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New Models for Care Delivery in the Reform Era

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1 New Models for Care Delivery in the Reform Era 9.27.2012

2 Agenda Key Challenges of the Reform Era
Hospital and Physician Alignment Drivers New Models of Care Delivery Co-Management – A Transitional Model 1 2 3 4

3 Key Challenges of the Reform Era

4 US National Debt at $15.9 Trillion
Each pallet equals $100 million dollars, full of $100 dollar bills Slide 5 Unless the U.S. government fixes the budget, US National debt (credit card bill) will topple $16 trillion this fall and rise to $22.1 Trillion within 4 years. US national debt passes 20% of the entire world’s combined GDP.

5 A New Dialog Annual Increase Total Spend: 7.0% Medicare Spend: 6.8%
Private Insurance Spend: 7.1% November 16, 2010 Source: “U.S. Healthcare Costs”

6 Federal Programs Going BROKE!
Social Security Projected to be insolvent by 2033 Medicare 2012 – 50 million people (80 million by 2030) In the red in its largest fund in 2024 Trust fund that pays for disability benefits is projected to run out of money in just 4 years Cost-cutting steps have been successful and growth in Medicare spending per person has slowed markedly in recent years, but the situation is dire unless changes are made. Source: Chicago Tribune – “Trustees Warn of Looming Insolvency for Social Security, Medicare” (4/25/12)

7 Spending Not Related to Quality or Value
84 82 80 78 76 74 72 Life Expectancy in Years 2,000 4,000 6,000 8,000 Health Spending Per Capita (USD PPP) Source: OECD Health Data 2009

8 Reform Initiatives PPACA / HCERA Center for Medicare/Medicaid Innovation (CMI) CMS Payment Cuts & Penalties CMS Triple Aim Pilots and Demonstrations Legislative Battles and Reform Funding

9 Legislative Reform Defining New Paradigms
PREREQUISTES OBJECTIVES GOALS PPACA (March 2010) Improve Quality Increase Access Reduce Costs Adopt New Models of Care Delivery Shift Accountability and Risk to Providers Redirect and Shrink the Dollars Provide Coverage for the Uninsured Physician Alignment Provider Integration New Model Adoption Electronic Health Records

10 Supreme Court Clearing the Way for Reform
High Court Decision Ends Constitutional Uncertainty Three Key Decisions Arguments Supporting Individual Mandate Constitutional Discussion Individual Mandate: Can the federal government compel individuals to purchase health insurance? Medicaid Expansion: Is the ACA’s Medicaid expansion a violation of states’ rights? Severability: Should the remainder of the ACA stand if a portion is struck down? Supreme Court Decision Upheld under Congress’ power to impose taxes Medicaid expansion upheld; federal government may not withhold existing Medicaid funds if states forgo expansion The remainder of the law can stand Constitutional Authority Supreme Court Decision Commerce Clause Necessary and Proper Clause Power to Tax and Spend Source: Advisory Board

11 “would reduce Medicaid spending by $771B over 10 years and $30B from Medicare” p6

12 Early On, Revenue Implications….
2010 2011 2012 2013 2014 2015 2016 1 2 3 4 Revision of Certain Market Basket Updates Medicare Advantage Payments Hospital Readmissions Reduction Program Medicaid Disproportionate Share (DSH) Medicare Disproportionate Share (DSH) Payment Adjustment for Conditions Acquired in Hospitals Reductions Reductions Readmission Readmission Program in place

13 Then, Delivery Implications
2010 2011 2012 2013 2014 2015 2016 1 2 3 4 Establish of CMMI Medicare Shared Savings Program Independence at Home Demonstration Project Hospital Value-Based Purchasing Program National Pilot Program on Payment Bundling Value-Based Payment Modifier Under the Physician Schedule Additional Requirements for Charitable Hospitals ACO’s Value Based Bundling Program in place Pilot or Demonstration Period

14 Integration Accelerating Across the Continuum
Source: Sg2

15 Insights from the Front Lines of Change. . .
Access Point Strategy Clinical Integration Hospital Efficiency Program Orthopedic Institute Clinical Co-Management (Spine & Transplant) Women’s Services Co-Management Payor Strategic Plan Comprehensive Cardiology Alignment Training Directorship Safety Net Hospital Crisis

