Harvard Vanguard Medical Associates in Boston

Originally published as a Conference Organizational Scenario by the Center for Studying Health System Change (HSC), January 1999. HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Harvard Vanguard Medical Associates (Vanguard) was a nonprofit group practice serving the Boston metropolitan area, employing close to 600 physicians and 300 advanced practice clinicians. The organization's roots traced back to the Harvard Community Health Plan, a pioneering staff-model HMO that later became a staff-model division of Harvard Pilgrim Health Care (HPHC). In 1996, the physicians within the practice voted to separate from HPHC and form an independent entity. By January 1, 1998, Vanguard was officially operating on its own, governed by its own board of directors, with approximately 300,000 covered lives and projected annual revenue of $600 million. Vanguard physicians accepted HPHC coverage exclusively among area HMOs while also seeing patients covered by indemnity insurers. The organization's leadership pledged to maintain its traditional emphasis on primary care, pursue clinical innovation in disease management, and continue its teaching mission while placing greater emphasis on patient satisfaction and physician productivity.

Market Profile

Boston's population was, on average, whiter, better educated, healthier, and more affluent than the nation as a whole. The commercial managed care market was controlled by three nonprofit health plans, and HMOs had captured 46 percent of the insurance market, making Boston one of the most heavily penetrated managed care markets in the country. Medicare and Medicaid were also shifting rapidly toward managed care enrollment. The city's concentration of prestigious medical schools produced a surplus of specialists and medical educators. Providers across the market had responded to competitive pressures by consolidating into three nonprofit integrated delivery systems.

History

The practices that would eventually become Vanguard were established in 1969 under the Harvard Community Health Plan (HCHP), an HMO conceived by then-Harvard Medical School Dean Dr. Robert Ebert. Over the 1970s and 1980s, the group developed integrated approaches to disease prevention and management and built clinical partnerships with academic medical centers -- work that few other provider groups were doing at the time. Unlike some health plans, HCHP gave its physicians the final word on medical decision-making. But while clinical autonomy was never contested, the doctors lacked a formal governance role within the health plan itself.

Partly because of its commitments to disease management and clinical independence, HCHP built a national reputation as a state-of-the-art, physician-friendly health plan. The tradeoff was a relatively high ambulatory cost structure. Around 1990, then-CEO Tom Pyle attempted to introduce a compensation system that supplemented straight salaries with variable pay tied to productivity and quality. The physicians rejected the proposal and ultimately ousted Pyle in 1991.

In 1995, HCHP merged with Pilgrim Health Care, a regional IPA-model HMO, to form Harvard Pilgrim Health Care. The physicians who had been part of the staff model were organized into a Health Centers Division that reported to HPHC leadership. Shortly after the merger, the division's CEO and its physicians proposed spinning off the practice into an independent but closely aligned entity. HPHC's board approved the plan in 1996, agreeing that independence would strengthen consumer choice and dispel concerns that medical decisions were being made by the health plan rather than the doctors. Vanguard operated as a functionally independent organization throughout 1997 and became officially separate at the start of 1998. In an ironic twist, the newly independent Vanguard physicians voluntarily adopted a patient-satisfaction and productivity-based compensation program similar to the one Pyle had proposed -- and they had rejected -- in 1990.

The Rationale for Independence

Three considerations drove the creation of Vanguard. First, although HPHC physicians consistently demonstrated strong clinical quality on measures such as HEDIS, their patient satisfaction scores lagged behind expectations at a time when competition in the Boston market was intensifying. The physicians believed that the operational changes needed to cut costs and improve service would be managed more effectively -- and with less friction -- if doctors had a direct governance role rather than receiving directives from the health plan. Second, with fees across the Boston market reaching an equilibrium that largely eliminated price-based competition, the doctors wanted to build a distinct identity as a hub of high-quality, innovative care. They concluded that a brand name suggesting ties to Harvard Pilgrim and Harvard Medical School, yet unique to the physician organization, was the best way to accomplish this. Third, the physicians sought a more formal, business-oriented relationship with the health plan, one in which HPHC would be responsible for enrolling patients while Vanguard would be accountable for quality and satisfaction.

Governance and Policies

Vanguard was governed by a 16-member board. Nine seats were held by clinicians -- three primary care physicians, three specialists, and three advanced practice clinicians such as physician assistants or nurse practitioners -- elected by the roughly 550 physicians with voting status (those with at least two years of half-time service). Four members were appointed by Harvard Pilgrim, and three outside trustees comprised the compensation committee, as required by IRS regulations. Clinicians and HPHC trustees shared authority over major policy decisions, including one that allowed all Vanguard physicians to contract with other HMOs in the community. Internal policies on costs, quality, and clinical practice were determined by the nine clinician board members alone.

Independence brought several significant policy shifts. For the first time, the physicians shared financial risk with HPHC. Vanguard established a risk fund equal to 10 percent of clinician and practice administrator salaries. Half was distributed based on the profitability of the group as a whole; the other half depended on the performance of the individual medical office where each clinician worked. An individual variable compensation system was being phased in, under which 25 percent of each physician's salary would fluctuate based on productivity and patient satisfaction. Guard rails limited the impact during the first three years: no physician's income could rise more than 6 percent or fall more than 3 percent based on performance. Vanguard also eliminated referral requirements to see specialists. Any member could schedule an appointment with a Vanguard specialist directly, and a revamped primary care scheduling system aimed to virtually eliminate wait times for routine appointments.

Vanguard maintained close ties to Harvard Medical School and its major teaching hospitals. Physicians had working partnerships with house staff at Brigham and Women's Hospital, Beth Israel Hospital, Mt. Auburn Hospital, and Children's Hospital, and ran specialized programs in HIV/AIDS, total joint replacement, asthma, heart disease, and major mental illness, among others. Vanguard's leadership was convinced that the key to long-term success lay in continuing to develop physician loyalty through clinical autonomy and a reputation for clinical excellence across all specialties.

Sources and Further Reading

Center for Studying Health System Change, Community Tracking Study site visits, Boston, 1996-1999. | Harvard Pilgrim Health Care organizational records and annual reports.