Stanford University School of Medicine Stanford Clinical Funds Flow Model Stanford Health Care & Stanford University School of Medicine June 27, 2016

Stanford Clinical Funds Flow Model: Medical Center Organization Stanford University School of Medicine 17 Adult Clinical Departments Two Wholly Owned Hospital Systems Stanford Hospital and Clinics (SHC): Stanford Children’s Health SHC and Children’s Health purchase professional services from School under separately negotiated terms Adult Funds Flow 5-year agreement established in 2006 and negotiated for renewal in 2011 and 2016 Joint SHC and School Oversight of Funds Flow

Stanford Clinical Funds Flow Model: Stanford Hospital & Clinics (SHC) Organization 2 Adult Inpatient Hospitals On-Campus Specialty Clinics 6 Ambulatory Care Centers SHC Off-Campus Primary Care Clinics University Health Alliance (UHA) Foundation 2 Insurance Products

Stanford Clinical Funds Flow Model: Objectives Funds Flow objectives have remained unchanged since first agreement in 2006: Align desired outcomes and incentives between SHC and School Be simple, formula-driven, stable, predictable and transparent Be inclusive of the full range of professional services and funding: Professional clinical services Medical administrative services, e.g., medical direction, essential services and Graduate Medical Education program direction Other funding support, e.g., program development and mission-based funding Support increased productivity and market-based compensation for physicians Provide physicians with incentives that will enhance the clinical enterprise while ensuring high quality care as well as service standards

Stanford Clinical Funds Flow Model: History & Evolution – School of Medicine Increased reliance on clinical income Balance of academic and clinical activity Local and national economic pressures: Faculty recruitments Compensation and housing More Complex Clinical Management Model: Primary Care & Community Outreach Collaboration with Foundation providers Rapidly increasing network of facilities and providers

Stanford Clinical Funds Flow Model: History & Evolution – SHC Maintaining alignment of clinical growth objectives with academic mission Targeting financial incentives effectively Control of one-off agreements Cost accountability

Stanford Clinical Funds Flow Model: Funds Flow Components Work RVU Payment – MGMA Comp/WRVU Rates School of Medicine Expense Reimbursement: Faculty Benefits Clinical Overhead University Overhead GME Program Direction Other Income: “Cash Services” Professional Services Contract Income

Stanford Clinical Funds Flow Model: Funds Flow Components (cont.) Clinical Services Agreements: Medical Direction Essential Services Purchased Services Program Development Support – Clinical Faculty Recruitments Service, Quality & Value Incentives – Percentage of WRVU Payment Academic Grants

Stanford Clinical Funds Flow Model: Recent Changes Increased Pressures: Optimizing Clinical Income Sustaining Rapid Program Growth Competing in an Active Local economy Increased Expense Accountability Resulting Changes: Increased MGMA Benchmark SHC Adoption of Greater Share of Risk: Faculty Benefit Expenses University Assessment

Stanford Clinical Funds Flow Model: Management & Oversight Joint SHC and School Oversight of Funds Flow 11 Year Track Record Forum for Addressing Differences School and SHC Clinical Chairs Funds Flow Administration Accountability