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Partnering Physicians with
Hospitals/Health Systems
Joel R Sauer
Former CEO, Lutheran Medical Group
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Overview
Pressures on private practiceCurrent integration trendsIntegration structures availableCompensation ModelsGovernanceUnderstanding whyQ&A
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Pressures on Private Practice
I give up!
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Financial pressures
Costs up, reimbursement down Practice expenses have risen by over 6% per year over
the past three-plus years (source: MGMA)
Over this same time period, Medicare reimbursement hasnot kept up with national CPI
Greater than 30% cuts for cardiology & radiology services Looming 23% cut Dec 1; 6% more Jan 1 Commercial reimbursement trends with Medicare
Leveraged impact to physician income 2:1 for overhead around 50%
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Working harder for less moneyAll Payors
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Financial pressures (contd)
Costs up, reimbursement down Practice expenses have risen by over 6% per year over
the past three-plus years (source: MGMA)
Over this same time period, Medicare reimbursement hasnot kept up with national CPI Greater than 30% cuts for cardiology & radiology services Looming 23% cut Dec 1; 6% more Jan 1 Commercial reimbursement trends with Medicare
Leveraged impact to physician income 2:1 for overhead around 50%
Its going to get worse, not better!
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Payor mix
Aging population Medicare as percent of total is rising 26% of orthopedic patients in 1988, now more than a
third*
Medicare has not historically been the best payor Sicker patients take more time
Coding levels just dont make up the difference
*Department of Orthopaedic Surgery, University of California at San Francisco, 500 Parnassus, MU320W, San Francisco, CA 94143-0728
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Practice complexity Added regulations
STARK Red Flag
RAC Prior authorizations
EHR Implementation Significant capital outlay Often raises costs in the early phases of adoption Can negatively impact volumes Leveraged impact
Global payments Probably to hospitals/health systems Very complex algorithms to make money
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Pressures on volumes
Current economyIncreases in pre-authorization
requirementsNew/Updated researchTransition of primary care & other
specialties to employment
No longer compensated for technicalprofits
Ordering habits change
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Looming Physician Shortages
Baby boomer retirements Increase in women physicians (source: AMA)
13.7% in 1972, now over 50% of graduates
80% as productive as male physicians overall Rising malpractice costs
Limits enrollment in high-risk specialties Alternative employment
Growing administrative rolls
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The new physician
More interested in balance thanincome
Comfortable with the employmentmodelNot looking to be an entrepreneurDifficult to replace aging leaders
#1 challenge facing practiceadministrators according to 2009MGMA poll
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Current integration trends
Mass migration towards employment
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Current Trends
This isnt the 90s all over again!Primary care, cardiology &
orthopedics leading way65% of established physicians who
changed jobs in 2009 moved toemployment model; nearly 50% of
new fellows joined hospital positions(Source: MGMA)
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Percent of medical practices
owned by . . .
Source: MGMA (ran as part of Wall Street Journal article)
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Integration options available
From first kiss to holy matrimony!
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Were just friends
Recruitment support Very basic Hospital pays retainer or finders fee
Collections guarantee; net incomeguarantee
On-going practice support for 1 2 years Typically based on incremental costs No loss for practice in early years of
practice
Typically limited to hospital-based docs
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Can we dance??
Gain sharing Physicians participate in savings
generated inside the hospital; i.e.,heart or ortho service lines
Often include quality metrics Limited to hospital services
Difficult to maintain long-termHospitals tend to re-set indexesDwindling economic valueCompliance complexities
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Friends with benefits
Hospital coverage agreements Physicians are paid to cover, particularly
nights & weekends Fixed daily/monthly stipend; may be
based on RVUs or other production metric
Cost or FTE basedNet of collections
Typically exclusive Common with anesthesia, hospitalists,
intensivists, trauma
Physicians practically employed
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I bought her a ring!
Joint ventures Often on surgery centers or other
ancillariesReimbursement bloom is off the rose
Whole hospitalHeartOrthopedics
Can be challenging for non-profits Moratorium on new or expansion
Government just doesnt like em!
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Do you, physician, take IDS. . .
Practice acquired Stock vs. asset purchase Full employment Ancillaries often moved to hospital Alignment for global payments Many models available, particularly for
compensation & governance Leverage matters!
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Physician compensationmodels in an IDS
Youve seen one, youve seen one!
