Physician-Hospital Arrangements and Development in the Healthcare Industry

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Table of Contents

Physician Hospital Organization (PHO)
Management Services Organization (MSO)
Choice of Model
Works Cited

The evolution of relationships between physicians and hospitals is of the recent development in the healthcare industry (Cuellara and Gertlerb). There are different options to choose for the integration of physicians and hospitals (Benoff and Grauman). However, physician integration by employing them has not been considered as an effective strategy (Bolinger). The financial viability of a healthcare organization depends on effective physician-hospital integration (Tompkins and Francoeur). There are four different physician-hospital integration models developed in the recent past. They are

Physician Hospital Organization (PHO),
Management Services Organization (MSO),
Foundation and
Integrated Health Organization (IHO).

Physician Hospital Organization (PHO)

This model represents a joint venture relationship formed between one or more hospitals and a number of physicians. The entity acts to represent the hospitals and the physicians as the common front for dealing with the payers for contracting into the services of the hospitals and physicians. In some instances, PHO acts as an administrative service provider, vouching for the credentials of the physicians and controlling their engagements. The specialty of the PHO model is that while the organization is involved in aligning the services of hospitals and physicians, it also retains its autonomy for dealing with third parties.

The advantage of PHO is that both the hospitals and physicians in this form of integration model can enjoy better bargaining abilities. It will be a good product offering for purchasers looking for bundled services. “To be seen as cost-effective by purchasers, the PHO must have active utilization management, sophisticated information systems, and intensive involvement of physicians in developing standards of care” (Burns).

Management Services Organization (MSO)

A management services organization in contrast to the PHO is a corporation formed either as a separate entity owned by a hospital or by a PHO itself. The objective of forming an MSO is to provide management services as may be required by one or more medical services. It is an organization promoted for planning jointly and making decisions as a framework for the medical practices it serves. MSO usually employs the required non-physician staff.

The main function of an MSO is to provide administrative services to the PHOs or to the hospital collecting flat fees for the services. Tangible assets like building and medical equipment are owned by MSO, which facilitates the physicians’ practice. The advantage of this model is that it has greater coordination between the physicians and hospitals, but provides more valuable service to the physicians. Under an MSO model, the physicians and owners of the MSO share the risk of practice (Burns).

Choice of Model

Of these two models, MSO appears to be a better model as it works to the advantage of the physicians as they can have more autonomy and discretion in the matter of fee fixation. The administrative side of the practice and the investment in fixed assets is also taken care of by the MSO, as these will be a tumbling block for the expansion of the practice by the physicians. PHO acts more as an intermediary between the purchasers and the hospitals and the physicians and sometimes their charges may be found heavy to dissuade the purchasers.

Since MSO provides comprehensive patient services, the financial risks are shared by the MSO, which is not the case with PHOs. In addition, MSO offers administrative services that are unaffordable for the practitioners individually. The physicians can have the advantage of more staff at their disposal which will enhance their potential utility (Burns).

Works Cited

Benoff, M and D M Grauman. “Mastering the physician integration challenge.” Healthcare Financial Management (1997).

Bolinger, J E. “Effective physician integration strategy.” Healthcare Strategic Management (1999).

Burns, Lawton R. “Models of Physician-Hospital Organization: Possibilities and Pitfalls.” Health care Systems 2.7 (1995).

Cuellara, A E and P J Gertlerb. “Strategic integration of hospitals and physicians.” Journal of Health Economics 25.1 (2006): 1-28.

Tompkins, R K and A Francoeur. “Hospital-physician integration: Are we prepared for the future?” Trustee (1999).

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Physician-Hospital Arrangements and Development in the Healthcare Industry

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