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Hospitals Acquiring Practices:Hospitals Acquiring Practices:
Déjà Vu All over Again?Déjà Vu All over Again?
Presented by:Presented by:
Max Reiboldt, Max Reiboldt, CPACPA
President/CEOPresident/CEO
Seattle, Washington
June 10, 2011
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� Alignment Trends
� Overview of Alignment Strategies and Models
AAGENDAGENDA
2
Models
� Compensation Trends
� Compensation Models
� Governance
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AALIGNMENTLIGNMENT TTRENDSRENDSAALIGNMENTLIGNMENT TTRENDSRENDS
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AALIGNMENTLIGNMENT SSTRATEGIESTRATEGIES
THEN
• In the 90’s, hospitals focused on purchasing existing practices to
build their referral network; often the purchase price was for
large amounts, including goodwill
• Capitation drove this desire to employ physicians
4
• Capitation drove this desire to employ physicians
• Physicians were compensated via salary guarantees; there was
little requirement for productivity
• Hospitals often managed physicians and their practices like “just
another hospital department”
• Hospitals failed to “partner” with physicians in decision making
process that affected the practices
• Physicians resented the hospital’s focus on cost cutting programs
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AALIGNMENTLIGNMENT SSTRATEGIESTRATEGIES
NOW
• Hospitals are purchasing practices for Fair Market Value (FMV),
entailing little up-front payments and virtually no goodwill
• Physician productivity is a key matrix in provider compensation
• Hospitals and physicians are striving to form true “partnerships”
5
• Hospitals and physicians are striving to form true “partnerships”
that focus on quality of patient care, delivery of services, and
cost effective management
• Non-employment models (like PSAs) are frequently viable
alternatives and preferred
• Hospitals often realize a value proposition by acquiring the
ancillaries and being able to realize greater reimbursement
• There is an emphasis on information technology (IT) integration
and continuity of care; clinical integration is primary goal
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AALIGNMENTLIGNMENT SSTRATEGIESTRATEGIES
NOW (continued)
• Little, if any, intangible value is being paid to physicians under
current agreements
• Tangible assets and possibly sign-on / retention bonuses are the
norm (at FMV)
6
norm (at FMV)
• Accountable Care Organizations are being piloted for managing
care of Medicare patients and for reimbursement
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RREASONSEASONS FORFOR AALIGNMENTLIGNMENT-- PPHYSICIANHYSICIAN PPERSPECTIVEERSPECTIVE
Malpractice
• High cost of insurance making it unaffordable
Financial Stability
• Cost of operating a practice is
Infrastructure Support
• Many burdens associated with
Lifestyle
• Many physicians want to spend more time with
7
it unaffordable for some physicians
a practice is increasing while reimbursement is lowering
• Offset reduced reimbursements for cardiology
associated with managing a practice
• Physicians want to focus on delivery of patient care
more time with family
• Desire a better balance of life between work & home
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• Response to competition
• Managed care/reimbursement
• Growth strategy
• Centralizing purchases (IT, supplies)
RREASONSEASONS FORFOR AALIGNMENTLIGNMENT-- HHOSPITALOSPITAL PPERSPECTIVEERSPECTIVE
8
• Centralizing purchases (IT, supplies)
• Cost containment
• Provider recruitment/retention
• Ancillary services development
• Information sharing (data)
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CCHALLENGESHALLENGES TOTO AALIGNMENTLIGNMENT
• Differing cultures
• Loss of provider ownership/control
• Loss of provider incentive
• Autonomy issues
9
• Autonomy issues
• Trust issues
• Competition mentality
• Splitting a limited size revenue pie
• Clinical performance standards differ
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GGOALSOALS OFOF AALIGNMENTLIGNMENT
• Aligns strategic initiatives
• Builds upon growth/expansion strategies
• Manages change and creates a systematic affiliation
• Responds to resource allocation priorities
• Documents (and maintains) a course for the
10
• Documents (and maintains) a course for the organization(s)
• Responds to community healthcare needs
• Responds to payer demands
• Conforms with regulatory requirements
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AALIGNMENTLIGNMENT SSTRATEGIESTRATEGIES
Physicians and hospitals face unprecedented
challenges to their ability to maintain viability
Partnering alternatives are without question the best
solutions to respond to these challenging issues and
to the new federal themes
11
to the new federal themes
