Case Study: Group Health East Group Health East (GHE) is a 100,000-member

Case Study: Group Health East

Group Health East (GHE) is a 100,000-member managed care organization (MCO) located in southern New England. GHE is a mixed-model MCO affiliated with two large multispecialty groups—Physicians Associates (PA) and Bayside Multispecialty Group (BMS)—in addition to 500 individual physicians in the community. PA provides in-house services in the north clinic; BMS provides services in the south. GHE is affiliated with two major metropolitan hospitals in the Boston area. The CEO, Mr. Jones, is a 55-year-old hospital executive who crossed over into the managed care sector three years ago. GHE is going through a time of transition attributable to increased market competition, and it faces a number of important decisions that will affect its future. These decisions relate to organizational structure, staffing, incentives and performance appraisals, surveillance of adverse outcomes, strategic planning, and rate setting.

Each large GHE clinic maintains a functional organizational design with two main divisions—Support Services and Clinical Services—and separate departments in each division based on specific functions, such as housekeeping in Support Services and medicine in Clinical Services. An organization-wide medical staff, as well as separate medical staff organizations, practice at each of the two clinics. Based on his experience in large academic medical centers in the acute care sector, and on the recommendation of the system’s governing board, Mr. Jones is considering moving to a matrix model organizational design, with separate product lines that affiliate with, and draw services from, the functional departments (e.g., nursing).

In the past, Mr. Jones has distanced himself from clinical issues, and he is unfamiliar with the disease burden of the enrolled population served by the MCO. However, he wants to make better use of the experts within the organization to provide him with the epidemiological input that he needs. What kinds of data are needed to make him better informed?

The move to a matrix model is expected to affect staffing in a number of significant ways. Although the new model is expected to improve efficiency with regard to coordination of services, the effect of the new organizational structure is unclear in terms of the number of employees needed, both professional and otherwise, by the organization. More specifically, Mr. Jones is worried that the new structure will increase the total number of required physician generalists and specialists. His concern is founded, at least in part, on the uncertainty associated with the new structure and physician productivity. The focus on product lines may also break the market into segments in ways that would increase the demand for services. In addition to these staffing concerns, the nurse practitioners in two of the five satellite clinics have voiced concerns about workload and the amount of time they can spend with each patient.

A recommendation from the board has also moved GHE to consider restructuring the incentive and performance appraisal system, specifically for physicians. Based on the experience of US Healthcare, GHE would like to link capitation payments to outcomes. Currently, GHE negotiates separate capitation contracts with both PA and BMS, wherein the two groups are paid monthly per-member-per-month payments based on the total number of enrolled members for which each group is responsible. Separate capitation contracts are negotiated with other affiliated physicians in the community. GHE withholds 20 percent of capitation payments until the end of the fiscal year and returns all or part of that amount based on expenses in three categories: hospitalization, emergency room use, and out-of-plan specialty services. GHE would like to provide incentives for physicians to deliver good quality care by linking capitation payments to patient outcomes. Although Mr. Jones has resisted this idea, the board has insisted that he develop a plan based on performance appraisal. Since Mr. Jones has eschewed contact with the medical staff in the past, he approaches this challenge with some degree of trepidation.

For the last three years, GHE has retained most of the withhold payments because of substantial hospitalization expenses. This action has increased friction between GHE and the two physician groups. The director for hospital services has presented Mr. Jones with a case-mix breakdown by diagnosis-related group (DRG). The concern seems to be that many of the hospital episodes are potentially avoidable. GHE does not currently have a surveillance program that would flag these specific episodes, nor does it have a system to identify conditions that could result in hospital care if ambulatory care is deficient. The chief financial officer (CFO) calculates the potentially avoidable cost to be $18.8 million. Dr. Practice, medical director for BMS, urges Mr. Jones to reduce these episodes by developing a more sophisticated system for targeting ACSCs that are at risk for costly hospitalization.

GHE has contracts with several of the largest employers in the Boston area and with 50 midsized businesses. Each employer contract is negotiated separately with past utilization primarily determining the capitation rates, although within companies the employees are assessed the same premium (i.e., they are community rated). The GHE board has urged Mr. Jones to become more proactive in setting capitation rates. More specifically, the board has encouraged him to include not just the estimated disease burden of the enrolled population, based on past experience, but also the burden of risk factors to which enrollees are exposed (e.g., obesity, smoking, and alcoholism).

Mr. Jones is also laboring over a five-year strategic plan. GHE has been well positioned in the market and is having difficulty meeting the demand for services at both the north and south clinics, and GHE enrollment has grown by 30 percent in the last five years. Moreover, the GHE plan has evolved to include a substantial number of elderly and poor members as the result of a decision made five years ago to accept Medicare and Medicaid risk contracts. Mr. Jones is concerned that the membership profile has changed over the last several years, and he does not know the effect this will have on the kinds of services promised to enrollees. The planning director, Mr. Thompson, has been a strong advocate of building a new clinic on the western side of Boston, where several large employers have been the source of thousands of new members in the last few years.

As part of the strategic plan, Mr. Jones is considering a major effort to reduce the proportion of members who are overweight or obese. Part of this initiative involves including such risk factors as obesity in capitation rates. The other part is a proactive, multiprogram, coordinated effort at weight reduction with financial incentives. Mr. Jones is curious about the extent to which obesity plays a role in various kinds of diseases.

GHE faces substantial, probably painful, changes outside and within the organization. Mr. Jones has lost the respect of his senior staff, he has frustrated midlevel managers, and he has alienated the medical staff. He is being urged by others, including the governing board and affiliated medical groups, to make critical and significant decisions within the organization. Mr. Jones will make more efficient and effective decisions if he gathers the relevant epidemiologic measures and evaluates these data from an epidemiologic perspective.

Source: Steven T. Fleming, Editor. Managerial Epidemiology: Cases & Concepts. Chicago, Illinois: Health Administration Press. 2015.