PCP and Health System Integrations: 4 Ways to Financially Prepare

Vertical relationships between physicians and health systems are increasing in the U.S. What does that mean for finance leaders?

Market disruptors are seemly everywhere for healthcare executives, and vertical integration is one of them. While CFOs know that it’s best to partner when and if you can, a new study is showing that the physician/health system “vertical relationship” may have a negative financial impact on an organization, so it’s best to plan accordingly.

A study recently published in JAMA Health Forum examined the influence of the vertical relationship between primary care physicians (PCP) and large health systems, and it has shed light on critical aspects of healthcare utilization, referral patterns, spending, and readmissions.

The study reviewed over 4 million observations of commercially insured patients in Massachusetts treated by physicians newly aligned with a health system either through ownership, joint contracting, or affiliation and compared outcomes with physicians who did not have a vertical relationship.

Vertical relationships between PCPs and large health systems were associated with a significant increase in specialist visits per patient-year, the study said. This directly impacts the utilization of specialist services and could potentially lead to higher costs associated with specialist care.

The study also demonstrated a rise in total medical expenditures per patient-year in cases where PCPs had vertical relationships with large health systems, and the increased spending on patient care could affect the financial health of your organization.

The JAMA study also found an increase in the number of emergency department visits and hospitalizations within the health system when PCPs had vertical relationships. This could place additional strain on hospital resources and require more substantial financial allocations for emergency and inpatient care.

Importantly though, the study did not identify any differences in readmission rates.

How can CFOs prepare?

Another recent study showed an uptick in physicians integrating with larger organizations with the primary driver being the need to negotiate higher payment rates with payers. Since vertical integrations and poor payer rates are seemingly here to stay, it can be in an organization’s best interest to adapt to the new financial landscape.

Here are a few ways finance leaders can prepare for physician integrations:

Understand the financial implications of these relationships: The study suggests that vertical relationships between PCPs and large health systems lead to increased healthcare spending. CFOs must be vigilant in monitoring and managing these financial aspects to ensure the hospital remains financially sustainable.

Be prepared for resource allocation: The rise in emergency department visits and hospitalizations within the health system may necessitate resource allocation adjustments. CFOs need to assess the impact on staffing, equipment, and facility requirements to accommodate increased utilization.

Take a look at the larger revenue considerations: Leaders should evaluate how these vertical relationships influence hospital revenue. An influx of patients into the health system can be beneficial if it leads to higher revenue, but it must be balanced against increased spending on patient care.

Don’t forget your payer negotiations: The strained payer/provider relationship may never ease up, so it’s beneficial for leader to understand how the impact of vertical relationships can inform negotiations with payers. CFOs and revenue cycle leaders can use this knowledge to negotiate contracts and reimbursement rates that align with the changing dynamics.