Introduction to Medical Cost and Performance Management August 3-6, 2019

Why Physicians Leaders Need to Understand Cost Management Manifestations of “Big-Med” Expanding Physician-Hospital Affiliation Horizontal and Vertical Integration of Industry Participants New Forms of Provider Partnerships Healthcare in the United States is in a transition to “Big Med;” i.e., a more systematic provision of services by much larger integrated entities that control most aspects of a patients care…. the effect on patients is to shift the relationship to an institutional health care provider rather than a single physician or group practice…. A recurring lesson is that once begun, consolidation can occur astonishingly quickly. H, Moses et. al, “The Anatomy of Healthcare in the United States,” JAMA, Nov. 2013. 2

Trends in Physician-Hospital Affiliation Percent of Hospital Owned Physician Practices 3 Source: Avalere Health

Healthcare Consolidation & Integration Major Health Systems are Merging Providers are becoming payers Payers are becoming providers Companies from other segments are becoming providers 4

Degree of Hospital Consolidation Across States

Major Varieties of Provider Partnerships Merger or Acquisition Clinically Integrated Hospital Network Accountable Care Organization Regional Collaborative Clinical Affiliation Description Formal purchase of one organization’s assets by another or the combination of two (or more) organization’s assets into a single entity Collection of hospitals contracting jointly in order to support improved coordination, outcomes. Independent entity, owned by one or several independent organizations, that accepts risk-based contracts and distributes shared savings. Flexible umbrella structure, often encompassing many independent organizations of similar geography, that may serve as foundation for further integration. Typically bilateral agreement to cooperate around a particular initiative or service line; may involve local or national partners. Examples Baylor Scott & White Community Health System/Health Management Associates Trinity Health/Catholic Healthcare East Tenet/Vanguard Long Island Health Network Vanderbilt Health Affiliated Network BS&W Quality Alliance Southwest Health Resources Quality Health Solutions Arizona Care Network Accountable Care Alliance Providence Health Network Allspire Health Partners Stratus Healthcare BJC Collaborative Noble Health Alliance Health Innovations Ohio Evergreen Health with Virginia mason Mayo Clinic Care Network Cleveland Clinic Affiliate Program

What Does it Take for Physician Leaders to Have a Seat at the Table? 6

Cost Management vs. Financial Management August 2019 Medical Cost and Performance Management December 2020 Financial Management of Healthcare Organizations As a Physician Leader How do I manage my costs? What information do I need to control costs? How are my administrative and clinical costs classified and allocated? How do I determine the true per unit cost of my medical services? How do I determine which services are profitable or unprofitable? What do I do if a service covers it’s direct costs, but not its overhead costs? How do I determine the true cause of any variance between my budgeted and actual results? Looking Backward How has it performed? How do I evaluate the past financial and operational performance of a healthcare organization? What data do I need? Which data is the most important? How do I interpret the numbers?   Looking Forward How much is it worth? How do I evaluate the financial value of a prospective purchase, sale, merger, partnership or joint venture proposal? What data or projections do I need? What approach do I use to analyze it? How do I interpret the results? 7

You’ll Have to Concentrate 8