DButzPrez on Group Practice Arrangements

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Some basics of physician group practices

Some basics of physician group practices

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  • It is well-known and well-documented that health care costs are largely fixed, meaning that most of the expense of providing care is incurred either up front or as an ongoing fixed cost. This has long been the case.In this study, taken from the Journal of the American Medical Association from 1993 data, the total budget for running a hospital was 84% fixed and just 16% variable.Put differently, the cost of health care is much like the cost of the iPod. It comes largely up front – before patients actually arrive.
  • If we look specifically at inpatient care, we find that the average hospital stay in 2008 involved a total cost to the hospital of $9,100 yet the average charges that showed up in patients’ mail boxes was $29,000.If we look at all patients nationwide rather than just Medicare patients, the markup in 2008 was 219%.
  • To repeat: We need a dramatic narrative explaining how we can have it all. We badly need optimism. We need to explain how this can make everyone better off, and not just some at the expense of others. Managed Care 1.0, the 1990s version of health reform, was openly and incontrovertibly adversarial. Health economists bear much responsibility for this, because they definedmanaged care in these terms. Whacking physicians and whacking patients has been in the very DNA of health care reform. There is a strong residual adversarial strain in current reform efforts, and even an ounce of common sense should be all that is needed to dissuade us from taking this approach going forward.
  • And drilling down into operating units, like others I see the industry shifting from transaction-based care to team-based, relationship-focused, patient-centered care, most likely organized around relatively small medical homes. Indeed, I’ll predict that they will look a lot like what medical homes have become in Ontario. Teams will rule, but they will be small teams. My primitive understanding of organizational behavior is that teams begin to lose their effectiveness once they expand beyond roughly a half-dozen team members. And significantly, the 720 medical homes described here employ 150 physicians, or about six physicians per unit. Reimbursement is through capitation rather than fee-for-service, productivity has risen dramatically due to the common sense notion that work can be delegated so that all human capital is engaged at its highest level of expertise and training. I am excited about all that I read here.
  • My first point is that super-large ACOs are not a good 1-Size Fits All approach to health care reform. Some industry experts are advocating for much larger and more integrated health systems. Yet the underlying issue here is not that health care providers are systematically too small; it is that they are too fragmented. This is an important distinction.
  • There has been a sense until the past few months that ACOs are not yet well-defined. Even those who have taken the lead in designing and implementing ACOs are sure neither of what they are nor whether they will succeed.This is a big problem, and it is where we start.
  • And drilling down into operating units, like others I see the industry shifting from transaction-based care to team-based, relationship-focused, patient-centered care, most likely organized around relatively small medical homes. Indeed, I’ll predict that they will look a lot like what medical homes have become in Ontario. Teams will rule, but they will be small teams. My primitive understanding of organizational behavior is that teams begin to lose their effectiveness once they expand beyond roughly a half-dozen team members. And significantly, the 720 medical homes described here employ 150 physicians, or about six physicians per unit. Reimbursement is through capitation rather than fee-for-service, productivity has risen dramatically due to the common sense notion that work can be delegated so that all human capital is engaged at its highest level of expertise and training. I am excited about all that I read here.
  • Skip …