Most practices (and definitely all hospitals) should
assume a pluralistic approach to alignment
Merge operations
Service stipends
Clinical co-management/service line management
Different forms of employment
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OOVERVIEWVERVIEW OFOF AALIGNMENTLIGNMENT SSTRATEGIESTRATEGIES
MM
OO AA SS
ANDAND MMODELSODELS
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OOVERVIEWVERVIEW OFOF MMODELSODELS
LIMITED INTEGRATION
Managed Care Networks – Loose alliances for contracting purposes
13
Call Coverage Stipends – Pay for unassigned ED call
Medical Directorships – Specific clinical oversight duties
Gain Sharing – Economic benefits for hospitals and physicians;
isolated and targeted initiatives
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OOVERVIEWVERVIEW OFOF MMODELSODELS
MODERATE INTEGRATION
Service Line Management Agreement – Management of all specialty
services within the hospital
Management Service Organizations – Ties hospitals to physician’s
14
Management Service Organizations – Ties hospitals to physician’s
business (also information service organizations)
Joint Ventures – Unites parties under common enterprise; difficult to
structure; legal hurdles
Co-management of Clinical/Service Offerings – Strong economic and
strategic alignment; relatively minor return
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OOVERVIEWVERVIEW OFOF MMODELSODELS
FULL INTEGRATION—EMPLOYMENT
Physician Employment – Strongest alignment; minimizes economic risk
for physicians
15
FULL INTEGRATION—EMPLOYMENT “LITE”
Professional services agreements (PSAs) and other similar models
(such as the practice management arrangement) – self-employed
independent contractor
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EEMPLOYMENTMPLOYMENT
• W2: Employee – Employment Contract
16
• 1099: Contractor – Professional Services
Agreement (PSA)
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EEMPLOYMENTMPLOYMENT
Under contract to
hospital
Less flexibility; potentially more job security
17
Full benefits
Standard employee
regulations apply
Employee withholds
taxes & social
security
security
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PHYSICIAN/HOSPITAL ALIGNMENT IS AGAIN ON THE RISE
• Common reasons for employment� Rising malpractice costs
� Management/administrative stresses
� Declining reimbursement
EEMPLOYMENTMPLOYMENT
18
� Declining reimbursement
� Declining payer mix
� Specialty shortages
� Importance of downstream revenue
� Competition
� Succession planning
� Maintaining service line market share/strength
� Quality of life issues
� Physician compensation
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EEMPLOYMENTMPLOYMENT
BENEFITS OF THIS ALIGNMENT STRATEGY:
• Physicians gain stability in volatile market
• Physician compensation is generally held at lower level of risk� Opportunities for additional incentive compensation often exist
19
� Opportunities for additional incentive compensation often exist
� Physicians can focus on the clinical aspects of medicine, rather
than the business operations
� Ancillaries which are not as profitable for private practices can
be sold to hospitals who generally receive much higher
reimbursement
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EEMPLOYMENTMPLOYMENT
• Compensation provided to a physician employee must be within FMV and commercially reasonable
• Employed physicians usually receive higher levels of compensation
Example: MGMA 2010 PCPS Median Compensation
Not
20
Hospital Owned
Not
Hospital Owned Variance
Cardiology: Noninvasive $468,970 $396,738 ($72,232)
Family Medicine $183,152 $183,999 $847
Orthopaedic Surgery:
General$516,413 $473,770 ($39,643)
Urology $410,045 $390,678 ($19,367)
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PSA PSA –– EEMPLOYMENTMPLOYMENT ““LLITEITE””
1. Global Payment PSA: Hospital contracts with practice for
Global Payment; practice retains all management
responsibilities
FOUR POSSIBLE SCENARIOS OF PSA MODEL
21
2. Hospital employs physicians; practice entity retained and
contracts with hospital; for administrative management—
staff not employed by hospital
3. Traditional PSA: Hospital contracts with physicians for
professional services; hospital employs staff and “owns”
administrative structure
4. Hospital employs/contracts with physicians; practice entity
spun-off into a jointly-owned MSO/ISO
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PSA PSA –– TTRADITIONALRADITIONAL MMODELODEL
• Hospital contracts with physicians for professional
services
� As such, the physicians are not employed by the
hospital, but remain employed by the practice
22
• However, the hospital does employ all support staff
� This typically includes practice administrators/
management staff
• Under this model, many of the operational and
administrative duties become the responsibility of the
