GEORGIA HOSPITAL
ASSOCIATION
CENTER FOR RURAL
HEALTH AND LONG TERM
CARE FACILITIES
ANNUAL SUMMER MEETING
HOSPITAL-PHYSICIAN
INTEGRATION STRATEGIES
DANIEL J. MOHAN
MORRIS, MANNING & MARTIN, LLP
August 8, 2013
TRENDS
Trend is towards rapid horizontal and vertical consolidation
Horizontal
Hospitals and hospital systems are merging, stronger systems
acquiring weaker systems, affiliations
Vertical
• Hospitals acquiring physician practices
• Hospitals acquiring/developing post-acute care lines of business
Healthcare institutions are branching out into insurance market
1
HOSPITAL/PHYSICIAN
INTEGRATION MODELS
I. FULL INTEGRATION
II. PARTIAL INTEGRATION
III. MINIMAL (CONTRACTUAL) INTEGRATION
2
HOSPITAL/PHYSICIAN
INTEGRATION MODELS
I.
FULL INTEGRATION
A. Physician Practice Acquisition
B. Full-Time Employment
1.
2.
Direct Employment
Employment through “captive” physician group practice
C. Part-Time Employment
II. PARTIAL INTEGRATION
A. Physician-Hospital Organization (“PHO”)
B. Hospital-Physician Joint Ventures
C. Hospital Acquisition of Physician Group Ancillary Service Line
D. Practice Asset Acquisition/Lease, Professional Services
Agreement (“PSA”)
3
HOSPITAL/PHYSICIAN
INTEGRATION MODELS
III. MINIMAL (CONTRACTUAL) INTEGRATION
A. Physician Recruitment
B. Personal Services Arrangements
•
•
•
•
Medical Director
Department Staffing
Call Coverage
Administrative/Management Services
C. Service Line Management or “Co-Management” Arrangements
D. Space/Equipment Leasing Arrangements
4
WHY IS IT IMPORTANT
TO DO IT RIGHT?
Each of these arrangements implicate a variety of federal and
state laws and regulations, including:
• Federal Anti-Kickback Statute
• Federal Ethics in Patient Self-Referral Law (commonly known as
the “Stark Law”)
• State Fraud and Abuse and Self-Referral Statutes
• State and Federal Anti-Trust Laws
Failure to comply with these laws and regulations could trigger
significant repayment obligations, civil penalties and fines,
including liability under False Claims Act and Civil Monetary
Penalties statute.
5
SIGNIFICANT DOJ/OIG ENFORCEMENT ACTIONS
ARISING OUT OF ALLEGED IMPROPER HOSPITAL
CONTRACTUAL ARRANGEMENTS WITH PHYSICIANS
Covenant Medical Center, Waterloo, Iowa (2009)
− 366 bed acute care hospital in Waterloo, Iowa
− Entered into full-time employment agreements with five specialists (2
orthopedic surgeons, 2 neurosurgeons, 1 gastroenterologist)
− Government alleged that arrangements violated Stark Law because did not
meet applicable exceptions: compensation paid exceeded FMV, and
arrangements were not “commercially reasonable”
− Evidence indicated that compensation at very top percentile of
compensation paid to physicians in comparable specialty nationally, and
more than 3x compensation paid to physicians in Waterloo
− Evidence further indicated that some of the physicians not working at full
capacity, filling time engaged in less specialized practice, performing
administrative functions
− Hospitals settled FLA and CMP claims for $4.5 million
6
SIGNIFICANT DOJ/OIG ENFORCEMENT ACTIONS
ARISING OUT OF ALLEGED IMPROPER HOSPITAL
CONTRACTUAL ARRANGEMENTS WITH PHYSICIANS
Singh v. Bradford Regional Medical Center (2010)
− Bradford Regional Medical Center, 107 bed community nonprofit hospital in
Bradford, PA
− Two local cardiologists considering acquisition of nuclear camera and
performing imaging through practice
− Negotiations over possible arrangements to avert action unsuccessful
− Physicians bought camera, hospital took actions adversely affected
physicians
− Hospital ultimately agreed to sublease camera from physicians
− Sublease Agreement provided for rental rate of ten percent (10%) of hospital
collections from tests performed using camera
− Court determined arrangement did not meet applicable Stark exception
because fee paid to physicians under Sublease Agreement took into account,
at least partially, “volume or value” of referrals from doctors
7
SIGNIFICANT DOJ/OIG ENFORCEMENT ACTIONS
ARISING OUT OF ALLEGED IMPROPER HOSPITAL
CONTRACTUAL ARRANGEMENTS WITH PHYSICIANS
Drakeford v. Tuomey Healthcare System (2013)
−
Tuomey Healthcare System entered into part-time employment arrangements with
19 area physicians
−
“Exclusive” part-time arrangements, effect of which was to preserve referrals of all
outpatient services from employed physicians to Tuomey
−
Compensation paid under each employment agreement consisted of the following:
(i)