16 Hospital and Physician Alignment Drivers

17 Caregiver Supply Not Meeting Demand
PCP Supply vs. Demand (in thousands) 350 300 250 200 337 Deficits … PCP = 66,000 Specialist = 79,000 316 298 282 271 267 260 244 229 215 Demand Supply Source: SHP/VHA 2009 | Merritt Hawkins 2007 17

18 Caregiver Supply Not Meeting Demand
National Supply and Demand Projections for FTE Registered Nurses (2000 – 2020) 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 Demand Supply 2000 2006 2012 2020 Source: Bureau of Health Professions, RN Supply & Demand Projections

19 Volume Growth Widening the Gap
Projected Ten Year Volume Growth With and Without Reform 8.5% 8.1% INPATIENT DISCHARGES OUTPATIENT VISITS 23.1% 19.1% 7.4% 7.3% MEDICAL ADMISSIONS Medicare = 49 M in 2010 to 61.5 M in 2018 Medicaid = 40 M in 2010 to 51 M in 2018 11.2% 10.2% SURGERIES With Reform Without Reform Source: Sg2

20 Hospital Margins At Risk
Reimbursement At Risk Oct 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Value-Based Purchasing 1% 2% 30-Day Readmissions 1% 2% 3% Hospital Acquired Conditions 1% TOTAL 2% 3% 5% 6% Source: Sg2 20

21 Hospital Drivers for Alignment
Lower Costs “The biggest potential income streams for both hospitals and physicians may reside in sharing savings from providers. To do that, hospitals and physicians must manage care together.” – PwC “Physician orders are directly responsible for 80% of U.S. healthcare spending.” – Deloitte Center for Health Solutions Better Quality “Better quality will finally pay off for hospitals but they need physicians to deliver it.” – PwC New Payment Systems “Hospitals need to partner with physicians as a means of participating in ACO’s and other new payment arrangements.” – PwC Expand Base, Increase Volume, Grow Market Share “High end expensive procedures are at risk unless we can expand the referral base.” – Michael Sachs, Sg2 $ Source: PricewaterhouseCoopers | Deloitte | Sg2

22 Physician Drivers for Alignment
Professional Fees Ancillary Revenue Leverage with Payors Profitability & Personal Income Operating Expense Administrative Burden Assessment / Audit Risk Alignment with Hospitals

23 Practice Trends Percentages of U.S. Physician Practices Owned
by Physicians and by Hospitals, U.S. Physician Practice Ownership (%) Physician-owned Hospital-owned 80 60 40 20 Insert inbetween 35 and 36 Source: Physician Compensation and Production Survey, MGMA,

24 Payment Reform Models Emerging
High Insurance product Global capitation ACO Clinical integration program Disease-specific capitation Degree of Complexity Bundled episodes (pre- and postcare included) Bundled episodes (inpatient only) P4P/value-based purchasing Inpatient case rates (DRGs) Fee for service Low High Scope of Risk Source: Sg2

25 New Models of Care Delivery

26 The Old Model

27 The New Model

28 Market Dynamics Accelerating New Models
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

29 Shifting Risk Risk Shift Consumers Employers Health Plans
FFS Reimbursement Cuts Global Payments / Capitation Pay-for-Performance Value-Based Purchasing Bundled Payments Shared Savings Consumers Employers Health Plans Government Payors Physicians Medical Groups Hospitals Other Providers Risk Shift Fee-for-Service Pay-for-Performance Bundled Payment Episodic Bundling Shared Savings Capitation / Global Payment Source: PricewaterhouseCoopers | DHG 29

30 Payment Reform Accelerating New Models
FFS Reimbursement Cuts Global Payments / Capitation Pay-for-Performance Value-Based Purchasing Bundled Payments Shared Savings Alignment Integration Accountability Independent All Providers Payers Source: PricewaterhouseCoopers

