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Why Physician Employment Is Not A Strategy By Itself

John KirsnerPartner, Squire Sanders

Michael StrileskyManager, Charis Healthcare

John KirsnerPartner, Squire Sanders

Michael StrileskyManager, Charis Healthcare

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Today’s Objectives

1.Market Conditions Impacting Physician Employment and Integration

2.Key Revisions of Healthcare Reform Considerations that Impact Alignment

3.Clinical Integration, Co-Management as Alternative to Physician Employment

4.Strategic Considerations for the Future

1.Market Conditions Impacting Physician Employment and Integration

2.Key Revisions of Healthcare Reform Considerations that Impact Alignment

3.Clinical Integration, Co-Management as Alternative to Physician Employment

4.Strategic Considerations for the Future

Keys to the Future: Reduced Fragmentation and Comprehensive Integration

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Present State:Fragmented Care

Future State:Patient Centric Care

The Next Step: Moving to More Integrated and Performance Based Models

Independent Medical Staff

Medical Directorships, Subsidies, Management Contracts

Under-Arrangements, Joint-Ventures

Clinical Institute,Co-Management

Foundation

Low Integration High

EmploymentIncome Guarantee Fixed Salary Productivity (FFS)

Care Coordination / Bundling

Why The Push To Employment: Physician Income Declining

Source MGMA 2009 5

Comp%Change

Work RVU %

Change

Comp per

wRVU % Change

Neurosurgery 13.0% 2.8% 12.1%

Gastroenterology 26.0% 7.5% 6.9%

General Surgery -2.4% 1.9% 0.9%

Otolaryngology 8.6% 12.4% 0.1%

OB/GYN 5.5% 4.2% -0.7%

Urology 4.6% 12.8% -0.8%

Neurology 5.2% 14.4% -1.5%

Cardiology 15.3% 9.3% -2.1%

Orthopedic Surgery 4.4% 8.6% -3.8%

Family Medicine 5.8% 19.7% -5.0%

Internal Medicine -1.0% 20.4% -7.7%1991 2009

$565k

$250k

$125k$185k

PCP Production

Specialist Production vs. Compensation 2007-2008

PCP Production vs. Compensation 1991-2009

PCP Compensation

7 Steps: Developing a Successful Employed Medical Group

Source: Sg2, Building a Successful Employed Medical Group 6

It’s Now the Law: ACO and Bundling Demonstration Projects

Group of providers with the organization to contract as a unit, monitor performance (“ACO”)

ACO will share aggregate savings with Medicare that result from the integrated structure

Sufficient primary care physicians to serve 5,000 Medicare Part B beneficiaries

Three year agreement Existing leadership and

management structure that includes clinical and administrative systems

Must meet certain quality measures and demonstrate patient-centered care

Group of providers with the organization to contract as a unit, monitor performance (“ACO”)

ACO will share aggregate savings with Medicare that result from the integrated structure

Sufficient primary care physicians to serve 5,000 Medicare Part B beneficiaries

Three year agreement Existing leadership and

management structure that includes clinical and administrative systems

Must meet certain quality measures and demonstrate patient-centered care

Group of providers including a hospital, a physician group, a skilled nursing facility, and a home health agency

One bundled payment to the group for an “episode of care” for participating Medicare beneficiaries

Episodes of care are defined as One of ten applicable

conditions selected by the Secretary

Care beginning three days prior to admission to a hospital and ending thirty days following discharge from the hospital

Must meet certain quality measures

Group of providers including a hospital, a physician group, a skilled nursing facility, and a home health agency

One bundled payment to the group for an “episode of care” for participating Medicare beneficiaries

Episodes of care are defined as One of ten applicable

conditions selected by the Secretary

Care beginning three days prior to admission to a hospital and ending thirty days following discharge from the hospital

Must meet certain quality measures

Payment Flow in a Bundled World I:Bundled Facility Fees

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Inpatient Procedure

Post-Acute Care

Payor1. Results in

“supergroups” and clinically integrated PHOs

2. Hospital owns/ controls/contracts with all facilities

3. Physician-hospital collaboration more important than ever

Primary Care SurgeonSpecialist

Professional Fees Bundled Facility Fees

Downstream Risk

Payment Flow in a Bundled World II:Bundled Professional and Facility Fees

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Inpatient Procedure

Post-Acute Care

Payor1. Hospital owns/controls/

contracts with all facilities

2. Hospital owns/controls/ contracts with physician practices

3. Can an independent Group be strong or large enough to survive?

4. Foundation Model/ACO as End Game?

5. Is there capacity for Foundation/ACO everywhere?

All Payments (Professional and Technical) Bundled

Downstream RiskSpecialistGroup Practice I

Primary Care Group Practice I

SurgeonGroup Practice II

Repeal of Hanlester

Healthcare Reform amended the Anti-Kickback Statute’s intent standard, such that, in violating the Anti-Kickback Statute, a person need not have actual knowledge of the Statute or a specific intent to violate the Statute

This effectively overturns Hanlester Historically, other courts and the OIG have reviewed the facts, circumstances and safeguards surrounding an arrangement in evaluating Anti-Kickback Statute compliance

While this will likely continue, there will be a “sorting-out” period with respect to risk analysis, and parties should take a thoughtful, cautious and comprehensive approach when evaluating Anti-Kickback Statute compliance

