Margaret Davino, Esq. and Andrea J. Simon Ph.D.

Adapting to Affordable Care Act: Provider And Healthcare System Collaboration- Structuring successful relationships

Healthcare Innovation: Trends From The Trenches

March 14, 2014

Our Presenters

Andrea J. Simon, PhDCorporate Anthropologist

PresidentSimon Associates

Management Consultants

Margaret Davino, Esq.Healthcare Attorney

Kaufman Borgeest & Ryan

Margaret Davino A Partner in Kaufman, Borgeest & Ryan, Margie has been

involved with physician-hospital contracts, affiliation and/or service contracts, employment agreements, managed care issues, bylaws and governance matters, regulatory compliance, medical staff affairs, establishing physician practices, as well as mergers and the formation of hospital systems.

The biggest part of her practice at the current time is relationships and collaborations between various providers, including physicians, super-groups, hospitals and others.

Webinar Series

Healthcare Innovation: Trends From The Trenches

Dianne Auger,Senior Vice

President, MarketingSt. Vincent’s Medical

CenterPresident of the St. Vincent’s Foundation

Linda MacCracken, MBA

Vice President, Advisory Services

Truven Health Analytics

Kriss Barlow RN, MBA Principal,

Barlow/McCarthy

Andrea J. Simon, PhDCorporate

Anthropologist President

Simon AssociatesManagement Consultants

Margaret Davino, Esq.

Healthcare Attorney

Kaufman Borgeest & Ryan

Webinar Series: Trends From The Trenches

Why “Trends From The Trenches?”

Our job is to help you “see, feel and think” in new ways.

Goal: Help you more easily adapt to changing times.

Challenge Before Us

“We don’t see things as they are. We see things as we are.” ~Anais Nin“The real voyage of discovery consists not in seeking new landscapes but in having new eyes.” ~Marcel Proust

Today’s Webinar

Theme: With all the talk about healthcare reform what is really happening?

What are the many ways the industry is re-inventing itself?

What are the major innovations taking place? What is the impact for each of the different players?

Today’s Webinar

From the perspective of someone who is dealing with this from all sides: physicians, hospitals, payers, regulators.

And seeing the collaboration emerging, the innovation taking hold and the creativity in action.

To be covered today Changes in the healthcare world and Why Role of Affordable Care Act (ACA) ACA’s goals and achieving such Effect of ACA on providers Accountable care organizations (ACOs) Healthcare provider consolidation/alignment Changing compensation models Effects of consolidation

Adapting to Affordable Care Act: Provider and Healthcare System Collaboration—Structuring Successful Relationships

Let Me Introduce Margaret Davino

Changes In The Healthcare Marketplace

Consolidation among providers Different payment models: move towards capitation

and global payments; quality metrics Hospitals and physician groups forming insurance

companies Insurers’ directly working with their members Employer programs to keep employees healthy Direct contracts between employers and providers

Why Are All These Changes Happening?

Answer: $$$$$$ US spends approximately 17% of its gross domestic

product (GDP) on healthcare (versus 11% in Canada, Germany and France)

States’ overall largest expenditure is healthcare (30% of NY State’s budget is spent on Medicaid)

Medicare and Medicaid comprise 25% of US budget

Effect Of Increasing Medical Costs

Rising insurance premiums (insurance premiums and deductibles rose 50% from 2003 to 2010)

Decreasing numbers of employers providing health insurance (61% in 2010 versus 69% in 2001)

Bankruptcies due to medical costs (over 50% of all bankruptcies are due to medical bills)

Affordable Care Act (Obamacare)

Tenets Of Affordable Care Act (ACA)

Expanding access to healthcare Controlling costs

ACA – How Can It Promote Access To Healthcare?