31 Variety of Alignment Options
High % of Medical Staff Involved Clinic Model Small (<10% of the medical staff) Full Integration ~25% of the medical staff Foundation Models ~50% of the medical staff Clinical integration PHO ~75% or more of the medical staff Traditional Employment Complexity and Durability Co-management Traditional PHO Joint Ventures Gainsharing MSO IT subsidy IPA Next-generation PSA Call coverage agreements Medical directorships Voluntary model Low Level of Integration High Source: Sg2 2012

32 Hospitals and Health Systems React
Question Posed of 279 Hospital and Health System Leaders: Which of the following initiatives is your organization likely to be pursuing within three years? Source: Health Leaders Media ,September 2012

33 Clinically Integrated Models
Proposed ACO Structure Readmission Risk/Penalties Co-Management $ Primary Care Physicians Specialists Other Providers (CAH) 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 Clinical Integration 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

34 Clinically Integrated Network (CIN or IPN)
Health System Ambulatory Care Centers Hospitals CI Entity Employee Health Plan Private Practice Physicians Employed Medical Group CIN is commonly defined as an integrated health network using proven protocols and measures to improve patient care, decrease cost, and demonstrate value to the market. After demonstrating value, the CIN negotiates with payers and large employers to support the network with incentives based on demonstrated value and achieved results.

35 Clinically Integrated Network
CIN Components Clinically Integrated Network IPN Infrastructure Legal Structures Performance Objectives Physician Leadership Information Technology Communication and Education Payer and Employer Contracting

36 Clinically Integrated Network
CIN Infrastructure The CIN is a Separate Business Entity with … Distinct leadership structure and staff Independent budget and financial statements Participating agreements with providers Sustainable source of revenue $ Physician Investment/ Dues $ $ Health System Investment/ Dues Market Sources (Payers, Employers) Clinically Integrated Network

37 Health System Subsidiary
CIN Legal Structures PHO IPA Health System Subsidiary Health System Participating Physicians Health System Participating Physicians Health System Participating Physicians PHO IPA Subsidiary 50% 50% Participating Agreement 100% 100% Participating Agreements Payers / Employers Payers / Employers Payers / Employers

38 Hospital Efficiency Program (HEP)
Health System Validate Savings from HEP Performance Clinical Supply and Pharmacy Medical Claims per Employee Throughput and Average LOS Define Fair Market Value Compensation for HEP Initiatives Base Fee (administration) Incentive Component (performance) services HEP Agreement Physician Org. (PHO, IPA, Sub) Design Compensation Methodology for Participating Physicians

39 CIN / HEP Benefits

40 Patient Centered Medical Home (PCMH)
Defined in pilot programs in 44 states Built on 7 fundamental principles Focuses on comprehensive patient management Focuses on treatment and management of chronic conditions Manages expense of high cost, perpetual patients (Diabetes, COPD, Hypertension, Asthma) Increases access by leveraging physician extenders Qualifies for additional incentive based payments Safety and Quality Coordinated Care Whole Person Orientation Enhanced Access Personal Physician Physician Directed Practice Payment for Added Value Cornerstone of Accountable Care Organizations House to be built in lower left hand corner, sequentially, from component parts (labeled)

41 PCMH Care Redesign Traditional PCMH Patients make appointments
Patients’ chief symptoms or reasons for visit determine care Care is determined by today’s problem and time available today Care varies by provider Patients are responsible for coordinating their own care Acute care is delivered during the next available appointment and to walk-ins Patient must tell caregiver what happened Operations center on physician’s schedule Patients are registered in the medical home PCMH systematically assesses all patient health needs to plan care Care is determined by a proactive plan to meet patient’s needs (with our without an office visit) Care is consistent with evidence-based guidelines A prepared team of professionals coordinates all patient care Acute care is delivered by open-access and non-visit contacts PCMH tracks tests, consultations, ED visits, hospital visits and follow-up care A multidisciplinary team works to serve patients Note title change Source: Central Ohio PCMH Project

42 PCMH Benefits and Risks
The PCMH is a health care approach that facilitates partnerships between patients, their families and personal physicians (and/or extenders). The PCMH follows a set of standards around care coordination and data monitoring that leads to demonstrated quality outcomes at reduced costs. Benefits Increases quality and reduces cost of chronic patient care Enhances access and continuity of care Aligns PCP physicians around care delivery Focuses on integrated care management Patient survey results help drive quality improvement Presents opportunity for enhanced reimbursement Creates possible competitive advantage Risks ROI uncertain and difficult to measure Demands increased administrative support Requires (significant) IT investment Creates significant change in culture and practice patterns Requires progressive use of technology and other models of patient interaction Source: NCQA, 2011

