Success in the New Healthcare Market

1. Success in the New Healthcare Market Executive Leadership Summit South Carolina Hospital Association July 23, 2014

2. Agenda

3. Healthcare Today: Complex, Confounding, Challenging…Changing Private Equity GOVERNANCE Quality Market Share Medicare Supply Chain Healthcare Systems Telemedicine Medical Education ACO Evidence Based Medicine PATIENT SATISFACTION Primary Care Fraud & Abuse People Comparative Effectiveness Research CPOE Medical Home Patient Safety Medicaid Managed Care Health Insurance Exchanges Joint Ventures Bundled Payment MSO Networks Group Practice Health Reform Physician Extenders Leadership Health Navigators Capitation Transparency Accountable Care Organization Physician Employment Bond Rating Population Health Management PHO Service Line Management Ambulatory Centers Industry Consolidation Networks Volume Readmissions IT Regional Health Information Organizations Mergers Revenue Cycle Gainsharing Centers of Excellence Competition CAPITAL EMR P4P Clinical Integration Care Redesign Payment Reform

4. Institute for Healthcare Improvement: The Triple AimTM The Triple AimTM set forth by the Institute for Healthcare Improvement: Optimal care delivery within and across the continuum Focused on improving the health of the population and cost of care Right care, Right place, Right time Population Health Triple AimTM Experience of Care Per Capita Costs Source: http://www.ihi.org/IHI/Programs/StrategicInitiatives/TripleAim.htm

5. Chief Executive Officer: Threat or Opportunity? Does your organization consider each of the following to be a threat or an opportunity? Source: HealthLeaders, January/February 2014

6. Chief Executive Officer’s: Switching from Volume to Value Do you believe the healthcare industry will make the switch from volume to value? YES 72% 28% NO Source: HealthLeaders, January/February 2014

7. Top Three Areas to Improve or Address Which are the top 3 areas your organization must improve or address in order to reach your financial targets in the 3-year timeframe? Physician-hospital alignment Cost reduction Care model (e.g., population health, medical home) Strategic partnerships with providers Source: HealthLeaders ,January/February 2014

8. Chief Executive Officers’ Cost-cutting Focus What are the top 3 areas you will focus on next to control costs? Expense reduction via process improvement Labor efficiencies Expense reduction via supply-chain efficiencies Capacity management Source: HealthLeaders, January/February 2014

9. Hospital and Health System Pressures Sequestration Health Insurance Exchange SGR (Reimbursement Reduction) Hospital Health Systems Capital Requirements Credit Rating Requirements Operating Costs Employed Physician Losses Throughput Volume Declines

10. Emerging Working Relationships with Physicians: Leadership and Culture Change

11. Hospital Employment of Physicians We Have All Seen the Trends… • Factors driving physicians to seek employment include: • Desire for economic stability/ security • Changes in government payments to doctors • Rising operating expenses • The growing emphasis on patient safety and quality • Lifestyle (e.g., predictable hours, less calls) • Inability to recruit new physicians Flat Revenue Rising Expenses Increasing Regulation Merritt Hawkins suggests that the industry will see 75 percent of the nation's physicians employed by hospitals in 2014.

12. Round 1: 1990’s Why What Happened • We heard healthcare financial models changes were coming • The first groups to be employed were physicians in the middle or near the end of their practice cycles • Contracts were often salary-based • Practice assets were financially evaluated (including goodwill) and paid for • No to minimal discussions regarding quality of care, patient satisfaction, or cultural change was discussed • Healthcare financial reimbursement and payment models did not change significantly • Salaried physicians did not produce to cover costs • Over practice management developed • Hospitals stained losses on operational balance sheets • Many contracts and relationships disintegrated

13. Round 2: Mid to Late 2000’s What Happened Why • We heard healthcare financial models changes were coming • The new physicians had substantial educational debts • Entering private practice had increased financial cost and risk • New physicians wanted work/life balance • New physicians did not require practice asset acquisition • Some discussions regarding quality of care, patient satisfaction • No-to-minimal cultural change was discussed • Healthcare financial reimbursement and payment models did not change significantly • Salaried physicians did not produce to cover costs • Over practice management developed • Hospitals sustained losses on operational balance sheets • Many contracts and relationships disintegrated

14. Round 3: Current and Together Again (“Divorces”) What Happened Why • Healthcare financial models changes are here • Variable based on region and size of system • New physicians have substantial educational debts • Average of $170,000 • Entering private practice is not a viable option in many parts of the country • New physicians demand work/life balance • Discussions regarding quality of care, patient satisfaction are occurring • Culture change is starting to be discussed • Healthcare financial reimbursement and payment models are changing • Providers are leading the charge • Salaried physicians may not produce to cover costs on a pure relative value units (“RVU”) metric • New compensation models • New and improved practice management is being developed • Maybe • Hospitals reevaluating physician “losses” on balance sheets • Investments • Many contracts and relationships are still at risk • Longevity bonuses are more common