Access to healthcare (equate w/health insurance) Employer mandate to provide health insurance Individual mandate to purchase health insurance Insurance Reform Can’t deny based on pre-existing conditions Coverage of children up to age 26 Insurers must spend 85% of premiums on healthcare All policies must cover mandated “essential” benefits

Expansion of Medicaid (but states may choose to expand)

Concept Of Access: More Insured Persons

Employer mandate: delayed until 2015/2016 Delayed until 2015 for employers with 100+ FTEs Delayed until 2016 for employers with 50-99 FTEs

(was supposed to be 2014) Penalty of $2,000 per employee if health insurance not

offered, & employee receives premium tax credit $3,000 penalty if coverage not affordable (for each

employee who receives a tax credit)

Access For Individuals: Through Exchanges

Concept: 29 million people will sign up for coverage through the exchanges by 2019

Current governmental estimate that 6 million will sign up by 3-31-2014 to avoid penalty

4.2 million had signed up by end of February 2014 Persons with income between 100-400% of federal

poverty level eligible for tax credit to help them afford health insurance through an exchange

Relevance Of Exchanges To Providers More insured patients should mean less bad debt and charity care:

so plans to cut Medicare DSH payments But rates that providers are paid by insurers with exchange products

may be less than normal None of the exchange products in New York have out-of-network

benefits Narrow networks: hospitals and physicians The products on the exchanges have significant deductibles (average

deductible for bronze plan $5000, silver $2900, gold $1200, platinum $350)

Other Provider Issue With Exchange Products:3 Month Grace Period

Insurers under the ACA may not drop an insured who falls behind on premiums for 90 days

Insurers are responsible for paying claims only during the first 30 days of the 90 day grace period

So providers will have to collect from the individual patient for the other two months if the patient does not pay premiums and insurance is dropped

Can providers pay for the premiums?

HHS: Qualified health plans purchased through exchanges are not “federal health care programs” for purposes of the anti-kickback act

BUT: CMS has “significant concerns” with payment of premiums by hospitals, providers or commercial entities

Solution: Foundations

ACA – How Can It Control Costs?

Value driven purchasing (e.g., limits on payments for patients readmitted within 30 days of discharge)

Payment reform: move to global payments Program integrity Comparative effectiveness Affordable Care Organizations (ACOs)

Hospital Value-based Purchasing

Began 2013 based on hospital performance on quality measures and efficiency measures

Reduction in pay for hospital-acquired conditions Restriction on payment for patients admitted within

30 days after discharge (unnecessary readmissions)Focus: ties to quality

CMS Bundled Payment Initiative: 4 Models

Model 1: payment to hospital for episode of care, with separate payments by Medicare to physicians, and gain-sharing allowed

Model 2: Acute care hospital stay plus post-acute careModel 3: Retrospective post-acute care onlyModel 4: Prospective lump sum paid to hospital for all

services (including physician) within a stay, including related admissions within 30 days after

Patient Centered Medical Homes

Provides additional payment to physician offices that meet standards for coordination of care and communication with patients

Often an additional dollar amount per patient per month

Clinical Effectiveness Research

Clinical effectiveness: evaluate and compare patient outcomes and benefits of two or more medical treatments and services Includes protocols for treatment Care delivery Medical devices and drugs Diagnostic tools

Accountable Care Organizations (ACOs)

Organization responsible for 5000+ Medicare FFS beneficiaries under Medicare shared savings program

Must have formal structure w/shared governance Must have mechanism to receive and distribute

payments among participating providers Patients assigned to ACO based on PCP

Growth Of ACOs

Last round announced 12-31-2013 (123 new ACOs)

Total 366 Medicare shared savings ACOs In all 50 states and DC (California leads) 5.3 million Medicare covered lives Physician groups primary sponsor of ACOs

ACO Payment

Providers in an ACO continue to submit claims and be paid as always under Medicare fee for service, but are also eligible to earn shared savings: If the ACO meets quality performance standards The estimated average per capita Medicare

expenditures per patient are under the benchmark 3 year contract with Medicare

ACOs In A Managed Care World

Similar model to Medicare shared savings program Designates physicians participating and measures

the care provided Gives physicians incentives to manage care and

costs Requires meeting quality metrics

Effects Of The ACA Healthcare provider consolidation/alignment Creation of organizations capable of managing population

health (with providers able to do so) Increased use of electronic health records More ambulatory care, e.g., medi-clinics to provide less

costly care to both newly insured and uninsured Consumer focus on costs with higher deductibles Focus on primary care and non-MD providers

