Courting Physicians:
Pros and Cons of Six
Integration Models
October 20, 2011
Steven R. Smith and Sarah E. Swank
www.healthcaregcinstitute.com
Welcome
• Ober|Kaler Healthcare General Counsel Institute
• A little about our speakers
• Upcoming Physician-Hospital Relationship
Webinars
• Topic overview
• Six trends in integration
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Meet Today’s Speakers
Steven R. Smith
Principal, Ober|Kaler
ssmith@ober.com | 202.326.5006
Sarah E. Swank
Principal, Ober|Kaler
seswank@ober.com | 202.326.5003
Steve and Sarah are cofounders of the
Ober|Kaler Health Care General Counsel Institute.
LOOK FOR US ON LINKEDIN: Ober|Kaler Health
Care General Counsel Institute Group
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Physician-Hospital Relationships Series
• Part 1:
Courting Physicians: Pros and Cons of Six
Integration Models
(October 20, 2011)
• Part 2:
Physician Contracting and Compliance:
To Disclose or Not to Disclose
(December 7, 2011)
• Part 3:
Disruptive Physicians: A Roadmap to
Avoid Dangerous Behavior
(January 18, 2012)
Visit www.healthcaregcinstitute.com for more information.
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Topic Overview
What do we mean by the “Pros & Cons” of an
integration model?
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Topic Overview
What are the metrics to be used in evaluating each
model?
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Cost to implement
Difficulty to implement
Efficiency
Alignment of incentives for hospital & physician
Potential for global impact on system or hospital
Quality implications
EHR and data collection/reporting
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Model 1: ACOs
• Fundamentally, an ACO is a network of
providers that shares the responsibility for
providing care to patients in a clinically and
financially integrated entity
• Final Regs due out any moment?
– More to come from Steve and Sarah along with our
multi-discpline ACO Team
– Updates on: www.ober.com/practices/137
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Model 1: ACOs
Purpose of ACOs (quick review)
• Better care for individuals with respect to safety,
effectiveness, patient-centeredness, timeliness,
efficiency and equity
• Better health for populations through preventive
service and education for issues such an substance
abuse and physical inactivity
• Slower growth in costs through improvements in
care and eliminating waste in the system
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Model 1: ACOs
ACO Pros
• A true network of providers who are incentivized to
provide efficient and effective care, including
preventive service
• Alignment of providers and incentives should result in
more efficient care
• EHR system with capability to analyze data regarding
outcomes, quality, etc.
• Financial return through shared savings
• Greater capacity for self-determination or at least selfidentification as a system
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Model 1: ACOs
ACO Pros
• Efficiency
– Cost of care is likely to decline in the future as a
function of price and volume reductions
• Data Collection
– EHR and the ability to capture and interpret and
report data
• Defining Quality
– Quality is going to play an increasingly larger role in
computing payment
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Model 1: ACOs
ACO Pros
• Providing lower cost settings while enhancing
quality of care
• Reduce readmissions to hospitals and ED visits
by more effective chronic care management
• More efficient transitions for patients across the
continuum of care
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Model 1: ACOs
ACO Cons
Becoming an ACO is a large and complicated
undertaking
• Application to HHS - Fully developed policies,
agreements, leadership, legal entity needed before
applying to be an ACO
• Assemble and negotiate with all providers and others
who will be a part of the ACO
• Have a governing body under which all ACO
participants possess proportionate control over the
ACO’s decision-making process
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Model 1: ACOs
ACO Cons
• Be comprised of an eligible group of ACO participants
that work together to manage and coordinate care for
Medicare beneficiaries
– Clinical management and oversight must be managed by a
“full-time senior-level” state-licensed, board-certified
physician medical director who is physically present at the
ACO location
– Quality assurance program and process improvement
committee to establish quality, cost effectiveness and process
and outcome improvement standards
– Develop evidence-based medical practice or clinical
guidelines and processes to meet the goals of the Shared
Savings Program
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Model 1: ACOs
ACO Cons
Quality Monitoring and Reporting
• ACOs will be required to monitor and report
claims review, financial and quality data, as well
as submit quarterly and annual reports, perform
site visits and conduct patient surveys
• Data to be used to determine if ACO meets the
Quality Performance Standard and is eligible for
shared savings
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Model 1: ACOs
ACO Cons
• Expensive to create the entire ACO package and
infrastructure especially regarding data collection
• Limited return even if shared savings are realized
• Must have savings and meet 65 quality standards to
have shared savings
• Risk of loss under one scenario
• Opportunities to accomplish much of same without all
the expense and complexity under other models
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Model 2: Bundled Payments
What is it?
• CMS Innovation Center
• Defined episode of care
• Sharing gains arising from better coordination of
care
• Is different from ACOs?
• Why now?
• Focus on flexibility
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Model 2: Bundled Payments
Should you apply?