43 Accountable Care Organization (ACO)
Hospital: Lower admissions and re-admissions; more appropriate use of ED; integration with physicians; enhanced reimbursement(?) Specialists: Increased level of integration with PCPs, increased efficiency, focus on reducing re-admissions Hospital Community Payer Specialists Primary Care Provider: Increased focus on patient health, greater access to information, increased use of quality metrics, better reimbursement, Primary Care Provider Social Worker Payer: Improved member satisfaction, lower costs, opportunity for new business models Other Caregivers Nurse Employer Patient Government Government: Lower healthcare costs, healthier population Mikes definition of what an medical home is Patient: Less costly, more convenient care; coordinated services, productive long-term relationship with all physicians Pharmaceutical Manufacturer Employer: Lower costs, more productive workforce, improved employee satisfaction 43

44 ACO Structure Component Rule Legal Structure
Legal entity under state and federal law Capable of receiving / repaying shared savings / losses Separate legal entity if 2 or more independent participants Governance Defined governance structure in ACO application ACO participants must control 75% of board Beneficiaries must be included in governance Leadership and Management ACO must have operations manager under control of board ACO clinical management by of one of ACO physicians QA / PI initiatives and protocols must be defined Mid-Cycle Structural Changes New participants may be added to ACO during period Must notify CMS of any changes within 30 days IT Initiatives Percent of PCPs qualifying for EHR incentive program weighted heavily in scoring of quality measures ACO required to promote evidence based medicine, report internally on quality and cost metrics and coordinate care Source: CMS

45 What is an ACO Professional? Who Can Participate in an ACO?
ACO Participants What is an ACO Professional? MD or DO Practitioner (PA, nurse practitioner, clinical nurse specialist) Who Can Participate in an ACO? ACO professionals in group practice arrangement Networks of individual practices of ACO professionals Partnerships between hospitals and ACO professionals Hospitals employing ACO professionals Critical Access Hospitals (CAHs) that bill under Method II* Federally Qualified Health Centers (FQHCs) Rural Health Clinics (RHCs) *Under Method II a CAH bills for both facility and professional services, which provides CMS with the data needed to perform various programmatic functions Source: CMS

46 ACO Mechanics 1 2 3 4 5 > 5,000 Beneficiaries
Assignment > 5,000 Beneficiaries Preliminary Prospective Assignment Retrospective Reconciliation Unrestricted Provider Choice Billing Providers Bill Normally Receive FFS Comparison Total Cost Incurred Compared to Target Expenditures Compare to Defined Targets Bonus Dependent on Savings and Quality Metrics Size Determined by Selected Model Distribution Determined by ACO Participants Defined Governance Structure 1 2 3 4 5 Source: CMS

47 Key Imperatives for Success
Manage Utilization Risk Maintain Exceptional Quality Operate Under Elevated Transparency Develop and utilize ambulatory network Appropriately utilize pre and post acute care providers Reduce preventable acute care episodes Avoid unnecessary readmissions Develop quality care standards Create care pathways across providers Coordinate care across sites of care, over time Adopt IT systems that allow for data capture and use Continue to provide data to ACO partners and CMS Develop communication strategy amongst participants Source: The Advisory Board Company

48 ACO Care Redesign Traditional ACO *Note title change
Patient base split among multiple providers with competing interests Organization is physician-led system of care encompassing all patient services Responsibility for patient care transitioned from one provider to the next Organization is held accountable for overall clinical results, cost and efficiency System designed to react to acute events rather than focus on prevention Population served receives prevention and wellness services Current payment system supports specialist services over primary care Core of organization is primary care supported by specialists Non-clinical demands on physicians time increasing diverting physicians attention from providing medical services Physicians supported by practice teams that increase practice efficiency and quality Technology adoption and use varies among PCP, specialists and hospitals IT infrastructure coordinated to measure and report standardized metrics focused on quality Fee-for-service delivery system rewards non-coordinated care throughout system Delivery system capable of coordinating care across all settings Duffy: Slide1 *Note title change Source: AMGA 48

