Courting Physicians: Pros and Cons of Six Integration Models October 20, 2011 Steven R. Smith and Sarah E. Swank

1. Courting Physicians: Pros and Cons of Six Integration Models October 20, 2011 Steven R. Smith and Sarah E. Swank

2. Welcome • Ober|Kaler Healthcare General Counsel Institute • A little about our speakers • Upcoming Physician-Hospital Relationship Webinars • Topic overview • Six trends in integration

3. Meet Today’s Speakers Steven R. Smith Principal, Ober|Kaler ssmith@ober.com | 202.326.5006 Sarah E. Swank Principal, Ober|Kaler seswank@ober.com | 202.326.5003 Steve and Sarah are cofounders of the Ober|Kaler Health Care General Counsel Institute. LOOK FOR US ON LINKEDIN: Ober|Kaler Health Care General Counsel Institute Group

4. Physician-Hospital Relationships Series • Part 1: Courting Physicians: Pros and Cons of Six Integration Models (October 20, 2011) • Part 2: Physician Contracting and Compliance: To Disclose or Not to Disclose (December 7, 2011) • Part 3: Disruptive Physicians: A Roadmap to Avoid Dangerous Behavior (January 18, 2012) Visit www.healthcaregcinstitute.com for more information.

5. Topic Overview What do we mean by the “Pros & Cons” of an integration model?

6. Topic Overview What are the metrics to be used in evaluating each model? • Cost to implement • Difficulty to implement • Efficiency • Alignment of incentives for hospital & physician • Potential for global impact on system or hospital • Quality implications • EHR and data collection/reporting

7. Model 1: ACOs • Fundamentally, an ACO is a network of providers that shares the responsibility for providing care to patients in a clinically and financially integrated entity • Final Regs due out any moment? • More to come from Steve and Sarah along with our multi-discpline ACO Team • Updates on: www.ober.com/practices/137

8. Model 1: ACOs Purpose of ACOs (quick review) • Better care for individuals with respect to safety, effectiveness, patient-centeredness, timeliness, efficiency and equity • Better health for populations through preventive service and education for issues such an substance abuse and physical inactivity • Slower growth in costs through improvements in care and eliminating waste in the system

9. Model 1: ACOs • A true network of providers who are incentivized to provide efficient and effective care, including preventive service • Alignment of providers and incentives should result in more efficient care • EHR system with capability to analyze data regarding outcomes, quality, etc. • Financial return through shared savings • Greater capacity for self-determination or at least self-identification as a system ACO Pros

10. Model 1: ACOs • Efficiency • Cost of care is likely to decline in the future as a function of price and volume reductions • Data Collection • EHR and the ability to capture and interpret and report data • Defining Quality • Quality is going to play an increasingly larger role in computing payment ACO Pros

11. Model 1: ACOs • Providing lower cost settings while enhancing quality of care • Reduce readmissions to hospitals and ED visits by more effective chronic care management • More efficient transitions for patients across the continuum of care ACO Pros

12. Model 1: ACOs Becoming an ACO is a large and complicated undertaking • Application to HHS - Fully developed policies, agreements, leadership, legal entity needed before applying to be an ACO • Assemble and negotiate with all providers and others who will be a part of the ACO • Have a governing body under which all ACO participants possess proportionate control over the ACO’s decision-making process ACO Cons

13. Model 1: ACOs • Be comprised of an eligible group of ACO participants that work together to manage and coordinate care for Medicare beneficiaries • Clinical management and oversight must be managed by a “full-time senior-level” state-licensed, board-certified physician medical director who is physically present at the ACO location • Quality assurance program and process improvement committee to establish quality, cost effectiveness and process and outcome improvement standards • Develop evidence-based medical practice or clinical guidelines and processes to meet the goals of the Shared Savings Program ACO Cons

14. Model 1: ACOs Quality Monitoring and Reporting • ACOs will be required to monitor and report claims review, financial and quality data, as well as submit quarterly and annual reports, perform site visits and conduct patient surveys • Data to be used to determine if ACO meets the Quality Performance Standard and is eligible for shared savings ACO Cons