hospital, as opposed to the practice
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ABC Health System
“System”
Lease Purchase or Lease
Independent
ContractorSystem
Employees
System
Outpatient
Services
Payers
Professional and
technical fees
PSA PSA –– TTRADITIONALRADITIONAL EEXAMPLEXAMPLE
23
Real Estate
Group
Ancillary
Services
Operating Expenses
• Independent contractors as a
Group
• Group includes all providers
• Payment to Group for
professional services equal to
net collections less direct costs
paid by System
• Includes site of service
differential for professional
services
• Annual fixed amount to be paid
to Group for value of ancillary
services
• set in advance
• not based on volume of
referrals
DEF Medical Group
(“Group”)
• System hospital
outpatient based services
• Ancillary staff are
employees of System
• Not purchased by System,
but included in comp via
an annual fixed payment
to Group set in advance
• Lease paid by
System
• Lease expense
deducted from
professional service
revenue to be paid
to Group
• Includes:
• lease / depreciation
expense
• Other direct operating
expenses
• Deducted from professional
service revenue to be paid to
Group
Group Staff
• System employees
• Fully loaded expense
deducted from
professional service
revenue to be paid
to Group
EmployeesServices
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Practice is Independent Contractor
• Physicians still “employed” by practice
• Self-employed status: no benefits from hospital
• Practice invoices hospital for actual services rendered
24
• Practice invoices hospital for actual services rendered
� Usually in wRVUs, converted to dollars
• Hospital pays practice directly without any withholding
• Files 1099 with IRS: practice responsible for withholding
taxes from physician
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Characteristics of employment but stops significantly
short of employment
• Comprehensive alignment strategy requiring less
integration than employment
• Hospital engages practice who continues to employ
25
• Hospital engages practice who continues to employ
physicians to provide comprehensive services through a
PSA
� Practice is compensated on a global basis
� Independent practice maintained
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
� Multi-specialty
diagnostic and
procedural services
� Clinical management
� Complete service line
and clinical co-
management
� Call responsibilities
• Services to be provided could include:
26
� Clinical management
and coordination
� Administrative,
supervisory teaching
and research
functions
� Medical directorships
� Call responsibilities
� Gainsharing
� Quality incentives
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Hospital compensates practice for professional fees and
other services performed at and for the hospital
� Medical directorships, call, service line/clinical co-
management, etc.
� Paid at FMV/ commercially reasonable rates
27
� Paid at FMV/ commercially reasonable rates
• Ancillaries may be sold/leased to hospital who bills at
HOPD rates
• Hospital bills at PBR (provider based rates)
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Accounts receivable owned by hospital
• Fee structure established by hospital
• Payer contracts negotiated by hospital
• Practice continues to perform the billing services for the
hospital (at FMV rates)
28
hospital (at FMV rates)
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Overhead expenses paid by practice
• Hospital provides base fee that should cover all
expenses including physician compensation*
� Potential for bonuses in addition to base fee
Ancillary services included (if included in hospital
29
� Ancillary services included (if included in hospital
revenue base, must be considered in physicians’
compensation, but not directly tied to same)
* At wRVU conversion factor rates, tiered for higher production levels,
separately calculated by specialty
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
Global Payment Model
Practice Hospital
Real Estate Ownership X
Medical Equipment Ownership (Non-Ancillary) X
Medical Equipment Ownership (Ancillary) * *
30
Employees’ Employer X
Billing Tax ID X
Recipient of Insurance Payments X
Owner of Ancillary Profits/Income * *
Party Responsible for Billing/Collections X
Provider of Malpractice Insurance X
Managed Care Contracting Negotiations X
MD Employment Status X
*Depends upon negotiated agreement
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Benefits of this alignment strategy:
� Provides many of the goals of employment
without such
� Physicians maintain independence from hospital
Flexibility in structure
31
� Flexibility in structure
� Opportunities to increase and enhance bottom-
line for both hospital and the practice
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT MMODELODEL