49 Where the ACOs Are Source: The Advisory Board Company

50 Co-Management

51 Co-Management Objectives
Integrate physicians’ clinical expertise into hospital’s management competencies Align incentives and enhance clinical, operational and satisfaction outcomes Improve quality and increase access, regionalization and standardization of services Position both hospital and physicians for healthcare payment reform (bundled payments, P4P, etc.) in either / or an employed physician or independent physician scenario Provide legal, FMV to physicians for their time, effort, expertise, and results Create a successful recruitment platform for high-quality physicians

52 Governance Committees
Co-Management 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

53 Co-Management Fundamentals
Valuation In return for provision of management services, physicians receive compensation at Fair Market Value (ie, commensurate with what a full-time, 3rd party manager of CV services would command) Fixed Duties Physicians are tasked with specific, non-clinical duties that further the goals of the service line and are paid for their time and effort Performance Metrics Physicians are expected to improve upon historical hospital performance in key areas such as clinical outcomes, quality, efficiency and satisfaction and are paid according to their level of success in achieving pre-determined targets Governance The physicians form a physician LLC that contracts with the hospital and they, in turn, organize themselves in committees to effectively manage the hospital’s service line and accomplish the fixed duties and performance metric goals Add to Fee – Simplistically viewed, physcians will provide a service that is compared to a full time 3rd party manager of CV services. Incentive Pay add – Commonly called Performance Metrics Guiding Principle – Engage physicians in continuous quality and patient satisfaction improvement. Incent cost savings that meet these goals. Fixed Duties, Performance Metrics

54 Governance - Sample Heart and Vascular Executive Committee
LLC Hospital 4 LLC Managers 3 Committee Chairs 8 Committee Members 7 Medical Directors Board 4 LLC Managers Heart and Vascular Executive Committee 4 CPM Managers + Hospital Staff Finance & Capital 1 Chair + 2 Members + Hospital Staff Invasive Labs 1 Chair + 2 Members + Hospital Staff Quality & Clinical 1 Chair + 4 Members Medical Directors (7) Cardiac Rehab Committee Structure The Heart and Vascular Executive Committee will report to the VP The LLC Managers will be the 4 physicians on the HVEC Hospital representatives will set on the Finance & Capital and Invasive Labs Committees to assist the physicians in business management CHF Disease Chest Pain Hospital Coord (2) Hospital Representation Physician Only Non-Invasive IT Implementation

55 Sample Metrics List Sample Cardiology Metrics
Development of Performance Incentives and Supporting Metrics Fosters Hospital/Physician-Manager Collaboration SAMPLE: Clinical Outcomes (35%) Patients given ACE inhibitor/ARB for LVSD STEMI patients receiving PCI Patients receiving aspirin w/in 24hrs of arrival Patients with Beta Blockers at discharge Patient Safety (35%) Lead dislodgement in patients with pacer/ICD Pneumothorax in patients with pacer/ICD PCI in-hospital risk-adjusted mortality rate Operational (20%) On-Time Catheterizations (All Cases) Turnaround Time Satisfaction (10%) Increase in PG “Overall Communication with Doctors” Increase in PG “Would Recommend” Sample Cardiology Metrics

56 Sample Metric Development of Performance Incentives and Supporting Metrics Fosters Hospital/Physician-Manager Collaboration SAMPLE:

57 Co-Management Benefits
Facilitates collaboration between hospital and physicians on service line improvement Creates platform for improved quality, reduced cost and enhanced access in preparation for pay for performance and bundled payments Provides reasonable and stable financial return to physicians for new and existing management functions Requires minimal capital investment by physicians or hospital Minimizes regulatory risk due to favorability with CMS and OIG Arrangement is reversible if it fails to achieve results May lead to decreased costs based on physician engagement Positions hospital and physicians for future integration models 57

58 Questions

59 Reform Challenges Reform Challenges our Personal Paradigms High
Resiliency Low Paralyzed by Confusion Embracing the Opportunities Existing in Denial Resigned to Acceptance Appendix this one Low Understanding High

