healthcare reform and physician compensation— presentation examines what’s in their wallet

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Current Reform Initiatives and Their Impact on Physician Compensation November 13, 2013 David McMillan, CPA New Orleans, Louisiana

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Among the many questions facing physicians in the wake of healthcare reform—how will they get paid? PYA Principal David McMillan recently addressed this question at the PKF Healthcare Fly-In with “Current Reform Initiatives and Their Impact on Physician Compensation.”

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Page 1: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Current Reform Initiatives and Their Impact on Physician Compensation

November 13, 2013David McMillan, CPANew Orleans, Louisiana

Page 2: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

David McMillan provides financial and strategic services to the Firm's healthcare clients. David's areas of concentration are: feasibility studies for various healthcare entities; mergers, acquisitions, and affiliations among providers; strategic planning and forecasting, clinical integration services; and valuations and operational analysis.

Speaker Biography

David W. McMillan, CPAPYA Principal

Page 3: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Agenda

Healthcare Reform Initiatives Overview

Regulatory Considerations

Value-Based Payment Modifier

Quality Incentives

Medicare-Medicaid Parity

Rise in Insured and Increased Access to Primary Care

Accountable Care Organizations and Bundled Payments

Page 4: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Healthcare Reform Initiatives Overview

Page 5: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

The Push Towards Quality and Lower Cost

Rebuilding Primary Care

Workforce

Increasing Medicaid

Payments to Primary Care Physicians

Linking Payment to

Quality Outcomes

Encouraging Integrated

Health Systems

Expanding Authority to

Bundle Payments

Page 6: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

The Train Has Left the Station…

2010

Healthcare reform begins with consumer-focused initiatives (i.e., focused on insurance reform)

Medicaid demonstration project – fee-for-service to global fee

2011

Physician quality reporting – Physician Compare website

Center for Medicare and Medicaid Innovation – explore models of payment based on quality

2012 2013

Hospital readmissions – Reduction in payments to hospitals for preventive readmissions

ACO program launch – shared savings

Hospital value-based purchasing program

Bundled payment initiatives

Medicare – Medicaid parity

Value-based purchasing – physician payments phased in 2015 to 2017

Page 7: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Value-Based Payment Modifier

Page 8: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

• Pay for volume• No quality

measured

Fee For Service

• Quality per click• Process

improvement

Value- Based Payment • Quality

outcomes of episodes

• Whole system improvement

Care Coordination

THEN NOW FUTURE

The Future is Now

Page 9: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Calculation of Value-Based Payment Modifier in CY 2015

Source: Summary of 2015 Physician Value-based Payment Modifier Policies

Groups of Physicians with 100 or more Eligible Professionals

PQRS Participation (Groups that self-

nominate/register for PQRS as a group and report at least one measure, or elect PQRS

Administrative Claims)

Non-PQRS Participation (Groups that do not self-

nominate/register for PQRS as a group and do not report at least one measure)

Upward, downward, or no adjustment based on quality-tiering

0.0%

(no adjustment) -1.0%

(downward adjustment)

Elect Quality-Tiering Calculation No Election

Page 10: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Tiered Value-Based Payment Modifier

Both upside reward and downside risk

Focused on outliers in quality and cost

Composite scores for cost and quality

Three tiers – High, Average, and Low

Additional upward adjustment for care of sickest patients

Sum of upward adjustments will be offset by downward adjustments

Page 11: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Tiered Value-Based Payment Modifier

Quality/Cost Low Cost Average Cost High Cost

High Quality +2.0X +1.0X +0.0%

Medium Quality

+1.0X +0.0% -0.5%

Low Quality +0.0% -0.5% -1.0%

Page 12: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Quality Incentives

Page 13: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Quality Incentive Compensation

Overview – Arrangements by which hospitals compensate physicians for the achievement of certain pre-defined quality indicators

Increasingly common arrangements

Quickly becoming components of (or even fully characterizing) many physician-hospital alignment arrangements