Guaranteed base salary, plus
(ii)
Productivity bonus equal to eighty percent (80%) of amounts collected by hospital for
personally performed services, plus
(iii) Additional incentive bonus of up to seven percent (7%) of productivity bonus amount if
physician meets specified performance targets
−
Government alleged arrangements violated Stark: compensation greatly exceeded
FMV and arrangements not “commercially reasonable”
−
Case went to trial, jury agreed with government
−
Subject to up to $357 million in civil fines and penalties
8
STARK SELF-DISCLOSURES UNDER
CMS SELF-DISCLOSURE PROTOCOL
− CMS instituted “Self-Disclosure Protocol” in 2011
− Total of twenty-nine (29) self-disclosures through 06/20/2013
− Twenty-four (24) self-disclosures involved disclosure of
contractual arrangements with physicians that violated Stark
because did not meet applicable exception
− Settlements between $22,000 and $585,000
9
HOSPITAL-PHYSICIAN
INTEGRATION STRATEGY
Decision to embark on physician integration strategy, and
specific integration arrangements to pursue, influenced by a
variety of factors, including:
1.
2.
3.
4.
5.
Hospital long-term strategic plan
Competition in market
Size and make-up of physician community
Availability of capital
Availability of other resources necessary to consummate
and manage integration arrangements
10
PHYSICIAN INTEGRATION STRATEGIES
Various surveys and studies list the following as common
drivers of physician integration activities:
1.
2.
3.
4.
5.
6.
Build/maintain competitive advantage
Physician recruitment strategy
Product/service diversification
Increase and diversify revenue sources
Improve quality and efficiency of services
Position facility to respond to changing reimbursement
environment
11
FULL INTEGRATION MODELS
12
HOSPITAL ACQUISITION OF
PHYSICIAN PRACTICES
According to a recent study
• Fifty-two percent (52%) of U.S. hospitals plan to acquire physician
practices in 2013 (compared to forty-four percent (44%) in 2012)
• “Opportunity” rather than “strategy” is the primary reason hospitals
consider acquiring physician practices (i.e., physician groups initiate
process)
Moody’s report dated January 22, 2013 indicated that nonprofit
hospitals are buying physician practices to stabilize market share
and improve bottom line
Valuation company VMG Health recently determined that
approximately twenty percent (20%) of U.S. physicians are
employed by hospitals or health care systems
13
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
DIRECT EMPLOYMENT MODEL
$
PHYSICIAN
PRACTICE
Assets
HOSPITAL OR
HOSPSUB
Doctor
Doctor
Doctor
Doctor
Employment
Agreements
14
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
“CAPTIVE” PHYSICIAN GROUP EMPLOYMENT MODEL
$
PHYSICIAN
PRACTICE
HOSPITAL
Assets
Doctor
Doctor
Doctor
Doctor
Employment
Agreements
HOSPITAL
PHYSICIAN
GROUP
15
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
ACQUISITION TRANSACTION
Typically asset acquisition
Must meet all criteria of Stark “isolated transactions” exception,
including:
1. Purchase price is consistent with FMV
2. Purchase price does not take into account volume or value of referrals by
selling physicians
3. Transaction is “commercially reasonable” to the hospital even if physician
makes no referrals to the hospital
16
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
DIRECT EMPLOYMENT MODEL
Employment arrangement directly between the hospital and physician,
must meet all criteria of Stark “bona fide employment relationships”
exception
1. Compensation paid to physician must be
–
–
Consistent with FMV, and
Not determined in a manner that takes into account volume or value of referrals
from physician
2. The employment arrangement is “commercially reasonable” even if no
referrals were made to the hospital
May pay bonuses based only on “personally performed” services
17
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
DIRECT EMPLOYMENT MODEL
Compensation typically mix of base or “guaranteed” salary, and
productivity bonus
• If base compensation consistent with previous compensation, set minimum
productivity level which physician must meet in order to earn base
compensation
• Productivity bonuses if physician exceeds bonus threshold (wRVUs, minimum
collections, other measures of productivity)
• Note, cannot compensate physician based on profitability of his/her “practice,”
allow physician to share in ancillary services revenues produced in “practice,”
etc.
