December 2010

Executive Summary

Presbyterian is the largest health system in New Mexico. It serves 700,000 New Mexicans, provides 1.2 million patient visits annually, and generates annual revenues of $1.9 billion. It began as a hospital, and later added an insurance plan, and finally an employed medical group. The health system has no “narrow network” product, though approximately 10% of its clientele are users of all three Presbyterian services: the health plan, hospital, and medical group. Here, we have summarized the most important lessons in the case.

Scarcity can be “the mother of invention.”
A high demand for services and a limited capacity to deliver with existing operations often breeds innovation. At Presbyterian, providers have such a backlog of work that they are more comfortable with primary care doing the work of some specialists or with physician extenders doing the work of some physicians. The willingness to try Hospital at Home came from a scarcity of hospital beds, so the hospital was not threatened by the lost revenue but welcomed the new capacity. A lack of physician supply in rural areas also led to innovations in telemedicine and increased support for home health care.

It helps to be in a local market that has already gotten over the learning curve of the value proposition of full integration.
Because Lovelace Hospital was already an established HMO and vertically integrated, customers already appreciated the cost/value tradeoff of the lower premiums and the integrated care the plan was able to offer. This customer acceptance also helped lower resistance for physicians when Presbyterian evolved in the direction of full integration. This environmental “readiness,” combined with its existing strong brand as a hospital, allowed Presbyterian to achieve scale very quickly, which is critical for successfully launching an integrated system.

Just because physicians are employed, it does not mean they believe in the model.
Many physicians joined Presbyterian because their practices were struggling. This meant they were not necessarily committed to changing their behavior or accepting new incentives to leverage the potential of the integrated model. There are concerns that as physician compensation is shifted towards quality, there will be a drop in productivity; maintaining quality will require physicians to commit more fully to the model or leave the system.

Health plan within an integrated model can often be the driver of change.
The health plan bought out its other hospital partner, who viewed the insurance product as a way to fill hospital beds. The plan prefers to focus on its goals of getting closer to the customer, changing the incentives for good health care delivery, and acting on better information and analytics than a stand-alone hospital would customarily have.

Integration has yielded some clear quality advantages, though not cost advantages, at this point.
Those members who are seen within all three Presbyterian organizations tend to have some improved quality metrics, like better compliance with screenings or preventive care that could result in savings down the road. However, there has not been a measurably lower cost of care recorded, and the leaders do not feel they could market a narrow network product based on its cost of care. So far, Presbyterian has been low cost compared to other parts of the country, but is not seen as a low cost player in its local market. Leaders hope gains in cost of care will be achieved as physician commitment to the employed model and to evidence-based medicine increases. Furthermore, the successful implementation of electronic medical records next year is expected to enable increased reliability of data, better targeting of treatment goals, and allow for a shifting of compensation based on meeting those treatment goals.

Difficult for one dominant player to spark change in a region.
Because Presbyterian has already made significant investments in data collection, quality tracking, and electronic medical records, other competitors see Presbyterian’s suggestion to unify around state or regional standards or guidelines as a threat. It seems critical for there to be at least two or three entities on reasonably even footing in the market that are willing to partner to create these standards. Alternatively, change will depend on external national regulation.


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.

  • Ariana Klitzner
    Ariana Klitzner