In the wake of health reform, hospitals, physicians, and other providers face enormous pressure to consolidate their resources and streamline service delivery, all while reducing costs. One model at the center is the accountable care organization (ACO). ACOs are provider-based organizations that aim to meet the health care needs of a defined population. The goal is to simultaneously improve health outcomes and patient experience while reducing per capita costs.

The California Health Care Foundation (CHCF) sponsored a Sacramento briefing on trends in physician-hospital integration and the potential effects of ACO development on the California provider community. ACOs are now being piloted in only a handful of medical groups and large health systems throughout the country but are expected to move into the broader marketplace over the next two years.

Presenters discussed the state of physician-hospital integration in California and identified factors that could smooth the integration process. They reviewed findings from a CHCF report examining the implications of health reform on physician-hospital integration in California and associated challenges. Also discussed were findings from a second CHCF report, which recounts some of the lessons learned by hospital and physician leaders who experienced the tumultuous attempts during the 1980s and 1990s to integrate California physicians.

The speakers were:

• Dennis D. Balmer, deputy director, Financial Solvency Standards Board, California Department of Managed Health Care
• Guy Guarige, chief operating officer, Alta Bates Medical Group
• Laura P. Jacobs, senior vice president, The Camden Group
• Anne McLeod, senior vice president, Health Policy, California Hospital Association

Highlights from the presentation were:

• Laura Jacobs gave a thorough overview of the historical relationships between hospitals and physicians, factors that impact integration, the current state of integration, and implications of the Affordable Care Act (ACA) on integration trends, challenges, and state policy implications. The panelists offered their perspectives on physician and hospital integration activities.
• Anne McLeod emphasized California’s prohibition of the corporate practice of medicine. Questions were taken from the audience.
• All of the speakers emphasized the need for flexibility when developing ACOs and noted that different payers, providers, and markets may choose different structures to meet business needs. In addition to commenting on DMHC’s regulatory role, Dennis Balmer discussed the agency’s intent to foster innovation in ACO development by permitting a two-year pilot period while risk-bearing organizations are applying for Knox-Keene licensure. The importance of ACOs providing integrated care and appropriate patient transitions along the continuum from primary care through palliative care was a common theme. The shortage of primary care providers and the need for appropriate use of nurses in primary care settings were emphasized.
• There was a brief discussion of the unique technical challenges of “attribution,” or the assignment of Medicare fee-for-service patients to an ACO under the federal legislation.

The presentation slides are available as a Document Download. Two related reports, released in concert with this briefing, are available under Related CHCF Pages.