Example factors generally considered when evaluating quality incentives: Core measures Patient satisfaction Specialty-specific outcomes measures

Risk reduction Quality-related educational activities

Overview – Arrangements by which hospitals compensate physicians for the achievement of certain pre-defined quality indicators

Page 14: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Management Company/

LLC/Committee

Hospital Physicians

•Base management fees• Incentive Compensation (limited) Including:

- Quality

- Operational

Efficiency

Hospital Pays for:

$

PhysiciansHospital

Service Contract to Manage Hospital’s Service Line at-risk for

Quality and Operational Goals

Co-Management Model

Page 15: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

OIG Opinion No. 12-22

Employee Satisfaction –

5%

Patient Satisfaction –

5%

Quality of Care – 30%

Cost Reduction – 60%

Cardiac catheterization clinical co-management arrangement between a hospital and a cardiology group. The group received a fixed fee and a performance-based fee that was “at risk” based on the achievement of pre-determined metrics. Performance fee based on the following:

Page 16: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Areas of Concern Noted by the OIG

“Cherry Picking”

Stinting on Patient Care

Payments to Induce Patient

Referrals

Unfair Competition

The OIG states that “hospital cost-savings programs, in general, and the arrangement in particular, may implicate at least three Federal legal authorities: the Civil Monetary Penalty, the Anti-Kickback Statute and the Physician Self-Referral Law.”

Page 17: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Keys to Compliance

Self referral law (Stark Law) falls outside of OIG’s jurisdiction. As such, the opinion does not discuss whether the arrangement implicates this law.

CivilMonetaryPenalty

Anti-KickbackStatute

• Cost-savings component implicates the CMP; however, sanctions not sought due to the following safeguards:- Patient care is monitored through third-party utilization review

and internal committee and board review.- Benchmarks are structured so that physicians have flexibility to

use cost-effective clinically appropriate materials.- Term is limited to three years and is subject to a cap.

• Sanctions not imposed for the following reasons:- FMV compensation and management responsibilities are

robust.- Compensation is not variable with number of patients treated.- Hospital operates only cardiac cath lab within 50-mile radius

and the group does not provide cath lab services elsewhere.- Specificity of measures ensure that pay is for quality

improvement, not referrals.- Three-year term

Page 18: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Keys to Compliance

• OIG states that, if the agreement is renewed, then reviewing and rebasing quality metrics is essential.

– “We would expect that quality improvement and cost-saving measures under the Agreement would be subject to adjustment over time, to avoid payment for improvements achieved in prior years and to provide incentives for additional improvements in the future. Continuing compensation for conduct that has come to represent the accepted standard of care could, depending on the circumstances, implicate the Anti-Kickback Statute.”

Page 19: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Medicare-Medicaid Parity

Page 20: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

New Primacy of Primary Care

• Enhanced Medicare payments­ For 2011-15, Medicare pays 10% bonus for:

o PC services furnished by PC practitioners

o Professional component of surgical procedure performed in HPSA

• Enhanced Medicaid payments ­ Payment rates to PC physicians increased in 2013 and 2014 to 100% of

Medicare rates

• Significant new funding for community health centers

• Increase PC workforce by 16,000 by 2016

­ Expand National Health Services Corps

­ Other scholarships, loan repayment, and workforce training programs

Page 21: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Overview of Initiative

November 1, 2012

• CMS issues final regulation implementing payment of Medicaid services at Medicare levels for 2013 and 2014

March 31, 2013

• Deadline for states to submit a state plan amendment

July 1,2013

• According to CMS, ¼ of states had implemented the temporary payment increase

States estimated to receive $8.5 billion in 2013 and $6.1 billion in 2014 to fund Medicaid parity payments.

Nationally, average Medicaid

payments are approximately

66% of Medicare

rates.

Page 22: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Estimated Medicaid Rate Increases by State

Approximately 73% overall increase in Medicaid

rates.