18
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
EMPLOYMENT UNDER “CAPTIVE” GROUP PRACTICE
Many hospital systems employing physicians choose to do so through
a “captive” physician organization that meets definition of a “group
practice” under Stark.
Advantages:
1.
Greater flexibility in compensation model
– Can create group compensation model, encourages group productivity and
cohesiveness
– Allow group to share in positive net income of practice
– If ancillaries stay in practice, physicians can share in positive net revenue for ancillary
services
2.
Physician participation/input into “governance” of group
3.
Seamless transition to hospital umbrella
19
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
EMPLOYMENT UNDER “CAPTIVE” GROUP PRACTICE
“Group practice” definition under Stark:
1. Single Legal Entity.
2. Physicians. Must have at least two doctors who are members of the group.
3. Range of Care. Each physician member of the group must furnish substantially the full
range of care through the group.
4. Services Furnished Through Group. Each member of the group must furnish at least
seventy-five (75%) of patient care services through the group.
5. Distribution of Expenses and Income. Must be calculated and distributed in accordance
with formulas determined prior to receipt of income.
6. Unified Business. Must be a “unified business” which has a “centralized decision-making
body,” and consolidated billing, accounting and financial reporting.
7. Volume or Value of Referrals. Compensation paid to physician members of the group may
not be based on volume or value of referrals.
8. Physician-Patient Encounters. Members of the group must conduct not less than seventyfive percent (75%) of physician-patient encounters in the group.
20
PHYSICIAN PRACTICE ACQUISITION
AND EMPLOYMENT MODELS
PART-TIME EMPLOYMENT ARRANGEMENT
Part-time employment arrangements are rare, and potential risky
Potential part-time employment arrangements:
1.
Departmental staffing arrangements
2.
Physician clinic staffing arrangement
3.
Call coverage arrangement
21
DIRECT EMPLOYMENT MODEL
PART-TIME EMPLOYMENT ARRANGEMENTS
Reasons for structuring arrangements as part-time employment
arrangements:
1.
Greater control over work performed as employee
2.
Eliminate tax risks associated with reclassification
3.
Allow hospital to provide benefits to physicians consistent with part-time
employee status
22
DIRECT EMPLOYMENT MODEL
PART-TIME EMPLOYMENT ARRANGEMENTS
Must meet all of criteria of Stark “bona fide employment relationships”
exception, including:
1. The employment is for identifiable services
2.
3.
Compensation paid to physician is
–
Consistent with FMV, and
–
Not determined in a way that takes into account the volume or value of referrals
The overall arrangement is “commercially reasonable” even if the
physician made no referrals to the hospital
23
PARTIAL INTEGRATION MODELS
24
PARTIAL INTEGRATION
PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
What is it?
Single legal entity having a hospital (or hospitals) and physicians,
individually or via an Independent Physician Association (“IPA”), as
co-owners.
25
PARTIAL INTEGRATION
PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
Local Physician
IPA, LLC
Local Hospital, Inc.
$
LLC
Ownership
Interest
-
$
Mega Physician-Hospital
Organization, LLC
LLC
Ownership
Interest
Managed care contracting
Vehicle to participate in “bundled” reimbursement programs, similar reimbursement
programs
Develop and administer QI programs, clinical protocols, measure outcomes
(improve quality, etc.)
