August 01, 2010
3 min read

Back to the future: The return of the PHO

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I recently read an online article by Mark F. Weiss, a health care business expert, entitled “Accountable care organizations: Accountable to whom?” in which he compared the concept of accountable care organizations (ACOs) to the physician hospital organizations (PHOs) of the early 1990s which many of us lived through and watched fail.

The concept of the PHO was to obtain direct payments to the hospital systems by the insurers and government to provide managed care to a specific population. Hospitals attempted to utilize specific provider groups of primary care and limited specialty groups in order to provide a complete range of services to a patient population. Once the providers realized how they were being paid, they found productivity to be irrelevant and these systems tended to become backed up with dissatisfied and frustrated patients and physicians who had realized that they has lost complete control of their practices.

Pilot ACO program

A recent definition of an ACO is a “local health care organization and a related set of providers which are at a minimum primary care physicians, specialists and hospitals that can be held accountable for the cost and quality of care delivered to a defined population.” However, there is no consensus of exactly how an ACO will function. The new health care reform legislation, The Patient Protection and Affordable Care Act, includes a pilot program for the payment of care through these organizations.

Jack M. Bert
Jack M. Bert

There is no question that it is critical for physicians to see exactly what is occurring with respect to the goal of hospital systems in this country. The reason the American Hospital Association quadrupled their lobbying efforts in Washington last year, is to convince the legislature that the flow of money from insurers and the government should come directly to them and not to physicians. In other words, the hospitals want to distribute the income, first to themselves, and then to the providers of medical care, ie, the hospital staff, nurses and finally the physicians who provide the care.

European experience

This concept has been in effect in Europe for years. I recently attended the Italian Arthroscopy Association meeting in Udine, Italy and had the opportunity to meet surgeons from France, England, Switzerland, and Italy. In each of these countries, they have government and private systems in which the orthopedist can participate. When the physician cares for a government-insured patient, he or she gets a percentage of the amount the hospital receives for the surgical care of that patient. For example, in one European country, that amount is 10% of the hospital reimbursement for the surgical case. If a government-insured patient has a meniscectomy, the average reimbursement to the hospital is $2,000, so the surgeon receives $200. However, if the surgeon brings a private patient electively to that hospital, he or she receives 25% of the fee or $500. This occurs in the majority of European countries despite the fact that the physician is controlling the destiny of that patient.

It is clear that if American surgeons do not wish to have the same result as our European colleagues, we must convince the payors that we are the health care providers for patients, not the hospitals. They are simply “bricks and mortar” and only highly complex, sick patients should be treated in hospitals. The vast majority of surgical cases can be done safely, efficiently and with much higher satisfaction and lower complication rates in physician-managed Ambulatory Surgery Centers (ASCs).

Physician perspective

It never ceases to amaze me that physicians do not continue to argue the point that “we know how to care for patients; no one else does.” Without our signature, nothing can happen to a patient.

It is imperative that we approach our local government health care legislative subcommittees and convince them of this simple fact. We can perform outpatient procedures on the vast majority of patients safely and at 40% less cost based upon current ASC reimbursement rates directly related to the hospital outpatient department (HOPD) reimbursement for the hospitals.

As one orthopedist recently said to me, “Hospitals are dinosaurs.” The truth is, hospital administrations do not have the knowledge or capability to understand how to efficiently provide outstanding medical care with low complication rates — We do. We must be willing to demand time with our local insurance company medical directors and legislators so that they understand when the ACOs really take hold, the reimbursement should be directed to the physician subspecialty groups for specific diagnoses and that we will be responsible for caring for that patient.

For groups that control ancillary services, this will be relatively simple. For groups that have had the forethought to joint venture with a hospital system, share the revenue and obtain control of a portion of the OR suites and manage them, this will be a natural step. For those groups that are small, have no ancillaries and have no relationship with a hospital system, they will have to learn how to negotiate rates with other providers, ASCs and/or hospital systems in order to administer patient care.

If we do not employ this concept as soon as possible, the days of having some control of our practices will be gone and hospital administrators will tell each of us how much we will be reimbursed, very similar to the way it is already being done in multiple European countries. For those of us who wish to remain in private practice, work hard and achieve reasonable incomes, it is our only chance for survival.

  • Jack M. Bert, MD, is the section editor for the Business of Orthopedics in Orthopedics Today. He can be reached at 17 W Exchange St., 307 Gallery Medical Building, Saint Paul, MN 55102; 651-223-9204;