Page 1 University of Alabama Birmingham Funds Flow Model Society of Surgical Chairs American College of Surgeons Kirby I. Bland, M.D. UAB Department of Surgery October 4, 2015

Page 2 Introduction  Why was Funds Flow developed at UAB?  What were the early outcomes? (FY 2014/2015)  What changes are needed for the future?  Maintaining focus on the academic and clinical performance?  Model planning required multiple visits to Stanford?

Page 3 UAB Funds Flow – Rationale for Change  Changes required due to : Health Care Reform, Changing Reimbursement Models. Survival of UAB Health System Clinical and Academic Missions.  UAB outcomes anticipated: 1) Organizational Leadership Alignment across AMC. 2) Transparency of Finances (Departments/Divisions). 3) Alignment of Incentives. 4) Clinical Integration with Quality Outcomes. Initiatives consistent with: AAMC Report – Advancing the Academic Health System for the Future.

Page 4 UAB Funds Flow Oversight Committee Balance of Chairs and Hospital Leaders wRVU Committee GME Committee Physician Extender Committee Clinical Overhead Committee Compensation Committee  JOL: Health System CEO Dean of SOM HSF President  UABHS:Health System System CFO System COO EVP of Hospital  Exec. VP HSF (Practice Plan) 5 Clinical Chairs 2 Senior Faculty (non voting) Surgery & Medicine Chairs: Permanent Members

Page 5 Drivers for Funds Flow  Clinical Chairs were drivers to create Funds Flow:  To ensure sustainability of all Academic Missions.  Financial Integrity of Health System.

Page 6 Drivers for Funds Flow  Previous Hospital “Mission Support” Process:  Did not align HSF Practice with Hospital.  Gaming of Requests: “To ask for more than you need”.  Weak accountability, predictability and sustainability.  Some Departments in Financial Difficulty, despite receiving “Mission Support.”

Page 7 UAB Health System HSF VIVA/Triton UAB Hospital Complexity of Former Funding – Prior to UAB Funds Flow Mission Support Professional Fees Other Clinical Support Capitated Revenues UAB School of Medicine SOM Department Clinical Expenses SOM Research Grants

Page 8 UAB Funds Flow Model – Began FY 2014 for All 17 Clinical Departments FY 2013 Hospital Mission Support Amount + Additional $23 Million in FY 14 Professional Fee Revenues Departments wRVU Revenues Expense Reimbursements Centralized Clinical Expenses Clinical Staff No Charge Back Malpractice Direct Clinic Expenses Billing Office Practice Plan Overhead Central Funds Flow Account REVENUE: EXPENSES

Page 9 UAB Funds Flow Model  Previous hospital support eliminated.  All clinical costs were centralized.  Comp/wRVU rates: AAMC/UHC < MGMA rates.  w RVU R evenues-3 year R olling- A vg of MGMA comp/RVU.  70% of Median MGMA by Specialty;  Surgery: 10 Divisions 21 Rates(current)

Page 10 Increased Hospital Support to Departments Historical Hospital Support to All Departments Initial Year of Funds Flow

Page 11 UAB Funds Flow Model  Professional Fees and Clinical Expenses remain for non-UAB hospitals, e.g. Children’s Hospital of Birmingham.  Physician Benefit & Dept. Administrative Cost Reimbursement.  Funds Flow Withhold (10% of RVU Revenues) At-Risk Metrics to achieve return. - Combination of Practice Performance Metrics: Satisfaction Quality Finance  Departments required to develop wRVU based Compensation Plans :Academic Clinical & Educational

Page 12 Work of the wRVU Committee  Initial assignment of wRVU rate based upon MGMA specialty.  Evaluates requests by Departments for Change of Assignments.  Developed methodologies to address sub-specialties not listed by MGMA: eg; Neuro-Oncology Urologic Oncology  Addressed rate variations where differing specialties performed the same services: ENT/Head & Neck - Rate: $ 39.67/ wRVU Oral Max/Head & Neck - Rate: $156.86/ wRVU

Page 13 wRVU Committee  Issue: Greater wRVU revenues for Return vs. New Patients Rheumatology had 10:1 Ratio of Return vs. New Visits: 1 hr. New E&M (low comp rate) 4 returns/hr New Visits: Weighted average 2.63 wRVUs per hr. (2.63 x 1 visits/hr) Return Visits: Weighted average 5.76 wRVUs per hr.(1.44 x 4 visits/hr)

Page 14 wRVU Committee  Solution: Modified wRVU rate weighting to incentivize New vs. Return visit. Trial Project underway in Rheumatology. New visits : weighted at 300% of RVU Rate. Return visits : weighted at 85% of RVU Rate.

