1. HFMA Physician Practice Survey Discussion of October 2011 Survey Findings

2. Included in This Report PAGESECTION 3Executive Summary 4Background 5-14 Physician Practice Key Performance Indicators and Definitions 15-28Survey Results 16-24  Key Performance Indicators 25  Ratio of Physician Extenders to Total Physicians 26-28  Areas of Focus and Results 29  Centralization of Financial Functions at the Hospital/System Level 2

3. Executive Summary Focused areas of improvement include revenue cycle, physician compensation models and practice productivity Performance variability – Demographics most often correlated with performance: practice size, payer mix, ratio of specialty to primary care physicians, and net patient revenue per physician 22% of hospital owned practices report positive operating margins – Median operating margin reported was -14.9% – Larger practices reported lower margins – Demographics such as ratio of specialty to primary care physicians and payer mix were also correlated with operating margin 3

4. Executive Summary 4 Median days in accounts receivable was 43.8 with variation between size and payer mix within practice cohorts – Days in A/R were lower for larger facilities with lower self pay, Medicaid, and non contracted payer revenue Median reported total physician compensation as a percentage of net revenue was 65.4%

5. Background Compelling Industry Drivers for Leadership 5 Identification of Core Metrics and Definitions is an Important First Step Toward Advancing the Performance of Integrated Systems INTEGRATIONREIMBURSEMENT MEASUREMENT AND ACHIEVEMENT Hospitals and systems are increasingly acquiring and integrating physician practices and employing physicians ‒ Management of these entities is a strategic risk and opportunity Collaboration at the hospital/system and practice setting is essential Reimbursement concerns necessitate a focus on an efficient and effective revenue cycle throughout the enterprise Bundled payment propels HFMA to provide guidance on integrating oversight of revenue cycle performance Model practices after industry leaders already providing outstanding financial management Elevate the industry to a level of excellence: aim to reduce variation and continue to raise the bar on performance

6. HFMA Practice Management Key Performance Indicators A task force of industry leaders led by HFMA prioritized and defined indicators Definitions validated through survey based feedback Task force represented by hospital, group practice, and multi-hospital system executives Sponsors: Accretive Health and Allscripts Consultant: Health Directions 6 TASK FORCE PARTICPANTS James Heffernan FHFMA, Senior Vice President of Finance and Treasurer, Massachusetts General Physicians Organization Sarah Hull FHFMA, Vice President Finance, Prohealth Care Medical Associates Tracey McKnight Senior Director of Revenue Cycle, Spectrum Health David Nowiski CFO Physicians Strategy, Catholic Healthcare Partners Christy Pehanich Senior Director of Clinic Revenue Cycle Operations, Geisinger Health System Connie Prewitt Chief Financial Officer, Billings Clinic Mark Pulczinski Vice President-Revenue Cycle Operations, Scott and White Jose Rivera Corporate Director, Physician & Professional Services CBO, Orlando Health Janet Romano Corporate Director, Physician Practices Support, Baptist Health South Florida Barbara Tapscott CHFP, VP, Revenue Cycle, Geisinger Health System

7. Confidential-October 2011 Key Performance Indicators Criteria for selection- key performance indicators were based on: – Connection to financial performance of a physician practice – Need to develop clarity in definition – Desire to compare performance to peers Initial Indicators – Practice  Operating margin ratio  Net days in A/R  Cash collection percentage – Total physician compensation as percentage of net patient revenue – Percent of patient schedule occupied – Total charge lag days – Professional services denial percentage – Point-of-service collection rate 7

8. Definition Practice Operating Margin Ratio 8 Operating income includes revenue from patient care services, other operations, and government appropriations Income statement Measures financial performance of a physician entity on an accrual basis Net income from operations Operating revenue CALCULATION NOTES SOURCES PURPOSE

9. Definition Practice Net Days in Accounts Receivable 9 Net excludes uncollectibles, discounts for 3 rd party payers, charity care, credit balances, non-patient A/R related, 3 rd party settlements and non-patient A/R. Net patient service revenue less bad debt. Balance sheet: net patient service A/R. Income statement: average daily net patient service revenue. Calculates the average number of days it takes to collect payment on services rendered. Measures revenue cycle effectiveness and efficiency. CALCULATION NOTES SOURCES PURPOSE Average monthly net patient service A/R Average daily net patient service revenue

10. Total cash reported from patient case account. Gross charges less deductions: deductions include contractual allowances, bad debt and charity care discount. Excludes pay for performance, includes bad debt recovery. Practice management system: actual patient service cash collections. Income Statement: net patient service revenue. Measures revenue cycle efficiency. Supports valuation of current A/R and predicts income. CALCULATION NOTES SOURCES PURPOSE Definition Practice Cash Collection Percentage 10 Actual Patient Service Cash Collections Net Patient Service Revenue