Source: http://medialib.aafp.org/content/dam/AAFP/images/ann/2013-7/Medicaid-Fee-Hike-Map.png

Page 23: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Who Does it Impact?

• Eligibility requirements include:– Medicaid fee-for-service and managed care payments

for primary care services delivered by a family practice, internal medicine or pediatric medicine physician.

– Self-attestation regarding board certification in above-mentioned specialties.

– If not board certified, then the physician must self-attest that at least 60% of Medicaid codes billed are Evaluation & Management codes and vaccine administration codes.

– Also applies to certain related subspecialties outlined in the regulations.

Page 24: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Impact on Physician CompensationHospitalist Subsidy Example

Low HighREVENUE

Professional Collections1 2,100,000$ 2,300,000$

EXPENSESPhysician Compensation and Benefits:

Physician Base Compensation2 2,200,000 2,300,000

Physician Benefits3 352,000 368,000 Total Physician Compensation and Benefits 2,552,000 2,668,000

Medical Director Compensation4 54,450 56,250

Other Expenses:

Liability Insurance5 60,450 60,450

Office Overhead6 265,460 265,460 Total Other Expenses 325,910 325,910

TOTAL EXPENSES 2,932,360 3,050,160

Estimated Net Income Before Subsidy (Loss) (832,360)$ (750,160)$

Subsidy, rounded (830,000)$ (750,000)$

Medicaid Parity Offset 7 180,000$ 197,143$ Revised Subsidy (650,000)$ (552,857)$

Hospitalist Services AgreementFinancial Assistance Calculation

Page 25: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Impact on Physician CompensationHospitalist Subsidy Example (continued)

7Medicaid parity offset is based on the following broad assumptions for illustrative purposes only: Medicaid revenue approximates 20% of the professional collections and was initially collected at a rate of approximately 70% that of Medicare.

1 Represents average of median (low) and mean (high) national survey data for collections per physician FTE multiplied by 10 FTE physicians to provide coverage.

2 Calculation is based on 10 FTEs to provide coverage and average of median and mean survey compensation data for clinical compensation.3 Benefits are calculated at 16% of compensation expense based upon PYA experience and information from the 2012 MGMA Cost Survey and the 2012 AMGA Medical Group Compensation and Financial Survey . No material variation in benefits is expected between low and high range.4 Calculation is based upon one physician providing services 450 hours annually at a fair market value rate ranging from $121 to $125 per hour.5 Based upon the average of the 2012 MGMA Cost Survey median professional liability insurance expense per full-time equivalent physician for physicians specializing in internal medicine and the 2012 AMGA Medical Group Compensation and Financial Survey median professional liability insurance expense per full-time equivalent physician for physicians specializing in hospital medicine. PYA utilized 10 FTE physicians based upon an analysis of historical encounter trending.6 Estimated overhead expenses at $26,546 per FTE physician per 2012 AMGA Medical Group Compensation and Financial Survey .

Page 26: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Rise in Insured and Access to Primary Care

Page 27: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Effects of the PPACA on Primary Care

Source: Abraham, Jean Marie, Hofer, Adam N. and Moscovice, Ira. Expansion of Coverage under the Patient Protection and Affordable Care Act and Primary Care Utilization. The Milibank Quarterly. Vol. 89, No.1. 2011

Enactment of provisions of the PPACA are expected to increase the number of covered individuals by 32

million.

By 2019, primary care visits are predicted to increase between 15.07 million to 24.26 million.

Assuming stable levels of physicians’ productivity, the increased demand

would require between 4,307 to 6,940 primary care physicians.

Page 28: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Decline in Uninsured

Source: http://kff.org/report-section/state-and-local-coverage-changes-under-full-implementation-of-the-affordable-care-act-report/

Page 29: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Demand on the Rise

“Demand for Family

Physicians Fuels Salary,

Compensation Increase,

Survey Finds”

Rise in

Compensati

on

• Median first-year compensation for family practice physician (without OB) increased $7,000 between 2011 and 2012.

• Median compensation for all primary care physicians increased $5,000 between 2011 and 2012.