26
PARTIAL INTEGRATION
PHYSICIAN-HOSPITAL ORGANIZATION (“PHO”)
Legal Issues:
− Will not implicate Stark unless PHO itself is “provider” of DHS
− Anti-Kickback Statute:
•
Hospital(s) and physicians capitalize the PHO commensurate with ownership interests
•
Hospital may not loan funds to physicians to purchase ownership interests
•
Additional capital requirements of the PHO must be funded pro-rata by owners
•
Distributions of net capital (if any) made pro rata
•
Separate arrangements between PHO and hospital (space lease, etc.) and PHO and doctors
should meet applicable safe harbor
− Anti-Trust:
•
Minimum level of financial integration (capitalization of PHO; pool reimbursement and/or
withholds, bonuses based on formula; not pure “pass through”)
•
Minimum level of clinical integration
27
PARTIAL INTEGRATION
HOSPITAL-PHYSICIAN JOINT VENTURES
Clinical Services Joint Ventures
• Non-DHS services
− Outpatient surgery centers
− Sleep labs
− Urgent care centers
• DHS services under Stark “rural provider” exception
Non-Clinical Services Joint Ventures
• Medical office buildings or other real estate
• Equipment leasing companies
• Facility leasing company
28
PARTIAL INTEGRATION
HOSPITAL-PHYSICIAN JOINT VENTURES
Stark “rural provider” exception: an entity that furnishes at least seventy-five percent
(75%) of DHS to residents of a “rural” (i.e., non-urban) area
Anti-Kickback Statute Safe Harbor:
•
Terms of offer of investment interest are same for all investors
•
Terms of offer to potential investors who are referral sources are not related to previous or future
referrals
•
No requirement that investors make referrals to joint venture
•
Joint venture may not market or provide items or services to investors differently than to non-investors
•
May not loan funds to potential investor in position to make referrals to, furnish items or services to, or
otherwise generate business for joint venture if investor uses funds to purchase ownership interest
•
Payments in return for investment interest directly proportional to amount of capital invested
•
Additional safe harbor requirements for surgery centers
29
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Physician group operates very profitable ancillary services line within
group (chemo; imaging; physical therapy; sleep lab).
Group not ready for sale of practice (wish to remain independent),
but may be interested in monetizing ancillary service line through
sale.
30
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Physician Group
−
−
−
Professional services
Diagnostic imaging
Lab
Imaging Center
$ - purchase
imaging service
Hospital
31
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Why would hospital buy?
•
Offensive - establish new or enhance existing outpatient service
•
Revenue enhancement -- hospital based service
•
Defensive - eliminate competitor and/or prevent competing hospital from picking up
service
Why would physicians sell?
•
Time is right – declining reimbursement for practice-based ancillary services
•
Provide partial liquidation event (generate cash) while continuing independent practice
32
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Stark “Isolated Transactions” exception:
Purchase Price
• Must be consistent with FMV, and
• May not take into account, in any manner, volume or value of referrals from selling physician
FMV opinion from experienced, reputable valuation company is essential.
Do not rely on “in-house” valuation.
Income approach vs. asset valuation.
33
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Stark “Isolated Transactions” exception:
The overall transaction must be “commercially reasonable” even if the selling
physicians made no referrals to the purchaser.
Minimum, conduct internal “commercial reasonableness” analysis. Controversial
deals, consider outside “commercial reasonableness” opinion or report.
34
PARTIAL INTEGRATION
HOSPITAL ACQUISITION OF PHYSICIAN GROUP
ANCILLARY SERVICE LINE
Other legal issues:
1. Operate as “provider-based” outpatient department of hospital, must meet
Medicare “provider-based rules”
2. Must be in separate and distinct space from physician group
−
Lease or sublease space from group, meet Stark exception and Anti-Kickback Statute safe harbor
for space leases
3. Employees providing service must be hospital employees
35
PARTIAL INTEGRATION
PRACTICE ACQUISITION,
PROFESSIONAL SERVICES AGREEMENT
Hospital leases or acquires all or substantially all practice assets
(exclude cash, A/R, certain other assets), employs practice non-clinical
employees, assumes leases, etc., and operates practice as hospitalowned medical practice.
Rather than employ physicians, hospital enters into professional
services agreement with P.C., under which P.C. makes all doctors and
para-professionals available to hospital to provide professional services
in practice.
Hospital bills for physician services, pays P.C. fee for clinical services
provided by P.C. employees.
36
PARTIAL INTEGRATION
PRACTICE ACQUISITION,
PROFESSIONAL SERVICES AGREEMENT
Physician Group, P.C.
