The Patient Protection and Affordable Care Act includes several provisions that hold the promise of improving care coordination; however, many policymakers recognize that systemic changes are needed in how health care is delivered in the United States.

Anything less than systemic change may alter the health care system around the edges, but will not achieve the meaningful reform that expands coverage, improves quality and care coordination, rewards effective and efficient care, promotes innovation, and helps control cost. And as the American Hospital Association's Health for Life: Better Health, Better Health Care initiative has described, achieving greater clinical integration in care delivery is essential to the system change needed to achieve these goals.

Some hospitals already are using a broad range of approaches to integrating more closely with physicians and other health care providers. Clinical integration spans the spectrum from initiatives aimed at achieving greater coordination around a single clinical condition or procedure to fully integrated hospital systems with closed staffs consisting entirely of employed physicians.

Hospitals seeking greater clinical integration first need to overcome the legal hurdles presented by the antitrust, Stark, Civil Monetary Penalty and anti-kickback laws and the Internal Revenue Code. (Click here  for a chart of barriers to clinical integration.) While some of these barriers are not insurmountable, they can force hospitals and physicians to spend substantial time and expense in implementing solutions.

Clinical integration can improve the quality and efficiency of our current health care system; however, legal barriers could frustrate reform efforts. The nation needs to ensure current laws and regulations do not impede our progress in improving care and care delivery for patients. Tackling the legal barriers to clinical integration is essential to allow hospitals, doctors and other health care providers to deliver on the promise of clinical integration.

The Growing Importance of Clinical Integration

The U.S. health care delivery system is fragmented in several significant ways. First, most office-based physicians continue to practice alone or in small groups. Moreover, to the extent that physicians are moving to larger practices, it is generally to form single specialty practices, and not the multispecialty groups that are best able to support care coordination. A study of Medicare claims from 2000 to 2002 found that each year the typical Medicare beneficiary saw a median of two primary care physicians and five specialists, collectively working in four different practice settings. Typical patients with multiple chronic conditions saw as many as three primary care physicians and eight specialists in seven different settings. A study by the Robert Wood Johnson Foundation found that for every 100 Medicare patients treated, each primary care physician would typically have to communicate with 99 physicians in 53 practices to coordinate care.

Second, the most common model of hospital-physician relationships, as reflected in the organized medical staff, does not ensure the optimal level of care coordination between a hospital and its independent physicians. In this common model, physicians use hospital facilities and rely on hospital staff to provide their services, but the medical staff are not hospital employees. As a result, hospitals have limited tools they can use to positively influence the practice patterns of their medical staff, especially since most forms of economic incentives may run afoul of Stark, antikickback and the Civil Monetary Penalty laws that apply to Medicare and Medicaid patients. (See chart of potential legal barriers to clinical integration.)

Third, care also is fragmented because patients receive services in a number of facilities, including freestanding ambulatory sites and post-acute settings or services furnished in the home. Some of these settings may be affiliated with a hospital, while others may compete or offer complementary services. This fragmented care can adversely impact quality and efficiency. Without adequate care coordination, patients are more likely to receive duplicative diagnostic testing, have adverse prescription drug interactions and conflicting care plans.

These scenarios add to the challenges patients face in navigating the health care delivery system at a time when they are most vulnerable. Fragmentation also frustrates attempts by hospitals and physicians to improve the quality and efficiency of care. Physicians in small groups are less likely to be able to afford the information technology to implement electronic health records and similar technologies. They also will have more difficulty in sharing "best practices" and accessing peer data for use as benchmarks.

IT Infrastructure Required

A key component to most clinical integration strategies involves greater information sharing across providers. In 2009 Congress authorized $36 billion to fund an electronic health information infrastructure when it passed the Health Information Technology for Economy and Clinical Health Act, which was part of the stimulus package. Among other things, beginning in 2011 HITECH will provide additional funding through Medicare and Medicaid to providers who are meaningful users of electronic health records.

Under a limited exception to the Stark and antikickback laws and guidance from the Internal Revenue Service, hospitals are able to assist physicians in developing electronic health records. Additional flexibility would be helpful; the exception does not allow hospitals to share hardware or completely subsidize connectivity and software.

Limited regulatory relief helps increase IT sharing; however, there is still a huge opportunity for hospitals and physicians to establish the type of information sharing that will support greater clinical integration.

Other steps that could facilitate information sharing include development of clinical guidelines and other measures to help caregivers assess their effectiveness in delivering appropriate care.

Using Payment Reforms to Promote Integration

Policymakers increasingly are looking to payment reforms as a means to promote clinical integration. The Medicare Payment Advisory Commission's 2008 Report to Congress recommended replacing the current Medicare fee-for-service system with one that "would pay for care that spans across provider types and time (encompassing multiple patient visits and procedures) and would hold providers accountable for the quality of care and the resources used to provide it. This new direction would create payment system incentives for providers that reward value and encourage closer provider integration, which would maximize the potential for tools such as pay for performance and resource management to improve quality and efficiency."

MedPAC suggested three approaches to help achieve these goals—medical homes, bundled payments and accountable care organizations. These suggestions are not entirely new; the Centers for Medicare & Medicaid Services is conducting several Medicare demonstration projects to test payment and delivery reforms that rely on enhanced clinical integration. It is important to note that these projects have required waiver of various regulatory restrictions that otherwise would have prevented their implementation.