15. Pyramid of Success Community Hospital Access Points (UCC, FQHCs, ED, Health Plans, Physician Offices, Retails Clinics, etc.) Defined Population

16. Physician-Hospital Integration: Driving the Value Proposition High IDN/ Health Plan Accountable Care Bundled Payments Impact on Value Clinical Integration Managed Care Shared Risk Medical Home Specialty Co-management Medical Foundation Physician Employment RHC, FQHC, Community Clinics COE/Specialty Institutes Low Full Limited Integration

17. Evolving From  To From Pay for procedures Fee-for-Service More facilities/capacity Physicians/Hospitals acting independently Physicians and hospitals working in parallel Hospital-centric Treat disease/episode of care To Pay for value Case rates/budgets/capitation Better access to appropriate settings Physicians/Hospitals collaboration: global risk Physicians and hospitals working in a highly integrated manner Continuum of care (population-centric) Maintain health

18. Emerging Physician Relationships • Employment • Co-Management/Bundled Payment • Accountable Care Organizations • Clinically Integrated Organizations • Network Population Health Management • Plan-to-Plan

19. The Traditional Primary Care Practice Model Is Changing Past Single or small group practice primary care clinic no longer economically sustainable. Patient Centered Medical Home Future

20. Co-Management Structure Hospital contracts with a physician organization, under which the physicians are granted input and managerial authority to design and enforce clinical and operational standards. Generally, the physicians provide only their time and no other personnel or items. Physician Group/ Venture Hospital Co-Management Service Agreement (“Co-MSA”) Executive Physician Director and Physicians Service Line/ Department Director Service LineCo-Management Committee

21. Physicians Are Involved In Each Aspect of Operations Possible Co-management Responsibilities • Financial and Operations • Management oversight of staffing • Negotiation of service arrangements • Operating and capital budgets • Length-of-stay management and patient throughput Physicians • Planning and Business Development • Strategic plan development • Technology planning • Marketing strategies • Clinical research plan Hospital • Quality of Care • Development of care protocols • Quality management and improvement policies • Quality outcomes • Patient experience Co-management company governance structure includes various committees for managing all aspects of planning and care delivery (i.e., Quality Care Committee, Technology Committee, Operations Committee, Finance Committee, Research Committee)

22. ACO Structure • Infrastructure(Provided or Contracted ACO Operations) • Information Technology • EMR, CPOE, PACS • Data warehouse • Reporting • HIE • Web portal • Care Management • Hospitalists and Intensivists • CMO • Disease management • Clinical protocols • Advanced analytics and modeling • Call center • Utilization management • Knowledge management • Health Network • Delivery network • Financial/Payment Systems • ACO responsible for: • Clinical care management (clinical integration) • Capture data for continuum of care • Measure and monitor costs and quality

23. Network Population Health Management Partnerships Drive Success and Sustainability IDN/ ACO Accountable Care Infrastructure Umbrella Network IDN/ACO Physicians Physicians Physicians NW Network IDN/ACO Columbia Network IDN/ACO Oregon Network IDN/ACO

24. Goal is Balance Clinically Integrated Network F A C I L I T I E S CLINICIAN ALIGNMENT HEALTH PLAN

25. Plan to Plan/Health Plan Health Plan (BC, BS, Aetna, United, etc.) Retain 15 - 20% Your Health Plan Hospitals Ambulatory Services Post-Acute Services Physicians Pharmacy Facilities

26. Getting the Gears of Change Aligned Payment Change Care Model Change Cultural Change

27. Change: What’s In It For…Hospitals? Enhance quality improvement results Participate in new models of care Improve patient care and satisfaction Transition to new payment models Improve connectivity and relationships with physicians

28. Change: What’s In It For…Physicians? Care Management Support Participate in new models of care Financial Rewards Enhance Connectivity with Colleagues Improve Patient Health and Satisfaction

29. What Incentives Are the Right Incentives? Strategic Focus or Goal Measures for Variable Compensation/Incentives Financial Performance • Productivity: Panel size, wRVU, Collections • Expense management • Profit/Loss by site Patient Outcomes Quality Patient Satisfaction Service Group Profitability/Performance 360O Reviews “Citizenship” Teamwork Group Profitability Overall New Services/Growth

30. Incentive-Based Models • Incentives must be large enough to motivate behavior • Pay at risk component is influenced by the interplay of 2 variables: • Physician’s ability to impact the variable • Value to the physician • Bonuses measured/paid more frequently reinforce desired behaviors