60 Appendix

61 Physician Alignment Process

62 Comprehensive Cardiology Alignment Model
FMV Compensation Co-Management Fee Fixed Duties Performance Metrics Call Payment Panel Reads Physician Equity (X) JV Cath Lab Hospital Hospital Equity (Y) Co-Management Call Coverage Panel Reads Physician LLC Employment Reverse MSO Practice Lease Non Inv. Imaging Acquisition Employed Physicians Investment $ Based on equity & effort Independent Physicians Investment Non Inv. Imaging Acquisition $ Based on equity & effort Affiliated Physicians No Investment: Call/Panel Participation $ Based on effort only

63 Who We Are – DHG Healthcare Consulting
David Petrel – Sr. Manager Hudson, OH (330) Michael Lutkus – Sr. Associate (330)

64 Physician Alignment Models
ACO HIZ PCMH High Clinical Integration Foundation IT Deployment Bundled Payments Physician Enterprise Institute Individual Employment Contracts PSA Co Management Resources PHO Joint Venture MSO 39 – Additional Models Could be Added: Asset Leaseback, Real Estate, Provider-Based Model, Consulting Agreements, Syndication Directorship / Pay for Call Recruitment Support / Income Guarantee Volunteer Medical Staff Low Tactical Strategic Transformational Degree of Alignment Source: Sg2

65 A Growing Crisis . . . "To avoid large and ultimately unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above . . . These choices are difficult, and it always seems easier to put them off -- until the day they cannot be put off anymore . . . unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth." Ben Bernanke – Federal Reserve Chairman Speech to Dallas Regional Chamber 4/7/10

66 Proposed PFS Reimbursement Changes
Source: Beckers Hospital Review: Source: Beckers, 2012

67 Critical Success Factors
1 Trust Communication & Transparency Change Management No “One Off Deals” Physician Leadership Adapt Guiding Principles/Physician Compact 2 3 4 5 6 67

68 ! 1 2 3 4 5 5 Key Issues Does the hospital have sufficient urgency?
Is there enough trust between the hospital and physicians? Can we measure and document what we are good at and not so good at? Do we fully understand the legal and tax issues associated with true Physician Alignment? Do we have the infrastructure and the ability to finance the alignment strategy? 2 3 4 ! 5 68

69 GI Interest in Employment Moderate to Low
Surgery Family Medicine Neurology Orthopedics=25% Gastroenterology=27% Radiology=31% Oncology=39% Pulmonology=43% Anesthesiology=48% Internal Medicine= 49% Ob-gyn=50% Cardiology=63% Orthopedics Source: PwC 2010, DHG 2012 69

70 Physician-Hospital Organization (PHO)
Health System Physicians PHO 50% 50% Payers Joint Venture between the Health System and Physicians. Allows physicians to maintain ownership of their practices while agreeing to accept manage care patients Ownership interests dictate board structure, investment, and distribution methodology

71 Professional Services Agreement (PSA)
Physicians Hospital Clinical Services Management Services Ownership FMV Compensation PSA $ Billing and Collection for Technical and Professional Component of IR Procedures Pros Cons Better professional reimbursement Possible time away from clinical work Increases economic feasibility for program growth Possible coverage constraints Dedicated and fairly compensated Maintain autonomy

72 Physician Practice Responsibility Practice Management Model
Employment Models Physician Practice Responsibility Low High wRVU Model Bump Model Practice Management Model Net Income Model Model Pros Cons wRVU Model Easy to understand model Incents physician for productivity Payor blind Quality incentives incorporated into model Limited incentive for expense management No payor risk to physician Bump Model Incents physician equally above defined baseline for all wRVU’s Practice Management Model Incents physicians to manage practice expenses No direct allocation of centralized costs Net Income Model Maintains physicians commitment to practice success Most similar to private practice Adjusted frequently to reflect practice changes Physician assumes allocation of centralized costs Hospital must be able to deliver data quickly and accurately to assist physician in practice management

