September 2010

Executive Summary

Lancaster General Health is a nonprofit, community-based health system that serves a catchment area of one million residents in Lancaster County, Pennsylvania, and the surrounding five counties. Lancaster General Health is the only health system in this series of case studies that does not own a payor, but it operates as a clinically integrated delivery system with Lancaster General Hospital as its keystone. The medium-sized system includes approximately 700 acute beds at three inpatient facilities and employs nearly 200 physicians.

Dominant market share, strong community support, and a dispersed payor mix enable favorable contracts with payors.
When an insurer tried to offer a health plan without Lancaster General in its network, consumers would not sign up. Lancaster General’s relationship with its targeted patient base has remained amicable, in part because it consistently reinvests the proceeds from its favorable contracts back into the community, in contrast to hospitals that often pour funds into research or other efforts not focused on the local area. In addition, Lancaster General’s contributions to its surrounding communities have meant that local employers are less inclined to demand lower pricing from payors, who in turn would have demanded pricing concessions from the hospital. As a result, Lancaster General has had enough surplus to invest in non-reimbursable activities like community health and wellness initiatives.

A quality czar who maintains strong relationships with senior physicians can be valuable in driving a health system toward greater standardization and improved outcomes.
Lancaster General retains a senior quality expert who reports directly to the CEO. She worked closely with cardiologist leadership on quality initiatives and helped Lancaster General achieve some of the best quality metrics in the country, according to the Centers for Medicare and Medicaid Services. The quality officer systematically assesses many areas of the health system and identifies quality goals, assigns teams to execute on each goal, uses lean six sigma techniques, and builds related data infrastructure to innovate and improve results.

The successful launch of an HMO depends upon unified leadership and rapid enlistment of a critical mass of members.
Scale is crucial for an HMO to recover the sizable upfront capital investments required to launch. Several Lancaster General executives estimated their previous HMO product needed to reach 1 million members to recoup these costs, and the HMO was eventually closed down after the number of members failed to exceed 60,000 over a few years. Unified leadership is also critical to maintaining a tolerance for investing capital for several years before returns can be realized.

A “focused factory” approach can lead to opportunities to engage patients further.
Patients who have had a great experience at Lancaster’s Women and Babies Hospital often remain loyal enough to seek the rest of their own and their family’s medical care at Lancaster. Though the hospital is a standalone medical unit focused on labor and delivery, it has had a “halo” effect on the parent brand.

Lancaster General’s home-grown supply of family practitioners has led to occasional reluctance to use mid-level staff.
Lancaster General administers its own family medicine residency program and successfully retains an impressive number of graduates to practice primary care in its coverage area. 39% of recent graduates chose to stay within the system, and 63% remained in the region between 2004 and 2007. These physicians have a slightly higher-than-average number of patient visits and generally do not delegate as much work to mid-level providers as they might in a different
health system or geography. General practitioners also refer cases to specialists at an above-average frequency. The hospital has a strong specialist culture, where, for example, cardiologists sometimes function as internists.

An accountable care model can be achieved through partnership, rather than integration, with a cooperative payor.
Lancaster General’s leaders viewed some payors as plausible candidates for future, innovative partnerships in risk-sharing contracts or wellness incentives. They believed Lancaster General was unlikely to move toward integration again and that integration would stir competition with payors, who might then refuse to partner with the health system. They also felt providers and consumers would strongly resist integration.

Lancaster General is making a significant investment in robust electronic medical records systems to pursue true clinical integration.
Lancaster General was able to produce outstanding quality results and achieve a high degree of clinical integration even in advance of EMR connectivity. Managers view the current investment in EMR as critical to achieving a tight technological linkage that will enable the system to truly “act integrated.” They believe this system will provide data that are often difficult to access without an integrated payor, enable quality initiatives, and align physician behavior among both the employed and non-employed medical staff. For smaller systems unable to make significant EMR investments right away, Lancaster General’s path to clinical integration could be instructive.

Many benefits of integration can be realized through an organization’s community focus and mission alignment alone.
Lancaster General has little financial incentive to focus on wellness or to help patients avoid hospitalizations, yet Lancaster’s community mission and system of leadership allow it to support these very programs. The succession plan of its board of directors dictates that the chairperson of the Mission & Community Benefit Committee becomes the next president of the Lancaster General Health System Board, fostering a culture that values community health.

About the case study series
Disruptive innovations in health care have the potential to decrease costs while improving both the quality and accessibility of care. This paper is part of a series of case studies that uses disruptive innovation theory to examine integrated delivery systems and aims to identify the critical factors necessary to achieve many of the desired quality, cost, and access improvements called for in current reform proposals. By providing a historical and strategic analysis of integrated fixed-fee providers, this project hopes to accelerate the adoption of disruptive innovations throughout the health care delivery system.

Funding for this case study series was provided by a grant from the Robert Wood Johnson Foundation’s Pioneer Portfolio, which supports innovative ideas that may lead to significant breakthroughs in the future of health care. The authors also thank the participating health systems and interview subjects for their cooperation and assistance.


  • Vineeta Vijayaraghavan
    Vineeta Vijayaraghavan

    Prior to joining the Institute, Vineeta served as Engagement Manager at the consulting firm Katzenbach Partners, helping Fortune 500 health care clients achieve strategic, operating, and organizational improvements. She was also a Research Fellow at Harvard Business School, creating cases and conducting research focused on issues of Organizational Development. She received her MBA from Harvard Business School.

  • Mina Katsis
    Mina Katsis