"The way they were classically conceived came along when HMO risk contracts were in vogue," says Marty Manning, president of Advocate Physician Partners in Oak Brook, IL, a Chicago suburb. Advocate operates one of the relatively few PHOs remaining from their inception in the 1980s and early '90s. "They would do credentialing, claims processing, some utilization management, contracting, and set fee schedules. Of course, the docs felt the hospital kept too much, and vice versa."
But most stumbled because they were constructed chiefly to gain negotiating might. The Federal Trade Commission subsequently essentially outlawed any PHOs that weren't demonstrating better quality, efficiency, and lower overall cost.
"If they thought of themselves as an HMO risk vehicle, then the product life cycle ran its course because most areas don't have those risk contracts anymore," says Manning.
They also fell out of favor as many physicians found ways to gain bigger pieces of the reimbursement pie by operating their own surgery centers, labs, and imaging centers. But many of those disincentives have withered as reimbursement for ancillary services operated by physician practices has been whittled away, as technology to help focus on care coordination has improved dramatically, and as the antitrust problems have been solved to the FTC's satisfaction. In fact, an FTC challenge to Advocate's PHO may have set the ground rules for a proliferation of future PHOs.
So why are many hospitals and health systems revisiting the structure as a way to better align the concepts of coordinated care with their independent physicians? Some never left, but many others are realizing that in a reimbursement system where hospitals' and doctors' financial fates are tied more closely together than ever, they have to work closely with their physicians, whether they are employed by the system or not. The PHO can serve as a platform to unify the care protocols of both employed and independent physicians.