Evaluating integrated healthcare trends: an interview with Dean Coddington - integrated delivery systems expert - Interview

Healthcare Financial Management, Sept, 1997

Dean C. Coddington, MBA, is principal Moore, Fischer, Coddington LLC, Denver, Colorado, and a respected expert on integrated delivery systems (IDSs). Coddington has published numerous articles and three books on topics related to integrated health care. His latest book, Making Integrated Health Care Work, coauthored with Keith D. Moore and Elizabeth A. Fischer and published in 1996 by the Center for Research in Ambulatory Health Care Administration, provides important insights into how IDSs have approached integration and achieved success in the healthcare marketplace.

Coddington granted HFM the following exclusive interview to share his current perceptions of emerging trends in integrated health care since his book was published.

Q: How has IDS formation progressed since you wrote Making Integrated Health Care Work?

Coddington: Overall, IDSs seem to be moving forward as projected. These organizations still are investing significant resources in developing primary care networks, clinical information systems, and clinical guidelines, and if they have health plans, they are continuing to expand them. These strategies are common to most mature IDSs.

In some ways, however, integrated health care might not be moving as fast as predicted. Some hospital-driven systems have found acquiring primary care physician practices to be a financial drain, for example. Some problems have come from owning or joint-venturing with a health plan rather than pursuing a payer-neutral strategy.

Two new factors soon may have a big impact: the development of physician practice management companies (PPMs) - of which about 25 are publicly owned - and the continuing emphasis on disease management programs, which run contrary to the trend toward vertical integration. In a disease management program, for example, a group of cardiologists might get together and build and operate a hospital that specializes in treating patients with heart conditions, or a group of orthopedic surgeons might develop a musculo-skeletal program that includes inpatient beds and rehabilitation facilities.

HFM: Have there been instances where an IDS has failed and the organizations involved have had to regroup and try a new approach?

Coddington: I am not aware of any systems that have failed, but some hospital-driven systems are reconsidering whether integration is the best strategy. When hospitals take the lead, the potential for things to go wrong increases dramatically. For one thing, it may be the first time that physicians in the community have organized to work together. The multi-specialty clinics have a long history of physicians working together, but that is not always true with the hospital-driven systems.

Almost every organization that has embarked on this strategy, with the exception of multispecialty clinics, has questioned whether this direction is right for them. And, in all candor, sometimes the answer is that not all organizations should become part of vertically integrated systems.

HFM: What IDS success stories have come to your attention?

Coddington: Some multispecialty-driven systems have grown impressively. For example, Marshfield Clinic (Marshfield, Wisconsin) has grown in terms of number of patients served, and that is typical.

Multispecialty-driven systems have strong incentives to expand their primary care base, so the number of IDS-owned regional primary care centers also has increased. For example, Geisinger (Danville, Pennsylvania) had about 60 centers when we studied them three years ago. Now, through a merger, they have about 80 centers. California-based Kaiser Permanente had 12 or 13 primary care locations in Colorado; now they have 15, and their physician base there has grown from 400 to about 480. In fact, I do not know of a multispecialty-driven system that has not been successful, if success is measured by growth.

HFM: In your book, you list 10 characteristics of mature integrated systems (see exhibit). Have you modified this list or added characteristics?

Coddington: Although not everybody uses the same characteristics in defining integrated health care, I still think those 10 characteristics are accurate.

HFM: Are IDSs finding that purchasing or establishing a primary care physician practice is a successful strategy?

Coddington: Over the past two years, hospitals and health systems have been criticized for acquiring primary care practices, and when one compares revenues generated with expenses, these practices appear to be unprofitable. Studies have shown that more than 80 percent of all hospital-owned primary care practices lose money. Nonetheless, physician leaders in multispecialty-driven systems consider developing primary care networks to be the best strategy they have implemented over the past 10 years. The benefits IDSs get from owning a primary care practice include referrals to specialists and a ready-made delivery network for managed care.

The mistake hospital-driven systems have made in pursuing this strategy is putting physicians on salary or giving them high income guarantees, which dramatically increases or fixes a hospital's costs. Although some hospitals are still living with this mistake, most now realize they must develop more sophisticated compensation systems that offer greater rewards for productivity.