Interest in payment reforms to promote greater clinical integration has increased over the past year, and is seen by many as integral to "bending the cost curve" to ensure meaningful and long-term health care reform. In December 2009, a group of freshmen senators sought to advance clinical integration by exploring ways to lower regulator barriers. In a letter to the heads of the Department of Justice's Antitrust Division and the Federal Trade Commission, the senators asked the agencies to issue "clear and accessible guidelines on forming colaborative care models." In a separate letter, Sen. Max Baucus (D-Mont.) joined the senators in asking the Government Accountability Office to study and report on federal and state laws "that may impede or discourage" collaborative relationships among caregivers, including Stark and antikickback laws.

National health care reform proposals called for a number of additional demonstrations involving new patient care models, all of which involve greater clinical integration. In reform legislation, the Medicare Shared Savings Program allows providers to participate in three-year accountable care organization demonstration projects.

States are embarking on a similar path. For example, Massachusetts' Special Commission on the Health Care Payment System recently recommended that global payments with adjustments to reward accessible and high-quality care become the predominant form of payment to Massachusetts providers within the next five years. Such care would be provided through ACOs "composed of hospitals, physicians, and/or other clinician and non-clinician providers working as a team to manage both the provision and coordination of care for the full range of services that patients are expected to need."

To position themselves for this new payment and competitive environment, hospitals are considering how they can increase the extent of their clinical integration, particularly with physicians on their medical staff. Clinical integration cannot be achieved instantly. It requires leadership from both hospitals and physicians, development of an appropriate culture, organizational changes, and a great deal of effort. It also requires sufficient infrastructure, which includes not only hard assets such as information technology, but also staff such as advanced practice nurses who can work with physicians—and their staff—to develop and implement improvements and greater coordination in clinical processes.

The Clinical Integration Spectrum

Hospital efforts at clinical integration span a broad spectrum of arrangements. At one end are targeted initiatives by a hospital and a subset of its voluntary medical staff to address a particular clinical condition or procedure. An example would include a hospital initiative to reduce the costs of hip implants by working closely with its orthopedic surgeons to develop specific protocols and concentrate implant purchases from a smaller number of manufacturers.

At the other end of the spectrum are health systems in which physician groups and hospitals are under the same ownership or are otherwise fully integrated economically. There are arrangements at all points along the continuum. For example, hospitals in the "middle" of the spectrum would include those who employ a substantial number, but far less than all, of their physicians. Another example in the middle of the continuum would be a hospital that has a very active physician-hospital organization, which includes independent (nonemployed) physicians who are involved in an extensive clinical integration program that covers a wide range of initiatives and involves joint negotiations with health plans.

While some hospitals and physicians have had long-established clinical integration approaches, others are just embarking in this area, often starting with more limited initiatives with the goal of expanding if these prove successful. Moreover, hospitals vary with respect to the extent to which they are integrated with other sites of service, such as home health care, post-acute care, long-term care and hospice, as well as integration with payer functions through an affiliated or wholly-owned health plan.

Legal Barriers to Clinical Integration

Hospitals face a number of legal and regulatory barriers as they seek to improve clinical integration with their physician staffs. Perhaps the biggest barrier to innovative arrangements are the provisions of the Civil Monetary Penalty statute that prohibit gainsharing, and the Stark and antikickback laws as they apply to Medicare and Medicaid patients; in some states, there may be similar state prohibitions that apply to other patients. These laws are aimed at curbing arrangements that involve financial incentives to providers that could result in either overutilization, underutilization (i.e., the withholding of necessary items or services), or referrals that are based on considerations other than what might be in the best interest of the patient. While well intended, the statutes are either broadly written or interpreted so as to also prohibit—or create uncertainties about—a broad range of benign arrangements that could better align hospitals and physicians and pose little or no potential risk of abuse.

Providers also have expressed reluctance to engage in clinical integration because of perceived antitrust risks. The antitrust concern arises when providers who are in independent practices and offer competing items or services jointly negotiate with payers. But if such joint negotiations are needed for the clinical integration to succeed, and the providers collectively lack market power, the effort should survive antitrust scrutiny. Nevertheless, because the antitrust laws do not provide bright-line rules in this area, uncertainty about whether their clinical integration efforts would attract antitrust review has deterred some hospitals and physicians from embarking on innovative arrangements.

Other legal concerns can arise from IRS provisions applying to tax-exempt organizations, state corporate practice of medicine statutes, state insurance regulations and malpractice litigation.


While there are divergent views about the role of government in health care reform, there is a growing consensus that there is a need for significant health care delivery change, and that such change must involve increased clinical integration among providers. Clinical integration holds the promise of greater quality and improved efficiency in delivering patient-centered care. Such efforts are likely to be particularly important if, as is widely expected, government and private health plans change to payment methodologies that put a premium on the ability of providers to collaborate effectively.

There is no single path to clinical integration. Rather, hospitals have embarked on clinical integration in a variety of ways, and are likely to develop many more approaches in the future. These efforts have required hard work, development of a culture that facilitates alignment, investment in infrastructure, support from health plans and leadership on the part of both the hospital and physicians. Some have proceeded despite legal and regulatory barriers that have made it more difficult for hospitals and physicians to collaborate.

The AHA and others have urged that steps be taken to reduce these barriers, including changes to antikickback, Stark and Civil Monetary Penalty prohibitions, as well as greater guidance from the antitrust agencies and the IRS regarding their review of clinical integration initiatives. Such regulatory reforms are important to ensure that hospitals and other health care providers can engage in the type of clinical collaborations that can significantly improve U.S. health care.

Excerpted from the AHA February TrendWatch, available at under "Research and Trends."

Sidebar - What is Clinical Integration?