11. Definition Total Physician Compensation as a Percentage of Net Revenue 11 Total physician salary excludes professional liability insurance/includes benefits. Net patient service revenue includes revenue generated by physician extenders. Income statement Demonstrates ability to afford physician compensation in relation to revenue of the physician enterprise CALCULATION NOTES SOURCES PURPOSE Total physician salary Net patient service revenue

12. Definition Percent of Patient Schedule Occupied 12 Cancellations and no shows are included in"occupied". Excludes blocked time: when physicians' schedule is unavailable due to meetings, lunches, or administrative. Scheduling system Identifies opportunity to maximize slot utilization and improve practice productivity CALCULATION NOTES SOURCES PURPOSE Number of patient hours occupied (average weekly) Number of patient hours available (average weekly)

13. Definition Total Charge Lag Days 13 Revenue recognition includes clinical pathology, and excludes anesthesiology, surgical pathology. Unavoidable days may be included (i.e., claims held due to provider credentialing delays). Practice management system Measures charge capture workflow efficiency and identifies delays in cash CALCULATION NOTES SOURCES PURPOSE Σ days from revenue recognition date less date of service date (by CPT code) Σ CPT codes billed

14. Definition Professional Services Denial Percentage 14 Codes denied include only CPTs that result in payment denial or payment delay (per managed care contract or allowable services). Excludes Anesthesia. Practice management system Tracks payer denials and impact on cash flow. Trends payment & process improvement opportunity. CALCULATION NOTES SOURCES PURPOSE Σ CPT (units of service) codes denied Σ CPT codes billed

15. Definition Point-of-Service Collection Rate 15 POS collections include pre service and through the completion of service and includes monies paid for prior services (past due balances). Patient cash collected includes all self pay portion. Practice management system Provides opportunity to decrease collection costs, accelerate cash flow, and increase collections CALCULATION NOTES SOURCES PURPOSE Total point of service collections Total patient cash collected

16. Survey Results Summary of Hospital Owned Physician Practices 16

17. Summary of Key Performance Indicators KEY PERFORMANCE INDICATORS STATISTICS- PERCENTILES Low Quartile Median High Quartile Operating Margin-39.9%-14.9%-1.6% Net Days in Accounts Receivable65.443.834.1 Cash Collection Percentage89.7%93.6%99.6% Total Physician Compensation as a Percent of Net Patient Revenue53.3%65.4%80.1% Percent of Patient Schedule Occupied81.4%86.9%90.4% Professional Services Denial Percentage3.3%4.5%6.8% Point-of-Service Collection Rate17.1%21.2%32.2% Total Charge Lag Days5.64.43.9 3_NPR BUCKETS ALL KPI 17

18. Operating Margin Only 22% of hospital owned practices reported a positive operating margin. The median operating margin was -14.9%. 18 LOW QUARTILEMEDIANHIGH QUARTILE -39.9%-14.9%-1.6% 3_Operating Margin Larger practices reported significantly lower margins Demographics such as ratio of specialty to primary care physicians and payer mix were also correlated with margin

19. There is significant variability in net days in accounts receivable Net Days in Accounts Receivable 19 COMBINED PAYER MIX:MEDIAN BY NET PATIENT REVENUE COHORT Self Pay + Medicaid+ Non Contracted Payer >$30M$5M-$30M<$5M All38.456.746.2 High (>20%)38.957.663.9 Low (<20%)38.140.545.7 3_Net Days LOW QUARTILEMEDIANHIGH QUARTILE 65.443.834.1 Size and payer mix within practice cohorts were the most notable factors explaining variation. Generally, days were lower for larger facilities with lower self pay, Medicaid and non contracted payer revenue. Demographics such as ratio of specialty to primary care physicians and net patient revenue per physician were also correlated with days in A/R

20. Practice Cash Collection Percentage Median cash collection percentage reported was 93.6% Practices with net patient revenue between $5M and $30M reported lowest cash collection percentage Demographics such as payer mix, ratio of physician extender to employed physician were also correlated with cash collection 20 3_Cash Collection LOW QUARTILEMEDIANHIGH QUARTILE 89.7%93.6%99.6% MEDIAN BY NET PATIENT REVENUE >$30M$5M-$30M<$5M 93.5%91.4%95.2%

21. Total Physician Compensation as a Percentage of Net Revenue Median reported total physician compensation as a percentage of net revenue was 65.4%. Total physician compensation percentage was higher in larger practices Demographics such as payer mix, ratio of physician extenders to physicians, and net patient revenue per physician were also correlated with total physician compensation as a percentage of net revenue 21 3_Physician Compensation LOW QUARTILEMEDIANHIGH QUARTILE 53.3%65.4%80.1% MEDIAN BY NET PATIENT REVENUE >$30M$5M-$30M<$5M 77.6%65.2%64.5%

22. Professional Services Denial Percentage Median professional services denial percentage was 4.5% Denial rate was highest among practices with higher ratio of specialty physicians Demographics such as net patient revenue per physician, commercial payer mix, Medicaid payer mix were also correlated with professional services denial percentage 22 3_Denials LOW QUARTILEMEDIANHIGH QUARTILE 3.3%4.5%6.8% MEDIAN DENIAL PERCENTAGE BY RATIO OF SPECIALTY PHYSICIANS TO TOTAL PHYSICIANS >50%<50% 9.6%3.6%