Healthcare Provider Consolidation

Hospital mergers and acquisitions/affiliations Hospital employment of physicians (last year more than

half of all graduating residents took jobs with hospitals) Hospital acquisition of physician practices Physician “super-groups” Hospital relationships with post-hospital care providers

Hospital Consolidation

105 hospital mergers in 2012 alone (up to 50-60 annually in 2005-2007, pre-ACA and pre-recession)

Smaller number of hospital networks Independent hospitals are becoming uncommon Hospital consolidation includes hospitals both in the

same geographic region, and outside same region

Hospital Acquisition Of Physicians

Physician practices are increasingly becoming part of hospitals From 2004-2011, hospital ownership of physician practices

increased from 24% of practices to 49% (JAMA 11/13)

More newly graduating physicians are now becoming employed by hospitals than entering private practice

Drivers Of Hospital-Physician Alignment: Hospital Perspective

Concern with healthcare reform & need for primary care

Questions as to future responsibilities for bundled payment

Participation in ACOs Required specialty coverage for ED/trauma Increasing competition and shrinking market share Physician defection to other organizations

Drivers Of Hospital-Physician Alignment: Physician Perspective

Downward pressure on reimbursement and income Dealing with managed care Concern about increasing expenses

Malpractice insurance Electronic medical records

Uncertainty as to healthcare reform and the future Diminishing returns: seeing more patients, minimal

income growth, loss of personal time

Reimbursement Driver Of Hospital-Physician Alignment

Position organization for ACOs and bundled payment Differential between physician and hospital

reimbursement May charge a facility fee (if physician office becomes

a hospital “provider-based” site) Increased managed care rates? Free-standing ASC Medicare payments 61% of

hospital Medicare payment for ambulatory surgery

Physician goals Positioning as to the future Ancillary business opportunities

Diagnostic imaging, PT, clinical trials Compensation from hospitals

Charity care On call/ED coverage Physician recruitment

Joint venture opportunities with hospitals

Options For Hospital-Physician Alignment

LessIntegration

ProfessionalServices

Agreement (Hospitalist,

On-call coverage)

MSOServices

JointVenture

ProfessionalServices

Agreement“PSA”

HospitalEmployment

FullIntegration

SpaceLeases

Medical Admin.Services

Agreement (Medical

Directorship)Physician

RecruitmentMedical StaffMembership

Captive PC orSubsidiary

Employment Model

Foundation/Clinic Model

Co-Management Agreement

Traditional Model: Medical Staff/Voluntary Physicians

Physicians apply for voluntary medical staff membership on hospital medical staff

Relationship governed by medical staff bylaws Physicians and hospital bill and collect separately Hospital may provide support such as CME,

technology services, physician referral line, general marketing

Space Leases

Hospital rents space to physician, often in a medical office building

Must meet Stark exception (similar to anti-kickback safe harbor) for space leases: minimum one year, signed, space specified, rent FMV set in advance

Can also have a license agreement for session use

Physician Recruitment Agreement

Hospital may support recruited physician to establish own practice, or join established practice

Physician must move from outside to inside hospital service area (lowest # of contiguous zip codes for 75% of patients) plus either (a) must move at least 25 miles or (b) 75% of revenue from new patients Except graduating resident, physician in practice less than

one year, or employed by certain federal agencies

Medical Director Relationships

Can be as an employee or independent contractor Stark employee or personal services exception But beware IRS issues with independent contractors

Employment can be full time or part time Concern: Is this just a payment for referrals Payment must be fair market value Must define duties and time spent

Gainsharing Arrangements Hospital gives physicians a percentage share of any reduction in the

hospital’s costs for patient care attributable in part to the physicians’ efforts.

Gainsharing arrangements implicate the civil monetary penalty act (“CMP”) in section 1128A(b)(1) of the Social Security Act , which prohibits a hospital from making a payment to a physician as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries under the physician’s care.

