Specialists and primary care physicians agree on common protocols for treatment of certain types of patients, based on best practices. They have to set up a data exchange, which is expensive but can be financed by the hospital. The integrated system can then jointly negotiate contracts and hire a management services organization to run the operation.
I have been involved in a clinical integration model in the Atlanta area, the DeKalb Physician Hospital Organization, which is a partnership between DeKalb Medical Center, a 525-bed, stand-alone hospital in Decatur, Ga., and its physicians on staff. After seven years of operation, 500 physicians are now involved. Some member practices have just three or four partners. A wide range of specialties is involved, including gastroenterology, cardiology, urology, orthopedics, radiology and primary care.
Q: What is the track record of the DeKalb PHO?
RB: The PHO first had a contract with just one insurer, Blue Cross of Georgia. Now it has contracts with United, Aetna, and Coventry. The PHO tells the insurer clinical integration is going to cost a certain amount of money and we want you to pay for that cost. Improved outcomes and reduced costs more than make up for this outlay.
The DeKalb PHO has improved quality of care by delivering better outcomes, reduced costs and fewer unnecessary tests, through the use of evidence-based medicine that member physicians agree on.
Q: What is the greatest challenge for clinically integrated systems?
RB: One of them is to make sure you comply with a complex set of laws that prevent hospitals and independent physicians from working together. The federal government has created a strictly limited "safe harbor" from antitrust and Stark regulations for these organizations, and it's easy to step over the line if you are not careful. In the past four years, the U.S. Department of Justice has issued cease and desist orders against several PHOs because they did not comply with the safe harbor.
Learn more about Baudino Law Group.
Q: What are hospitals doing to prepare for healthcare reform?
Robert Baudino: We are in an interesting transition. A lot of hospital executives are saying, "Something is coming. I don’t know exactly what, but I better start thinking in a different way." The reform law has been signed but nothing much has happened yet. It could be repealed, in part or in whole, but one part of the law, the accountable care organization, will probably come, in one form or another. We don’t know exactly how it will work because there are no implementing regulations yet.
Q: Hospitals have been buying up physicians' practices. Is that a good strategy?
RB: There is a feeling among many hospital executives that they have to buy up practices as a defensive measure. If you don't buy them, someone else will, and you will lose market share. They don’t want to be shut out of business. These fears are justified, in many cases. When hospitals are in a smaller market, and there's only one orthopedics group in town, I tell them, "You better buy that group. You better protect yourself." If the competing hospital bought that practice, it wouldn't be good for you. But in a large metropolitan area, no single hospital or system could buy up all the physicians in particular specialty, so there's less of a pressing need.
Hospitals have learned from the practice-buying binge of the 1990s. They are more cautious and are better managers. But even today, a hospital-owned practice loses $70,000-$90,000 per physician, per year. That loss represents the difference between the physician reimbursements and all the costs of the practice, including the facility, the equipment, the clinical staff and the billing operations. But it doesn't include the value of the referrals, which the hospital cannot count on. The physician can refer anywhere.
Q: Is there an alternative to buying up practices?
RB: Yes. A hospital can set up a clinically integrated system. This arrangement allows a hospital to band together with physicians on staff, share clinical data and negotiate managed care contracts without violating antitrust laws. Physicians can remain in small group practices and deal with the forces that have been driving them into hospital employment — that is, dwindling income and escalating paperwork.
Q: How does clinical integration work?
RB: Specialists and primary care physicians agree on common protocols for treatment of certain types of patients, based on best practices. They have to set up a data exchange, which is expensive but can be financed by the hospital. The integrated system can then jointly negotiate contracts and hire a management services organization to run the operation.
I have been involved in a clinical integration model in the Atlanta area, the DeKalb Physician Hospital Organization, which is a partnership between DeKalb Medical Center, a 525-bed, stand-alone hospital in Decatur, Ga., and its physicians on staff. After seven years of operation, 500 physicians are now involved. Some member practices have just three or four partners. A wide range of specialties is involved, including gastroenterology, cardiology, urology, orthopedics, radiology and primary care.
Q: What is the track record of the DeKalb PHO?
RB: The PHO first had a contract with just one insurer, Blue Cross of Georgia. Now it has contracts with United, Aetna, and Coventry. The PHO tells the insurer clinical integration is going to cost a certain amount of money and we want you to pay for that cost. Improved outcomes and reduced costs more than make up for this outlay.
The DeKalb PHO has improved quality of care by delivering better outcomes, reduced costs and fewer unnecessary tests, through the use of evidence-based medicine that member physicians agree on.
Q: What is the greatest challenge for clinically integrated systems?
RB: One of them is to make sure you comply with a complex set of laws that prevent hospitals and independent physicians from working together. The federal government has created a strictly limited "safe harbor" from antitrust and Stark regulations for these organizations, and it's easy to step over the line if you are not careful. In the past four years, the U.S. Department of Justice has issued cease and desist orders against several PHOs because they did not comply with the safe harbor.
Learn more about Baudino Law Group.