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How Physician Organizations Are Responding to Managed Care

Issue Brief

Physicians Must Lead Local Organizations if Practices Are to Work, Panel Says

Conference Executive Summary

Independent No More:

Conference Transcript

Community Hospitals in Indianapolis

Conference Materials

Thomas-Davis Medical Centers, formerly Tucson and Pheonix

Conference Materials

Independent No More:

How Effective Have Physician Organizations Been in Responding to Managed Care?

Harvard Vanguard Medical Associates in Boston

Conference Organizational Scenario
January 1999

arvard Vanguard Medical Associates (Vanguard) is a non-profit group practice serving the Boston metropolitan area, employing nearly 600 physicians and 300 advanced practice clinicians. Formerly a staff-model HMO known as Harvard Community Health Plan, and then a staff-model division of Harvard Pilgrim Health Care (HPHC), Vanguard decided to separate from its parent organization in 1996. As of Jan. 1, 1998, Vanguard became an independent entity, with its own board of directors, nearly 300,000 covered lives, and an anticipated $600 million in annual revenue. Vanguard doctors accept HPHC coverage exclusively among area HMOs, as well as indemnity insurers. The organization, according to its leaders, will continue its traditional focus on primary care, innovation in disease management, and teaching. Its strategic goals include greater emphasis on improving patient satisfaction and physician productivity.

Market Profile

Boston is whiter, more educated, healthier, and more affluent, on average, than the U.S. as a whole. Its commercial managed care market is dominated by three non-profit health plans. HMOs have captured 46 percent of the insurance market, making it one of the heaviest managed care cities in the country. Medicare and Medicaid are rapidly moving to managed care as well. Boston is home to several marquis medical schools and has a high concentration of specialists and medical educators. Providers have tried to protect their position in the marketplace by consolidating into three non-profit, integrated delivery systems.


The first practices that would become Vanguard were established in 1969 by what was then the Harvard Community Health Plan, a pioneering HMO conceived by then Harvard Medical School Dean Dr. Robert Ebert. The group developed integrated approaches to disease prevention and management, as well as clinical partnerships with an academic medical center, during the 1970s and 1980s, when few other provider groups were doing so. Unlike some other health plans, HCHP doctors had the final say over medical decision-making. But while clinical autonomy was never an issue for the practice, the doctors did not have a formal role in the governance of the health plan.

Partly as a result of its disease management and clinical autonomy, HCHP developed a national reputation as a state-of-the-art, provider-friendly health plan. But it also suffered from having a relatively high ambulatory cost structure. Around 1990, former HCHP CEO Tom Pyle attempted to implement a new system that would supplement the doctors’ straight salary with a system of pay that would vary based on productivity and quality. The doctors not only rejected the plan but ousted Pyle in 1991.

In 1995, HCHP merged with Pilgrim Health Care, a regional IPA-model HMO, to form Harvard Pilgrim Health Care (HPHC). The plan’s dedicated staff of physicians were organized under a Health Centers Division, directly accountable to the HPHC leadership. Shortly after the merger, the CEO of the Health Centers Division and the physicians proposed separating the physician practice into an independent, but closely aligned business entity. The board of HPHC approved the change in 1996, agreeing with the physicians that independence would enhance consumer choice and dispel concerns that medical decisions were made by the plan and not the doctors. (The reasons for the separation are described in greater detail below.) Vanguard operated during 1997 as if it were independent, and at the beginning of 1998, the separation became official. In the wake of the separation, Vanguard has adopted a patient-satisfaction and productivity-based compensation program, at the behest of the member physicians, similar to the one Pyle proposed in 1990.

The rationale for independence

The creation of Vanguard was conceived for three reasons. First, while HPHC doctors had proven their relative quality in the market year after year, through such measures as HEDIS, their patient satisfaction scores were not optimal. At the same time, competition promised only to get stronger throughout the Boston market. HPHC doctors felt that the kinds of managerial maneuvering required to cut costs and improve service would be handled better and with less consternation if the doctors had a major role in governance, as opposed to edicts coming from the health plan. Second, fees in the Boston market had reached an equilibrium point that had largely obviated competition on the basis of price. As a result, the doctors themselves were eager to cultivate a distinctive identity as a hub of high-quality, innovative care. The best way to do that, they thought, was through a brand name that suggested the ties to Harvard Pilgrim and to Harvard Medical School but that was unique to the physician organization. Finally, HPHC physicians were eager to establish a more formal, and "business-like" relationship with the plan, making the plan responsible for recruiting patients and the practice responsible for quality and patient satisfaction.

Governance and policies

Vanguard is governed by a board of 16. Nine are clinicians (three primary care doctors, three specialists, and three advanced practice clinicians, such as physicians’ assistants or advanced nurse practitioners) elected by the roughly 550 physicians with voting stature (two years with the practice at least half time). Four are appointed by Harvard Pilgrim, and three are outside trustees, whose chief responsibility is to comprise the compensation committee, in keeping with IRS rules. The clinicians and HPHC trustees share power on major policy decisions, such as a decision to permit all Vanguard physicians to contract with other HMOs in the community. Internal policies on costs, quality, and clinical practice are made by the nine clinician board members alone.

The independence of Vanguard was attended by several major policy shifts. The doctors began to share risk with HPHC for the first time. Vanguard established a risk fund comprised of 10 percent of clinician and practice administrator salaries. Half of that is distributed based on the profitability of the whole group; half is determined by the performance of the medical office where each individual works. An individual variable payment system is being implemented, through which 25 percent of each doctor’s salary will vary based on productivity and patient satisfaction. "Guard rails" were established for the first three years, so that no physician’s income will rise more than 6 percent or fall more than 3 percent based on their performance in the near future. Vanguard also dropped requirements for referrals to see specialists. Any Vanguard member may make an appointment with a Vanguard specialist at any time, and a new approach to primary care scheduling will virtually eliminate wait times for routine appointments.

Vanguard maintains close ties to Harvard Medical School and its major teaching hospitals. The physicians in Vanguard have working partnerships with house staff at Brigham and Women’s Hospital, Beth Israel Hospital, Mt. Auburn Hospital and Children’s Hospital, and have specialized programs for HIV/AIDS, total joint replacement, asthma, heart disease, major mental illness, among others. Vanguard leadership believes that the key to their success will be continuing to develop physician loyalty through clinical autonomy and cultivation of a reputation for overall clinical excellence.


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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.