Practice
Assets
$ - Purchase
Price or
Lease
Payments
Professional
Services Agreement
Clinical
Services
$ - Fees
Sale or
Lease
Contract for
professional
services
Hospital
37
PARTIAL INTEGRATION
PSA MODEL
Practice Acquisition/Lease:
−
If acquisition, “isolated transactions” exception
−
If lease, meet all requirements of applicable Stark exception(s) and AKS safe harbor
Professional Services Agreement:
−
−
−
−
Practice agrees to provide specifically identified physicians and para-professionals to
hospital to provide services in acquired practice
New physicians added only with hospital approval
Hospital bills for services
Hospital pays fee sufficient to cover P.C. fixed expenses, bonus if group hits preestablished criteria
•
•
−
−
Productivity/Incentive compensation
Quality, efficiency, patient satisfaction
Administrative/medical director services separately compensated, at FMV hourly rate
Must meet all criteria of Stark “personal services arrangements” exception
38
PARTIAL INTEGRATION
PSA MODEL
Why physicians like it:
1. Nice option for coverage of remote office
2. Allows doctors to retain some autonomy
−
−
Internal compensation
Internal governance
3. Income certainty, remove collection risk and declining reimbursement rates
4. “Date before you marry”
5. Allows for “unwind” and return to private practice if relationship not working
Why hospitals like it:
Because physicians do
39
MINIMAL (CONTRACTUAL)
INTEGRATION
40
CONTRACTUAL INTEGRATION
PHYSICIAN RECRUITMENT
Hospitals are permitted to offer physicians a variety of incentives to
induce physician to relocate his/her practice to hospital service area.
Common recruitment incentives include:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Headhunter fees
Relocation expense reimbursement
Income support payments
School loan repayments
“Signing bonus”
Short-term housing assistance
Line of credit loans
Recruit physician to establish own practice, or to join established
practice in hospital’s service area.
41
CONTRACTUAL INTEGRATION
PHYSICIAN RECRUITMENT
Stark “physician recruitment” exception:
1. Physician must “relocate” his or her practice (with some exceptions) to the “geographic
area served by the hospital”
− Relocate means physician’s practice is outside of hospital GSA, and either moves practice more
than twenty-five (25) miles into hospital GSA, or moves practice to hospital GSA and at least
seventy-five percent (75%) of revenue in new practice from patients not seen in old practice
− Hospital Geographic Service Area lowest number of contiguous zip codes from which hospital
draws at least seventy-five percent (75%) of inpatients
2. Recruitment agreement must be in writing and signed by parties
3. Remuneration paid to doctor under agreement not determined based on volume or value
of referrals
4. Physician may establish privileges at other hospitals and refer patients to other hospitals
42
CONTRACTUAL INTEGRATION
PHYSICIAN RECRUITMENT
Additional requirements affecting recruitment to an existing group
practice:
1. Hospital, physician and group practice must sign the agreement
2. Except for actual costs incurred by group in recruiting doctor, payments are
“passed directly through” to doctor or “remain with” recruited doctor
3. If income guarantee, costs allocated by group to new doctor are limited to “actual
additional incremental costs attributable to the recruited physician”
4. Must maintain records for five (5) years
5. Remuneration paid under the agreement does not take into account volume or
value of referrals
6. Practice may not impose on new doctor “practice restrictions that unreasonably
restrict the recruited physician’s ability to practice medicine” in the hospital’s GSA
43
CONTRACTUAL INTEGRATION
PERSONAL SERVICES ARRANGEMENTS
1.
2.
3.
4.
5.
Medical Director Arrangements
Department Staffing Arrangements
Call Coverage Arrangements
Physician Clinic Staffing Arrangements
Administrative/Management Services
44
CONTRACTUAL INTEGRATION
PERSONAL SERVICES ARRANGEMENTS
Stark “personal services arrangements” exception:
1. Arrangement is in writing, signed by parties, and specifies services
covered by arrangement
2. The agreement covers all of the services furnished by the physician to
the entity
3. The aggregate services contracted for do not exceed what is reasonable
and necessary for legitimate business purposes of arrangement
4. The term of arrangement is at least one (1) year
5. Compensation paid under arrangement is set in advance, does not
exceed FMV, and is not determined in way takes into account volume or
value of referrals
45
CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND
CO-MANAGEMENT ARRANGEMENTS
A “service line” management or co-management arrangement is
one where hospital contracts with a group of physicians to provide
management services to a hospital department or service line.