15. Model 1: ACOs • Expensive to create the entire ACO package and infrastructure especially regarding data collection • Limited return even if shared savings are realized • Must have savings and meet 65 quality standards to have shared savings • Risk of loss under one scenario • Opportunities to accomplish much of same without all the expense and complexity under other models ACO Cons

16. Model 2: Bundled Payments What is it? • CMS Innovation Center • Defined episode of care • Sharing gains arising from better coordination of care • Is different from ACOs? • Why now? • Focus on flexibility

17. Model 2: Bundled Payments Should you apply?

18. Model 2: Bundled Payments Four models • Model 1: retrospective acute care hospital stays • Model 2: retrospective acute care hospital stays along with post acute care • Model 3: retrospective post acute care • Model 4: prospective acute care hospital stays

19. Model 2: Bundled Payments Application Process • Documents • Step 1: Letter of Intent (LOI) • Step 2: Application • Step 3: Optional claims data • May apply for more than one model

20. Model 2: Bundled Payments Deadlines • Model 1: • LOI – October 6, 2011 • Application – November 18, 2011 • Models 2 - 4: • LOI – November 4, 2011 • Application – March 15, 2011 • Data Use Agreement/Addendum (optional) • Research Request packet (optional)

21. Model 2: Bundled Payments Reimbursement • Retrospective payment • Pay fee-for-service (FFS) to each provider after services for each episode of care reconciled against a predetermined target price • Prospective payment • Pay upfront for each episode of care instead of traditional FFS

22. Model 2: Bundled Payments Future Models – Where are we heading? • Model 5: prospective acute care hospital stay plus post-acute care • Model 6:prospective post-acute care only • Model 7: retrospective chronic care • Model 8: prospective chronic care

23. Model 2: Bundled Payments Freedom of Choice • What is it? • Post acute care • Specifically mentioned • OIG is worried about it too! • Does everyone have skin the game? Big Question: How do you control quality without limiting choice?

24. Model 2: Bundled Payments

25. Model 3: Employment • Direct hiring of physicians by a hospital or health system or through a subsidiary entity • Why? • Alignment of incentives • Improve quality • Improve efficiency and productivity

26. Model 3: Employment • Employment exception to AKS and Stark easy to meet with employment agreement • Compensation terms should be well thought out and designed to achieve the objectives and goals of the hospital by considering the appropriate mix of productivity standards and incentives Employment Pros

27. Model 3: Employment “There are many mechanisms for paying physicians; some are good and some are bad. The three worst are fee-for-service, capitation and salary.” JC Robinson, “Theory and Practice in the Design of Physician Payment Incentives”, 2001. Employment Pros

28. Model 3: Employment What behavior does a hospital or system want from its employed physicians? • Productivity: Professional fees • Quality: Better and more efficient patient care • Coordination of care • Communication among providers • Better outcomes • Data to prove all the above Employment Pros

29. Model 3: Employment • Compensation arrangement with physicians should be structured to incentivize the physician to achieve these goals Employment Pros

30. Model 3: Employment • Straight Salary • Pros • Easy to administer • Easy to understand • Cons • If used on a long-term basis, there is no incentive to increase productivity or maintain profitability Compensation Alternatives

31. Model 3: Employment • Work RVU’s • Pros • Pure productivity measurement • Insulates physicians from payor and administrative issues • Within reason, a physician can make as much, or as little, as he/she desires • Cons • May require extra administrative effort to track • May need to re-train for accurate coding (some physicians may be under coding since, otherwise, “it doesn’t matter) Compensation Alternatives

32. Model 3: Employment • Percentage of Collections • May be combined as bonus with straight salary if desired • It is a more comfortable fit for centers on a cash basis as opposed to accrual • It can be administered on a monthly, quarterly or end of the year basis • Need to know revenue and operation expense numbers in order to correctly set the right percentage for compensation Compensation Alternatives

33. Model 3: Employment • Percentage of Collections • Pros • It is relatively simple to administer and understand • It inherently rewards productivity • Risk of payor mix and poor collection performance are shifted to the physician • Cons • Physician may rebel because of the risk of payor mix and collection performance shifted to him/her • Physicians will want/need to “inspect the books” to verify proper compensation Compensation Alternatives

