Slides []

Courting Physicians:
Pros and Cons of Six
Integration Models
October 20, 2011
Steven R. Smith and Sarah E. Swank
• Ober|Kaler Healthcare General Counsel Institute
• A little about our speakers
• Upcoming Physician-Hospital Relationship
• Topic overview
• Six trends in integration
Meet Today’s Speakers
Steven R. Smith
Principal, Ober|Kaler
[email protected] | 202.326.5006
Sarah E. Swank
Principal, Ober|Kaler
[email protected] | 202.326.5003
Steve and Sarah are cofounders of the
Ober|Kaler Health Care General Counsel Institute.
Care General Counsel Institute Group
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 for more information.
Topic Overview
What do we mean by the “Pros & Cons” of an
integration model?
Topic Overview
What are the metrics to be used in evaluating each
Cost to implement
Difficulty to implement
Alignment of incentives for hospital & physician
Potential for global impact on system or hospital
Quality implications
EHR and data collection/reporting
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:
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
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
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
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
Model 1: ACOs
ACO Cons
Becoming an ACO is a large and complicated
• 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
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
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
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
Model 2: Bundled Payments
What is it?
• CMS Innovation Center
• Defined episode of care
• Sharing gains arising from better coordination of
• Is different from ACOs?
• Why now?
• Focus on flexibility
Model 2: Bundled Payments
Should you apply?
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
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
Model 2: Bundled Payments
• 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)
Model 2: Bundled Payments
• 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
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
Model 2: Bundled Payments
Freedom of Choice
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?
Model 2: Bundled Payments
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
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
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.
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
Model 3: Employment
Employment Pros
• Compensation arrangement with physicians
should be structured to incentivize the physician
to achieve these goals
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
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)
Model 3: Employment
Compensation Alternatives
• Percentage of Collections
– May be combined as bonus with straight salary if
– 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
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
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
• Readily understood by entrepreneurial physicians
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
Model 3: Employment
• Easy and low cost to implement
• Potential for quality and clinical gains
– With employed physicians, oftentimes easier to
implement treatment protocols and patient safety
– Opportunity to enhance not only quality but to reduce
risk as well
Model 3: Employment
• 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
Model 4: Clinical Co-Management
Trying to Define It
Physician led
Coordinate to improve quality
Shared accountability
Written agreement
Example: oncologists
Model 4: Clinical Co-Management
• Joint Venture
Form management company
Determine service lines
Enter into a management agreement
Set management fee
• Written Agreement
– Medical Director light or heavy?
Model 4: Clinical Co-Management
• Involved in day to day management decisions
– Clinical
– Operational
– Employment
• Improve clinical outcomes and quality
• Clinical services (inpatient and outpatient?)
Model 4: Clinical Co-Management
• Hourly Rate
Remember to define
benchmarks and
– Clinical services
– Call
• Incentive Pool
Clinical outcomes
Patient satisfaction
Physician satisfaction
Quality indicators and
– Measurable improvement
– Efficiencies
Model 4: Clinical Co-Management
• Stark
– Personal services
– Gainsharing
• Permissible in certain cases
• Potential expansion in new ACO regulations and guidance
• Tax Exemption
– Not for profit hospital
– For profit physician group or JV
Model 4: Clinical Co-Management
Some Pros, We Heard the Cons
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
Model 4: Clinical Co-Management
Does it work?
• Have we moved beyond the co-management
• Skin in the game
• Post acute care ignored
Model 4: Clinical Co-Management
Don’t forget the nurses and other valuable
clinicians . . .
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
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?
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
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
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
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
Model 6: Practice Acquisition
Why are hospitals back in the market?
Gate keepers
Coordination of care
Everyone is doing it!
Model 6: Practice Acquisitions
Why physicians want to be acquired?
Troubled economy
Work life balance
Reduction in physician reimbursement
Stable income
Model 6: Practice Acquisitions
Shopping for Practices
• Sheer numbers
– Physicians
– Covered lives
• Profitability
– AR
– Payor Mix
• Certain specialties
• Health care reform
• Strategic planning
Model 6: Practice Acquisitions
What are you buying?
Model 6: Practice Acquisitions
Remember to
business and
regulatory due
Asset Checklist
Medical records
Existing capital
Computers/Office Furniture
Model 6: Practice Acquisitions
I bought some practices... now what?
Corporate structure
Managed care contracts
Employment issues
Electronic health records integration
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?
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?
More questions? Contact us.
Steven R. Smith
Principal, Ober|Kaler
[email protected] | 202.326.5006
Sarah E. Swank
Principal, Ober|Kaler
[email protected] | 202.326.5003
Steve and Sarah are cofounders of the
Ober|Kaler Health Care General Counsel Institute.
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