experience ideas // CPAs & ADVISORS FINANCE CONSIDERATIONS WITH RURAL HOSPITAL AND PHYSICIAN RELATIONSHIPS Randy Biernat, CPA/ABV Mark Blessing, CPA/FHFMA

THE ROLE OF PHYSICIANS IN HEALTHCARE REFORM STRATEGY 2 // experience ideas

MARKET RECAP – PHYSICIAN ACQUISITION What we thought we were getting: Market share Clinical integration Revenue cycle expertise Enhanced efficiencies in care delivery Common IT platform, real-time information sharing ACO/bundled payment readiness Stable physician employees Here’s what we have ended up with instead: Something we already had A new business segment Compliance issues More seats at the decision-making table Expensive systems that doesn't fit everyone’s needs A proposed system that hasn’t produced winners Cumulative losses and expiring contracts 3 // experience ideas

HEALTH CARE REFORM INFRASTRUCTURE Physician Supply Physician Integration & Alignment Care Coordination Cost Management Payer Relationships Information Technology Employed Physicians Independent Physicians 4 // experience ideas

PHYSICIAN INTEGRATION & ALIGNMENT Physician Strategy Norms Current: Ad-hoc, largely employment focused Future: Systematic, with greater emphasis on non-traditional partnering opportunities Focus on key strategic service lines (answer to Site of Service?) Enhanced consideration of affiliation arrangements Extended service arrangements (local and tertiary service efficiency) Ancillary joint ventures Provider-sharing arrangements Nontraditional payer arrangements (answer to Site of Service?) Development and use of Succession Plan as key strategic tool Integration of service line strategy into Succession Plan Development of physician leadership will enhance responsiveness in this area 5 // experience ideas

PHYSICIAN INTEGRATION & ALIGNMENT Physician Leadership Norms Current: Participation optional/informal Future: “Physician Co-Leadership” Identification and training of leadership physicians Development of key physician leadership functions, including authority and responsibilities coordinated with other physician and system leadership Care pathways/value improvement (development of care management capabilities) Quality/patient satisfaction (reporting and improvement) Physician profitability/efficiency Physician recruitment/success planning 6 // experience ideas

PHYSICIAN INTEGRATION & ALIGNMENT Physician Compensation Norms Current: Productivity based and/or salary Future: Aligned with “Triple Aim” goals, strategic initiatives, and/or prevailing reimbursement model Use of Compensation Plan as key strategic tool– iterate over time Concept of aligning financial incentives between parties as key alignment tool Include direct financial performance factors Include overall physician financial performance factors Significant reimbursement method changes in future will necessitate significant compensation plan changes to keep incentives aligned Include performance on quality measures Include performance on patient satisfaction measures Include performance on care management measures Continuing current fee-for-service reimbursement/CAH status requires measured approach– concept of incremental changes to get used to the process Development of physician leadership will enhance responsiveness in this area 7 // experience ideas

SEVEN KEY METRICS FOR MANAGING PHYSICIAN NET INCOME Physician Work RVUs per Physician FTE Physician Work RVUs per Physician Encounter Net Patient Revenue per Work RVU Patient Encounters per Physician FTE Physician Compensation per Physician FTE Staff Expenses as a % of Net Revenue Overhead Expenses as a % of Net Revenue 8 // experience ideas

BIG PICTURE FINANCIAL ANALYSIS: IMPACT OF PHYSICIAN EMPLOYMENT 9 // experience ideas

EVALUATING A SERVICE LINE/DEPARTMENTAL ANALYSIS Summary of Analysis: This type of analysis utilizes charges generated for patients defined in various service lines to allocate both revenue and expenses based generally on Medicare cost report allocation methodologies. Purpose: By holistically focusing on all areas of operation from a physician standpoint, this analysis can provide clarity around what types of alignment arrangements might be appropriate financial investments. 10 // experience ideas

SAMPLE NET PROFITABILITY – BY BROAD SERVICE TYPE 11 // experience ideas

SAMPLE NET PROFITABILITY BY SERVICE LINE 12 // experience ideas

SAMPLE PROFITABILITY BY DEPARTMENT 13 // experience ideas

SERVICE LINE ANALYSIS - INPATIENT 14 // experience ideas

SERVICE LINE ANALYSIS - OUTPATIENT 15 // experience ideas

EVALUATING INTEGRATED PHYSICIAN PERFORMANCE 16 // experience ideas

PHYSICIAN ALIGNMENT STRATEGY – GOALS 17 // experience ideas

THANK YOU FOR MORE INFORMATION // For a complete list of our offices and subsidiaries, visit bkd.com or contact : Randy Biernat, CPA/ABV | Director // Mark Blessing, CPA/FHFMA | Partner //