23. Point-of-Service Collection Rate Median point-of-service collection rate reported was 21.2% 23 3_POS

24. Total Charge Lag Days Median reported total charge lag days was 4.4 24 3_Charge Lag

25. Percent of Patient Schedule Occupied Median reported percent of patient schedule occupied was 86.9% 25 3_Patient Hours

26. Ratio of Physician Extenders to Total Physicians Median ratio of physician extenders to total physicians was 24.1% The ratio of physician extenders was not included in the KPI set. This was reported as a demographic. 26 10_FTE_Type_Extenders LOW QUARTILEMEDIANHIGH QUARTILE 12.8%24.1%30.0%

27. Top Three Goals for Improvement Respondents were most likely to select revenue cycle, physician compensation, and productivity as areas of focus for improvement 1_Goals 27

28. Examples of Results/ Noted Improvements “Increasing cash collections at time of service: by re-educating the staff responsible for collecting and providing patients with a reminder during appointment reminders, we increased our cash collected at time of service by 15%.” “We are currently completing a rapid redesign of our front end coding process, in the last 8 weeks we have been able to reduce edits from over $8M to $6M with a target of $4M. Recently we reviewed our prebilling edit system to identify the cause of increasing edits. We categorized issues by held dollars and assigned responsibility of the issues to appropriate groups. These groups were then tasked with identifying the root cause of the issues and reduce the edits. reporting was developed to track changes in the total dollars being held by category.” 28 2_Improvements Revenue cycle improvements were most frequently mentioned. Projects primarily targeted upfront processes and point of service collection: improved coding process, retooling of billing processes.

29. Examples of Results/ Noted Improvements, cont. “Interdisciplinary team was formed to reduce compliance issues, denials, increase accuracies in documentation and charge entry within one of our facility units. In the past 4 months we've seen significant improvements.” “Our Revenue Cycle Team has loaded all of our contract fee schedules into our billing system in order to properly reprice claims to expected revenue. We have identified some significant payment variances and have addressed such with the payers.” “Claim denials - specifically for surgical claims without prior authorization. With procedural changes (workflow, use of checklist, etc), we were able to gain $800,000 over a 4 month period by eliminating these denials. Denials tracking and management. Daily reports listing denials are sent to practice managers for review. The project is still in the start up phase but we are already seeing benefits.” 29 2_Improvements

30. Examples of Results/ Noted Improvements, cont. “Better collaboration between our billing and practice management areas. A weekly meeting has allowed the stakeholders to discuss their issues and has resulted in a reduction in our denials and increase in collections.” 30 2_Improvements

31. Examples of Results/ Noted Improvements, cont. “Implementation of a new system in our provider-based primary care and specialty clinics. This project revealed a number of opportunities including: coding of professional fees, uniform use of attestation statements, revenue tracking by clinic, by provider, reduction of claim denials. Created a Revenue Integrity department to work closely with physicians on coding and documentation with a corresponding improvement in documentation (based on coding audits). Created policies and standard language for attestation statements and co-signatures (attendings on residents notes). Transformed the role of the clinic manager from daily operations focus to business management focus with an emphasis on revenue and clean claims. Reduced denials from double digits to <6%.” 31 2_Improvements Many are also implementing new information technology systems, primarily EHR

32. Examples of Results/ Noted Improvements, cont. Working to align physician incentives – Physician compensation aligned with productivity and practice expenses  Changed surgeon compensation so that bonus formulas were tied in more directly with productivity and practice expenses  Physician involvement in controlling costs improved – Realignment of physician compensation to match productivity resulted in more equitable base pay covering operational expenses and bonuses based on actual productivity and reimbursement sharing with the owner  Some providers chose not to accept this contract and had to be replaced, but this was a more standardized and equitable contract than the one in place 32 2_Improvements

33. Examples of Results/ Noted Improvements, cont. Improving alignment of hospital and practice processes and reporting – Practice consolidation: reduced rent expense significantly by combining office locations – Practice management improvement: hired a physician and a nurse to be administrators, social workers hired to work with the primary care providers  Alignment of practices improves productivity and communication while also improving patient care Integrated service line reporting 33 2_Improvements

34. Extent Practice Operations are Centralized at the Hospital or System Level Physician compensation, physician credentialing, managed care contracting, accounts payable functions are predominantly centralized 34 OPERATIONAL AREA PRIMARILY CENTRALIZED SOMEWHAT CENTRALIZED PRIMARILY DECENTRALIZED Billing and Collections74%5%21% Physician Credentialing79%16%5% Physician Compensation Structure82%18%0% Coding48%23%29% Managed Care Contracting84%11%5% Scheduling18%11%72% Registration23%5%72% Supply Chain (GPO…)65%30%6% Accounts Payable88%11%2% 12_Centralization