Hospital-Physician Integration Strategies: Essential Steps and Models

1. Hospital-Physician Integration:What Do We Do Now?

2. Objectives for Presentation • Review of trends, drivers, and goals • Potential models • Recognize how to select the right model • Define metrics and tools needed for alignment • …..

3. Current Trends, DRIVERS, & GOALS

4. Trend Slides

5. Trend Slides

6. Trend Slides

8. Move towards Alignment CLINICAL INTEGRATION VISION GOVERNANCE OPERATIONS ALIGNMENT OUTCOMES EMPLOYMENT PSA/LEASE STRUCTURES CO-MANAGEMENT MEDICAL STAFF: CARDIOLOGISTS; CT AND VASCULAR SURGEONS; INTERVENTIONAL RADIOLOGY

9. Always Ask: Why do I want to align? RIGHT REASONS • Improve quality of care • Reduce costs • Improve efficiency • Provide additional services to the community • Prepare for Health Reform (including ACOs and global / bundled payments) WRONG REASONS • Create a new referral stream • Keep physicians happy • Prevent physicians from referring elsewhere • Everyone else is doing it (“Flavor of the Month”) • My competitor bought one

10. As You Plan for Alignment • Establish Organizational Goals (hospital and physician perspectives) • Business / Financial / Physician Income • Governance / Autonomy / Succession • Quality and Service Offerings • Operations and Technology • Culture • Begin Development of Key Performance Expectations • Quality • Efficiencies • Market • Financial / Pro Forma / Dashboards

11. Plan (cont.) • Develop a Plan • Implementation • Operations / Business • Marketing • Educate Administrative and Medical Staff • Business Purpose / Objectives • Operational Implications • Leadership

12. Preparation • Evaluate Market Opportunity • Demographics • Population • Technology / Services • Market / Payers • Financials – Detailed/Sustainable • Sensitivity Analysis • Change in PCP Base • Change in Specialty Base • Shift in Market Share • Competitors (Traditional and New)

13. Understanding Current Environment Internal Environment External Environment Government Involvement/Health Reform Payer Involvement Legal Implications Impact on Comp/FMV Relationship with Community Physicians System Employment of Referring Physicians Community / Patient Environment Payer Mix Market Factors • Key Specialty Issues • Sub-specialization • Compensation disparities due to reimbursement changes • Physician-Administration Rapport • Information Systems • Operational Efficiencies • Locations

14. Integration Models

15. Models

16. Models

17. Models

18. Crystal Ball Predictions The “Big 3” Categories of Integration • Contractual Relationships (PSA’s; Co-Management) • Pseudo-Employment (Group Practice Subsidiary Approach) • Risk-Sharing Arrangements

19. Contractual Arrangements:PSA’s and Co-Management

22. Pseudo-Employment:Group Practice Model

24. GPS Model (Leased Assets) MD MD Hospital MD Existing Group Practice Payors Tailored Leasing and MSA Arrangements Group Practice Subsidiary $ Employment MD MD MD Physicians become employees of Hospital subsidiary

25. Key Considerations Legal / Structure • Purchase practice and employ physicians through a subsidiary of the Hospital • Physicians may participate in ancillary and mid-level revenue if structured as a group practice under the Stark Law • Many legal requirements to meet definition of group practice including physician control of subsidiary • Legal Agreements Required • Employment agreements between Hospital subsidiary and physicians • Asset purchase agreement • Organizational / governance documents for new entity including operational and governance policies

26. Key Considerations (cont.) Operational • Challenge to merge the independent practice concept with an employed integrated model • Subsidiary must be sophisticated enough to manage itself Valuation and Compensation • Because subsidiary has to stand on its own, FMV considerations related to practice acquisition and physician compensation may not apply • To the extent that the Hospital buys services from the Subsidiary, FMV will need to be performed

27. Key Considerations Pros • Gives physicians ability to manage the Group Practice Subsidiary like their own private practice • Allows physicians to share in ancillary and mid-level revenue Cons • Must meet “group practice”definition under Stark which has many requirements • Hospital cannot subsidize subsidiary / physicians • Difficult to control evolution of the arrangement

28. GPS Model (2+ Groups) Hospital Tailored Leasing and MSA Arrangements Payors Integrated Group Practice Subsidiary $ Group #1 Group #2 Physician Operating Board Employment Division #1 Division #2 MD MD MD MD

29. Key Considerations Legal / Structure • Employ physicians through a subsidiary of the Hospital • Assets and staff can be leased from existing group practice • Physicians may participate in ancillary and mid-level revenue if structured as a group practice under the Stark Law • Legal Agreements Required • Employment agreements between Hospital subsidiary and physicians • MSA and leases between subsidiary and existing practices • Organizational / governance documents for new entity including operational and governance policies

30. Key Considerations (cont.) Operational • Challenge to merge the independent practice concept with an employed integrated model • Subsidiary must be sophisticated enough to manage itself Valuation and Compensation • If subsidiary is established as a group practice, FMV considerations related to MSA, leases and physician compensation may not apply • To the extent that the Hospital buys services from the Subsidiary, FMV will need to be performed

31. Key Considerations (cont.) Pros • Gives physicians autonomy on governance and compensation structure • Minimal capital outlay for Hospital • Intermediate step to full employment and integration • Physician practice entity is preserved if integration is unsuccessful • Can facilitate integration of multiple groups and specialties in different divisions Cons • More complicated structure than full employment • Physician lose existing Payer contracts

32. NOTES • Curt needs to modify to address foundation model in states with corporate practice of medicine

33. Risk Sharing Arrangements

34. What is risk sharing? • How do you approach it? Options? • Service line • Patient specific population (i.e. Commercial; Medicaid) • Global or bundled payments • Niche area instead of entire population • Structure? • Integrated network (i.e. employed providers; PHO; etc.) • Contractual

35. NOTES • Need to build in unique issues, legal, valuation, compensation, operational into each of 3 buckets of issues.

36. Cautions: Post-Integration Issues to Address Early in Process • Can’t support operations (i.e. billing, IT, cost management, etc.) • Physicians not as productive in new model • Compensation plan is problematic, too complex, haven’t defined components such as quality metrics