LOUISVILLE KY | WASHINGTON DC www.healthcarestrategygroup.com

Using Your Employed Physicians as a Competitive Weapon

HSG WebseriesMarch 21, 2012

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David’s primary focus is on strategy development, physician alignment, business planning, medical staff development planning, and growth strategies for hospitals and physicians. He draws from 15 years of experience with Norton Healthcare in Louisville, KY where he served as COO, VP of Managed Care and Quality, CP of Physician Services, and Administrator of the Brown Cancer Center.

David is a fellow in the American College of Healthcare Executives. He holds a Master's Degree in Health Administration from The Ohio State University and a Bachelor's Degree from Virginia Polytechnic Institute.

Presenters

Travis Ansel | Manager, Strategic Services | 502.814.1182 | tansel@healthcarestrategygroup.com

David Miller | Partner | 502.814.1188 | dmiller@healthcarestrategygroup.com

Travis’s practice focuses on helping hospitals and health systems with physician alignment issues through strategic planning initiatives, such as Hospital Strategic Planning, Employed Physician Group Strategic Planning, Physician Alignment Planning, and Service Line Planning.

Travis holds a Master’s of Business Administration from Vanderbilt University, and Bachelor’s of Science Degrees in Finance and Business Management from the University of Tennessee.

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To be Leaders in Hospital/Physician Integration

Our Mission

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• Average growth rate of 25% over past four years• 73% of 2010 revenue was generated through repeat business

About HSG

Named to 2010 and 2011 Inc. Magazine’s list of fastest growing privately-held companies in the US for past 2 years

Recognized as one of the top-50 fastest growing privately-held companies in the Louisville metropolitan area for past 4 years

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• State of the Market• How Employed Physician Groups

Contribute Value• “Weaponizing the Group”• Requirements for Success• Case Studies

Agenda for Today

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• Protection of existing volume and referral sources

• Ability to recruit new physicians• Serve community need• ED and hospital coverage

Initial Contributions from Employed Groups

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State of the MarketGrowing Physician Networks

Source: 2012 AHA Hospital Statistics

• Rapid growth in last half-decade

• Employment an expectation for new grads

• Healthcare reform driving many hospitals to vertically integrate

• Lack of vision for employed groups an issue, leading to problems

• According to Merritt Hawkins (Dallas-based recruiting firm):– In 2003 14% of placements were hospital positions– In 2006 43% of placements were hospital positions– In 2010 50+% of placements were hospital positions

• Reasons:– Declining reimbursement and incomes– Uncertainty of health care reform– Clinical integration - ACOs, Medical Homes, Bundled Payments– Cost of electronic health record– Quality of life– Security

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State of the MarketGrowing Physician Networks

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• Average of $212k loss per employed physician

• Hospitals with financially successful groups experiencing losses at <$100k/physician

• Downstream gains in hospital revenue are variable

State of the MarketPhysician Practice Financial Issues

Source: 2011 MGMA Cost Survey

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• Issues– Lack of strategic vision– Recruitment into group done haphazardly– Lack of solid governance structure

• Collection of practices with no physician leadership– Not tied to hospital strategy, including service lines– No plan for mutual success for hospital and group

• Referrals poorly managed; not staying within group

• Leads to:– Lack of downstream revenue to hospital– Inability to leverage group to compete in marketplace

State of the MarketLack of Strategic Focus for Employed Groups

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• Issues– Limited management capabilities and limited management

infrastructure– Poor billing, collections, and accounts receivable management– Physician compensation models lacking proper incentives causing

productivity issues

• Leads to:– Losses on practices which are difficult to “turn around”– Board questions and concerns– Need for significant assessment of groups to define corrective actions

State of the MarketLack of Operational Capabilities

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State of the MarketPhysician Practice Financial Issues

• Bottom-line:– Physicians are seeking employment, if they do not find employment with you

then they’ll find it elsewhere– If this happens then hospital revenue is at risk

Hospital Revenue vs. Average Practice Loss

SpecialtyAverage Annual IP/OP

Revenue per Physician*

Minus 50% Hospital Variable Cost

Avg. Practice Loss per FTE**

Net Income

Internal Medicine $ 1,678,341 ($839,171) ($254,103) $ 585,068

Family Medicine $ 1,622,832 ($811,416) ($143,776) $ 667,640

Hematology/ Oncology $ 1,485,627 ($742,814) $10,340 $ 753,154

Urology $ 1,382,704 ($691,352) ($246,294) $ 445,058

OB/GYN $ 1,364,131 ($682,066) ($226,667) $ 455,399

Neurology $ 907,317 ($453,659) ($204,678) $ 248,981

Total $ 8,440,952 ($4,220,476) ($1,065,178) $ 3,155,298

Sources: * Merritt Hawkins 2010 Physician Inpatient/Outpatient Revenue Survey ** MGMA 2011 Cost Survey (Hematology/Oncology taken from MGMA 2010 Cost Survey

State of the MarketPayment Reforms Impacting Strategy

• Fee-for-service transitioning to quality and value focus• Self-Insured employers focused on lowering costs are pursuing

direct contracting or other risk-based models with providers• CMS focused on reforming healthcare through payment reforms

and incentives– Shared Savings Program (ACOs)– Pay for Performance– Value-Based Purchasing– No-Pay/Adverse Events– Bundled Payments

• Implications– Hospital/physician relationship must become closer– Success will require physician leadership and engagement– Employed groups well positioned to respond 13

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CEOs asking:

“How do we produce value from these groups?”