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Model 2: Bundled Payments
Four models
• Model 1: retrospective acute care hospital stays
• Model 2: retrospective acute care hospital stays
along with post acute care
• Model 3: retrospective post acute care
• Model 4: prospective acute care hospital stays
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Model 2: Bundled Payments
Application Process
• Documents
– Step 1: Letter of Intent (LOI)
– Step 2: Application
– Step 3: Optional claims data
• May apply for more than one model
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Model 2: Bundled Payments
Deadlines
• Model 1:
– LOI – October 6, 2011
– Application – November 18, 2011
• Models 2 - 4:
– LOI – November 4, 2011
– Application – March 15, 2011
• Data Use Agreement/Addendum (optional)
• Research Request packet (optional)
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Model 2: Bundled Payments
Reimbursement
• Retrospective payment
– Pay fee-for-service (FFS) to each provider after
services for each episode of care reconciled against a
predetermined target price
• Prospective payment
– Pay upfront for each episode of care instead of
traditional FFS
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Model 2: Bundled Payments
Future Models – Where are we heading?
• Model 5: prospective acute care hospital stay
plus post-acute care
• Model 6: prospective post-acute care only
• Model 7: retrospective chronic care
• Model 8: prospective chronic care
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Model 2: Bundled Payments
Freedom of Choice
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What is it?
Post acute care
Specifically mentioned
OIG is worried about it too!
Does everyone have skin the game?
Big Question: How do you control quality
without limiting choice?
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Model 2: Bundled Payments
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Model 3: Employment
• Direct hiring of physicians by a hospital or
health system or through a subsidiary entity
• Why?
– Alignment of incentives
• Improve quality
• Improve efficiency and productivity
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Model 3: Employment
Employment Pros
• Employment exception to AKS and Stark easy to
meet with employment agreement
• Compensation terms should be well thought out
and designed to achieve the objectives and goals
of the hospital by considering the appropriate
mix of productivity standards and incentives
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Model 3: Employment
Employment Pros
“There are many mechanisms for paying
physicians; some are good and some are bad.
The three worst are fee-for-service, capitation
and salary.”
JC Robinson, “Theory and Practice in the Design of Physician
Payment Incentives”, 2001.
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Model 3: Employment
Employment Pros
What behavior does a hospital or system want
from its employed physicians?
• Productivity: Professional fees
• Quality: Better and more efficient patient care
• Coordination of care
• Communication among providers
• Better outcomes
• Data to prove all the above
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Model 3: Employment
Employment Pros
• Compensation arrangement with physicians
should be structured to incentivize the physician
to achieve these goals
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Model 3: Employment
Compensation Alternatives
• Straight Salary
– Pros
• Easy to administer
• Easy to understand
– Cons
• If used on a long-term basis, there is no incentive
to increase productivity or maintain profitability
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Model 3: Employment
Compensation Alternatives
• Work RVU’s
– Pros
• Pure productivity measurement
• Insulates physicians from payor and administrative issues
• Within reason, a physician can make as much, or as little, as
he/she desires
– Cons
• May require extra administrative effort to track
• May need to re-train for accurate coding (some physicians
may be under coding since, otherwise, “it doesn’t matter)
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Model 3: Employment
Compensation Alternatives
• Percentage of Collections
– May be combined as bonus with straight salary if
desired
– It is a more comfortable fit for centers on a cash
basis as opposed to accrual
– It can be administered on a monthly, quarterly or end
of the year basis
– Need to know revenue and operation expense
numbers in order to correctly set the right percentage
for compensation
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Model 3: Employment
Compensation Alternatives
• Percentage of Collections
– Pros
• It is relatively simple to administer and understand
• It inherently rewards productivity
• Risk of payor mix and poor collection
performance are shifted to the physician
– Cons
• Physician may rebel because of the risk of payor
mix and collection performance shifted to him/her
• Physicians will want/need to “inspect the books”
to verify proper compensation
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Model 3: Employment
Compensation Alternatives
• Percentage of Net Revenues
– Requires advance agreement between employer
and physician as to allocated expenses
– Pros
• The employer enjoys the greatest degree of fiscal
protection
• Readily understood by entrepreneurial physicians
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Model 3: Employment
Compensation Alternatives
• Percentage of Net Revenues
– Cons
• May require that physicians become actively
involved in expense management and revenue
collection issues
• Accounting systems and staff may have difficulty in
producing timely P&L’s
• Issue may arise if allocated expenses are too high or
collection performance is too low
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Model 3: Employment
Pros
• Easy and low cost to implement
• Potential for quality and clinical gains
– With employed physicians, oftentimes easier to
implement treatment protocols and patient safety
protocols
– Opportunity to enhance not only quality but to reduce
risk as well
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Model 3: Employment
Cons
• Employment of physicians is usually not an effort to
perform a global facelift on a hospital or system –
usually a more targeted effort in one or more areas
• If appropriate attention is not given to the compensation
model, hospital can be stuck with a non-productive and
highly paid physician
– Financial impact
– Morale impact on other medical staff members
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Model 4: Clinical Co-Management
Trying to Define It
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Physician led
Coordinate to improve quality
Shared accountability
Quality
Written agreement
Example: oncologists
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Model 4: Clinical Co-Management
Structure
• Joint Venture
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Form management company
Determine service lines
Enter into a management agreement
Set management fee
• Written Agreement
– Medical Director light or heavy?
