Clarian and Doctors and Insurance and Health Care Costs and Health Care Reform and Health Care & Insurance

Clarian and IU Med School hiring 1,500 docs for massive Indiana Clinic; strategy may cut out insurers

May 18, 2009

Clarian Health wants to turn 1,500 or more doctors into employees under a new group called the Indiana Clinic.

The clinic is a not-for-profit joint venture between Clarian and the Indiana University School of Medicine.

Bringing so many physicians together from all specialties could allow Clarian to improve quality, reduce costs and perhaps boost its central Indiana market share.

It also is likely to lead Clarian to offer health insurance services directly to employers, cutting out middleman giants like Indianapolis-based Well-Point Inc. for at least some of its customers.

One model for Clarian's initiative is the Minnesota-based Mayo Clinic. It does direct insurance contracting with large employers, such as Tyson Foods Inc. and the University of Minnesota.

The effects of the recession and a pile of investment losses have forced Clarian to be more cautious in launching the Indiana Clinic. But it's still moving ahead.

It has appointed officers and a board of directors. On May 18 and 19, it will host town hall meetings with employees to outline the details and the time line of the plan.

The Indiana Clinic so far has no doctors officially hired. But it has agreements in principle from the 1,100 doctors that are employed as professors at the Indiana University School of Medicine and nearly 300 more employed by Clarian as part of the Methodist Medical Group and other smaller practices.

Clarian and IU officials hope to build up to 1,500 doctors by the end of 2011 and eventually to extend the Indiana Clinic statewide.

"We'll have the broadest and deepest physician organization," said Dr. John Fitzgerald, who is CEO of the Indiana Clinic. He added, "Multi-specialty groups of physicians can achieve the best quality and safety."

Few would argue with Fitzgerald on that point. Hospital systems that are built on a central group of employed physicians—such as the Mayo Clinic or the Cleveland Clinic—are widely recognized as the highest-quality hospitals in the country.

By employing physicians—instead of merely allowing them to use their facilities, as many other hospitals do—Mayo and Cleveland are able to give their doctors incentives to communicate with one another and coordinate care for each patient—particularly those with expensive chronic diseases.

When hospitals do not employ physicians, it's difficult to get them to coordinate care. That's because health insurers and government programs like Medicare do not pay doctors for communicating or coordinating. Doctors get paid only when they spend time with patients and perform procedures.

Better coordination has been shown to improve quality, cut out unnecessary tests and procedures, and reduce costs.

"Costs can be reduced when doctors and hospitals are part of the same team with common interests," concluded a 2007 report for the Committee on Economic Development, produced by Stanford health economist Alain Enthoven.

Pocketing the savings

The problem for the Indiana Clinic and all other health care providers is that improved quality typically saves money because it leads to fewer hospital stays and other expensive forms of care. Those savings benefit health insurers, not hospitals.

"The only way to capture that value is to become an insurance company," said Dr. Ben Park, CEO of the American Health Network, an independent physician practice with 200 doctors in Indiana and Ohio. "That's why Clarian and some others are looking at that. That's how they're able to keep the [profit] margin."

Sources both inside and outside the Clarian system say it's only a matter of time before Clarian will re-enter the employer-sponsored health insurance market.

Clarian left that business last year when it closed down the M-Plan health maintenance organization, in which it held a majority stake. M-Plan received at least $15 million from WellPoint Inc. in exchange for recommending WellPoint to its customers.

Clarian retained Medicare plans, which were operated by M-Plan's parent company, under the name Clarian Health Plans.

But Fitzgerald said the Indiana Clinic leaders are not talking about providing insurance services, at this point.

"I can't say it's in our plans right now. It's not something we've talked about. I haven't really considered it as an objective," he said.

Fitzgerald said he has been focused on the financial details, including compensation for the Indiana Clinic doctors.

Those outside Clarian say the compensation model has been in flux, which has slowed down the Indiana Clinic's momentum on signing up doctors.

David Charles, a physician accountant at Katz Sapper & Miller, said his clients have yet to see enough on the payment incentives to make a decision about the Indiana Clinic.

"We have some that are in discussions, but we have not gotten final documents yet," he said.

Hiring physicians

Clarian isn't alone in trying to employ more of its physicians—particularly its surgical specialists who fill operating rooms and beds with some of the most profitable patients.

Indianapolis-based Community Health Network hired 31 of its heart doctors Jan. 1. And other hospitals locally and nationally are trying to bring more physicians into the fold.

By encouraging or even requiring its employed physicians to refer patients only within their employer's system, each hospital hopes it can hold on to a larger share of local patients.

Doctors are open to the overtures for both medical and monetary reasons.

They dream of being on an integrated team like the Mayo Clinic that draws praise for its quality and does cutting-edge clinical research. Fitzgerald hopes the Indiana Clinic structure allows more doctors to participate in clinical trials as well as in training medical students.

But being a doctor has become a much more difficult business recently. Doctors' costs are going up, particularly as they face the need to add or update electronic medical records systems. At the same time, reimbursement payments have stagnated as Medicare and private health insurers try to squeeze out costs.

Coming down the pike are bundled payments from Medicare and maybe even private health insurers. By bundling, insurers would stop writing separate checks to every doctor and hospital facility used in, say, a coronary bypass surgery.

Instead, the insurer would write one check and let the hospital, surgeons and anesthesiologists fight over how to divvy it up.

"We anticipate that more and more of payment will be bundled," Fitzgerald said. In that environment, he added, "you really have to be part of a system to be successful."

Fitzgerald emphasized that the Indiana Clinic still will allow room for physicians who don't join it to practice at Clarian hospitals and medical facilities.

Clarian has been making its pitch to many private practices already. Doctors at the Clarian North Medical Center in Carmel said Clarian has twice sent them an invitation to join the Indiana Clinic—along with a contract to sign.

Clarian also has asked physicians who are interested in practicing at its yet-to-be-built hospital in Fishers to join the Indiana Clinic.

Not everyone is thrilled with the idea.

"They've certainly discussed it with us," said Park, head of American Health Network. "But our physicians aren't really interested in the employed model."

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