Provider alignment is integral to future success.

The healthcare industry is undergoing dramatic changes, and the Patient Protection and Affordable Care Act (U.S. Congress 2010) is accelerating these changes. The way healthcare is currently paid for in the United States, especially in the traditional, fee-for-service (FFS) Medicare program, does not support coordinated care and the establishment of a delivery system with the appropriate capacity and utilization (Devers and Berenson 2009). The days of FFS are likely to soon end, in part because of the inherently inflationary nature of volume-based reimbursement. Health policy-and, in particular, reimbursement policy-has made a decided shift toward pay-for-performance, value-based purchasing, bundled pricing, and other forms of reimbursement that shift the burden of risk back to the providers and reward them for producing value. Whether FFS completely goes away is anyone's guess, but most will concede that the days of FFS as the predominant form of reimbursement are drawing to a close. Byrnes and Fifer's assertion that, due to these sweeping policy changes, organizations must quickly prepare thoughtful, effective responses to ensure their financial stability could not be more resoundingly evident. Developing a strategy to form an integrated delivery system that can position an organization to operate in this new reimbursement environment is critical to maintaining a strong future and delivering on mission. Vanguard Health System's Baptist Health System (BHS) in San Antonio, Texas is a five-hospital system serving a market of more than 2 million residents in the 22 counties of South Texas. BHS is similar to other large multihospital systems in competitive markets around the country. The system has been and continues to be progressive and innovative. So much so, in fact, that BHS has established itself as a market leader for quality care, satisfaction, and engagement among its physicians and staff and for bringing new services to the market (i.e., the Brain and Stroke Network). San Antonio has four major healthcare systems, a multitude of independent hospitals and physicianowned hospitals, a large teaching hospital, and the country's largest concentration of military medicine providers. Hence, San Antonio can be characterized as a highly fragmented provider market with most physicians splitting loyalties among systems and a city with an overabundance of service offerings among all providers (e.g., 13 open heart programs). In December 2008, BHS was selected to participate in CMS's Acute Care Episode (ACE) demonstration project to study the effects of bundled pricing, gain sharing, competitive bidding, and beneficiary incentives for 28 cardiac and 9 orthopedic DRGs. The demonstration sought to explore whether improvements in quality of care can result from alignment of financial incentives between hospitals and physicians in such a way that they must coordinate care on a case-by-case basis. The ACE program was launched at BHS on June 1, 2009, with approximately 150 physicians, predominantly in the cardiology and orthopedic specialties. In the first year, more than 1,400 patients recieved care under the ACE demonstration program. The early results have been significant, and they provide a glimpse of what can be accomplished through an integrated and coordinated system approach. BHS viewed the ACE demonstration program as a means to quickly advance toward an integrated approach that creates greater alignment with our physicians, facilitates improvement in the quality of care, reduces the cost ofthat care, and further distinguishes the system with a competitive advantage in the effort to deliver care under an alternative payment approach (bundled payment). We learned that the task of transforming our existing delivery platform to one able to accommodate the delivery of coordinated care under the ACE program required significant time and resources. The resulting benefits were impressive and realized sooner than anticipated. …