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Model 4: Clinical Co-Management
Duties
• Involved in day to day management decisions
– Clinical
– Operational
– Employment
• Improve clinical outcomes and quality
• Clinical services (inpatient and outpatient?)
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Model 4: Clinical Co-Management
Compensation
• Hourly Rate
Remember to define
benchmarks and
targets
– Clinical services
– Call
• Incentive Pool
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Clinical outcomes
Patient satisfaction
Physician satisfaction
Quality indicators and
outcomes
– Measurable improvement
– Efficiencies
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Model 4: Clinical Co-Management
Compensation
• Stark
– FMV
– Personal services
– Gainsharing
• Permissible in certain cases
• Potential expansion in new ACO regulations and guidance
• AKS
• Tax Exemption
– Not for profit hospital
– For profit physician group or JV
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Model 4: Clinical Co-Management
Some Pros, We Heard the Cons
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Cost less
Certain physicians don’t want to be employed
Physician independence
Physician led
Innovation and expertise
Physician loyalty
Electronic medical record not in play
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Model 4: Clinical Co-Management
Does it work?
• Have we moved beyond the co-management
idea?
• Skin in the game
• Post acute care ignored
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Model 4: Clinical Co-Management
Don’t forget the nurses and other valuable
clinicians . . .
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Model 5: Recruitment
• What do we mean?
– Recruitment of physician into an existing group
practice (including a hospital owned group) or as a
new practitioner in a community
– Pursuant to an arrangement that is compliant with the
Stark law exception for physician recruitment
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Model 5: Recruitment
• Key consideration: This is a strategic action and
recruitment is simply a tool to help achieve the
desired goal – therefore:
– Is there a strategic vision for what the ultimate
medical staff or entity will look like and how it will
fit within the existing hospital/system structure?
– Has a community needs assessment been done to
support the need for recruitment?
– Have draft agreements, key terms, financial and
other approvals all been secured BEFORE going out
to speak with physicians?
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Model 5: Recruitment
• Who will be responsible for the cost of “tail”
liability insurance as the physician leaves his/her
current practice setting?
• Will appropriate information technology
resources be available for the physician in the
new practice setting?
• Closing steps and time estimate
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Model 5: Recruitment
Direct Costs
• Large upfront costs for:
– Recruiter (possibly)
– Relocation of physician
– Signing bonus
– Front money for office set-up
– Ongoing subsidy until practice is established (you
hope!)
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Model 5: Recruitment
Indirect Costs/Risks
• For any recruitment, there is a risk that:
– The physician will not succeed in establishing a selfsustaining practice
– The physician takes a significantly longer period of
time than anticipated (and what is written in the
recruitment agreement) to establish the practice
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Model 5: Recruitment
Indirect Costs/Risks
• The alienation of a physician or group practice
or the medical staff from having to enforce the
terms of a recruitment agreement against a
physician or group for:
– Repayment of funds agreed to be repaid;
– Continuation of the practice after all assistance has
been paid;
– Repayment of large sums upon breach of agreement
by physician or group
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Model 6: Practice Acquisition
Why are hospitals back in the market?
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Gate keepers
Coordination of care
Quality
Readmissions/VBP
Everyone is doing it!
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Model 6: Practice Acquisitions
Why physicians want to be acquired?
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Troubled economy
Work life balance
Reduction in physician reimbursement
Stable income
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Model 6: Practice Acquisitions
Shopping for Practices
• Sheer numbers
– Physicians
– Covered lives
• Profitability
– AR
– Payor Mix
• Certain specialties
• Health care reform
• Strategic planning
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Model 6: Practice Acquisitions
What are you buying?
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Model 6: Practice Acquisitions
Remember to
complete
business and
regulatory due
diligence
Asset Checklist
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FMV
Goodwill
Workforce/Employees
Medical records
Leases
Existing capital
Supplies
IP
Computers/Office Furniture
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Model 6: Practice Acquisitions
I bought some practices... now what?
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Corporate structure
Governance
Policies
Forms
Contracts
Managed care contracts
Employment issues
Electronic health records integration
Compliance
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Model 6: Practice Acquisitions
That is SO 1992 ... and other colorful sayings
• Integrated delivery systems - Version 2.0
• Moving toward capitation again, whatever
• Buy high, sell low
–Only with practices and the current stock market
• Blood, sweat and tears
–Not just a band from the 1970s
• Can we just all get along?
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Conclusion
We leave you with these questions:
• Does ownership promote integration?
• Is consolidation the only answer?
• Will insurers play a part in any of this?
• Will EHRs drive quality and cost efficiency?
• Do we have the answer yet?
• Does one size fit all?
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Questions
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More questions? Contact us.
Steven R. Smith
Principal, Ober|Kaler
ssmith@ober.com | 202.326.5006
Sarah E. Swank
Principal, Ober|Kaler
seswank@ober.com | 202.326.5003
Steve and Sarah are cofounders of the
Ober|Kaler Health Care General Counsel Institute.
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