G2 Pathology Institute 2014 Fee for Service vs. Salaried Positions: Calculating the Risks 1 Mick Raich Vachette Pathology

1996 I helped buy practices for a multispecialty practice. Capitation fear drove the buying concept. Now ACO fear is driving the buying. Cardiology rates were cut by 26% so they became salaried. Many had large buildings and heavy overhead. Urology payments changed so they looked for other revenue streams and opened Pod Labs. In 1996 the practices were offered five year contacts. Now they are offered two year contracts. Stats show that employed physicians produce less RVUs. 2 History

The rumor is that everyone is being made to go salary. The facts show otherwise. Few pathology groups are being forced into these arrangements. We know of six practices where this is a discussion, we also know two that are being moved from salary to FFS. There are rumors that HCA may be moving to a salaried arrangement with some southern practices. We cannot prove this trend. 3 Trends

Pathology does not drive referrals. Pathology does not drive ancillary tests. Pathology has costs tied to their work, i.e. send outs etc. No known payers have incentive or performance metrics built for pathology. Clinical pathologists can help decrease utilization it would seem that ACOs would want to use this leverage and knowledge. 4 Why Would a Hospital Want to Salary a Pathologist?

The ACO model is not fully implemented and every time the ACA act is delayed this model is pushed back. The Merit Based Incentive Payment System (MIPS) may help drive this change. Implementation around The main reason a hospital may want to do this is to control their utilization. Lower utilization means more revenue in a capitated model. Some systems may see a way to make money by making their pathologists salaried under FFS billing then paying the pathologists a rate that is less then fair market value (FMV). 5 Why Would a Hospital Want to Salary a Pathologist?

Depends on your career timing. Depends on your own personal ROI. Some may want to trade security for less income. This is a slippery slope as many groups see their income decreasing even more under a salaried arrangement. Revenue decreases may force some to become salaried. Lost of CP CMS rate decreases Loss of Part A Work volume loss to pod labs and specialty labs Group practice structure changing. Quality of life, working harder not smarter. The nuclear option… 6 Why Would a Pathologist Want to Become Salaried?

Have a great relationship with your administration. Be strong businessmen and good business partners. Pigs get fat and hogs get slaughtered. Know your numbers and your metrics. Show them how they will win. If your group is making $400,000 per MD and they want to pay you $200,000 per MD, ask them how this is fair. Ask them what the OIG will think about the 50% decrease? Build an ROI spreadsheet to show them their profit going forward. Show them that if they make you a salaried employee at a 10% discount that they can still make money on the deal. Do not go quietly into that good night, make sure they know exactly what they are getting in the deal. 7 How to Prepare or Prevent this from Happening.

Benefits Leadership Marketing and planning Recruiting IT/ decision resources Employee management Overhead reduction Are these your biggest concerns? Not likely… 8 What the Hospital will try to sell you…

Best case it is a win-win both parties want the same thing. Negotiate salary and benefits. Negotiate buy-out for the business, remember cardiology did not give away their business… Remember you are selling a business, you should get something for your good will. Demand fair market value. Worse Case No leverage and its a do or die option. Take this offer or go elsewhere. This is a legal suit waiting to happen… Example: One group was offered $300K when they were making $560K. You have your numbers, show them your revenue and ask them how they can defend this pay cut in court? 9 How Does This Take Place?

We reviewed our database along with ten pathology billing companies to look at pathology revenue. The number below includes Part A, AP, and CP billing under FFS model ,600 pathologists $536,000 per pathologist Vachette's data from 2013 showed: 823 pathologists $564,000 per pathologist Remember good businessmen get more for their business. 10 Compensation

Salary Compensation Agreements: Percentage of collected charges. Percentage of billed charges, this is great if you can get it! Fixed dollar amount. Percentage of collect charges – expense. (Any model where someone is billing for you needs to be audited.) Per RVU, difficult model when you have various specialties. Derm work versus breast cases etc. Capitation / ACO / Risk model? There are few actual working ACOs at this time. Salary with incentives. Incentives built on Clinical outcomes Appropriate use Cost reductions Operational efficiencies Patient experience 11 Compensation Models

If you get bought out make sure you get paid for your good will. Make sure your buy out is a similar purchase multiple as other practices that were bought by the hospital or health system. Maintain autonomy. Strong benefit package, 20+% of your salary. COLA increases in any salary arrangements. Parachute clauses in employment contracts. Direct scope of services provided. Disappointment comes from expectations 12 The Best Transition

Arrangements built on a % of collection must be audited. (12) CPT codes Most hospitals will lose money on owned physicians until they can show a benefit from their risk models. Some studies show that on the average each hospital will lose $176K per owned practice. Some health systems are taking a huge loss due to their buying practices, one even had its bond rating lowered! The bottom line is that until bundled payments and the ACO model matures, owned practices will lose money. Lots of money and the early adapters of this model, just like in 1996, may be forced to sell these practices and cut their losses. These owned practices have a bad ROI. 13 Facts

Any change should be good for your personal ROI. Any buy out has to meet a fair market value in price. You know what you are making, this is the basis for the beginning of your negotiation. There is no real trend of pathology practices being salaried nationwide…yet. 14 Final Thoughts

For more information, please contact Mick Raich at Thank You