Cardiology Partnership Options

2010

Financial Pressure

• The increasing financial pressure that exists within cardiology practices is driving an increase in hospital collaboration

• Hospitals and cardiology practice both have motivations for collaboration

• A recent ACC/MedAxiom survey indicated that 2/3 of the 24,000 USA cardiologists to be integrated by years end

Hospital Motivations

• Physician alignment• Performance imperatives• Physician staffing shortages• Hospital competition & physician loyalty• ED call coverage• Stability & growth in market share

Cardiologist Motivations

• Personal income security• Mitigate reimbursement declines• Increasing private practice overhead• IT strategies• Work-life balance• Access to capital• Managed care pressures

Options

• Employment• Lease• Practice merger• Stay the course

EMPLOYMENT

Key Elements of Employment

• Compensation• Asset purchase• Governance

Contractual Issues

• Income guarantee• Term of employment agreement (5 & 10)• Negotiation of RWU conversion factor for the

term of the agreement• Fixing the RWU table (nuclear, cath bundling)• Termination of physicians• Operational control

CompensationDirect Employment

FMV must be established for RWU (assume $52/RWU)Individual physician RWU compensation (no group model)

• Doctor 1 – 12,000 RWU’s/year = $624,000• Doctor 2 – 11,450 RWU’s/year = $595,400• Doctor 3 – 6,700 RWU’s/year = $348,400

Notes:• Expense side has no impact on physician compensation• Benefits are paid in addition to compensation• Purchase of practice assets is a separate transaction• “Provider based” non-invasive billing, purchase revenue stream• Better commercial provider agreements• Better benefits, mal-practice cost structure

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Compensation

• Physician Compensation– Conversion factor X individual RWU/physician– Compensation for non-RWU activities– Incentive plan (business and clinical targets)

Asset Purchase

• Practice purchase (tangible & intangible)– Assets (equipment & real estate)– Medical records– Goodwill– Accounts receivable

Governance/Management in Integration

Hospital Board

Hospital

Wholly Owned Subsidiary

Practice CV Service Line Co-management

Governance Continuum

• Direct employment– Physicians have individual employment agreements– Physicians have a practice operating committee– Physicians have disparate medical directorships– Miss opportunity for full physician investment in hospital

operation• Advisory CV Council– Much like a clinical co-management program

• Practice line authority– The group has been delegated line authority over hospital

and practice operation

Legal Residence of Physicians

• Direct employees of hospital• Employees of a wholly owned subsidiary• Employees of an existing hospital multi-

specialty group• Note: Some groups are employed by the

SYSTEM rather than any one hospital

Decision-Matrix• Hospital “reserve powers”

– Set general parameters/approve budget– Set general parameters/approve strategic plan– Approve employment of physicians

• Authority of Subsidiary Board– Establish clinical objectives (M&M, ACO)– Establish business objectives (LOC, CPC)– Business development/improve patient access– Establish new clinical services

• Authority delegated to a “Physician Management Committee”– General practice operation– Elect/remove physician representatives from leadership– Physician schedule– Physician assignments– Physician compensation– Physician and staff discipline– Implement budget and business plan

Practice Operation in Integration

• A “Physician Management Committee” has responsibility for:– day-to-day operations– determine distribution of compensation pool– “unwind”– top 1-3 executives– hiring/firing of physicians– authority to implement approved budget/business

plan– Re-negotiate employment agreement

Employment• Pro’s

– Best time to sell (maximal practice value)– Income gains over structured timeline– Maximal Group-hospital alignment– Preparation for reform/global reimbursement– Greater market security– Potential for improved physician recruiting

• Con’s– Some loss of control– Heavy reliance on PBR– Will it resolve practice governance issues?– Changes in hospital leadership– Uncertainty regarding renewal (at 5 or 10 years)

LEASE

Lease

• Many of the same components as employment

• Negotiate PSA & Co-management Agreement• Establish a lease payment & Co-management

agreement $$ with FMV support• Lease a physician, sub-group of FTE physicians,

or the whole practice• Provider Based Reimbursement

Lease

• Maintain practice assets and structure• Will not be able to secure full practice

purchase price• A viable alternative to employment• Theoretically works better when group works

at multiple systems• Still have option for group employment, and

practice sale in the future

PRACTICE MERGER

Practice Merger

• Governance considerations• Old competitive issues?• Compensation plan• Common call• Economies of scale• Duplication of services• Better position to negotiate with hospitals ,

payers, primary care networks• May not be enough, on its own