• Benefits of this alignment strategy (cont’d):
� Bonus opportunities for exceptional performance
� Stability in relationship with hospital
� Opportunities to expand services together
without being fully aligned (i.e., employment)
32
without being fully aligned (i.e., employment)
� Easy segue to full employment
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PSA PSA –– GGLOBALLOBAL PPAYMENTAYMENT EEXAMPLEXAMPLE
Hospital(Integrated With
Physician Division
Infrastructure)
Clinical Services& Non-compete
Agreement
� Membership
� CompensationHospital Board Medical GroupBoard
Medical Group(For-Profit Entity)PSA
33
Infrastructure) Aggregate Compensation
(Rate per w RVU)
� Asset Ownership/Lease
� Contracting
� A/R Owned
� Approves Strategy/Finances
� Oversees Operations/Business Planning
� Establishes Compensation Principles
� Achieves Value-Exchange Objectives
� Is Typically Split 50/50 Between Hospital and Medical Group
� Group Governance
� Physician Hiring/Termination
� Income Distribution
� Clinical Practice/Quality
� Malpractice
� Management and Staffing
� Billing
� IT Support
Management Committee
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PSA PSA –– SSALEALE/L/LEASEEASE OFOF AANCILLARIESNCILLARIES
• A practice could sell or lease their diagnostics to a
hospital in accordance with FMV limitations and
commercial reasonableness
• When properly structured, there are no legal
34
• When properly structured, there are no legal
impediments to such a transaction
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PSA PSA –– SSALEALE/L/LEASEEASE OFOF AANCILLARIESNCILLARIES
Benefits of this particular alignment strategy:
• A practice is relieved of the expense of diagnostic services
� These services are experiencing rapidly declining
reimbursement and could become an expense, rather
than a source of income, to the practice
35
than a source of income, to the practice
• Ideally, a practice is made “whole” through compensation
from the PSA
� Such compensation can include a guaranteed base as
well as incentive compensation based on performance
• Physicians maintain flexibility and independence
• Stability in relationship between the practice and the
hospital
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CCOMPENSATIONOMPENSATION TTRENDSRENDSCCOMPENSATIONOMPENSATION TTRENDSRENDS
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CCURRENTURRENT CCOMPENSATIONOMPENSATION TTRENDSRENDS
• Compensation programs are in a state of flux, in
response to changes in the market environment
� Most current plans have been in place less than 5
years
Many practice administrators expect to modify or re-
37
� Many practice administrators expect to modify or re-
design their plan every few years*
• Hospital networks continue to be more proactive
with their physician compensation plans (i.e., greater
incentives, performance requirements)
*This is not necessarily bad!
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CCURRENTURRENT CCOMPENSATIONOMPENSATION TTRENDSRENDS
38
• Hospitals are heavily into employment and are designing more incentive-based IDPs
• Compensation in forms of other services (not necessarily “W-2” employment) becoming prevalent
� “Wraparound” pay plans
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• Current State: Productivity-based compensation
programs are most prevalent
� Strongly preferred by many physicians
� Simple to design, administer and communicate
CCURRENTURRENT CCOMPENSATIONOMPENSATION TTRENDSRENDS
39
� Simple to design, administer and communicate
• Near Future: Non-productivity based incentives will
continue to become more prevalent
� Difficult to manage and administer, not objective
� Cautiously sought by physicians
� Will need to be addressed in any accountable care
environment
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� Hospitals have provided significant subsidies to
employed physicians & networks
� Current financial challenges will require them to review
these employment strategies
IINDUSTRYNDUSTRY TTRENDSRENDS FORFOR EEMPLOYEDMPLOYED PPHYSICIANSHYSICIANS
40
� Hospitals need to focus on reducing losses and
improving performance by their employed physician
networks
� Ancillary reimbursement may not always be better
within hospitals – justifying the deals will be more
difficult
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CCHARACTERISTICSHARACTERISTICS OFOF SSUCCESSFULUCCESSFUL PPLANSLANS
• A combination of educational and monetary initiatives
should be used
• Physicians are shown where they stand compared with
peers within the group/organization
• Comparing physicians of common specialties is also
41
• Comparing physicians of common specialties is also
important
• Physicians should also review each other
• Quality incentives are, and will be, significant
Very Important - keep it as simple as possible!
