evaluating physician affiliation & network integration: a conversation for boards & administration Kevin Locke / Dixon Hughes Goodman Tim Hewson / Nexsen Pruet Matthew Roberts / Nexsen Pruet

agenda Drivers Models Lessons Learned Action Planning What hasn’t worked? What’s working now? Action Planning

drivers Market Dynamics Regulatory and Payment Reform Continuum of Care

market dynamics accelerating physician affiliation and network integration More Care (32M uninsured, Baby Boomers, Chronic Disease) Higher Quality (P4P, Shared Savings, Core Measures) Less Money ($240B Cuts, $90B Penalties) “Bottom line, if you attempt to use the same care delivery model moving forward, faced with the magnitude of reductions in forecasted revenue, you will go out of business.” ~ Michael Sachs, Sg2

payment reform accelerating physician affiliation and network integration Bundled Payments Value-Based Purchasing Global Payments / Capitation Pay-for-Performance Shared Savings Fee for Service Integration Alignment Accountability Independent All Providers Payers Source: PricewaterhouseCoopers

continuum of care accelerating physician affiliation and network integration Source: Sg2

potential models for physician integration Employment Direct Through wholly owned subsidiary or affiliate entity Exclusive Contracts/Independent Contractor Agreements Co-Management/Medical Director Agreements Clinically Integrated Networks

one size does not fit all… Situational strategies must be developed. Hospital and physicians must understand the collective strategic objective and the type of integration must incentivize attempts to achieve that objective. Lower cost/improved quality are objectives that are supported by the federal government and private payors.

broad spectrum of models to consider ACO High CIN or IPN PCMH HEP Employed Physician Enterprise Relocation Support/Income Guarantee System Resources Required Co-Management Gainsharing Paying for Call Co-Marketing Directorships Voluntary Medical Staff Low Independent Strategic Alliance Venture Arrangement Integration Degree of Alignment Source: Sg2

clinically integrated models are accelerating Proposed ACO Structure Readmission Risk/Penalties Co-Management $ Primary Care Physicians Specialists Other Providers Acute Care Hospital Post-Acute Care PCMH CIN $ Proposed Bundled Payment Initiatives Patient Centered Medical Home (PCMH): Primary care approach that supports comprehensive, team based care, improved patient access and engagement; serves as “hub” of care coordination; focuses on chronic disease management Clinically Integrated Network (CIN): Acute care hospital, multispecialty physician network and other providers committed to quality and cost improvement, with support from joint negotiated commercial contracts Accountable Care Organization (ACO): Model to promote accountability for a patient population by improving care coordination, encouraging investment in infrastructure, and redesigning the care continuum around quality Co-Management: Model to align physician incentives around quality, cost and satisfaction with fair market compensation Source: The Advisory Board | Dixon Hughes Goodman

what hasn’t worked? Make physicians an offer they can’t refuse One-sided arrangements Command control management style Lack of physician participation in strategic planning process Lack of physician engagement and/or leadership Failure to educate physician on compliance and business objectives Failure to define and measure quality improvements or cost reductions

what’s working now? Include physician in governance and management Transparency in affiliation and integration Continuing education of physicians of what hospitals can and will do vs can’t and won’t do Joint strategic plan which physicians buy into, understand, and are responsible for implementing

what’s working now? Cultural integration Clear definition of goals, metrics and expectations IT systems to track, measure and report performance Clinical/financial accountability Customizing/aligning compensation to organizational goals Developing physician leadership

Governance Committees co-management model Governance Committees Management Fee Distributions FMV Compensation Physician LLC Hospital Physicians Management Services Investment Fixed Duties Performance Metrics Committee Involvement Day-to-Day Management Strategic Plan Development Clinical Care Management Quality Improvement Staff Oversight Materials Management Budget Development Equipment* Staffing* Supplies Clinical Outcomes Patient Safety Satisfaction Operational Processes Financial Performance *Only one of two may be included Source: Dixon Hughes Goodman

clinically integrated network (CIN) Payers and Employers Private Practice Physicians CIN Health System Employed Medical Group Employee Health Plan Ambulatory Facilities ONE Network that can Demonstrate Value Hospital Hospital

clinically integrated network (CIN) Clinically Integrated Network (CIN) is commonly defined as a health network working together, using proven protocols and measures, to improve patient care, decrease costs and demonstrate value to the market Generally, the FTC considers a program to be clinically integrated if it performs the following: Establishes mechanisms to reduce cost and improve quality (enhance value) of healthcare services Selectively chooses network physicians who are likely to further the value objectives Invests human and financial capital to accomplish defined objectives

CIN key components Clinically Integrated Network Legal Structure & Governance Flow of Funds Infrastructure Clinically Integrated Network Contracting Participation Criteria CHANGE PICTURE FOR PARTICIPATION CRITERIA / FLOW OF FUNDS Information Technology Performance Objectives Physician Leadership

CIN value proposition The Value of Clinical Integration to… Health System Clinical Integration (CI) Network Physicians Payers Quality Membership Contracting Information Technology Care Redesign The Value of Clinical Integration to… Health System Patients & Communities Physicians Enhanced reimbursement for demonstrated quality Transformational care redesign Co-leadership with physicians Reduction in operating costs and waste Demonstrated quality Improved coordination of care Higher patient satisfaction Improved quality and outcomes Enhanced cost efficiency Long-term viability of private practice Role in leadership and governance Improved network coordination Enhanced patient care and satisfaction Source: DHG

managing risk Parties must discuss business risk To hospital To physician Parties must discuss legal/compliance Risk is equally shared

forecasting future developments Role of medical staff Employed versus independent physicians Changes in laws to make integration easier New reimbursement methodologies New and integrated alignment models

action planning for your leadership team Strategic, cultural, and economic assessment of your market Clear definition of objectives and win-win criteria Thoughtful consideration of alternative models Disciplined plan and process for integration