73 Information Technology Clinical Integration Program
Health System Physicians Win | Win Criteria Payers Quality Membership Contracting Information Technology Care Redesign Clinical Integration Program The Value of Clinical Integration to… Health System Patients & Communities Physicians Enhanced Reimbursement for Demonstrated Quality Transformational Care Redesign (System of Care) Co-leadership with Physicians Reduction in Operating Costs (Waste) Demonstrated Quality Improved coordination of care, resulting in higher patient satisfaction and demonstrated quality of care that is cost efficient Long-term Viability of Private Practice Position for Physicians in Governance Improved Network Coordination Enhanced Patient Care and Satisfaction

74 Models of Group Alignment
Degree of Integration Low High IPA ASC Investment Group Practice Consolidation ACO Independent practices align under Association guidelines for purposes of joint contracting Physician buy into ASC (or other facility) that provides efficient workshop and supplemental income with limited management responsibility Merger of existing independent practices into large practice with defined governance, management, billing and income distribution Physicians (and other providers) align around health management and accountability of defined Medicare beneficiary population. Shared Savings drive compensation

75 Independent Physician Association (IPA)
100% Payers / Employers Participating Physicians Health System IPA Participating Agreement IPA is a owned by the Physicians and contracts with health systems and payers as one network for services. Creates a large network of providers that retain control, ownership and the financial accountability over medical decision-making

76 Independent Physicians
ASC Investment Health System Joint Venture Employed & Independent Physicians Payers Joint Ventures contract with Health Systems and Payers as one network for services Employed and Independent Physicians buy into ASCs or other facilities that provide supplemental income with little management responsibility. Ownership interests dictate Board Structure, Investment, and Distribution Methodologies.

77 Group Practice Consolidation
Merger or Acquisition Into a Larger Medical Group Single-Specialty Group Information Sharing Economies of Scale Negotiating Leverage Support for Ancillaries Shared Cost of Technology and Practice Overhead ADVANTAGES Control Over Referral Sources Combined Interests & Talents Payor Relationships Enhanced Market Access Risk Sharing Peer Consultation / Review Pooled Capital Multi-Specialty Group Advantages of SSG … plus … Greater Coordination of Care Internal Referrals Market Presence Source: “Practice Update” - APA Practice Organization, Beckers Hospital Review, Advisory Board Company 77

78 Source: Sg2 78

79 Co-Management Source: Sg2 79

80 Source: Sg2 80

81 Source: Sg2 81

82 Source: Sg2 82

83 Source: Sg2 83

84 Source: Sg2 84

85 Source: Sg2 85

86 Source: Sg2 86

87 Hospital Margins At Risk
Cumulative Impact of Market Basket Update and Productivity Factor Reductions Hospital Readmissions Penalties Phased-in -15.85 -13.70 50 Million No Coverage -13.70 -11.55 -11.55 -9.40 2014 Disproportionate Share Hospital Payment Reductions Phase-in Begins -9.40 -7.80 27 Million No Coverage -7.80 -5.20 18 Million No Coverage -5.20 -3.50 21 Million No Coverage 2015 Acquired Hospital Infection Penalties Phase-in Begins -3.50 -2.00 -2.00 -0.50 -2.15 -2.15 -2.15 -0.50 -1.70 -1.60 -1.60 -0.25 -0.25 -1.50 -1.50 -0.25 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: AHA, MedPAC, PPACA & assorted documents

88 Payment Models Shifting Risk
Payors Ratcheting Up Performance Risk to Target Inefficiencies Performance Risk Utilization Risk Quality of Care Cost of Care Volume of Care Bundled Pricing Episodic Efficiency Readmission Reduction Care Standardization Shared Savings Chronic Care Management Care Substitution Disease Prevention Appendix this one. Pay-for-Performance Process Reliability Clinical Quality Patient Experience Source: The Advisory Board

89 Provider Coordination Required
Source: Sg2

90 Hospital-Physician Concerns
Medicare Professional Reimbursement Changes Financial Challenges Private Payor Professional Reimbursement Changes Overhead / Expense Management Patient Safety and Quality Top Physician Concerns Physician Concerns Top Hospital Concerns Hospital CEO Concerns Care for the Uninsured 78% 78% 74% 43% Physician Alignment Practice Growth 71% 41% Personnel Changes Malpractice Costs 32% 32% Pay for Call Healthcare Reform 28% 30% Patient Satisfaction Hospital Relations 27% 26% Regulation 22% 22% Capacity Quality 17% 16% Technology Can’t see source language on Master 15% 9% Workload Malpractice 14% 2% Source: Sg | ACHE 2009 90 90