Requires an advisory opinion or participation in a demonstration program (such as through NJ Hospital Association) if Medicare/Medicaid involved

Greater New York Hospital Association gainsharing program: applies only to non-governmental patients, began in 2008 with Beth Israel

Professional Services Agreements

Agreement between hospital and physician group to provide professional services in a specialty area

Can be exclusive (e.g., anesthesia, radiology) or non-exclusive (e.g., rehab or reading EEGs)

May be for on-call coverage in a specialty area (and to ensure hospital meets EMTALA obligations in ER)

Professional Services Agreements: Issues To Consider

Restrictions on group (e.g., can they provide similar services elsewhere, or have an outside entity)

Responsiveness to calls Care for all, including uninsured and Medicaid Financial: who bills and collects, hospital payment,

global payments, participation with all payers

Clinical Co-management Agreements

Provides compensation to physicians for co-management of a hospital clinical service line

Hospital contracts with physician LLC (formed by physicians) for co-management services

Each party appoints members of an advisory committee to oversee performance goals/standards

Clinical Co-management Agreements

Compensation: Fixed: for performance of administrative duties Incentive: based on achieving defined performance

standards (e.g., reduction in complications, timeliness) Comp must be FMV and set in advance Cannot pay physicians for reduced levels of care to

Medicare/Medicaid patients under CMP law

Professional Services Agreement -Physician Enterprise Model

Physicians (and perhaps staff) remain employed by practice, which contracts with hospital for services

Hospital pays single FMV service fee to practice for all services, space, equipment, staff

All clinical services performed by physician group billed by hospital

Captive PC Arrangements Hospital sets up separate professional corporation to

allow separate physician billing and avoid mingling of bills

Shareholder(s) of PC employed by hospital Physicians may be employed by the PC with benefits

from the PC Captive PCs may seek tax-exemption as “supporting

organizations” of tax-exempt hospital

Physician Employment

Gives most control and flexibility to hospital Stark employee exception & anti-kickback safe

harbor: identifiable services, FMV payment, contract would be commercially reasonable without referrals

Con: hospital infrastructure sometimes clashes with management of physician practices

Physician Employment & Remaining In Current Office

Physician employed by hospital Hospital leases/subleases space from physician’s PC

to allow physician to remain in current office location

Staff may also be provided by physician PC (or may be employed by hospital)

Practice Acquisition Very common to see hospitals acquiring doctor practices Value of practices has dropped Common model: acquisition of practice and employment of

physician No safe harbor for acquisition by a hospital Total comp (acquisition costs plus subsequent compensation)

may be subject to scrutiny as to whether these are disguised payments for referrals (Sulzbach case)

Other Option For Physicians Wishing To Consolidate: Super-groups

Super-groups: large physician groups, most often multi-disciplinary

Can often achieve preferable managed care rates Under Stark, can bill all ancillaries referred within

group under “in-office ancillary services exception” Feds/OIG concerned about proliferation of

ancillary services (e.g., radiation oncology-urology)

Changing Compensation Models For Future

Move away from fee for service payment to global payment Payment for an episode of care Inclusive of multiple providers May include complications (Geisinger warrants their

cardiac surgery for 90 days)

Providers Becoming Payers

Question: can providerseliminate the middle box (insurers) and either becomeInsurers or contract directly?

Employers

Insurance companies/payers

Providers (hospitals, doctors, LTC, home care, etc.)

Less Expensive Providers/Care

Reference pricing: patient decides to be treated by a lower-cost provider with less cost to the patient

CALPERS steers patients for joint replacements to providers who will charge no more than $30,000 If a patient goes elsewhere, patient pays the charge in

excess of $30,000 Cleveland Clinic is offering a bundled price for cardiac

surgery to employers (Bloomberg, March 5, 2014)

Changing Physician Payment Models Conventional wisdom: at least 20% of salary must be

at risk to be a factor in behavior Potential components of compensation:

1. Base salary2. Productivity component (RVUs, percentage of collections, encounters)3. Bonus (can be based upon meeting delineated goals and objectives, quality, PQRI, documentation, etc.)

