TRENDS IN HOSPITAL-PHYSICIAN INTEGRATION

August 20, 2010

Kevin M. HilvertSchottenstein, Zox & Dunn

250 West StreetColumbus, OH 43215

khilvert@szd.com(614) 462-4921

TRENDS IN HOSPITAL-PHYSICIAN INTEGRATION

• Introduction– Drivers of Integration– Types of Integration

• Professional Service Arrangements• Clinical Co-Management• Call Coverage & QI Programs• Employment• ACOs

FACTORS CONTRIBUTING TO HOSPITAL-PHYSICIAN INTEGRATION

• Common interest in meeting the community’s medical needs

• Decrease in physician revenue, increase in cost of providing care

• Increased competition over income streams that traditionally “belonged” to hospitals

• Consolidation of medical practices• Emergence of “new” hospital-physician

collaborations

FACTORS CONTRIBUTING TO HOSPITAL-PHYSICIAN INTEGRATION (cont’d)

• Call coverage problems are becoming widespread• Retirement of baby boom generation of doctors –

specialty shortages• Changing practice preferences of a new generation• Assistance in obtaining the capital to keep pace with new

technology• Hospital willingness and desire to give physician’s a seat

at the table

FACTORS CONTRIBUTING TO HOSPITAL-PHYSICIAN INTEGRATION (cont’d)

• Current environment requires a new paradigm• Focus on quality and a health care delivery

mechanism that rewards quality and not utilization

• Moving away from FFS – not a matter of if, but when

WHAT ARE YOU TRYING TO ACHIEVE THROUGH YOUR INTEGRATION STRATEGY?

• Improve service quality and efficiency• Improve business performance• Defensive move in response to competition• Offensive move in anticipation of competition• Encourage physician participation in

management and direction of service• Provide a platform for future strategies, greater

integration

Increasing Degree of Integration

Decreasing Degree of Complexity & Risk

MODELS

PROF. SERVICE AGMTS.

CALL COVERAGE

CLINICAL CO-MGMT.

AGMTS.

EMPLOYMENT

JOINT VENTURE

ACO

OVERVIEW OF INTEGRATION MODELS

PROFESSIONAL SERVICES AGREEMENTS

• Medical Directorships, Leasing Arrangements, etc.

• Bread and butter type relationships that are necessary and will continue

• Help achieve some degree of integration and loyalty….but not much

CALL COVERAGE AND QUALITY IMPROVEMENT SERVICES ARRANGEMENT

• Call coverage, particularly in certain specialties, is becoming increasingly difficult

• Hospital pressed to fill legitimate, unmet needs for certain care (EMTALA)

• Fulfillment of need can be an opportunity to achieve integration and improve and expand services

CALL COVERAGE AND QUALITY IMPROVEMENT SERVICES ARRANGEMENT (cont’d)

• Basic Structure– Hospital engages group of specialists who agree to

provide detailed call coverage and other quality improvement services

– If specialists are from more than one practice, physicians form an LLC to be the contracting party

– Physicians in group become the “On-Call Panel” and are responsible for setting call coverage schedule

CALL COVERAGE AND QUALITY IMPROVEMENT SERVICES ARRANGEMENT (cont’d)

• Call Coverage Responsibilities:– Coverage 24/7/365– ED Coverage– Unassigned Inpatients– Unassigned ED Patients– Adhere to mandated response times– Daily rounds/consults

CALL COVERAGE AND QUALITY IMPROVEMENT SERVICES ARRANGEMENT (cont’d)

• Call Coverage Compensation– Physicians bill for and collect fees for services; plus– Flat fee for coverage. An appropriate valuation of the

flat fee considers:• Extent of burden on the physician and the likelihood of

having to respond to call• Likely extent of treatment physician will be required to

provide• Likelihood that physician will be required to provide

uncompensated care• Restricted call demands higher compensation than

unrestricted call

CALL COVERAGE AND QUALITY IMPROVEMENT SERVICES ARRANGEMENT (cont’d)

• Quality Improvement Component– A call coverage arrangement presents an opportunity

to fill an unmet need for services and an opportunity to improve the quality and efficiency of those services

– Sample QI Initiatives:• ED response times• Operation response times• Scheduling of follow-up consults• Patient satisfaction

CALL COVERAGE AND QUALITY IMPROVEMENT SERVICES ARRANGEMENT (cont’d)

