Saint Hapless Health Care Enterprise, a not-for-profit religiously affiliated corporation, operates two hospitals, St. Timothy's and St. Patrick's in River City.River City and the surrounding metropolitan area are served by 20 acute care hospitals and 3000 physicians. Like most markets, managed care has made serious inroads in River City. As a result of the growth of managed care contracting, employers and insurers are insisting that hospitals and physicians assume financial risk through some form of capitation or other means. A notable byproduct of these changes has been a sharp increase in the demand for primary care physicians and a surplus of specialists.

Two rivals have begun to form integrated systems. Madison Hospital, a large teaching hospital, has recently acquired five other hospitals and has developed a PHO, signing up as co-owners some 300 physicians who have staff privileges at these hospitals. Jefferson Medical Enterprises, a for-profit entity, owns three hospitals in the market and has formed an IPA-style HMO.

St, Timothy's, located in downtown River City, has 250 physicians with staff privileges, including 150 family practitioners an a large proportion of specialists practicing obstetrics and pediatric health specialties. A core group of 100 doctors, mostly in solo practice, concentrate their admissions at St Timothy's. A relatively large proportion of these physicians are over 45 years old and many of the older doctors are amenable to selling their practices. Most of the remaining doctors, however, are fiercely independent and highly suspicious of managed care contract proposals being offered by insurance companies.There is a widespread consensus that St. Timothy's need to recruit additional doctors to maintain its viability.

St. Patrick's, located in an affluent suburb adjacent to River City, has a much heavier proportion of specialists on its staff and offers a wide range of sophisticated services. Five group practices, including two large multispecialty groups, supply a large percentage of St. Patrick's inpatient and outpatient business.

Assuming you are the CEO of St. Hapless, what model or models of integrating organizations would you consider forming? What form of business organization should each adopt and how should control be allocated between the hospital and physicians? What governance arrangement would you recommend to avoid conflicts and deadlocks in the future?

What if you were the practice manager for one of the multispecialty physician groups practicing at St. Patrick's? Suppose some of the independent St. Hapless physicians not currently in a group practice wanted to organize some form of entity before affiliating with the St. Hapless system. Explain the advantages and disadvantages of the organization forms they might adopt.