By Christopher Guadagnino, Ph.D.

Published November 1996

• React to this article in the Discussion Forum.

PND: What is PennCARE?

ES: PennCARE is, simply put, a provider-driven integrated delivery system. Unlike any other network that I know of, the board of PennCARE is, according to our own bylaws, a minimum of 50 percent physicians. It is not a hospital network. A hospital by itself can’t join PennCARE; a group of physicians, a medical staff and a hospital must join together. The intent is ultimately to have all of the care management decisions being made by colleagues within PennCARE. A lot of physicians are frankly rather upset that they spend hours at the end of 1-800 numbers getting authorizations from people who may be applying protocols that they had no role in developing, who don’t know the community, who don’t know the specialists, who don’t have specific data pertinent to that community. All those decisions we see being made locally and we think that’s better for our doctors and our patients.

PND: How will PennCARE be governed?

ES: Each local system—a PHO or a hospital and a PO—each gets two seats on the board of directors if they are a member of PennCARE. One of those board members must be a physician. Depending on the extent to which physicians choose to purchase shares in PennCARE, that group of shareholders can elect another one or two directors. So, it well might be that PennCARE ends up with a majority of physicians on the board. In fact, until we complete the sale of shares to physicians, the actual interim board is about 60 percent physicians. PennCARE will be established as a Pennsylvania for-profit business corporation.

PND: How does being a for-profit affect your operations?

ES: The surpluses go to the providers—the not-for-profit hospitals and the doctors. I believe that this is the best way to take care of our communities.

PND: What is your capitalization time-table?

ES: Our business plan indicates that we will have either by end of fiscal year 1997 or shortly thereafter all of the capital commitments, which to-date total $11.5 million. So, we feel very comfortable at this stage that, given the various uses of capital that PennCARE has, we’re right on track.

PND: What commitments do PennCARE members abide by?

ES: Well, for one, we believe in partnerships. PennCARE is not about going out and purchasing individual community hospitals. We’re looking for people to join together in a voluntary way. It is a significant capital and time commitment for physicians and others to make, in terms of board meetings, committee meetings, care management activities. We’ve had two Clinical Process Improvement Networksessions so far across PennCARE. We had groups of physicians and nurses from Hazelton General Hospital, Doylestown Hospital and from Lehigh Valley Hospital share learning with their colleagues in three clinical areas: diabetes, pneumonia and in the treatment of patients with osteoarthritis who needed hip replacements.

PND: Isn’t it risky to avoid purchasing hospitals or physician practices when many other entities in the region are doing so aggressively?

ES: There are many people who believe you need to own everything. There are people locally who have aggressively moved to assemble very large numbers of hospital beds and merge those assets and accompanying assets like physician practices. That’s not what is at the crux of PennCARE’s success. We as providers are better able to say, "Here’s the resources available to care for a group of patients; we’re better able to make the decisions on how to best care for those patients." In the past we would worry about is it covered when we thought about a medical service. The principal issue is how do we do the best job of caring for our community. We voluntarily entered into this and we think the local community, the local partnership joining together under PennCARE can in fact do a better job in getting to the outcome of better health. The outcome isn’t how many beds you own. The outcome is healthier community, the patients that you’re responsible for.

PND: What’s to prevent one or more of your hospital members or physicians from being attracted to or being acquired elsewhere?

ES: Let me turn that around and specifically say, some of our members have been approached to be purchased. And they’ve looked at their options and they said, "We think local communities, local systems making decisions locally can best determine how to care for our communities." We’ll do a better job than by merging our assets or selling our assets to some controlled entity out of the community. Again, this is not an approach for everybody, it’s another choice that people have available. Interestingly, a significant number of institutions and physicians are very, very comfortable with the PennCARE choice. So far, the reaction from the physicians at member hospitals has been extraordinarily positive. The medical staffs of those hospitals total 2244. We would hope that the majority of physicians at those hospitals would in fact choose to participate in PennCARE.

PND: Does the local autonomy afforded by PennCARE offset the security of a tighter affiliation approach?

ES: Well, we believe frankly that PennCARE is a long-term approach. Physicians feel that, unless they give up that autonomy—be controlled by someone else and trade it in for security—they will have no security. I think PennCARE is an option for them. I personally am a great believer in diversity and pluralism and we have that in PennCARE. Most institutions within PennCARE actually have some employed physicians. That’s not to say that those physicians can’t and wouldn’t be eager to receive a series of services that would frankly enable them again to take better care of their patients. New ways of education and staying abreast of the advances: those are the kinds of opportunities that we think we can make available through PennCARE.

PND: Describe your recently signed ten-year contract with US Healthcare.

ES: It’s a full risk arrangement where PennCARE is responsible for all of the care consumed by a population of patients. Physicians in PennCARE do not have to only refer US Healthcare patients within the PennCARE system. Individual physicians have a choice. They can participate with US Healthcare through PennCARE or they can choose not to participate with US Healthcare at all. Primary care physicians in PennCARE who choose to sign up actually get better capitation rates for caring for patients through US Healthcare than they would get caring for those patients through US Healthcare alone. There’s the opportunity of a surplus or a deficit when all the accounting is done at the end. That amount can be reinvested in hospitals that are not for-profit organizations and in their communities, their medical staff and physicians to improve their compensation and to take better care of their patients.

PND: How will you handle the need for tertiary care?

ES: Well, actually the major amounts of tertiary care will be handled within PennCARE. Lehigh Valley Hospital, the largest teaching hospital for licensed beds in the state of Pennsylvania, is a member of PennCARE. The case mix index, an important measure of severity, for Lehigh Valley Hospital is the same as almost all the teaching hospitals in Philadelphia. In fact, our cardiac program is bigger than most. We have one of the largest programs for trauma and the first trauma program in the state. If you look at our outcomes, they’re actually the equivalent, if not better, of our colleagues in Philadelphia, and we’re all going to try to improve on those outcomes. For example, the most recent HC4 reports that looked at heart attacks and the outcomes for hospitals, said which hospitals did as expected, which hospitals did worse statistically and which hospitals did better. There was one hospital of those 18 who clinically and statistically performed better than expected. That hospital took care of more heart attacks than any other hospital in the group and had a higher percentage of transfers in than any other. And that hospital happened to be Lehigh Valley Hospital. So we feel pretty comfortable about tertiary care. We also are the most effective tertiary care provider, according to Medicare cost reports. And finally, we have an important contractual relationship with Penn State University and Hershey Medical Center for ordinary services that we might not provide.