Drivers of Pay

Increase

• Increases due in large part to rise of ACOs and integrated delivery systems that require the services of primary care physician.

• Healthcare reform extending coverage to more people has created additional demand for services.

Supply

• According to the Merritt Hawkins 2013 Review of Physician and Advance Practitioners Recruiting Incentives, family practice and internal medicine physicians are the most highly recruited specialties.

Source: Demand for Family Physicians Fuels Salary, Compensation Increase, Survey finds. American Academy of Family Physicians. July 9, 2013.

Page 30: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Accountable Care Organizations and Bundled Payments

Page 31: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

ACO – Where are they now?

Nine of the original 27 organizations are leaving the Pioneer ACO program; seven of the nine will join the MSSP.

As of January 2013, 250 ACOs provided care to four million beneficiaries (27 ACOs at initiation).

Based on a white paper released by Premier healthcare alliance, only 21% of commercial payers offer upside savings arrangements.

Page 32: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Medicare ACO in a Nutshell(“Shared Savings Program”)

• Mandatory - Sufficient PCPs to care for at least 5,000 beneficiaries• Optional - Other Medicare-enrolled providersACO providers

• Legal entity, governing body, management structure, medical director• Meet patient-centeredness, evidence-based medicine, coordination,

and cost-effectiveness goals & measuresACO operations

• Patients assigned by CMS based on PCP TIN• Patients retain freedom of choiceBeneficiary assignment

•Receive shared savings payments if meet certain performance standards on 33 quality measures (or pay back Medicare); more demanding over time

•Minimum Savings Rate (MSR)

Performance requirements

• 1-sided – 50% shared savings• 2-sided – 60% shared savings, at risk for 2% over benchmarkShared savings payment

• Waiver from requirements of Stark Law, Anti-Kickback Statute, and Gainsharing CMP, AntitrustRegulatory waivers

Page 33: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

• ACO participant receives same Medicare Part A and Part B FFS payments.

• ACO is eligible for annual payment based on Medicare savings.

– Savings = difference between Medicare’s projected total expenditures for ACO’s assigned beneficiaries (“benchmark”) and actual total expenditures

– Must be above Min Sav. Rt.

• Savings are based on FFS payments to all providers, including non-ACO providers.

Medicare ACO:How You Get Paid

Ben

chm

ark

Act

ual

Sav

ings $ACO

$CMS

MSR

Page 34: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Based on equity?

Based on revenue?

Utilization targets?

Some other way?

Return of withhold

Sharing of bonuses

Funding of losses

Return of withhold

Sharing of bonuses

Funding of losses

Funds Sharing Challenges

Page 35: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

• 1st two years, upside only• 3rd year, must convert to two-sided model• Subject to 25% withhold

Not responsible for losses

initially

Key issues:

• MSR set using historical expenses

• Benchmark adjusted annually

• Bonuses limited to 50% savings off the MSR, capped at 7.5%

One-sided model-MSSP

Page 36: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Two-sided model-MSSP

Key issues:

• MSR set using historical expenses

• Benchmark adjusted annually

• Bonuses limited to 60% after savings exceed 2%, capped at 10%

• Losses capped at 5%, 7.5% and 10%

• Eligible for a larger percent of savings• Exposure to 40% of losses• Subject to 25% withhold

On the hook for losses

immediately

Page 37: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Shared Savings Models-MSSP

One-Sided Model (performance years 1 & 2)

Two-Sided Model

Sharing Rate (assuming maximum performance on quality measures)

Up to 50% Up to 60%

FQHC/RHC Participation Incentives

Up to 2.5 percentage points Up to 5 percentage points

Maximum Sharing CapPayments capped at 7.5% of

ACO's benchmarkPayments capped at 10% of

ACO's benchmark

Shared Losses Cap N/A Year 1 - 5% Year 2 - 7.5% Year 3 - 10%

Page 38: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Considerations for Primary Care

