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Health Care Costs and Financing

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Provider-sponsored managed care organizations work best when community leaders and health professionals are involved

One little-studied form of managed care is provider-sponsored managed care organizations (PSOs). They can be fully owned and operated by hospital health maintenance organizations (HMOs), vertically integrated networks of both physicians and hospitals, or by a physician-only network. PSOs are thought to improve hospital finances by decreasing patient management and utilization costs. PSOs may also be able to restore the public's trust in managed care by responding to community health needs, depending on the makeup of the hospital board.

The likelihood of a hospital owning any form of managed care organization (MCO) increases with the number of community leaders and health professionals on its board. The number of business leaders on the board had no impact on the likelihood of such arrangements, according to a study supported by the Agency for Healthcare Research and Quality (HS08610).

Community leaders on the board are concerned primarily with ensuring accessible and high-quality care in the community. They place a lower priority on the financial effect of their decisions as long as the hospital remains solvent. Health professionals on hospital boards most likely are favorably inclined toward involvement with PSOs because they provide a more flexible working environment for health professionals than insurance-based MCOs. PSOs also allow local health professionals to benefit financially from any increased revenues resulting from improved hospital operations.

Hospital managers should consider their hospital board's composition and the interests of the populations they represent before actively pursuing a strategic action, suggests the study's lead author, Shadi S. Saleh, Ph.D., of the State University of New York at Albany. Dr. Saleh and colleagues examined the effect of the composition of rural hospital governing boards on hospitals' involvement in provider-sponsored MCOs by examining responses to a 1997 survey sent to chief executive officers of 140 rural hospitals in Iowa and Nebraska.

See "The effect of governing board composition on rural hospitals' involvement in provider-sponsored managed care organizations," by Dr. Saleh, Thomas Vaughn, Ph.D., and James E. Rohrer, Ph.D., in the September 2002 Journal of Healthcare Management 47(5), pp. 321-333.

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