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Compensation for something
Most want some portion based onproduction
Lessons learned from the 90sSubspecialties tend to be more
production based; primary careoften has a guarantee
Full spectrum from 100% salary to100% production based
Inverse relationship betweenguaranteed comp & control
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Production models
Often use CMS work RVU Payor blind Not perfect, but darn good For most part, unit value is in line with
market reimbursement
Doesnt reward toys Equal pay for equal work across specialties
But have specialty specific RVU rates Maintained by 3rd party Most PMs automatically track; no new
work
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Production models (contd)
RVU rate can be fixed, or floatbased on survey data (e.g., MGMA)
Median compensation / Medianproduction = RVU Comp Rate
Caution: Survey data can moveprecipitously from year to year, up &down!
May want to set collarsUse multiple surveysLess volatile with larger N
Good to have a Plan B
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Other production metrics
Charges or net revenue (cash)Practice net income/loss
Not a big fan of either Physicians typically dont control non-
clinical aspects of practice, like billingoffice and other costs
Dwelling on loss tends to demoralize
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Other production metrics (contd)
Patient encounters Easy to understand
But a bit tricky to define
More hassle to create & maintain Not always a standard PM report Gives all encounters same value
No reward for higher complexityDisconnects physician compensation from
proper coding
Disconnects compensation from marketvalue, federal & commercial
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Remember youre now partners!
Hospitals/IDSs are typicallycompetitive
New market share is criticalPhysician partners have the greatest
ability to add business
Cant simply say noBlazing new trails isnt easy!
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In a production based model . . .
Need to protect physicians fromunproductive time like new clinics/
marketsConvert hours to RVUs (by
specialty) based on norms
Inflate value of new patientsGuarantee certain baseAlways check compliance!
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Beyond just the exam room
Additional compensation for agreedupon metrics
Quality Patient satisfaction Market share Panel size CPOE and/or EHR Implementation
Percent of comp, fixed amountNeeds to be significant enough to
motivate, but not distract
All for one??
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Compensation pooling
Pool by group or by specialtyPhysicians then decide how to
distribute (compliantly)Potential for sharing across entire
IDS
Prepare for global payments Quality is not an individual thing
Very powerful; scary for many
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Compensation summary
Keep it simpleReward hard work; reward what you
want & needPay appropriatelyIncentivize behaviors that help the
system succeed
Test your models at the extremes
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Governance
Whos in charge here?!?
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Keep in mind
New employer is at riskMore guaranteed comp = less
controlUltimately the employer is in charge
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Sure youd love to be in control of
everything, but . . .
Focus on whats really importantHiring/Firing physicians
Appropriate to have significant control,particularly with production basedcompensation
Guard against over population(balancing act)
Need to protect employer from bademployees
Contract language is important!
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Whats really important?
Clinical staffing Always top of mind with doctors Cant be an open check book Base on FTEs, not absolute amount Build in normal CPI Measure against benchmarks
Office hours Guaranteed vs production
Daily schedules
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Whats really important (contd)?
Quality Systems need and physicians should
want to maintain control Will become critically important to an
IDS in the future
Market shareDirect financial global paymentsPopulation based medicine
This area can really impact dailyphysician life; production
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Whats really important (contd)?
Coding Employer is at risk for coding misdeeds
Therefore employer has right to watchcarefully & motivate good behavior
Need checks & balances on this powerMany subjective aspectsDue process
EHR unintended consequencesParticularly early in adoption
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Whats really important (contd)
Compensation Control over pool Ability to react to market conditions,strategic objectives, etc.
Difficult negotiation
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Understanding Why
If you dont know where youregoing, youll probably get there!
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Sustainable integrationMoney goes a long way, but . . .Physicians in general are motivated
to provide good healthcareIntegration centered on improving
the product
Quality Patient experience
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A better mousetrapOne integrated clinical recordEliminate waste & duplication
Reordered tests simply because notavailable
Unreliable testing One registration; one new patient
form!Accountable Care Organization
Global payments Medical Home
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Q&A
Joel R [email protected]
www.JoelSauerLLC.com
(260) 433-3672
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Resources Designing Incentives that Reward High-Quality, Cost
Effective Care hfma.org/leadership Fall/Winter special report
Healthcare in Three Acts Eric Cohen & Yuval Levin, Feb 2007
Integrated delivery system structural options Bruce A. Johnson, JD, MPA; Connexion Jan 2008
Physician Autonomy in an Integrated Delivery System James G. Bruggemann, MD & Daniel K. Zismer, PhD; Group Practice
Journal, Oct 2008
The Cost Conundrum Atul Gawande; New Yorker, Annals of Medicine, Jun 2009
What does the future hold for the larger, independent,multispecialty group? Daniel K. Zismer, PhD & Peter E. Person, MD, MBA; Group Practice
Journal, April 2007