91 Some ‘New’ Models Not So New
Employment Trends Hospital and health systems acquire primary care practices. Growing interest in alignment and willingness to partner with physicians. Degree of Integration Many hospitals divest of primary care practices, refocus on core business. Expansion of hospitalist model Refocus on primary care strategy and referring physician relationships Employment of Specialists Employment of hospital based specialists. 1980 1985 1990 1995 2000 2005 2010 2015 Source: Sg2 2008 91

92 Reform: Impact on Providers
Accountability & Risk Analytics Reimbursement Providers Volume Medicare Cuts $240 B Hospital Consolidations Physician Owned Hospitals and ancillaries Insured +32M Inpatient +5% Outpatient +4% $90B in penalties P4P/Bundling Shared Savings Communication Performance Tracking CMS Reporting Appendix this one.

93 Payment Reform Shifting Risk
Shifting Risk to Providers Performance Risk Utilization Risk Cost of Care Quality of Care Volume of Care Bundled Pricing Episodic Efficiency Readmission Reduction Care Standardization Pay-for-Performance Process Reliability Clinical Quality Patient Experience Shared Savings Chronic Care Management Care Substitution Disease Prevention Source: The Advisory Board

94 Clinically Integrated Models Emerging
Spectrum of Alignment Models 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

95 March 2010 PPACA Made Law

96 Healthcare as a Percentage of Gross Domestic Product
Rising Costs Bankrupting System Healthcare as a Percentage of Gross Domestic Product 82.6% $2.64 Trillion 17.4% Per capita = $7,960 Source: Congressional Budget Office

97 Strategic Focus at the Speed of Change
#1 Cost Reduction/ Payer Leverage #4 Service Line Optimization Integrating Across the Care Continuum #2 Physician Alignment and Clinical Integration #5 Developing Networks and Integration Across the Continuum #3 Geographic Coverage, Access, and OP #6 New Payment Models and Trials

98 Organizational Change
Strategic Readiness

99 Physician “Real Income” Declining
Gap Increase Between Practice Cost Increase, Payment Updates 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Practice Cost Increase (MEI Estimates) 60% Gap Increase SGR1 Medicare Physician Payment Updates 2001 2006 2011 2016 Source: Health Leaders 2011 99 99

100 Practice Consolidation Accelerating
Physician Distribution by Practice Setting2 1998/1999 vs. 2008 N=4,700 37.4% 32.0% 9.6% 14.5% 14.2% 19.4% 3.5% 6.1% Solo/2-Physician Practices 3-5 Physician Practices 6-50 Physician Practices 50+ Physician Practices 2008 Source: PwC 2010

101 Co-Management Benefits
Improved Quality Outcomes Effect on Top 100 Hospital Rankings Sample Hospital 1 – CABG Mortality Rates Top Quintile (1 Years) Pre-Adoption Year 1 1% 4.2% Year 2 Year 3 2% 8% 92% Top Quintile (3 Years) Sample Hospital 1 – CABG Complication Rates Pre-Adoption Year 1 13.2% 15.1% Year 2 Year 3 10.7% 11.1% 32% 68% It would be nice to have HPR stats for this stuff on 50 & 51. If not we should probably Appendix them. Physician-Led Management Administrative Management Source: Thomson Reuters 2009 | Advisory Board 2009

102 Co-Management Benefits
OR Utilization Service Line Excellence Sample Hospital 2 – OR Utilization Rate and % Volume of Budget Sample Hospital 3 – Quality and Volume After one year…. Quality Ranked the #1 provider of overall orthopedic care in Ohio Volume Experienced an increase of 1,000 cases per year 1 2 3 4 5 6 Before After 141% 60% Number of ORs at Capacity Physician Engagement Sample Hospital 4 – Number of Active Staff Surgeons 10 20 30 40 50 60 Before After 76 70 80 Source: Beckers ASC 2010 | HFMA 2009 | DHG Client 2010

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