•
Under a management arrangement, hospital contracts with a single
physician group practice, or with group of unaffiliated physicians of same
specialty organized under new legal entity
•
Under “co-management” arrangement, hospital and group of physicians
form a new joint venture management company to provide services
46
CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND
CO-MANAGEMENT ARRANGEMENTS
Management Arrangement
Hospital
Variety of Services
Physician
ManageCo
Management
Agreement
Management and
Incentive Fees
Co-Management Arrangement
Hospital
Physicians
Invest
Management
Agreement
Invest
Fees
Services
Co-Management
Company
47
CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND
CO-MANAGEMENT ARRANGEMENTS
Management Agreement
•
Describe services provided by physicians
−
•
•
•
•
•
•
Department policies and procedures; medical director; staffing; budgeting; supply chain; clinical protocols;
scheduling
Create “governance” structure consisting of committee or several committees, hospital
and physician representation
Establish “reporting” structure
Management fees paid under agreement typically consist of “fixed” fee and incentive fee
components
Fixed fee covers all administrative and management services provided under agreement
Incentive fee is triggered by department meeting or exceeding specified “benchmarks”
relating to improvements in quality or efficiency, and/or cost reductions
Incentive fee may not be tied to percentage of departmental revenue, net income or profit,
or increases in departmental revenue or net income
48
CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND
CO-MANAGEMENT ARRANGEMENTS
Examples of clinical “benchmarks” or “metrics” that may generate
incentive fees under the management agreement:
1.
Reduction in post-surgical infection rates
2.
Reduced re-admissions
3.
On-time surgical starts
4.
Reduced turn-around time between cases
5.
Pre- and post-surgical use of antibiotics
6.
Supply cost reductions
7.
Patent satisfaction scores
49
CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND
CO-MANAGEMENT ARRANGEMENTS
Legal Issues:
− Depending on how fee is structured and precise party acting as manager, Stark
may or may not be implicated
− In any event, fee should not exceed FMV, and should not take into account
volume or value of referrals
− FMV nature of fee should be confirmed by FMV appraisal by experienced H/C
appraisal firm
− If Stark is implicated, meet all criteria of “personal services arrangements”
exception
− If “co-management” arrangement, MANAGECO joint venture should be organized
and operated consistent with requirements of other hospital-physician joint
ventures
50
CONTRACTUAL INTEGRATION
SERVICE LINE MANAGEMENT AND
CO-MANAGEMENT ARRANGEMENTS
Business Issues:
1.
Doctors must provide legitimate services to earn fee
–
Commitment of time and energy; not appealing to doctors with busy practice
2.
Caveat, may be attractive if arrangement is a vehicle to provide doctors with compensation for
services already provided
3.
Doctors may be disappointed by what valuation company will approve as FMV “base” fee
4.
Ditto for FMV incentive fee
5.
Depending on make-up of MANAGECO, achieving some of benchmarks to earn incentive comp will
depend on altering behavior of people who have no economic incentive to do so
6.
May also depend on circumstances outside of control of physician managers
All that being said, a thoughtfully structured arrangement with significant physician “buy-in” can drive
significant positive change in service line performance and provide appropriate financial reward for
doctors in connection with their efforts to effect change
51
CONTRACTUAL INTEGRATION
SPACE/EQUIPMENT LEASES
Physician group, or lessor entity in which physicians hold investment
interests, leases space or equipment to hospital.
Must meet all criteria of “rental of office space” or “rental of equipment”
Stark exception, if lessor is physician group.
If lessor entity includes physician investors, Stark may or may not be
implicated, but AKS definitely is.
Critical issue, lease payments should be FMV, and not based on
percentage of revenues, percentage of profits, or any other
percentage-based formula; and, if equipment lease, no “per click” or
“per use” fee structure if physician investor is in position to make
referrals to machine.
52
WRAP-UP
− Accelerating pace of hospital/physician integration – trend that is
here to stay
•
“Train has left the station,” “horse is out of the barn”
− Various models “tools in the tool box”
•
Not every tool is right for every hospital
•
Not every hospital will use every tool, but probably use more than one
•
Exact tools depend on unique facts apply to your institution and market in
which operate
53