Alternative models of hospital-physician affiliation as the United States moves away from tight managed care.

During the 1990s, many u.s. hospitals rushed to affiliate tightly with physicians by purchasing practices and funding the creation of Independent Practice Associations (IPAs) and Physician Hospital Organizations (PHOs) (Burns, DeGraaff, and Singh 1999; Burns and Thorpe 1993; Morrisey et al. 1996). Expectations were high for the national growth of capitated “full-risk” and “shared-risk” contracting. These contracting models were already prevalent in California and were found in a number of cities around the United States. Risk contracting was supposed to reward physicians and hospitals that could work together to control costs. It was commonly believed that “systems will either migrate to full integration or decline to … secondary status … vertically integrated systems enjoy irresistible economic advantages” (Governance Committee 1993, xiv). Hospital-physician integration appeared to be an idea whose time had come. But when risk contracting failed to spread and financial and operational problems developed in hospital-based IPAs and PHOs and in the physician practices that hospitals had purchased (Burns et al. 2000; Burns and Pauly 2002; Peters 1999), the prevailing wisdom changed. It now seemed that hospitals should divest themselves of these practices, withdraw from the IPAs, and shut down their PHOs (Cain Brothers 2000; Johnson 1999). Does this mean that hospital-physician relationships are reverting from tighter forms of affiliation to the medical staff model that predominated before managed care, an era during which physicians were relatively independent of hospitals (Starr 1982; Stevens 1989) and used them as “the physicians’ workshop” (Pauly and Redisch 1973)? A recent report by the Community Tracking Study shows that in 2000, 65 percent of the major hospitals in the 12 metropolitan areas studied continued to employ primary care physicians and 50 percent continued to own or share ownership of an IPA or PHO (Lake et al. 2003). Possibly hospitals simply need more time to unwind these relationships. But the more tightly integrated forms of hospital-physician relationship may also have advantages that offset their liabilities, even in a noncapitated environment. In this article we describe three models of hospital relationships with physicians who practice in the community. These range from the least integrated (the medical staff model) to the most integrated (the hospital-owned practice model), with hybrid models (PHOs and hospital-affiliated IPAs) in between. IPAs are organizations through which physicians in independent practice contract jointly with HMOs. Most IPAs are owned by physicians, but hospitals may share ownership or contribute support in other ways that link the IPA to the hospital. PHOs are jointly owned physician-hospital organizations through which physicians and hospitals jointly negotiate with HMOs. We borrowed concepts from transaction cost economics and resource dependence theory to describe the advantages and disadvantages of each of the three models during three eras of U.S. medical care, which we termed the pre–managed care, tight managed care, and loose managed care eras. We illustrate these concepts using case studies of four quite different hospital systems in two contrasting metropolitan areas: New York City, where risk contracting is uncommon and most physicians work by themselves or in small group practices, and San Diego, where risk contracting is common and many physicians are organized into large IPAs and group practices.