• Compensation for QI Initiatives– Maximum amount of total comp in QI “bucket” is pre-

determined and set forth in agreement– Physicians must meet defined QI “targets” in order to

receive portion of QI compensation

QI Initiative Target A Target B Target C

For all ED Patients, ED contact returned within 30 minutes

Greater than 85% but less than 90% of the time (Point Value = 1)

Greater than or equal to 90% but less than 95% of the time (Point Value = 2)

95% of the time(Point Value = 3)

For all ED Patients and Unassigned Inpatients, consult completed within 24 hours of call/admit (or emergently if clinically indicated, with referring physician to orthopedic Physician communication)

Greater than 85% but less than 90% of the time (Point Value = 1)

Greater than or equal to 90% but less than 95% of the time (Point Value = 2)

95% of the time(Point Value = 3)

Operation if indicated less than 24 hours after admission or medical clearance, provided OR and necessary equipment is available

Greater than 85% but less than 90% of the time (Point Value = 1)

Greater than or equal to 90% but less than 100% of the time (Point Value = 2)

100% of the time(Point Value = 3)

SAMPLE QI INITIATIVES AND TARGETS

CLINICAL CO-MANAGEMENT AGREEMENT

• Basic Structure– Medical Director relationships on steroids– Hospital engages a group of physicians to provide medical

management services for a specific hospital service line (cardiology, oncology, orthopedics)

– Agreement can be with a single group of physicians, multiple groups or a new management company formed by physicians

– Selected physician leaders work with hospital administration to oversee and implement the co-management relationship

– Hospital pays physicians for administrative, management services and achievement of defined QI objectives

CLINICAL CO-MANAGEMENT AGREEMENT (cont’d)

• Management Responsibilities– Medical Director-type services– Committee meetings– Input on financial, budgetary and strategic matters– Input on supply utilization, staffing, equipment– Develop service line policies and procedures– Provide recommendations regarding clinical pathways and

measures– Program and service line outreach activities– Monitor and resolve quality and performance problems

CLINICAL CO-MANAGEMENT AGREEMENT (cont’d)

• Physician Compensation for Management Services– Compensation for administrative and management

responsibilities is based on a set, fair market value hourly rate.

– Maximum amount for all administrative and management services is established

– Physician work must be documented (i.e. time sheets)

CLINICAL CO-MANAGEMENT AGREEMENT (cont’d)

• Quality Component– Includes defined quality improvement initiatives

defined to improve the quality and efficiency of the service line involved

– QI initiatives will vary depending on specialty• For cardiology, specific quality measures can be developed

for frequently occurring diagnoses/procedures (acute MI, CHF, CABG, PTCA)

• For orthopedics, complication rates, use of standardized products

CLINICAL CO-MANAGEMENT AGREEMENTS (cont’d)

• Quality Component– Quality initiatives can include “gainsharing” types of

measures (e.g. product standardization initiatives, product substitution, use as needed)

– BUT, BE CAREFUL. Any type of “gainsharing” measure must not create an incentive to reduce or limit care

– Stay away from ALOS, cost per case and other non-specific measurements relating to cost

CLINICAL CO-MANAGEMENT AGREEMENT (cont’d)

• QI Compensation– Very similar to the compensation methodology

previously discussed with regard to call coverage arrangements

– A set pool of money is pre-determined for the QI Initiatives

– Achievement of specific QI targets will result in the payment of QI compensation

EMPLOYMENT

• Hospital employment of physicians is growing exponentially

• According to the MGMA, in 2002 70% of physician practices were physician-owned, while approx. 20% were hospital-owned

• In 2008, its almost 50/50.• Why?

FACTORS DRIVING PHYSICIAN EMPLOYMENT

• Declining physician incomes• Complexity and stress of running of private

practice• Regulatory pressures on ancillary income• Changing demographics• Increasing acceptance among hospitals and

physicians• Push toward quality and cost controls

FACTORS DRIVING PHYSICIAN EMPLOYMENT

• Assure physician supply• Improved ability to recruit• Enhance key specialties• Meet call coverage needs and obtain other

necessary medical administrative services• Much more flexibility in structuring employment

relationships under fraud and abuse laws

EMPLOYMENT – WHAT ARE PHYSICIANS LOOKING FOR?

• Income stability• Quality facilities and top of the line technology• Access to information technology• Seat at the table in strategic initiatives,

budgeting, etc. at both the practice and hospital level

• Access to high-quality recruits• Hospital support in developing clinical care

models

EMPLOYMENT –WHAT ARE HOSPITALS LOOKING FOR?

