Hospital-Physician Integration:What Do We Do Now?

Objectives for Presentation

• Review of trends, drivers, and goals• Potential models• Recognize how to select the right model• Define metrics and tools needed for alignment• …..

CURRENT TRENDS, DRIVERS, & GOALS

Trend Slides

Trend Slides

Trend Slides

MEDICAL STAFF:CARDIOLOGISTS; CT AND VASCULAR SURGEONS; INTERVENTIONAL

RADIOLOGY

EMPLOYMENT CO-MANAGEMENT

PSA/LEASE STRUCTURES

CLINICAL INTEGRATION

VISIONGOVERNANCEOPERATIONSALIGNMENT OUTCOMES

Move towards Alignment

Always Ask: Why do I want to align?

RIGHT REASONS• Improve quality of care• Reduce costs• Improve efficiency• Provide additional services to the community• Prepare for Health Reform (including ACOs and global / bundled

payments)

WRONG REASONS• Create a new referral stream• Keep physicians happy • Prevent physicians from referring elsewhere• Everyone else is doing it (“Flavor of the Month”)• My competitor bought one

As You Plan for Alignment• Establish Organizational Goals (hospital and physician

perspectives)• Business / Financial / Physician Income• Governance / Autonomy / Succession• Quality and Service Offerings• Operations and Technology• Culture

• Begin Development of Key Performance Expectations• Quality• Efficiencies• Market• Financial / Pro Forma / Dashboards

Plan (cont.)

• Develop a Plan• Implementation• Operations / Business• Marketing

• Educate Administrative and Medical Staff• Business Purpose / Objectives• Operational Implications• Leadership

Preparation

• Evaluate Market Opportunity– Demographics– Population– Technology / Services– Market / Payers – Financials – Detailed/Sustainable– Sensitivity Analysis

• Change in PCP Base• Change in Specialty Base• Shift in Market Share• Competitors (Traditional and New)

Understanding Current Environment

Internal Environment• Key Specialty Issues

– Sub-specialization– Compensation disparities due

to reimbursement changes• Physician-Administration

Rapport• Information Systems• Operational Efficiencies• Locations

External Environment• Government Involvement/Health

Reform• Payer Involvement• Legal Implications• Impact on Comp/FMV• Relationship with Community

Physicians• System Employment of Referring

Physicians• Community / Patient Environment• Payer Mix• Market Factors

INTEGRATION MODELS

Models

Models

Models

Crystal Ball Predictions

The “Big 3” Categories of Integration

1. Contractual Relationships (PSA’s; Co-Management)

2. Pseudo-Employment (Group Practice Subsidiary Approach)

3. Risk-Sharing Arrangements

Contractual Arrangements:PSA’s and Co-Management

Pseudo-Employment:Group Practice Model

Tailored Leasing andMSA Arrangements

GPS Model (Leased Assets)

Physicians become employeesof Hospital subsidiary

Hospital

ExistingGroup Practice

MD MD MD

MD MD MD

Group PracticeSubsidiaryPayors

$

Employment

Key Considerations

Legal / Structure– Purchase practice and employ physicians through a

subsidiary of the Hospital

– Physicians may participate in ancillary and mid-level revenue if structured as a group practice under the Stark Law

• Many legal requirements to meet definition of group practice including physician control of subsidiary

– Legal Agreements Required• Employment agreements between Hospital subsidiary

and physicians• Asset purchase agreement• Organizational / governance documents for new entity

including operational and governance policies

Key Considerations (cont.)

Operational– Challenge to merge the independent practice concept

with an employed integrated model– Subsidiary must be sophisticated enough to manage

itself

Valuation and Compensation– Because subsidiary has to stand on its own, FMV

considerations related to practice acquisition and physician compensation may not apply

– To the extent that the Hospital buys services from the Subsidiary, FMV will need to be performed

Key Considerations

Pros– Gives physicians ability to manage the Group Practice

Subsidiary like their own private practice– Allows physicians to share in ancillary and mid-level

revenue

Cons– Must meet “group practice” definition under Stark which

has many requirements– Hospital cannot subsidize subsidiary / physicians– Difficult to control evolution of the arrangement

Tailored Leasing andMSA Arrangements

Em

ployment

MD MD MD

Hospital

IntegratedGroup Practice

Subsidiary

Physician Operating Board

MD

Division #1 Division #2

Group #2Group #1

GPS Model (2+ Groups)

Payors $

Key Considerations

Legal / Structure– Employ physicians through a subsidiary of the Hospital

– Assets and staff can be leased from existing group practice

– Physicians may participate in ancillary and mid-level revenue if structured as a group practice under the Stark Law

– Legal Agreements Required• Employment agreements between Hospital subsidiary

and physicians• MSA and leases between subsidiary and existing

practices• Organizational / governance documents for new entity

including operational and governance policies

Key Considerations (cont.)

Operational– Challenge to merge the independent practice concept

with an employed integrated model– Subsidiary must be sophisticated enough to manage

itself

Valuation and Compensation– If subsidiary is established as a group practice, FMV

considerations related to MSA, leases and physician compensation may not apply

– To the extent that the Hospital buys services from the Subsidiary, FMV will need to be performed

Key Considerations (cont.)

Pros– Gives physicians autonomy on governance and

compensation structure– Minimal capital outlay for Hospital– Intermediate step to full employment and integration– Physician practice entity is preserved if integration is

unsuccessful– Can facilitate integration of multiple groups and specialties

in different divisions

Cons– More complicated structure than full employment– Physician lose existing Payer contracts

NOTES

• Curt needs to modify to address foundation model in states with corporate practice of medicine

Risk Sharing Arrangements

• What is risk sharing?• How do you approach it? Options?

– Service line– Patient specific population (i.e. Commercial; Medicaid)– Global or bundled payments– Niche area instead of entire population

• Structure?– Integrated network (i.e. employed providers; PHO; etc.)– Contractual

NOTES

• Need to build in unique issues, legal, valuation, compensation, operational into each of 3 buckets of issues.

Cautions: Post-Integration Issues to Address Early in Process

• Can’t support operations (i.e. billing, IT, cost management, etc.)

• Physicians not as productive in new model• Compensation plan is problematic, too

complex, haven’t defined components such as quality metrics