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AALIGNINGLIGNING IINCENTIVESNCENTIVES
Give physicians personal ability to increase
production
Motivate toward decreased overhead
42
Harmonize physician productivity with ancillary
services
Complement alignment strategy/initiative(s)
Consider quality metrics
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CCOMPENSATIONOMPENSATION MMODELSODELSCCOMPENSATIONOMPENSATION MMODELSODELS
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WWRVU MRVU MODELODEL
• How the wRVU model works� Physician’s accumulated wRVUs are multiplied by a conversion
factor (compensation to wRVU ratio) which translates wRVUs into actual cash compensation
• Base compensation
44
Base compensation� Can be guaranteed or a “draw”
� % of historical compensation (75% to 90%)
� Amount agreed to by hospital/network management
� Updated at least annually based on historical productivity
• Productivity-based compensation and base
compensation are reconciled quarterly on a year-to-
date basis
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WWRVU MRVU MODELODEL
• Two Approaches
� Single Tier
� All wRVUs generated are compensated using
the same conversion factor
45
the same conversion factor
� Multiple Tiers
� The conversion factor increases as productivity
increases
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WWRVU MRVU MODELODEL
MULTIPLE TIER EXAMPLE
Tier From To Incremental Rate
I - 3,500 3,500 $31.00
II 3,500 4,200 700 $33.00
III 4,200 4,900 700 $35.00
IV 4,900 5,600 700 $37.00
46
� Assume a physician generates 4,500 wRVUs
Tier I: 3,500 wRVUs x $31.00 = $108,500
Tier II: 700 wRVUs x $33.00 = $23,100
Tier III: 300 wRVUs x $35.00 = $10,500
Total: $108,500 + $23,100 + $10,500 = $142,100
IV 4,900 5,600 700 $37.00
V 5,600 $40.00
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PPAYAY BBANDAND/Z/ZONEONE MMODELODEL
• Components
� Base Salary (tied to corresponding pay band)
� Incentive- individual (productivity – in excess of pay band
total)
� Incentive- individual (non-productivity – based upon
47
� Incentive- individual (non-productivity – based upon
specific criteria)
• Compensation
� Salary based on last twelve month’s rolling average net
collections per physician
� Pay bands/zones compare to productivity average
� Benchmarking standards (e.g., MGMA, etc.) used to
establish pay band dollars (salary and productivity)
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PPAYAY BBANDAND/Z/ZONEONE MMODELODEL
• Another model that uses wRVUs or net revenue in determining compensation
• Productivity level (percentile) directly impacts compensation percentile
• Guaranteed compensation can be established at a
48
• Guaranteed compensation can be established at a certain threshold with additional compensation only being paid once productivity exceeds threshold.
