Value-based care gets a boost, as hospital and health care mergers grow

Hospitals and health systems’ relationships with physicians remain a pivotal factor driving efficient and economically sustainable patient care as health care evolves through technological advances, reimbursement model changes and market disruption from new competitors.

Strategies that hospitals and health systems may consider in aligning their financial and community goals with physicians range from increased focus on value-based care initiatives to strategic partnerships, all of which have the potential to reshape the traditional relationship between practitioners and health systems.

General alignment

As health systems work to align with physicians in a market that demands agility and innovation, despite increasing cost pressures and lingering financial challenges from the COVID-19 pandemic, it is critical that physician alignment strategies plan for the future while adapting to current conditions. Consequently, health system leaders must balance short-term growth solutions with strategies that will achieve long-term sustainability. Doing so may require hospitals and health systems to diversify their alignment strategies while ensuring they have sufficient resources to implement multiple strategies simultaneously.

While financial goals often drive any given alignment strategy, other factors are also at play, and consideration must be given to a strategy’s complexity, predictability and replicability. If a strategy is too complex and difficult to implement, it could lead to unintended consequences for the health system or disagreements with physicians down the road. Complexity can also make a strategy less predictable and harder to replicate. (Of course, some bespoke strategies may be inherently complex, depending on their size and nature.) It is helpful at the outset for a health system to determine whether it intends to replicate a particular strategy across the system, and if so, how such a strategy will be received by physician partners.

Strategies must also have the flexibility to account for different physician relationships. While many health systems employ a significant number of physicians, medical staff also frequently include independent community physicians. It is in a health system’s best interest to remain a provider of choice for these outside physicians to ensure continuity of care for their communities.

Value-based care

Increasingly, health systems are adapting their alignment strategies to include value-based care. Policymakers and payors continue to focus on keeping costs down and basing incentives on managing the health of entire patient populations

Value-based care strategies can help systems align with their physicians by incentivizing desired behaviors that also advance patient population health goals. For health systems that have their own health plans, this can also help drive procedures to appropriate cost centers while capturing a broader patient base in primary care.

Related: Humana Medicare Advantage value-based plans saved $8B in medical costs

Value-based care strategies can also help alleviate some pressures from unfavorable payor mixes. Implementing value-based care strategies with shared savings in non-government patient populations may help promote more efficient care for patients in government programs.

Strategic partnerships: Ambulatory surgery centers and service line joint ventures

One popular physician alignment strategy for independent community physicians is developing and structuring ventures (such as ambulatory surgery centers) in which both the system and the physicians have ownership interests. In some instances, this strategy can also allow health systems to be more strategic about where procedures are performed—an important consideration, as site neutrality rules drive surgeries to be performed in lower-cost settings. Similarly, service line joint ventures also provide vehicles for physician alignment. Such joint ventures can help align independent community physicians who may be performing procedures at a facility with their hospital and health system partners.

Health systems may also look at new avenues for partnering with private equity-backed organizations with respect to the health systems’ employed physicians. Doing so allows the health system to tap into the financial acumen and capital resources of private equity organizations but requires the health system and the private equity partner to think through key issues for each, such as the long-term alignment the health system requires. Health systems should think critically about how best to manage and govern joint ventures.

Navigating the changing regulatory environment

Regardless of their approach, hospitals and health systems must tailor their physician alignment strategies to the regulatory environment, which continues to evolve as technology and care delivery models constantly change.

In addition to monitoring and complying with new regulations, health systems must also adjust to shifting federal enforcement environments and state regulatory schemes. In some instances, regulations may not change the overall strategy, but may change the way in which the strategy is executed. For example, the Federal Trade Commission recently adjusted its approach to health care transaction enforcement and its view of anti-competitive conduct, withdrawing longstanding guidance earlier this year. And some states have corporate practice of medicine rules that limit who can own professional entities and require the parties to structure ventures in compliance with state requirements. Other states have certificate of need laws that limit health systems’ ability to develop de novo facilities and related ventures. These regulations can cause material delay in getting ventures off the ground, and in some cases, may take these ventures off the table altogether.

As the market continues to change, health systems must continue to adapt and adjust their physician alignment strategies. Health systems should evaluate the characteristics of such strategies to ensure that they align with evolving market conditions, comply with regulatory requirements and maintain appeal for physician partners.

Travis Jackson is a partner at McDermott Will & Emery, where he works with leading hospitals, health systems and academic medical centers (AMCs) to bring their most complex and innovative mergers, acquisitions and joint ventures to market. Dexter Golinghorst is an associate at McDermott Will & Emery where he focuses his practice on health law matters, providing regulatory and operational advice to traditional healthcare providers, industry innovators and other healthcare and life sciences clients.