Hospital-Physician Integration: What Do We Do Now?

Objectives for Presentation Review of trends, drivers, and goals Potential models Recognize how to select the right model Define metrics and tools needed for alignment …..

CURRENT TRENDS, DRIVERS, & GOALS

Trend Slides

MEDICAL STAFF: CARDIOLOGISTS; CT AND VASCULAR SURGEONS; INTERVENTIONAL RADIOLOGY MEDICAL STAFF: CARDIOLOGISTS; CT AND VASCULAR SURGEONS; INTERVENTIONAL RADIOLOGY EMPLOYMENT CO- MANAGEMENT PSA/LEASE STRUCTURES CLINICAL INTEGRATION VISION GOVERNANCE OPERATIONS VISION GOVERNANCE OPERATIONS ALIGNMENT OUTCOMES Move towards Alignment

Always Ask: Why do I want to align? RIGHT REASONS Improve quality of care Reduce costs Improve efficiency Provide additional services to the community Prepare for Health Reform (including ACOs and global / bundled payments) WRONG REASONS Create a new referral stream Keep physicians happy Prevent physicians from referring elsewhere Everyone else is doing it (“Flavor of the Month”) My competitor bought one

As You Plan for Alignment Establish Organizational Goals (hospital and physician perspectives) Business / Financial / Physician Income Governance / Autonomy / Succession Quality and Service Offerings Operations and Technology Culture Begin Development of Key Performance Expectations Quality Efficiencies Market Financial / Pro Forma / Dashboards

Plan (cont.) Develop a Plan Implementation Operations / Business Marketing Educate Administrative and Medical Staff Business Purpose / Objectives Operational Implications Leadership

Preparation Evaluate Market Opportunity – Demographics – Population – Technology / Services – Market / Payers – Financials – Detailed/Sustainable – Sensitivity Analysis Change in PCP Base Change in Specialty Base Shift in Market Share Competitors (Traditional and New)

Understanding Current Environment Internal Environment Key Specialty Issues – Sub-specialization – Compensation disparities due to reimbursement changes Physician-Administration Rapport Information Systems Operational Efficiencies Locations External Environment Government Involvement/Health Reform Payer Involvement Legal Implications Impact on Comp/FMV Relationship with Community Physicians System Employment of Referring Physicians Community / Patient Environment Payer Mix Market Factors

INTEGRATION MODELS

Models

Crystal Ball Predictions The “Big 3” Categories of Integration 1.Contractual Relationships (PSA’s; Co- Management) 2.Pseudo-Employment (Group Practice Subsidiary Approach) 3.Risk-Sharing Arrangements

Contractual Arrangements: PSA’s and Co-Management

Pseudo-Employment: Group Practice Model

Tailored Leasing and MSA Arrangements GPS Model (Leased Assets) Physicians become employees of Hospital subsidiary Hospital Existing Group Practice MD Group Practice Subsidiary Payors $ Employment

Key Considerations Legal / Structure – Purchase practice and employ physicians through a subsidiary of the Hospital – Physicians may participate in ancillary and mid-level revenue if structured as a group practice under the Stark Law Many legal requirements to meet definition of group practice including physician control of subsidiary – Legal Agreements Required Employment agreements between Hospital subsidiary and physicians Asset purchase agreement Organizational / governance documents for new entity including operational and governance policies

Key Considerations (cont.) Operational – Challenge to merge the independent practice concept with an employed integrated model – Subsidiary must be sophisticated enough to manage itself Valuation and Compensation – Because subsidiary has to stand on its own, FMV considerations related to practice acquisition and physician compensation may not apply – To the extent that the Hospital buys services from the Subsidiary, FMV will need to be performed

Key Considerations Pros – Gives physicians ability to manage the Group Practice Subsidiary like their own private practice – Allows physicians to share in ancillary and mid-level revenue Cons – Must meet “group practice” definition under Stark which has many requirements – Hospital cannot subsidize subsidiary / physicians – Difficult to control evolution of the arrangement

Tailored Leasing and MSA Arrangements Employment MD Hospital Integrated Group Practice Subsidiary Physician Operating Board MD Division #1 Division #2 Group #2 Group #1 GPS Model (2+ Groups) Payors $

Key Considerations Legal / Structure – Employ physicians through a subsidiary of the Hospital – Assets and staff can be leased from existing group practice – Physicians may participate in ancillary and mid-level revenue if structured as a group practice under the Stark Law – Legal Agreements Required Employment agreements between Hospital subsidiary and physicians MSA and leases between subsidiary and existing practices Organizational / governance documents for new entity including operational and governance policies

Key Considerations (cont.) Operational – Challenge to merge the independent practice concept with an employed integrated model – Subsidiary must be sophisticated enough to manage itself Valuation and Compensation – If subsidiary is established as a group practice, FMV considerations related to MSA, leases and physician compensation may not apply – To the extent that the Hospital buys services from the Subsidiary, FMV will need to be performed

Key Considerations (cont.) Pros – Gives physicians autonomy on governance and compensation structure – Minimal capital outlay for Hospital – Intermediate step to full employment and integration – Physician practice entity is preserved if integration is unsuccessful – Can facilitate integration of multiple groups and specialties in different divisions Cons – More complicated structure than full employment – Physician lose existing Payer contracts

NOTES Curt needs to modify to address foundation model in states with corporate practice of medicine

Risk Sharing Arrangements

What is risk sharing? How do you approach it? Options? – Service line – Patient specific population (i.e. Commercial; Medicaid) – Global or bundled payments – Niche area instead of entire population Structure? – Integrated network (i.e. employed providers; PHO; etc.) – Contractual

NOTES Need to build in unique issues, legal, valuation, compensation, operational into each of 3 buckets of issues.

Cautions: Post-Integration Issues to Address Early in Process Can’t support operations (i.e. billing, IT, cost management, etc.) Physicians not as productive in new model Compensation plan is problematic, too complex, haven’t defined components such as quality metrics