Page 15 UAB Funds Flow Model – Key Components Faculty Compensation/Incentive Plan (eg. Surgery) Base Salary + Incentive for Faculty wRVUs x wRVU Rate x.80 (Division OH 20%) $250,000 VA Salary Support 50,000 Teaching Salary Support 25,000 Medical Directorship 15,000 Endowed Professorship 50,000 UAB Academic Component 15,000 Base Salary $405,000 $250,000/$54.28 = 4,606 wRVUs Incentive > 5,000 wRVUs= $54.28 x wRVUs x 65%

Page 16  Created a Shared Governance Structure to Oversee, Implement and Administer UAB Funds Flow (Oversight Committee).  Aligned practice efforts between the HSF & the Hospital.  Enhanced the Financial Performance of UAB Medicine. What Were the Overall Results of Funds Flow?

Page 17  Removed Infrastructure and Clinical Expense from Department responsibility.  Enhanced the Financial Performance of the Clinical Departments.  Permitted the Implementation of an Academic Enrichment Fund for the School of Medicine. Results of Funds Flow for ALL Departments?

Page 18  At-Risk Withhold for ALL Departments : A most successful component of Funds Flow. Achieved 93 percent payout of At-Risk Dollars: $14.1m of $15.1m. Achieved 99 percent of Quality Metrics. Achieved 95 percent of Financial Metrics. Achieved 48 percent of Patient Satisfaction Metrics.  Surgery outcome: ( FY15 ) % of withhold = $3.3M Results of Alignment (FY 2014)

Page 19 Financial Performance for the HSF and the Hospital  FY 14 Combined Operating Margin Favorable to Budget: $15 million Positive Variance (FY 13 – 14) of $3.9 million  FYTD 15 Combined Operating Margin ( thru June 2015) Favorable to Budget: $52 million Positive Variance (FY 14 – 15) of $69 million Hospital + Practice Plan: Overall Financial Performance – (FY 14 & FY 15 YTD)

Page 20 Clinical Operating Margin: 17 Departments Funds Flow Started Use of Funds: Faculty Recruitment Faculty Compensation & Incentives Research & Education Support Academic Enrichment Fund Funds Flow Modelled

Page 21 Clinical Operating Margin- Departments in Funds Flow $6.1 M $5.1M $6.4M FY 15 TOTAL wRVUs Surgery >885K

Page 22 Cash Reserve Balance- All 17 Departments in Funds Flow Funds Flow Started of $29 million

Page 23 UAB Funds Flow UAB Medicine Funds Flow: What could have been done better?

Page 24 UAB Funds Flow Issues  Communication of “70% of MGMA Median”: Private Practice + Academics RVU rates for Faculty.  Too much focus on wRVUs at the expense of the other missions (research, publications, grants, education, etc.).  No initial GME Support – Unresolved.  Resolution: GME Committee to address.  Multiple Specialties may perform the same procedures – but, receive different conversion factors.  Neurosurgery Spine – Orthopaedic Spine – Unresolved.  Resolution: wRVU Committee to address.

Page 25 UAB Funds Flow Preparing UAB Medicine Funds Flow for the Future

Page 26 Future Changes for Funds Flow  Funds Flow to Incorporate Value-Based Care: UAB Care  Acknowledge and address multiple missions of an Academic Medical Center:  Alignment of Faculty Compensation Plans to Funds Flow Model to address these missions.

Page 27 Modeling a more Balanced System that also focuses on Value-Based Purchasing 2017 Weighting of Departmental Funds Flow Revenues RVUs/Service 1.Budgeted RVUs 2.Budgeted Clinics 3.New Patients 60% + 20% Quality 1.Value Based Purchasing 2.Population Health + Academic TBD by SOM 20% UAHSF UAB School of Medicine University Hospital 12 UAB Pillar Goals Across All Entities

Page 28 Final Thoughts  Funds Flow was one of the most ambitious initiatives implemented in AMC21.  Initially considered program that would evolve over 3 to 4 years. UAB Medicine and Stanford continue evolution in this model.  Funds Flow has improved the clinical operating margin and reserves of the Departments.  Departments receive wRVU revenues regardless of payor mix.  Department Chairs distribute Revenue: Advice of Directors for Recruitment, Retention and Academic Mission.

Page 29 UAB University Hospital