Care delivery will likely shift to

mid-level practitioners changing the cost

structure of practices

Work relative value unit assignments likely to increase over the next

few years

Critical to the success of an ACO or bundled payment initiative

Will likely be a shortage by 2014 – even more so

than currently

Page 39: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Five-year initiative launched

January 31, 2013

Private payers already using

bundled payments

Bundled Payments for Care Improvement Initiative

Based on Medicare ACE Demonstration Project –

free-range ACO

Single payment for defined group of services within specified episode

of care

Pricing based on discount of payer’s historic total cost

Gain-sharing incentives

Page 40: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Bundled Payment Initiative PilotMODEL MODEL 1 MODEL 2 MODEL 3 MODEL 4

Types of Services Included in Bundle

All inpatient hospital services

• Inpatient hospital and physician services

• Related post-acute care services• Related readmissions• Other services defined in the

bundle

• Post-acute care services• Related readmissions• Other services defined in

the bundle

• Inpatient hospital and physician services

• Related readmissions

Expected Discount Provided to Medicare

To be proposed by applicant; CMS requires minimum discounts increasing from 0% in first 6 mos. to 2% in Year 3

To be proposed by applicant; CMS requires minimum discount of 3% for 30-89 days post-discharge episode; 2% for 90 days or longer episode

To be proposed by applicant

To be proposed by applicant; subject to minimum discount of 3%; larger discount for MS-DRGs in ACE Demonstration

Payment from CMS to Providers

• Acute care hospital: IPPS payment less pre-determined discount

• Physician: Traditional fee schedule payment (not included in episode or subject to discount)

Traditional fee-for-service payment to all providers and suppliers, subject to reconciliation with predetermined target price

Traditional fee-for-service payment to all providers and suppliers, subject to reconciliation with predetermined target price

Prospectively established bundled payment to admitting hospital; hospitals distribute payments from bundled payment

Quality MeasuresAll Hospital IQR measures and additional measures to be proposed by applicants

To be proposed by applicants, but CMS will ultimately establish a standardized set of measures that will be aligned to the greatest extent possible with measures in other CMS programs

Page 41: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Bundled Payments - So, How’s it Working So Far?

Understanding data is critical

to success

Determination of episodes that offer the

greatest opportunity

Engaging physicians

Influencing utilization of post-acute

care services

Patient Engagement

Case Study from DataGen and New York-Presbyterian Hospital Addresses Key Success Factors for the Bundled Payment Care Initiative

Source: New Case Study Examines Key Success Factors for Medicare Bundled Payment Initiative. Yahoo! Finance. September 4, 2013.

Page 42: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Key Implications for Valuations

Page 43: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Physician Alignment

Transactions

Hospitalist Strategies

Quality Incentives

Call Pay Arrangements

Clinical

Co-Management Agreements

Direct Employment

Physician Practice

Acquisitions (“Buy and Employ”

Transactions)

Common Types of Physician Alignment Strategies

Page 44: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

More IntegrationLess Integration

More Common

Less Common

Equipment JV

EMR

Co-Management

Medical Directorships

Shared Savings

Real Estate JV

Physician Advisory Council

PHO

Quality

Physician Services

Agreement

Physician Leasing

Agreement

Physician Employment

Physician Alignment Vehicles

Page 45: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Road100m

Menu

STARK LAWProhibited self-referrals for Medicare and Medicaid patients.

ANTI-KICKBACK STATUTEKnowingly and willful

offers, payments, or receipts for referrals.

IRS-NFP REQUIREMENTSIRC Section 501(c) 3 requirements

Navigating the Regulatory Environment

Page 46: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

FAIR MARKET VALUE

COMMERCIAL REASONABLENESS

Overall Arrangement

“WHY?”

SENSE CENTS

Range of Dollars Only

“HOW MUCH?”

Scope

Key Question

Compliance Issues Regarding Hospital-Physician Financial Relationships

Page 47: Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

Contact Information

David McMillan, CPAPrincipal

(865) 673-0844 ext [email protected]