Alternative Models of Hospital‐Physician Affiliation as the United States Moves Away from Tight Managed Care

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Abstract
During the 1990s, many U.S. hospitals rushedto affiliate tightly with physicians by purchasing practices and funding the creation of Independent Practice Associations (IPAs) and Physician Hospital Organizations (PHOs) (Burns, DeGraaff, and Singh 1999;Burns and Thorpe 1993;Morrisey et al. 1996). Expectations were high for the national growth of capitated “full‐risk” and “shared‐risk” contracting. These contracting models were already prevalent in California and were found in a number of cities around the United States. Risk contracting was supposed to reward physicians and hospitals that could work together to control costs. It was commonly believed that “systems will either migrate to full integration or decline to … secondary status … vertically integrated systems enjoy irresistible economic advantages” (Governance Committee 1993, xiv). Hospital‐physician integration appeared to be an idea whose time had come. But when risk contracting failed to spread and financial and operational problems developed in hospital‐based IPAs and PHOs and in the physician practices that hospitals had purchased (Burns et al. 2000;Burns and Pauly 2002;Peters 1999), the prevailing wisdom changed.