34. Model 3: Employment • Percentage of Net Revenues • Requires advance agreement between employer and physician as to allocated expenses • Pros • The employer enjoys the greatest degree of fiscal protection • Readily understood by entrepreneurial physicians Compensation Alternatives

35. Model 3: Employment • Percentage of Net Revenues • Cons • May require that physicians become actively involved in expense management and revenue collection issues • Accounting systems and staff may have difficulty in producing timely P&L’s • Issue may arise if allocated expenses are too high or collection performance is too low Compensation Alternatives

36. Model 3: Employment • Easy and low cost to implement • Potential for quality and clinical gains • With employed physicians, oftentimes easier to implement treatment protocols and patient safety protocols • Opportunity to enhance not only quality but to reduce risk as well Pros

37. Model 3: Employment • Employment of physicians is usually not an effort to perform a global facelift on a hospital or system – usually a more targeted effort in one or more areas • If appropriate attention is not given to the compensation model, hospital can be stuck with a non-productive and highly paid physician • Financial impact • Morale impact on other medical staff members Cons

38. Model 4: Clinical Co-Management Trying to Define It • Physician led • Coordinate to improve quality • Shared accountability • Quality • Written agreement • Example: oncologists

39. Model 4: Clinical Co-Management Structure • Joint Venture • Form management company • Determine service lines • Enter into a management agreement • Set management fee • Written Agreement • Medical Director light or heavy?

40. Model 4: Clinical Co-Management Duties • Involved in day to day management decisions • Clinical • Operational • Employment • Improve clinical outcomes and quality • Clinical services (inpatient and outpatient?)

41. Hourly Rate Clinical services Call Incentive Pool Clinical outcomes Patient satisfaction Physician satisfaction Quality indicators and outcomes Measurable improvement Efficiencies Remember to define benchmarks and targets Model 4: Clinical Co-Management Compensation

42. Model 4: Clinical Co-Management • Stark • FMV • Personal services • Gainsharing • Permissible in certain cases • Potential expansion in new ACO regulations and guidance • AKS • Tax Exemption • Not for profit hospital • For profit physician group or JV Compensation

43. Model 4: Clinical Co-Management Some Pros, We Heard the Cons • Cost less • Certain physicians don’t want to be employed • Physician independence • Physician led • Innovation and expertise • Physician loyalty • Electronic medical record not in play

44. Model 4: Clinical Co-Management Does it work? • Have we moved beyond the co-management idea? • Skin in the game • Post acute care ignored

45. Model 4: Clinical Co-Management Don’t forget the nurses and other valuable clinicians . . .

46. Model 5: Recruitment • What do we mean? • Recruitment of physician into an existing group practice (including a hospital owned group) or as a new practitioner in a community • Pursuant to an arrangement that is compliant with the Stark law exception for physician recruitment

47. Model 5: Recruitment • Key consideration: This is a strategic action and recruitment is simply a tool to help achieve the desired goal – therefore: • Is there a strategic vision for what the ultimate medical staff or entity will look like and how it will fit within the existing hospital/system structure? • Has a community needs assessment been done to support the need for recruitment? • Have draft agreements, key terms, financial and other approvals all been secured BEFORE going out to speak with physicians?

48. Model 5: Recruitment • Who will be responsible for the cost of “tail” liability insurance as the physician leaves his/her current practice setting? • Will appropriate information technology resources be available for the physician in the new practice setting? • Closing steps and time estimate

49. Model 5: Recruitment • Large upfront costs for: • Recruiter (possibly) • Relocation of physician • Signing bonus • Front money for office set-up • Ongoing subsidy until practice is established (you hope!) Direct Costs

50. Model 5: Recruitment • For any recruitment, there is a risk that: • The physician will not succeed in establishing a self-sustaining practice • The physician takes a significantly longer period of time than anticipated (and what is written in the recruitment agreement) to establish the practice Indirect Costs/Risks