1
Chapter 1
Conceptualizing New
Models of Care Based on
Traditional Structures
Originally, the cost savings that were perceived to be delivered by many managed
care organization (MCO) programs were associated with the more centralized
model types, such as group-oriented and staff model health maintenance orga-
nizations (HMOs). Hospitals attempted to emulate these forms using a variety
of organizational structures, and in most cases, these proved to be inefficient and
unmanageable and unable to assume and control the risk associated with capitated
contracts. Figure 1.1 demonstrates the basic variety of medical staff and physician
relationships with hospitals in a form that shows that there are only a couple of cost
avoidance and cost control mechanisms that have been tried over the years. ese
are arrayed in a fashion that uses a Boston Consulting grid
*
to organize the idea of
cost control with certainty.
Lower on the vertical axis represents more costly programming, and the left
side of the matrix reflects less certainty. So, if one were to choose in a rational sense,
the bias would be toward less costly programs with more certainty of some kind
of performance. Arguably, the categories may be incomplete and the assignment
of weights may be wrong, but the concept is simple to use in discussing how the
process facing health care purchasers has evolved from one of buying programs and
*
Boston Consulting grid and Boston Consulting matrix are terms that are used to describe a two-
by-two graphic representation that is used as a planning tool to assist in ranking any number of
ideas. It was originally introduced as a concept in the 1970s by the Boston Consulting Group.
2Medical Staff Integration
program components to simply accepting the fact that there may not be enough
credible information to even use in arguing about the placement of programming
on a two-by-two matrix. e purchasers simply do not have the tools to understand
how these factors might be judged.
Increasingly, however, both research and the health care cost experience of
large corporations have shown that the newer MCO models working with their
own networks of providers, such as independent provider associations (IPAs) and
preferred provider organizations (PPOs), can also achieve changes in the health
care cost structure, particularly when affiliated with networks of care developed
by self-funded employers or large insurance companies. e savings do not reverse
the trend of cost for health care (it is still on the rise), but they can control the
rates of increase in costs. Predesigned networks average about one-half of the
increase experienced in traditional fee-for-service markets. us, the answer for
the purchaser may not be a program but a mechanism for contracting that pro-
vides results.
Hospitals, sensing this trend, realize that their need is to be within a network
instead of outside it. As with any institution, the preference is to have some kind
of control. is is natural since the hospital may represent a major component of
the cost of the health care that is to be contracted through the network, and it may
have the most capital invested in the network structure. Also, the hospital generally
already has an infrastructure of some kind that can be deployed to support network
initiatives. Where IPAs include a hospital, the acronym that results is generally
PHOphysician-hospital organization. Instead of defining the market and pro-
viding an innovative product form, these provider-focused organizations have been
a response to changes that either are occurring or are thought to soon occur. is
Low Cost
Less Certain
High Cost
Less Certain
High Cost
More Certain
Low Cost
More Certain
Deductibles
Weight Loss Programs
Risk Assessments
Interventions
Vision Gear
Hard Hats
Smoking Cessation
Utilization Review
Pre-Authorization
Second Opinions
Gatekeepers
Exercise Program
Asthma Diabetes
Hypertension
CHF
Disease Management
Figure 1.1 The only real information contained above that is relatively assured
is that interventions like flu shots and safety equipment are pretty effective and
cheap. They are properly placed in the matrix. Higher cost areas of endeavor
with no real research supporting their value proposition are probably also pretty
clearly defined. Most of the programs are open to the readers speculation as to
their value.

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