31. Service/Quality Performance Measures • Patient satisfaction • Open panel • Grievances • Peer review • Clinical quality • Functional status • Panel Size • Charges • RVUs • Encounters • Net revenue Resource Utilization Desired Performance Productivity Citizenship • Staff review • Participation in Group activities • Protocol compliance • Availability • Medical records audits • Coding compliance • Visits PMPM • Pharmacy utilization • Specialty/Ancillary utilization • ED utilization • Charges/Case or Visit

32. A Challenging Time For Change Multiple Factors • Many do not believe there is a need to change • Transition during a schizophrenic time of payment models • Loss of autonomy • Lose Control • Office • Patients • NPs/PAs/Others • Reimbursement continues to decrease • Expenses continue to increases • Expanding knowledge-base

33. Why Is It So Difficult

34. Leads to Emotional Factors Similar to Kubler-Ross Stages of Dying

35. Physician Change and Communication Critical Elements

36. Make a Case for Change Why, How, What • Create need for change based on data and information • Quality metrics • Outcomes • New financial metrics and payment models • Industry market trends • Address new emotional dynamics that may arise • Implement change by supporting the processes needed for the change • Sustain change by sharing results of success • Quality • Financial

37. Group Dynamics for Change • Identify the “right” people • Formal and informal leaders • Need some with positions and power to get things done • Expertise and credibility to influence others • Start with a small number of clear goals • Develop an environment of trust and commitment within the team

38. Create an “Integrated” Culture Partnership/ Collaboration/ Trust Patient- Centered Accountability Continuous Improvement Transparency

39. Communicate Progress of What is Being Changed • A Constant and Continuous Communication Plan • Multimedia Start with Sharing the Vision • Education Ongoing • Focused as needed Share Successful Results • Address Naysayers • Privately • Publically Engage Grassroots Non-Physician Staff is Just as Important!

40. Enable Implementation of Change • Supply training, support, and opportunities for success (i.e., make life easier) • Remove identified barriers that impede progress to the goals and vision • Encourage and value (monetary) involvement • Organization must commit the time and necessary resources

41. Target Short-Term Wins (Walk Before Run) • Target a few agreed upon metrics of success that resonate with providers and the population • Secure broad acceptance through communication and education • Communicate success enthusiastically • Include and learning that led to success into the plan • Engage others that want to improve

42. Build and Expand On Success • Any small short-term win can lead to bigger longer term wins • Build on what works, change what does not • See what works and continue to improve on it • Continue monitoring metrics an reporting results – good and bad • Achieving tangible results as quickly as possible • Build infrastructure that expands, and emphasizes new behaviors • Continue to align financial rewards to behavior change • Add new metrics, models, processes, and programs

43. Cultural Transformation Start With A Vision • Short-term wins, long-term sustainability • Reassess, revise, revisit • Plan for implementation • Resources and budget • Technology • Metrics for success • Gap assessment • Integrated model design • Rationale • Empowerment and accountability • Interviews • Committee Meetings • Vision

44. Gold Keys for Success and Landmines to Avoid

45. Keys To Hospital-Physician Alignment Strategies • Understanding risks and rewards • Determining individual and organizational expectations • Full transparency and confidentiality • The legal certainty and business reality mismatch

46. The Fundamentals • Not all physicians are the same • Employed vs. independent • Primary care vs. specialists • Exclusive medical staff privileges vs. “splitters” • New recruits vs. veterans • Not all terminology has universal or standardized meaning • Each model has pros and cons; none is perfect • The engagement process is often more important than the employment model selected

47. Challenges • Physicians have unrealistic expectations about the value of their practices or their services • Physicians expect hospitals to be the “deep pockets” while reimbursement catches up with the new risk/reward continuum • The compensation methodology is not adequately tied to performance improvement and behavior change • Management of physician practices different than hospitals or departments

48. Driving Issues Not Addressed in Contracts - Maybe They Should Be • Hospital’s and health system’s ability to manage employed physicians and physician practices • Billing (if employed) • Efficiencies • Staff • Physicians lose autonomy • “Bosses” • Perceived lack of respect • Behavior change • Culture

49. Common Mistakes • Failing to address the hospital’s shortcomings up front: • Hospital management is not comfortable sharing power and control with physicians • Weak practice management system • Hospital is unsure how physicians actually impact hospital finances • Failing to address leadership issues: • Medical directors and physician leadership cannot or will not adjust • Physicians are given inadequate accountability/responsibility • Lack of appropriate governance roles for physicians

50. Common Mistakes • Treating a medical group as just another department of the hospital • Assuming that one approach will work for all medical groups/physicians • Blindly copying the competition’s model • Failing to build flexibility into the model • Choosing the wrong compensation model for a particular medical specialty or service line • Failing to do adequate due diligence • Over-promising/Under-delivering • Delivering an inconsistent message • Refusing to deal with “the elephant in the room”