Steven J. Morris MD JD FACP Atlanta Gastroenterology Associates, LLC October, 2013

Transparency February 8, 2011 Cost Per Procedure – Greater SF Bay Area MSA Diagnostic Colonoscopy Providers

* Safeway Health 2011

 Hernia Repair: $3500:16,700 4:1  Gallbladder: $4200:21,500 5:1  Cardiac Cath: $3500:25,000 7:1  Arthroscopy: $3400:32,000 9:1  Colonoscopy: $887: :1

Hospital NameOperating ProfitCEO Compensation U of Pittsburgh M.C.$769,000,000$6,000,000 Cleveland Clinic$572,000,000$2,600,000 Barnes Jewish Hospital$489,000,000$2,335,000 N.Y. Presbyterian/Weill Cornell M.C. $383,000,000$4,360,000 Indiana U. Health- Methodist Hospital $360,000,000$2,100,000 Florida Hospital -Orlando$352,000,000$3,000,000 Montefiore M.C.- Bronx$196,000,000$4,000,000 Methodist U. Hospital - Memphis $151,000,000$2,200,000 Norton Hospital- Louisville, Ky. $118,000,000$2,200,000 ** Brill, Steven Time Magazine 3/4/2013

Traditional Relationship Hospital Based Service Agreements Professional Service Agreements Employment

 Co-management service agreements between health systems and physician groups  Variety of services:  Medical director services  Strategic planning  Human resource duties  Scheduling and staffing

 Stark Law  Structure to meet FMV or Personal Service exceptions  Anti-Kickback Statutes (AKS)  Never tie compensation to volume/value  False Claims Act  CMS requirements  Tax Exempt status

 National trend towards hospital employment  Reasons: Scarcity of Primary Care Physicians Mantra of “work-life” balance Quality Initiatives Pay-for Performance, PQRI Healthcare Reform Accountable Care Act

 Direct Hospital Employment  Simplest model if no state statutory prohibitions  Foundation Model  States with corporate practice of medicine laws  Hospital controls board and obtains tax exempt status  Physician leasing model  Subsidiary/Affiliated Entity Models  Transitional models

 Employment Lite  Independent Contractor Agreement - usually with a group  Physicians remain within their corporate structure  Physicians reassign their right to payment to the hospitals  Hospital bills all payers for their services

EMPLOYMENTPSA  W2 Employee  More favorable reimbursement  Less Overhead  No Complex Regulation  Lifestyle  Safer Legal Model  Fear  Remain Independent  Maintain group dynamics  Easier to unwind  Avoid employment stigma  Collaboration with hospital on quality and other initiatives

 Global Payment PSA  Hospital K with practice for global payment rate  Practice Management Arrangements  Hospital employs physicians  Practice entity is retained and enters into another K with hospital for management services  Traditional PSA  Hospital K with physicians via practice  Hospital employs the practice staff  Hybrid Arrangements

 Parties calculate wRVU based compensation and conversion factor  Combination of historical productivity and payer mix  Length of conversion factor  Length of agreement/renewal  Usually all parties do separate valuations and negotiate the final number

SpecialtyMedian Physician work RVU Median Compensation to work RVU Ratio Median Physician Compensation Cardiology- Invasive 9,406$57.03$521,454 Dermatology7,840$55.46$428,382 Gastroenterology8,492$56.44$481,347 Internal Medicine4,795$46.35$215,689 Orthopedic Surgery 7,981$63.54$520,1119 Source: MGMA Physician Compensation and Production Survey: 2012 Report Based on 2011 Data. Used with permission from the Medical Group Management Association, 104 Inverness Terrace East, Englewood, Colorado,

 Stark Law  Anti-kickback Statute  IRS Rules on Employment/Independent contractor  501(c) (3) principles  Antitrust  Monopolization  Concerted Action

 Evaluate your group  Size  Geography  Community  Goals of Transaction  Stabilization  Future Growth  Bundling  ASC’s; Pathology; Imaging

 What strengths does your group have  Size, geography, quality initiatives, service lines, centers of excellence  What can you add to your partner?  What needs do you have: ? EMR ? Capital  Transaction timing  Earnings and growth  New ASC’s  Market place consolidation: early movers do better!!

 Yes:  Combine PSA with other transactions  Use PSA as an employment segue  Use PSA to adapt to a changing marketplace  No  Unrealistic compensation expectations  Unwillingness to truly “partner”  Strategic planning  Increase market share  Quality initiatives  Align hospital and practice goals

 Vision  Open to PSA v Employment Model  Alignment  Geography  Inpatient v Outpatient  Size and Financial Strength  Bigger not always better  Local v National

 ‘Crossing the Rubicon’  Maintain employees, office space, EMR, Equipment  Five Year Term with Renewal  Reevaluate wRVU  Bilateral renewal options  Bundled Sales  Pathology  Research division  Existing ASC’s  Coverage Agreements  Hospitals  Geographic regions

 Service Lines  Governance  Committees : Practice, Ancillaries o Composition o Dispute resolution  Growth  Practice – organic, acquisition  Research  ASC

 Advantages  Accounts Receivable  Growth  Financial & Strategic Partner  Maintain Independence  Disadvantages  Complex regulatory environment  Financial risk mitigated but still present  “Backlash”  Obligations of partnership