The conflicting incentives of FFS and capitation present significant problems for integrated health systems like Geisinger Health System of central Pennsylvania. Indeed, after its merger with Penn State Health collapsed, many were concerned about its viability. Geisinger faced losses in its hospitals and physician group, and its health plan was not doing well (Goldsmith 2017).

Geisinger’s turnaround involved two strategies: increasing the share of physician compensation in the form of FFS payments and implementing a robust network of patient-centered medical homes to limit low-value care (healthcare offering little or no clinical value or even having potential harms greater than its benefits). The change in physician compensation allowed the creation of a broader network and rewarded higher volumes. In essence, Geisinger became a network HMO (an HMO having a variety of contracts with physician groups, IPAs, and individual physicians; it may also own hospitals and employ physicians).

Geisinger had two major advantages. Its Medicare Advantage plan was profitable, and its strong market position allowed it to negotiate good rates with local insurance plans. Those high rates gave it the resources necessary to transform its primary care practices.

Discussion Questions

• Why would it make sense to become a network HMO?

• Did it make sense for Geisinger to support the patient-centered medical home transition?

• Could an independent practice afford to become a patient-centered medical home?

• Why is Medicare sponsoring patient-centered medical home demonstrations?

• How would a 6 percent reduction in hospitalization rates affect hospitals?