Determining Physician Salaries Use outside source to determine FMV: MGMA, Sullivan

Cotter, salary surveys Salary may be related to percentile of MGMA/SC for

that specialty If above 50/75th percentile, from a compliance standpoint,

document why the qualifications justify Salary may be tied to productivity, e.g., Dr. A receives

salary at 75th percentile with requirement she generate 75th

percentile of RVUs for that specialty, or salary is adjusted

Basis For Productivity

If a physician’s salary is based (in whole or in part) on productivity, the RVUs or collections are based upon a physician’s personally performed services But can include personally performed interpretations of

ancillary services such as imaging Productivity expectations are often graduated for new

physicians A new physician may have a salary guaranty for 1-2 years

Legal Issues In Determining Physician Salaries

Stark law Anti-kickback law Civil monetary penalties act (a hospital can’t pay a

physicians for reducing services to Medicare/Medicaid beneficiaries)

Excess benefit regulations (applies to insiders: persons who at any time in 5 years before transaction were in position to exercise substantial influence over entity)

Effect Of Consolidation: Higher Prices

Larger organizations have greater negotiating leverage

Primary driver of growth in healthcare spending has been price increases

Antitrust concern if market power is too great St Luke’s Hospital in Oregon ordered to divest

physician group acquired (on appeal)

What Does The Future Hold More consolidation of hospitals More consolidation of physicians Slow move toward bundled payment More providers involved in insurance products More ambulatory care Potential regulation of hospitals as to charges to the

uninsured Narrow networks? (United dropping docs in Conn.)

And, Innovation!

Perspective On Adaptation

64

Market Evolution

ChangeMatters !!!

Major Themes

Times They Are A’ Changing Innovation is the application of better solutions that

meet new requirements, unarticulated needs, or existing market needs.

Quick Thoughts On Change

Want to change? Have a crisis or create one! Clearly pressure on rising costs and not exceptional

outcomes has created a crisis that is pushing new ideas in all directions.

Brain Hates Change

Habits are hard to change and it is easier to see how the next generation is going to play in this game than it is to watch those well established in their fields adapt to the changing times.

More Ideas The Better

Research quite compelling: the more ideas you have the more likely you will have great ones.

You just don’t know which ones they are. Leads to abundant testing, prototyping, piloting and

pivoting.

Big Ideas At The Intersections

Often, the really big ideas come at the intersections To see how they intersect requires new types of skills,

leaders that can “see, feel and think” in new ways and managers that can visualize something that others might not be able to see much less actually do

Need those “risk takers” not the “care takers”– and certainly not the “undertakers

One Concern

Strategy + Business Winter 2013 list of the most Innovative Companies.

Not one was from Healthcare. The list of top spenders was dominated by auto and

healthcare companies, but not the most innovative. “Innovation success is not about how much money

companies spent but in how they spent it.”

Next Webinar April 25th At Noon EDT

Webinar #6: The Future of Healthcare Marketing is Digital April 25, 2014 at 12:00 PM EST Featured Speaker: Ben Dillon, Co-Owner and VP of Geonetric Inc. In this webinar, Geonetric’s eHealth Evangelist, Ben Dillon, will share insights on how

healthcare marketing and communications must urgently become more personalized, more automated, and more sophisticated than ever before. Ben will present new research from the 2013 Survey on Initiatives in eHealth, examine how leading healthcare organizations are using digital communication tools to attract and engage patients, explain how communications are evolving to support the healthcare organizations of the future, and share the skills and tools your organization will need to be successful.

Register now!

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For More Conversation And Information

Andrea J. Simon, PhDCorporate Anthropologist

President, Simon Associates Management Consultantsasimon@simonassociates.net

Office 914-245-1641www.simonassociates.net

@simonandi@Andisamc

Margaret Davino, Esq.Healthcare Attorney

Kaufman Borgeest & Ryanmdavino@kbrlaw.com