Hospital-Physician Integration:
What Do We Do Now?
Objectives for Presentation
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Review of trends, drivers, and goals
Potential models
Recognize how to select the right model
Define metrics and tools needed for alignment
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CURRENT TRENDS, DRIVERS, &
GOALS
Trend Slides
Trend Slides
Trend Slides
Move towards Alignment
CLINICAL INTEGRATION
ALIGNMENT
EMPLOYMENT
VISION
GOVERNANCE
OPERATIONS
OUTCOMES
PSA/LEASE
STRUCTURES
COMANAGEMENT
MEDICAL STAFF:
CARDIOLOGISTS; CT AND VASCULAR SURGEONS; INTERVENTIONAL
RADIOLOGY
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
As You Plan for Alignment
• Establish Organizational Goals (hospital and physician
perspectives)
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Business / Financial / Physician Income
Governance / Autonomy / Succession
Quality and Service Offerings
Operations and Technology
Culture
• Begin Development of Key Performance Expectations
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Quality
Efficiencies
Market
Financial / Pro Forma / Dashboards
Plan (cont.)
• Develop a Plan
• Implementation
• Operations / Business
• Marketing
• Educate Administrative and Medical Staff
• Business Purpose / Objectives
• Operational Implications
• Leadership
Preparation
• Evaluate Market Opportunity
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Demographics
Population
Technology / Services
Market / Payers
Financials – Detailed/Sustainable
Sensitivity Analysis
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Change in PCP Base
Change in Specialty Base
Shift in Market Share
Competitors (Traditional and New)
Understanding Current Environment
Internal Environment
• Key Specialty Issues
– Sub-specialization
– Compensation disparities due
to reimbursement changes
• Physician-Administration
Rapport
• Information Systems
• Operational Efficiencies
• Locations
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
INTEGRATION MODELS
Models
Models
Models
Crystal Ball Predictions
The “Big 3” Categories of Integration
1. Contractual Relationships (PSA’s; CoManagement)
2. Pseudo-Employment (Group Practice Subsidiary
Approach)
3. Risk-Sharing Arrangements
Contractual Arrangements:
PSA’s and Co-Management
Pseudo-Employment:
Group Practice Model
GPS Model (Leased Assets)
MD
Hospital
Payors
Tailored Leasing and
MSA Arrangements
Group Practice
Subsidiary
$
MD
Existing
Group Practice
Employment
MD
MD
MD
Physicians become employees
of Hospital subsidiary
MD
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
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
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
GPS Model (2+ Groups)
Hospital
Tailored Leasing and
MSA Arrangements
Integrated
Group Practice
Subsidiary
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Payors
Group #1
Division #1
MD
MD
Employment
Physician Operating Board
Division #2
MD
MD
Group #2
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
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
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
NOTES
• Curt needs to modify to address foundation
model in states with corporate practice of
medicine
Risk Sharing Arrangements
• What is risk sharing?
• How do you approach it? Options?
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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
NOTES
• Need to build in unique issues, legal,
valuation, compensation, operational into
each of 3 buckets of issues.
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