hospital-owned orthopaedic practices

Date

Prepared for Tennessee Orthopedic Society

Hospital-Owned Orthopaedic Practices

2014 Annual Conference Tennessee Orthopaedic Society

September 27, 2014

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Agenda

• Current Market Trends

• Hospital/Physician Alignment

– Clinical co-management arrangements

– Professional services agreements

– Hospital employment & key considerations

• Key considerations

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Current Market Trends

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Hospital Employment Trends

Does your hospital/system plan to employ a greater percentage of

physicians in the next 12-36 months?

HealthLeaders Intelligence Report

Top 5 Service Lines

Primary care

Hospitalists

Cardiology/CV

General Surgery

Orthopaedics

69%

47%

46%

43%

42%Source: HealthLeaders Intelligence Report, September 2012.

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Hospital Employment Trends• American Academy of Orthopedic Surgeons 2012

Orthopedic Census Report showed hospital/medical center employment up from 7% in 2008

Source: AAOS Orthopedic Surgeon Quick Facts, http://www.aaos.org/research/stats/surgeonstats.asp.

44%

18%

9%

12%

9%

8%

Current Practice Setting 2012

Private Orthopedic Group PracticePrivate Solo PractitionerPrivate Multi-Specialty PracticeAcademicHospital/Medical CenterOther

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State of the Physician Practice-What You Said

Is your group considering integration with a hospital/health system within the next 12 months?

13%

87%

Yes No

Source: TN Orthopaedic Society member responses, August 2011 and 2013

18%

82%

2013

YesNo

2011

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State of the Physician Practice-What You Said

Rate your group’s ability to sustain its financial independence in the next 3 to 5 years.

Source: TN Orthopaedic Society member responses, August 2011 & 2013

Not confident Uncertain Very confident0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

14.00%

47.00%

39.00%

28.95%

34.21%36.84%

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Employed Physician Estimate% of Total US

PhysiciansEstimated %

EmployedWeighted Estimate

Primary Care 48% 50% 24%

Specialty 52% 30% 15.6%

Total 100% 39.6%

Predicting the next five years…

• Increasing number of newly trained physicians seeking employment

• Nearly one-third of practicing physicians are 55 or older

• More than 40% of physicians still practice in groups of fewer than five

• AAMC analysis forecasting a shortage of 160,000 physicians by 2025

• Medicare program sustainability and healthcare reform impact

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Haven’t We Been Here Before?• 1980’s – Hospitals employed PCPs in anticipation of capitated,

managed care contracting, “Gatekeepers”

• 1990’s – Hospitals were losing significant dollars on employed physician groups; began divesting their physician practices

• 2000’s – New wave of physician employment by hospitals, including PCP’s and specialist

• Today – “Hospital-Physician Integration”

– There are new rules

– Hospitals and physicians are wiser

– Partnering for the future is critical for success

9

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Top 10 Medical Practice Challenges in 2014

1. Preparing for the transition to ICD-10 diagnosis coding

2. Dealing with rising operating costs

3. Preparing for reimbursement models that place a greater share of financial risk on the practice

4. Preparing for value-based payments (e.g., shared savings, capitation/global payments, quality/outcome)

5. Managing finances with the uncertainty of Medicare reimbursement rates

6. Understanding payers’ criteria for physician performance ratings and its impact on provider networks and tiering

7. Collecting patient due balances (self-pay, high deductibles, and HSA)

8. Participating in the CMS EHR Meaningful Use incentive program

9. Negotiating contracts with payers

10. Understanding the total cost of an episode of care

Source: Medical Group Management Association, “What Keeps You Up At Night? Exploring the Challenges Facing MGMA Members,” presented on July 17, 2014.

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Physician Alignment Today

More IntegrationLess Integration

More Common

Less Common

Equipment JV

Clinical Co-Management

Medical Directorships

ACO

Real Estate JV

Medical HomeModels

PHO/ Narrow Network

Bundled Payments

Professional Services Agreement

Physician Employment

Call pay

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Professional Services Agreement• Allows physicians to provide clinical and/or administrative

services under a contractual arrangement that is designed to be an independent contractor relationship

• Four common types of PSA

– Traditional

– Global

– Practice management/contracting

– Hybrid

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Professional Services Agreement• Allows physicians to provide clinical and/or administrative

services under a contractual arrangement that is designed to be an independent contractor relationship

• Common examples of PSA

– Medical director agreements

– Coverage agreements

– Leased employee agreements

– Hospital coverage agreements

– Clinical co-management agreements

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Two Common Types of PSAs• Traditional

– Hospital contracts with physicians for professional services

– Hospital employs and manages staff, purchases or leases practice assets, assumes operations

– Hospital negotiates payer contracts, bills and collects for services

• Global

– Hospital contracts with group for global services

– Group maintains ownership and management of practice and staff

– Hospital negotiates payer contracts, bills and collects for services

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Example PSA

Physicians

Clinic Ancillaries

Clinic & Staff

Hospital

$ Compensation Model

$ Professional and Technical Fees

PSA

PSA

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Clinical Co-Management Agreements

Contractual arrangements designed to recognize and appropriately reward participating medical groups/physicians for their efforts in hospital service line

• Development

• Management

• Quality and efficiency improvement

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Clinical Co-Management Agreements Are Not

• One Size Fits All

• Hospital Employment

• Medical Directorships

• Opportunities for Passive Income

• Gainsharing Relationships

• An ACO

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Advantages of Clinical Co-Management Arrangements