• Most basic alignment:
wRVU benchmark = compensation benchmark
• For example:
48th percentile wRVUs = 48th percentile compensation
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wRVUs
12 Month
Rolling wRVUs
Q4- 2008 1,200
Q1- 2009 1,125
Q2- 2009 1,070
Q3- 2009 1,150 4,545
Q4- 2009 980 4,325
PPAYAY BBANDAND/Z/ZONEONE MMODELODEL
Beginning of Q3- 2009
Past 12 Month wRVUs 4,545
wRVU %tile 45th %tile
Compensation %tile 45th %tile
Annual Compensation $171,801
Quarterly Compensation $42,950
Beginning of Q4- 2009
49
Q4- 2009 980 4,325
Q1- 2010 1,250 4,450
• Family Practice w/o OB
• This illustration includes compensation
aligned directly with productivity
• Compensation is calculated based on
past 12 months of wRVUs
Beginning of Q4- 2009
Past 12 Month wRVUs 4,325
wRVU %tile 38th %tile
Compensation %tile 38th %tile
Annual Compensation $162,999
Quarterly Compensation $40,750
Beginning of Q1- 2010
Past 12 Month wRVUs 4,450
wRVU %tile 42nd %tile
Compensation %tile 42nd %tile
Annual Compensation $167,651
Quarterly Compensation $41,913
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DDISTRIBUTABLEISTRIBUTABLE NNETET IINCOMENCOME (DNI) M(DNI) MODELODEL
• Employer/employees “share” in performance results with some
limits or ceilings placed upon expenses
+ Gross Charges
- Contractual Allowances
- Bad Debts
50
- Bad Debts
= Net Charges
- Expenses (Defined Expenses)
+ Subsidy
= Compensation (Net Distributable Income)
� Subsidy is often the key component of this model for
hospital networks
� Distributable Net Income may have a physician base pay and
benefit component with the “Expenses” total
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Revenue Calculation:
Professional Production – all
professional billings and credits
FYTD 2009
(11 Months) Support No Support
Patient Revenue $357,318 $389,801 $389,801
Salaries and Wages $353,478 $385,612 $385,612
Supplies $4,596 $5,014 $5,014
Purchased Services $12,871 $14,041 $14,041
SURGERYDNIDNI ModelModel
DDISTRIBUTABLEISTRIBUTABLE NNETET IINCOMENCOME (DNI) M(DNI) MODELODEL
51
Less: Contractual Allowances – historical
actual or benchmark percentage
Equals: Net Revenue
Alternatively, actual cash collections can
be used.
Alternatively, actual cash collections can
be used.
Purchased Services $12,871 $14,041 $14,041
Leases/Rentals $775 $845 $845
Other Expenses $3,209 $3,501 $3,501
Total Expenses $374,929 $409,013 $409,013
Net Income ($17,611) ($19,212) ($19,212)
Subsidy/Support $25,000 $0
Adjusted Net Income $5,788 ($19,212)
Adjusted Compensation $181,770 $156,770
Current Compensation $175,982 $175,982
Variance $5,788 ($19,212)
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Key Elements of Non-Productivity Based Compensation
� Mutually identify specific areas of potential savings
� Outline goals for savings and estimated amounts to clearly
define objectives
� Establish a bonus pool for savings
NNONON--PPRODUCTIVITYRODUCTIVITY BBASEDASED CCOMPENSATIONOMPENSATION
52
� Establish a bonus pool for savings
� Identify treatment protocols for clinical staff and how
success will be measured
Quality of patient care and level of service must not be compromised in any way.
� The concept of accountable care and patient-centered medical
homes will also have to be addressed
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NNONON--PPRODUCTIVITYRODUCTIVITY PPERFORMANCEERFORMANCE MMETRICSETRICS
� Quality: appropriate referrals for diagnostic testing,
following practice’s treatment protocols (scripts,
treatment, etc.)
� Expense Control: ability to manage internal expenses
for supplies, staffing, etc.
53
for supplies, staffing, etc.
� Patient Satisfaction: many practices conduct semi-
annual patient satisfaction surveys and physicians are
rated accordingly.
� Quasi Co-Management: some employment
agreements include administrative duties and service
line performance incentives
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NNONON--PPRODUCTIVITYRODUCTIVITY PPERFORMANCEERFORMANCE MMETRICSETRICS
� Call Coverage: very common form of additional
compensation for specialists, usually a stipend
� Medical Directorships: opportunity to work with
hospital in management position for a time-based fee
54
� Coding/Compliance: incentive bonus for acceptable
scores for coding audits and compliance reviews
� Good Citizenship: this can include attending practice
meetings, giving free health presentations/screening
to the community, serving on community boards, etc.
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NNONON--PPRODUCTIVITYRODUCTIVITY PPERFORMANCEERFORMANCE MMETRICSETRICS
• The value associated with non-productivity
metrics largely depends on the implied value to
the hospital
� Example: Quality metrics and expense control
55
Example: Quality metrics and expense control
measures on the outpatient side have much less
“value” than on the inpatient side
• Other measures must be valued independently
based on market data
� Call coverage, medical directorships, etc.