Healthcare Reform amended the Anti-Kickback Statute’s intent standard, such that, in violating the Anti-Kickback Statute, a person need not have actual knowledge of the Statute or a specific intent to violate the Statute

This effectively overturns Hanlester Historically, other courts and the OIG have reviewed the facts, circumstances and safeguards surrounding an arrangement in evaluating Anti-Kickback Statute compliance

While this will likely continue, there will be a “sorting-out” period with respect to risk analysis, and parties should take a thoughtful, cautious and comprehensive approach when evaluating Anti-Kickback Statute compliance

Clinical Integration

FTC allows joint contracting where clinical integration exists

Defined as a “network implementing an active and ongoing program to evaluate and modify practice patterns by the network’s physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality.” Statements of Antitrust Enforcement Policy in Health Care (August 1996) at Statement 8, § B.1.

FTC allows joint contracting where clinical integration exists

Defined as a “network implementing an active and ongoing program to evaluate and modify practice patterns by the network’s physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality.” Statements of Antitrust Enforcement Policy in Health Care (August 1996) at Statement 8, § B.1.

Clinical Integration – Key Characteristics Selective, scalable membership Delivery of evidence-based care Infrastructure for coordination and collaboration

Performance transparency system Meaningful performance-based incentives

Selective, scalable membership Delivery of evidence-based care Infrastructure for coordination and collaboration

Performance transparency system Meaningful performance-based incentives

Clinical Integration – Necessary Components Clinical protocols and benchmarks Governance and staffing infrastructure

Data monitoring and reporting Contractual model and accountabilities

Technology infrastructure Payer contracting vehicle Performance-improvement tools and processes

Performance-based pay structures

Clinical protocols and benchmarks Governance and staffing infrastructure

Data monitoring and reporting Contractual model and accountabilities

Technology infrastructure Payer contracting vehicle Performance-improvement tools and processes

Performance-based pay structures

Treatment in a Clinically Integrated Network

Primary Care

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Surgeon

SpecialistPatient Flow

Post-Acute Care

•EMR

•Performance Improvement

•Clinical Pathways

Implications

1. Access to health records by individual physician and group

2. Access by all physicians in CIN

3. Access between groups

4. Access by Hospital

5. Physician-driven

What Facilities Want: Structural Physician Collaboration Hospitals and Health Systems are seeking greater collaboration

Survey of Facilities - Either already implementing/are considering within 2 years: Co-Management Relationship: 22%/27% Office Leasing: 40%/22%* Equipment Lease: 15%/14%* Joint Venture: 21%/37% Under-Arrangement: 18%/10%*

*Discouraged after most recent Stark regulatory changes

Source: Advisory Board, Toward True Shared Governance: Emerging Oncology Service Line and Physician Alignment Models (2009).

Hospitals and Health Systems are seeking greater collaboration

Survey of Facilities - Either already implementing/are considering within 2 years: Co-Management Relationship: 22%/27% Office Leasing: 40%/22%* Equipment Lease: 15%/14%* Joint Venture: 21%/37% Under-Arrangement: 18%/10%*

*Discouraged after most recent Stark regulatory changes

Source: Advisory Board, Toward True Shared Governance: Emerging Oncology Service Line and Physician Alignment Models (2009).

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Co-Management Intended to Drive Comprehensive Integration

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WIN-WIN

©2010 Squire, Sanders & Dempsey L.L.P.

Co-Management Leadership Structure

•General Surgery •Orthopedics

LLC Management Company

•Urology

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Executive Director

•Budgeting

•Human Resources

•Managed Care Contracting

©2010 Squire, Sanders & Dempsey L.L.P.

Co-Management Legal Structure

Service Contract to Manage

Cancer Center

Cancer Center Pays the LLC for:

• Base management fees

• Expense reimbursement

• Incentive compensation meeting service line management benchmarks

ManagementCompany

LLC

Specialists

Equity

Equity Return (Incentive Payout)

Specialists

Management Contract

$

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Healthcare Reform…The Goal

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Prerequisite

Tactics

The Goal

3.

2.

1.

Red

uce P

reventab

le

Read

mis

sion

s

Valu

e-Based

P

urch

asin

g

Red

uce H

osp

ital A

cqu

ired

Co

nd

ition

s

Bu

nd

led P

aymen

ts

Acco

un

table C

are O

rgan

ization

s

Improve Quality Reduce Costs

Increase Healthcare “Value”

Electronic Health Records

Source: HFMA Regulatory Sound Bites I September 2009

Economic Comparison of Integrated Strategies

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Requires Significant Market Risk Spread Across Multiple

Providers

Patient Centered Medical Home

(Population or Disease Focused)

Bundled Payments for Technical and

Professional Component

Fixed or Incentive Compensation

(Fee for Service Model)

Getting Here from There…

EMG: Employed Medical Group, MSO: Management Services Organization 22

COST

QUALITY

GROWTH

2010 2015

Optimizing EMG & MSO Strategy

Co-Management

Integrated Physician Network

Accountable Care Organization

John M. Kirsner, Esq.Squire, Sanders & Dempsey L.L.P.

Partner, Health Care Practice Group (614) 365-2722

jkirsner@ssd.com

Contact Information

Michael StrileskyCharis Healthcare

Manager(330) 650-1752

michael.strilesky@charishealthcare.com