Potential for improved clinical and financial outcomes for both the hospital and the physician group

Develops the framework for value-based care and reimbursement models in preparation for both federal and commercial payer opportunities

Relatively easy to unwind if performance goals are not achieved

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Co-Management Model

Management Company/

LLC/Committee

Hospital Physicians

•Base management fees• Incentive Compensation (limited) Including:

- Quality

- Operational

Efficiency

Hospital pays for: $

PhysiciansHospital

Service Contract to Manage Hospital’s Service Line at Risk

for Quality and Operational Goals

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Example: Orthopaedic Clinical Co-Management Agreement

• Proposed benefits

– Increased physician volume without risk

– Increased alignment with hospital

– Defense of market from suburban providers and the stemming of any outmigration

– Potential expansion into other local community markets

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• Proposed tasks

– Clinical protocol development

– Supplies management and procurement

– Quality standards definition and improvement

– OR design/process management

– Technology & service planning

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• Revenue structure

– Hospital pays Management Company fair market value for consulting services

– Physicians potentially earn revenueo By providing consulting services for Management Co.

o By achieving quality measures

o As a shareholder – distributions of earnings from Management Co.

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Hospital Employment• Often referred to as “Buy & Employ” model

• Hospital purchases practice and employs physicians and staff either as:

– Employee of hospital

– Employee of hospital’s physician enterprise

• Hospital typically assumes control of practice operations, billing and collections, policies & procedures, risk

• Depending on the structure, practice may fall under new regulatory/industry guidelines such as Joint Commission

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What it is, and Should be!• Strategic move for the future of your practice• PARTNERSHIP between the hospital and physicians• Improve clinical quality within your practice and the hospital

– Improved patient care should be driving force for practice and hospital

• An opportunity to gain market leverage– Payers– Competitors

• An opportunity to improve operational and financial performance of your practice

– Cash Flow– Expense Reductions– Management Expertise and Assistance

• A chance to grow your practice– Access to capital

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What it is Not, and Should not be!• All my troubles and worries are over! NOT!!!

– Some issues will be gone, new ones will take their place

– It’s still your practice and your patients

• We will have all the money we will need! WRONG!!

– Easier access to capital, but there still is a cost

– Hospital is not a bank

• We will continue to run our practice like we want to!! GUESS AGAIN!!

– There will be constraints

– Part of a larger group, “Group Mentality”

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Strategic Issues to Consider• Is there a shared organizational vision and mission?

• Is this an organization you want to be identified with?

• Do you TRUST administration?

– Can you work with them?

– Do they listen?

• Is the Board of Trustees dedicated to the hospital’s and patient’s best interest?

– Are they supportive of physician employment initiative?

• Has the hospital articulated a clear business strategy?

• Can I improve the quality of care provided to my patients?

• Is there access to new referral sources?

26

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Tactical Issues to Consider!• Does the hospital currently have other practices they own or manage?

– What do those physicians say about their experience?

• What’s the hospital’s financial status?

• What is the physician network legal structure?

– Separate for-profit corporation?

– Hospital department?

• Is there a formal governance structure for the clinics?

– Who is on this board?

– How did they get there?

• Is there a competent, professional, practice manager overseeing day to day operations?

– Will/Can you retain your current manager?

– Who at the hospital would provide management support to your practice?

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Tactical Issues to Consider Continued!

• Do they have appropriate infrastructure?

• Who handles day-to-day business/practice decisions?

• How is physician comp structured?

– Formula/Methodology?

• Physician and employee benefits?

• How are expenses divided?

– Shared versus Individual

o Staff

o Supplies

o Building/Rent

o Capital Costs

• Equipment purchases, who decides?

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Advantages

• Physicians are able to focus on patient care and quality

• Access to capital for growth and expansion

• Professional practice management support– Business decision making

– Legal/Regulatory

– Financial

– Business development, strategic planning

• Potential for improved cash flow

• Payer Contracting

• Technology Improvements – EMR

• “Seat at the Table” – Governance, shared decision making

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Disadvantages• Often Loss of Control, Loss of Autonomy related to:

– Corporate Policies and Procedures

– Group Decision Making, Governance

– Staffing, (#, who, discipline, compensation, benefits)

– Physician Compensation

– Insurance/Payer Participation

– Malpractice Coverage

– Ancillary Services, (Lab, X-ray, etc.)

– Practice Financial Issueso CBO

o Monthly Reporting

– Corporate demands on your staff’s time and responsibilities

– Hospital Bureaucracy

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Key Considerations

• Shared vision and foundation of trustCulture

• Meaningful physician input and leadershipLeadership

• Effective practice management structure/mechanisms Operations

• FMV and aligned with system objectives Compensation

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Impact on Orthopedic Surgeons

• Assess integration or alignment need in light of future reimbursement models

– Referral patterns

– Prospective, Point of Care, Retrospective viewpoints

• Regional expansion strategy

– Volume and market share still matter

– Rules have changed with aim as preferred partner in orthopedic surgical care

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Form Follows Function

• No set recipe for alignment

• Risk is relative: mitigate, not eliminate

• Start with what you want to achieve, select a vehicle that will get you there

• Manage uncertainty by maintaining options

• Innovation, new services, better performance still matters

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Thank You!

Contact:

Lori A. Foley, CMA, PHR, CMM

Principal

[email protected]

(404) 266 – 9876

www.pyapc.com

mailto:[email protected]

http://www.pyapc.com/

hospital-owned orthopaedic practices

Healthcare