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GGOVERNANCEOVERNANCEGGOVERNANCEOVERNANCE
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OOPERATIONALPERATIONAL GGOVERNANCEOVERNANCE
• Employ physician practices, normally under the
practice
• The practice supports separate governance and
operating structure of the hospital
57
• Multi-specialty group model supports single unified
structure within the practice
• Multi-specialty group governed by physician-led
board
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OOPERATIONALPERATIONAL GGOVERNANCEOVERNANCE (continued)
• Connection to the hospital allows growing infrastructure to be
supported
• Hybrid structure for the hospital allows for the JOC to make
decisions to drive success of overall Institute including day-to-
day operations
58
day operations
� Clinical settings
� Strategy
� Marketing
� Clinical quality
• Hybrid structure allows the hospital to address issues
applicable to all employed physicians
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Sample
Organizational
Chart
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JJOINTOINT OOPERATINGPERATING CCOMMITTEEOMMITTEE
Functions
• Provide oversight and overall policy direction
• Develop evidence-based performance standards
• Undertake measures to enhance financial and operational performance
Develop and maintain collegial practice
Members
• 5 Physicians
• 4 Hospital
representatives
JOC
60
• Develop and maintain collegial practice environment
• Undertake strategic financial resource and operational planning /marketing in business development
• Develop budget for provision of clinical services to be approved by the practice
• Develop and recommend the practice facilities, IS and technology-related plans
• Ensure Institute services delivered consistently
• Oversee organization’s professional resources’ development
Subcommittees
• Specialty
• Quality
• Operations
• Compensation
Executive
Director and
Clinic (Plus
Practice)
Directors/
Organizational
Structure
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JJOINTOINT OOPERATINGPERATING CCOMMITTEEOMMITTEE
Functions (continued)
• Oversee new clinical program development
• Develop and operate an internal peer review
• Provide input concerning leadership qualities for Institute
• Monitor and maintain positive relationships with referring physicians
• Provide input into evaluation of clinical technologies,
JOC
61
• Provide input into evaluation of clinical technologies, medical devices, etc.
• Develop annual report and work plan for the Institute
• Consider, review and approve to Board applicable medical research projects
• Approve and authorize expenditures consistent with the budget.
• Elect a chairperson and vice chair person to oversee the JOC
Executive
Director and
Clinic (Plus
Practice)
Directors/
Organizational
Structure
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PPRACTICERACTICE/H/HOSPITALOSPITAL RRESERVEDESERVED PPOWERSOWERS
The hospital/JOC subject to the practice and hospital reserved
powers
� Operating and capital budgets related to the hospital
� Strategic plans related to the hospital
� Contracts for purchase or provision of services (legally-binding agreements)
62
Contracts for purchase or provision of services (legally-binding agreements)
� Expenditure on behalf of the practice not previously approved within budget
� Any action that may jeopardize the practice’s tax exempt status
� Any action inconsistent with powers granted to the practice board
� Physician and other professional compensation*
� Final decisions regarding recruitment and discipline of physicians
* This takes into account recommendations of the hospital executive committee
and the hospital professional compensation committee
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QQUESTIONSUESTIONS ANDAND AANSWERSNSWERSQQUESTIONSUESTIONS ANDAND AANSWERSNSWERS
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THANK YOU
Max Reiboldt, CPAPresident/CEO
MMAXAX RREIBOLDTEIBOLDT, CPA, CPAPPRESIDENTRESIDENT/CEO/CEO
64
www.cokergroup.com
www.cokergroup.com
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AAPPENDIXPPENDIXAAPPENDIXPPENDIX
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MANAGED CARE NETWORKS (IPAMANAGED CARE NETWORKS (IPASS, PHO, PHOSS))
• “Loosely” formed alliances
• Primarily for contracting purposes
• Limited in ability unless clinically integrated
66
• Normally, no more than a messenger model
• Limited collaborative usefulness
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• Pay for unassigned ED call• Fixed stipend
• Fee for service structure
• Hybrid approach
CCALLALL CCOVERAGEOVERAGE SSTIPENDSTIPENDS
67
• Private practice physicians seeing all patients (paying and
non-paying), causing them to request additional
compensation from hospitals
• Other forms of alignment are becoming a reasonable
alternative as there is not enough “bang for the buck”
simply paying for call
