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New reasons driving physician practice integration

Recent groundbreaking changes in health care policy and reimbursement methodologies are providing new, and often compelling, reasons for physicians to work in much closer collaboration than in the past. In his 2004 State of the Union Address, President George W. Bush announced a federal policy to ensure that most Americans have an electronic health record by 2014.

The potential benefits of widespread HIT implementation are enormous-a 90 percent adoption of HIT in inpatient and outpatient settings is projected to result in average annual savings of $77 billion. In a December 2007 report, the Commonwealth Fund indicated that accelerated provider adoption of HIT could result in net health system savings reaching $88 billion over the next ten years. Accordingly, several major federal agencies significantly altered their enforcement policies to facilitate physician adoption of HIT. However, for physicians to acquire, implement, and maintain an HIT system, they need extensive financial resources that in turn may require that they form a fully merged firm or integrated joint venture.

Another significant recent development motivating physicians to integrate their practices is the implementation of quality-based reimbursement mechanisms by health insurers, state and federal governments, and other payers. The following are a few examples of these types of quality-based reimbursement programs.

A Physician Quality Reporting Initiative (PQRI) has been established within Medicare by the Tax Relief and Health Care Act of 2006. Congress has funded this program with $1.35 billion. The program increases by 1.5 percent payments to physicians and Medicare Part B practitioners who report information related to specific quality measures. Similarly, the Medicare Payment Advisory Commission has continuously recommended to Congress the incorporation of quality incentives into Medicare’s payment systems for physicians and health care providers.

Basing physician reimbursement on performance measures is gaining popularity among commercial health insurers. A recent publication issued by the Minnesota Medical Association in November 2007 entitled “A Review of Pay for Performance in Minnesota” (Minnesota P4P Review) illustrates this phenomenon. The Minnesota P4P Review shows how health insurers are utilizing specific practice measures to evaluate physician performance and structure reimbursement.

The Minnesota P4P Review describes specific measures employed by each health insurer utilizing a pay-for-performance program. The reimbursement transformation described in the Minnesota P4P Review is indicative of a national phenomenon. For example, on August 27, 2007, the Leapfrog Group and Med-Vantage published the results of a survey of 75 purchasers, government agencies, and health insurers. The results show that pay-for-performance programs had grown dramatically from 39 in 2003 to 148 in 2007. According to the survey, since 2004 the top reason for implementing pay-for-performance programs remains improving clinical outcomes. The report also indicated that over 70 percent of all pay-for-performance programs are working to expand the scope or number of performance measures utilized and that “Advanced P4P programs are now developing tools to measure improvements in Outcomes and eligibility for rewards directly from medical charts.”

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