This article appears in the March 2012 issue of HealthLeaders magazine.
One common complaint about the transition from fee-for-service reimbursement to value-based schemes is that such groundbreaking changes cannot be done overnight, and must be phased in. That's a problem for healthcare organizations that seek to be forward-thinking yet must continue to exist under current rules. A common refrain is that senior leaders feel as unsettled as a person with one foot on the boat and the other foot on the dock.
But there may be a way to bridge that transition through vehicles such as a the physician hospital organization, which many hospitals and health systems formed under capitation more than a decade ago, and many subsequently discarded as HMOs gave way to preferred provider organizations and as government payers continued to use fee-for-service reimbursement. However, the PHO, or at least something like it, is making a comeback as payers and the government make slow progress toward accountable care.
Commercial negotiation leverage
PHOs were developed in the 1980s as joint ventures between groups of independent physicians and hospitals or health systems as a way to pool risk and, in a key role that would signal their later downfall, offer more negotiating strength with payers. The PHOs were also expected to manage the continuum of care, and payers expressed a willingness to share some of the savings in utilization they were supposed to achieve.
But over time, many PHOs failed, largely because they were either unsuccessful in developing the technology and process infrastructure needed to manage utilization cost-effectively, or they broke down among infighting between the hospital and groups of physicians. They also faced antitrust scrutiny.