• Stable, professional, high quality medical staff• Engaged and loyal physicians• High quality care• Practice efficiency and cost-effectiveness• Physician leaders• Develop a platform for integration that is

responsive to a changing health care market

EMPLOYMENT MODELS

• The Practice Acquisition Model

• The Leased Practice Model

EMPLOYMENT MODELS (cont’d)

• Practice Acquisition– Most common approach– Hospital (or hospital-affiliated entity that employs

physicians) purchases the assets of the physician practice

– Hard assets only, plus patient charts. Payment for “goodwill” must be carefully analyzed

– Obtain valuation of the FMV of practice assets

EMPLOYMENT MODELS (cont’d)

• Practice Acquisition– As a condition to closing the sale of the practice’s

assets, the physicians in the practice agree to enter into employment agreements with the purchaser

– Deal may also include “exit strategies”– Other issues

• Employment of practice non-physician staff• Taking over leased space and equipment

EMPLOYMENT MODELS (cont’d)

• The Leased Practice Model– Hospital (or affiliate) does not purchase practice

assets– The physicians become employees of the

hospital/affiliate, but their practice entity remains in tact and continues to hold the assets

– Hospital entity that employs the physicians enters into a management agreement with the practice entity to manage the employed physician’s practice, providing all administrative services, space and equipment

EMPLOYMENT MODELS (cont’d)The Leased Practice Model

EMPLOYMENT MODELS (cont’d)

• The Leased Practice Model– Can be attractive physicians because it facilitates an

easier re-entry into private practice if the employment relationship doesn’t work out

– Hospitals may like this model because it eliminates the need for upfront capital to purchase assets

– However, model can be difficult to implement administratively and operationally

THE EMPLOYMENT AGREEMENT

• Key Terms– Term– Non-Compete– Duties (clinical and non-clinical)– Practice governance and control– Compensation

THE EMPLOYMENT AGREEMENT

• Compensation– Fixed salaries are a key reason the employment

movement of the 1990s failed– Compensation based on productivity with a base

minimum is the standard now. Productivity measurements include wRVUs, net revenues, net collections, etc.

– Quality measures are commonly included as well

ACCOUNTABLE CARE ORGANIZATIONS

• What are they?– As defined by Medicare:

‘An ACO is an organization of health care providers that agrees to be accountable for the quality, cost and

overall care of Medicare beneficiaries who are enrolled in the traditional FFS program and assigned

to an ACO.”

ACCOUNTABLE CARE ORGANIZATIONS (cont’d)

• Patient Protection and Affordable Care Act (PPACA) requires HHS to establish a Medicare Shared Savings Program by 1/1/12

• PPACA provides only broad principles for the program. Details to be proposed in upcoming regulations published by CMS

ACOs – THE MEDICARE SHARED SAVINGS PROGRAM

• What requirements must Medicare ACOs meet?– Willing to become accountable for the quality, cost

and overall care of the Medicare FFS beneficiaries assigned to it

– Participate in the program for 3 years– Have formal legal structure to receive/distribute

payments for shared savings to participating providers– Have a sufficient number of PCPs for the number of

beneficiaries assigned (min. of 5,000 beneficiaries)

ACOs – THE MEDICARE SHARED SAVINGS PROGRAM

• What requirements must Medicare ACOs meet?– Have a leadership and management structure that

includes clinical and administrative systems– Have defined processes to (a) promote evidence-

based medicine; (b) report on the necessary data to evaluate quality and cost measures, and (c) coordinate care

– Demonstrate it meets patient-centeredness criteria

ACOs – THE MEDICARE SHARED SAVINGS PROGRAM

• How will ACO participating providers get paid?– Generally, will continue to receive FFS payments from Medicare– The ACO will be rewarded with payments for shared savings if

the ACO• Meets yet-to-be-defined quality standards by HHS; and

• Reduces the costs of its patients relative to a spending benchmark to be established by HHS

– A percentage of the savings (as determined by HHS) will be paid to the ACO

– OR…HHS may establish any payment model that it determines will improve quality and efficiency

ACCOUNTABLE CARE ORGANIZATIONS

• The Medicare Shared Savings Program is just one example of the efforts that are being undertaken to modify the manner in which health care is delivered and paid for

• Regardless of form, payment reform will only increase pressure for hospitals and physicians to integrate

• The key is determining what integration platforms your organization should be developing now to be prepared for further integration in the future

QUESTIONS?

Kevin M. Hilvert

Schottenstein, Zox & Dunn Co., L.P.A.

250 West Street

Columbus, OH 43215

khilvert@szd.com

(614) 462-4921