• Most primary care physicians are not subject to these as
hospitalist programs satisfy their needs
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MMEDICALEDICAL DDIRECTORSHIPSIRECTORSHIPS
68
Common alternative payment
arrangement for a physician’s
administrative duties associated with their particular specialty and/or department
Should document hours worked and services provided
Separate from employment
compensation contract
Subject to Stark provisions and
corresponding fair market value
determinations
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• Program works to ensure delivery of cost effective care
while still maintaining quality and patient satisfaction
• Savings are shared with providers � Percentage payment
� Hourly fee
GAIN SHARING
69
� Hourly fee
� Fixed fee
• Physicians are integral in the planning process to
determine how these savings can be actualized
• This model is limited in duration � Not meant as a long term alignment solution
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SSERVICEERVICE LLINEINE MMANAGEMENTANAGEMENT
• Compensation for service line management is held to
FMV limitations and must be commercially reasonable
• The scope of services (hospital size, complexity of
duties performed, time/FTEs required) is the largest
70
duties performed, time/FTEs required) is the largest
driver for the level of compensation
• Comprehensive alignment strategy requiring less
integration than employment
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SSERVICEERVICE LLINEINE MMANAGEMENTANAGEMENT
• Hospital engages applicable physicians to provide
comprehensive services through a PSA
� Physicians are compensated on a global basis
� Independent practice maintained
71
• Services to be provided could include:� Professional medical and surgical services
� Clinical management and coordination
� Administrative, supervisory teaching, and research
functions
� Medical directorships
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• Management processes provided to practices• Revenue cycle
• Personnel/human resources
• Information technology
• Compliance
MANAGEMENT SERVICES ORGANIZATION (MSO); OR
INFORMATION SERVICES ORGANIZATION (ISO)
72
• MSO ownership• Joint hospital/provider
• Hospital only
• Private investors
• Strategy to align with providers
• Also may be in the form of an ISO
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JJOINTOINT VVENTURESENTURES
Structures
• Specialty Hospitals
• Management Services Arrangements
Real estate developments
“Laws” to Consider
• Stark
• Anti-Kickback
• Reimbursement
73
• Real estate developments
• Freestanding Centers
• Pay for Performance
• Block Leases
• Medical Directorships
Reimbursement
• Tax Implications
• State Law
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Legally permissible if one of the following is
met:
JJOINTOINT VVENTURESENTURES
74
met:
The physicians must contribute financial
capital
The physicians must provide business
expertise
The physicians must have a business risk
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Provide compensation
Provider(s) Hospital
CCLINICALLINICAL CCOO--MMANAGEMENTANAGEMENT
75
Provide medical management services
for specific IP or OP service line
Provide compensation at FMV, partly
performance –based, tied to specific
objectives
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CCOO--MMANAGEMENTANAGEMENT: M: MODELODEL AA
Existing Physician
Professional
Corporation
76
Hospital
(Service Line)
Management
Services
Management
Fees
Management
Agreement
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EEXAMPLEXAMPLE: O: ORTHOPEDICRTHOPEDIC SSURGERYURGERY
Clinical
Co-Management
Agreement for Oversight
of Orthopedic Services
Sports
Medicine
Hand
Spine
77
Existing Physician Professional
CorporationHospital
of Orthopedic Services
Fixed Fee
Contingent FeeManagement Committee
Representatives
and Medical Director
Management Committee
Representatives
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CCOO--MMANAGEMENTANAGEMENT: M: MODELODEL BB
Newly- Created
Physician
Ownership
78
Newly- Created
Management Entity
Hospital
(Service Line)
Management
Services
Management
FeesManagement
Agreement
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CCOO--MMANAGEMENTANAGEMENT: M: MODELODEL CC
Joint Venture
Management Entity
Hospital
Ownership
Physician
Ownership
79
Management Entity
Hospital
(Service Line)
Management
Services
Management
Fees
Management
Agreement
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CCOO--MMANAGEMENTANAGEMENT: M: MODELODEL DD
Management
Joint Oversight
Committee
Physician
Group
Physician
Group
80
Management
Agreement
between Hospital
and Physician
Group for a subset
of management
services and
payment of a part
of the total service
line management
fees
Management
Agreement
between Hospital
and Physician
Group for a subset
of management
services and
payment of a part
of the total service
line management
fees
Hospital