State of the MarketLooking for Value

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• Help respond to the evolving market• Manage quality/care processes• Increase clinical capabilities• Provide medical staff leadership• Build service lines• Grow regional presence• Improve hospital financial position• Build a group culture that aids in meeting our mutual

objectives

State of the MarketLooking for Incremental Value

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• Referral Management / Control• Primary Care Strategy• Regional Specialty Strategy• Care Process Improvement (Core Measures and

Readmissions)

• Clinical Integration• Direct Contracting/Assuming Risk

“Weaponizing the Group”

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• Define and measure the problem, both referrals and dollars

• Assign accountability to the physician advisory board

• Systematically address problems:– Gaps in specialties– Gaps in skills– Gaps in quality– Gaps in service

“Weaponizing the Group”Referral Management / Control

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• Create “preferred” lists of providers that group will support based on quality of care, customer service

• Tie to compensation????

“Weaponizing the Group”Referral Management / Control

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• Define PCP base required to drive business to key profitable services

• Define and locate primary care physicians in outlying areas to draw volumes

• Aggregate PCPs together and potentially with ancillary service centers

“Weaponizing the Group”Primary Care Strategy

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• Define strategy to tie PCPs and employers

• Must have robust hospitalist program to support PCP growth

• Must support through a marketing strategy

“Weaponizing the Group”Primary Care Strategy

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• Focus on strategic specialties– Profitable– Differentiated capabilities

• Use employed specialty physicians to target outlying regions

• Compensation plan needs to incent business development

“Weaponizing the Group”Regional Specialty Strategy

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• Employed physicians best positioned to impact hospital care

• Define best practices within each specialty, institutionalize with IT

• Handoffs of care also a key focus– PCP to/from hospitalists– PCP to/from specialists– Standards of performance in these interactions

“Weaponizing the Group”Care Process Improvement - Core Measures/Readmissions

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• Evaluate primary care models and leverage those capabilities with employers

• Evaluate IT strategy• Explore disease management capabilities• Explore post-acute care relationships• Evaluate impact of above on physician

specialty needs in employed group• Assemble and start leveraging• Co-management a good start

“Weaponizing the Group”Clinical Integration

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• Focus on employers, and the patients that provide all of the profits for most hospitals

• Self-insured employers are an untapped market

• Ability to help lower costs will be the key to retaining profitable commercial volumes

“Weaponizing the Group”Direct Contracting / Assuming Risk

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• Engage and involve the physicians– Medical directorships– Care management opportunities– Implement process changes

• Leverage physician expertise• Engage employers in open dialogue

about challenges

“Weaponizing the Group”Direct Contracting / Assuming Risk

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• Culture• Leadership• Marketing/Branding• Investment

Requirements for Success

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• Everyone must understand the vision• Benefits must be clear• Bad actors and other roadblocks must be

eliminated…develop shared behavioral expectations

• Focus, transparency, and accountability are key

Requirements for SuccessCulture

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• Develop a vision for what physician leadership means

• Identify physician leaders– Respected + capable

• Build a program with your vision in mind– Education– Interaction with executives– Interaction with hospital board

• Continued planning for individual improvement

Requirements for Success Leadership

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• Leverage brand of group and hospital– Common branding– Not necessarily same name

• Must integrate with referral management• Physician liaison bringing referrals to group and

hospital• Targeting markets strategically to manage

payer mix and promote profitability

Requirements for Success Marketing/Branding

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• Resources invested don’t stop at the subsidy for the hospital

• EMR/Practice management systems• Central billing infrastructure and personnel• Administrative time for physicians• Marketing• Facilities

Requirements for Success Investment

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• Contracting for risk• Managing referrals and improving quality• Improving rates

Case Studies

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• State-led shared savings program• Management of chronic disease• 16 primary care physicians out of ~50 in

employed group participated• Built NCQA-certified patient-centered

medical homes• Increased resources for care

management within the practice

Case Study 1Chronic Care Initiative

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• Generated payments of $50,000 per physician in year 1

• PCMH model will be expanded within group, and within general medical staff

• Can leverage into Medicare or private payer ACO; direct contracting

• Point of differentiation in competitive landscape

Case Study 1Chronic Care Initiative

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• CEO concerned about how to get group to pursue strategies that will make the health system successful

• Two approaches:– Education of the physicians concerning

reform and changing market– Working with a physicians Advisory Board to

develop a group strategy

Case Study 2Referral Management / Quality Focus

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• Keeping referrals in the group to:– Build financial strength and– Ensure consistent care

• Begin to create a group culture– Empower the physician board– Begin to build common behavioral

expectations– Create a common vision

Case Study 2Plan Focus

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• Focus on quality– Hospital core measures– Best practices– Handoffs of patients

• Define the group size– What types of physicians– In what quantities– Where

Case Study 2Plan Focus

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• Primary care strategy• Direct contracting/bundled payments• Financial reporting within the group

Case Study 2Plan Focus

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• Hospital built groups from 30 to 300• In process, acquired about 30% of PCPs• Insurers fear: the hospital system would

leverage PCPs in the negotiations• Hospital system did just that• Able to move the physicians rates from

105% of Medicare to 135%

Case Study 3Rate Improvement

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• Made intake of new physicians much easier

• Built in cash flow bump of about 10%-15% on each practice required

• More in some specialties

Case Study 3Rate Improvement

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Questions