Transcript

  • 1. Some Business Foundationsof Physician Group PracticesPart 1: Basics of Costs and RevenuesDavid Butz PhDRoss School of Business, University of MichiganCareEvolutionDabAnalytics LLCNovember 2011 © David A. Butz. Please do not copy or distribute without written permission.
  • 2. Disclosure David Butz received his PhD inI am not supported by any Economics from Northwesterncommercial entity. University. After eight years on theI do not sell any medical Economics faculty at UCLA, he moved to Ann Arbor, MI, where hegoods or products. has served in various capacities onI have no relevant financial the faculty of the University of Michigan‘s Business and Medicalconflict of interest to disclose. Schools. Dr. Butz devotes most of his research effort to the economics of health care delivery. Other research interests lie in health care outcomes research, industrial organization, law and economics, antitrust, and supply chain contracting, where he has published numerous peer-reviewed papers.
  • 3. Buying and Listening to an iPodTo buy or not to buy? Bill is thinking of investing $450 to buy and configure a new iPod. He figures the iPod will last 3 years, which means $150/year, or $3/week, or 5¢/ song. On these terms, he decides, ―Yes! I will get more than 5¢/ song of enjoyment.‖  Good reasoning.To listen or not to listen? After buying, Bill finds himself short of cash. In an effort to save $3, he goes 1 week without listening. Faulty reasoning. 3
  • 4. Health Care:Fixed Costs But a Variable Cost Business Model  Healthcare costs are mostly ―up front‖ or ongoing and fixed. Variable costs are modest.  This is also true of many other industries.  Bill allocates overhead of 5¢ for each song in order to account for his $450 up front investment. This is called ―cost accounting.‖  We pay by the song (―fee-for-service‖), so everyone believes that the way to manage costs is to listen to fewer songs! 4
  • 5. Distribution of Variable vs Fixed Costs of Hospital CareRebecca R. Roberts, MD; et al. JAMA. 1999;281644-649.Results: In 1993, the hospital had nearly 114,000 emergency department visits, 40,000 hospital admissions, 240,000 inpatient days, and more than 500,000 outpatient clinic visits. The total budget for 1993 was $429.2 million, of which $360.3 million (84%) was fixed and $68.8 million (16%) was variable. Overall, 31.5% of total costs were for support expenses such as utilities, employee benefits, and housekeeping salaries, and 52.4% included direct costs of salary for service center personnel who provide services to individual patients. 5
  • 6. Tracking and Billing For CostsSet Charges; Send a Bill Alternate Methodology1. Assign costs. 1. What is the diagnosis?  >11,000 ―Intermediate product  Principle Diagnosis (Prin Dx) codes‖ at a large hospital.  Secondary Diagnoses (Many?)  Figure variable costs and then allocate overhead  Total Cost. 2. What care was delivered?  Principle Procedure (Prin Px)2. ―Charge description master.‖  Secondary Procedures (Many?)  A list of facility charges.  A nearly 1:1 mapping 3. What algorithm defines $? w/intermediate product codes.  Hospitals: Diagnosis Related Groups (MS-DRGs)3. Track resources item-by- item; then send a big long  Physicians: Relative Value Units (RVUs) bill for each encounter. 6
  • 7. Background on Billing and Coding Coding: Describes/documents both the medical necessity (Dx) of patient care and the actual work done (Px). Motivations include:  An accurate medical record  An accurate report of services rendered, for fair and timely reimbursement  Compliance – There are heavy financial penalties for individuals and organizations that violate the basic rules  Professional Liability – Poor documentation puts individuals and organizations at considerable risk  More – Research, teaching, operations, public health, … 7
  • 8. Nomenclature (for Physicians AND Other Providers)Diagnosis (Dx) Codes Procedure (Px) CodesDescribe medical necessity – Describe work – what thewhy the patient is seen. patient is having done.ICD-9-CM: International CPT: Current ProceduralClassification of Diseases, 9th Terminology. Incl. ―E&M‖ codes.Revision, Clinical Modification. HCPCS: Healthcare CommonA 3-, 4-, or 5-digit number. Procedure Coding System.Note: The Affordable Care Act A 5-digit number.mandates that all providers movesoon to the 10th Revision. APC: Ambulatory Payment Classification for outpatient services done at a hospital. 8
  • 9. The Common Denominator of ReimbursementDifferent payers have many Always, two questions:different methods to reimbursedifferent provider services. 1) What is the medicalIn every case, though, the necessity? (Dx)provider must document the 2) What are the servicesmedical necessity using a―Principle Diagnosis‖ and rendered? (Px)perhaps many secondary The information is part of the patient‘sdiagnoses. medical record. The answers mayAnd in every case, the provider trigger payment to more than onemust document the procedures provider, as when a surgical Px yieldsperformed. There is a ―Principle separate professional fees to theProcedure‖ and perhaps many surgeon and anesthesiologist, as wellsecondary procedures. as a payment to the hospital. 9
  • 10. Straightforward and Consistent, but w/ExceptionsWhat if there is no What if we aim to flag/groupmedical necessity? certain types of patients? A person who is not sick  A person‘s illness is caused seeks out a specific service. by an external injury. Get a flu shot. Donate an  A motor vehicle accident. A organ. Discuss a problem fall. A burn, poisoning, … that isn‘t a current illness or  In this case, supplement injury. Examine a normal the usual CPT code with an newborn. … ―E code,‖ and proceed … In this case, substitute a There are many such cases.―V Code‖ for the usual CPT Follow up if and only if you must.code, and proceed as usual. Don‘t be intimidated when you don‘t know some detail. 10
  • 11. Physician NomenclatureRelative Value Unit (RVU) Conversion Factor ($)A number assigned by CMS to A single number that for eacheach Px code that reflects the CPT code maps RVUs intovalue of the physician services dollar payment amounts.provided, and thus payment. MPFS: Medicare PhysicianThe sum of three components: Fee Schedule1) Work RVU Simple methodology: Take2) Practice Expense RVU the RVU and multiply it by the3) Professional Liability RVU conversion factor.Physician productivity is often Other payers often reimbursemeasured using wRVUs. as a percentage of MPFS. 11
  • 12. Physician NomenclatureConversion Factors Example Conversion CPT Code 99201 Year Factor Change 2000 $36.61 “Office or Other Outpatient 2001 $38.26 4.5% Services, New Patient” 2002 $36.20 -5.4% 2003 $36.79 1.6% wRVU: 0.48 2004 $37.34 1.5% PE-RVU: 0.69 2005 $37.90 1.5% 2006 $37.90 0.0% PLI-RVU: 0.04 2007 $37.90 0.0% 2008 $38.09 0.5% Total: 1.21 2009 $36.07 -5.3% 2010 $36.87 2.2% Reimbursement = 1.21 * $33.98 2011 $33.98 -7.9% = $41.11 12
  • 13. Median Median Median MedianHospital Count LOS Charge Hospital Count LOS ChargeUNIVERSITY OF CALIFORNIA DAVIS MEDICAL CENTER 10 5.0 $132,083 MISSION HOSPITAL REGIONAL MEDICAL CENTER 14 4.5 $64,161EL CAMINO HOSPITAL 19 5.0 $103,964 SCRIPPS GREEN HOSPITAL 18 5.0 $63,726VALLEYCARE MEDICAL CENTER 13 4.0 $99,539 GROSSMONT HOSPITAL 14 5.0 $63,164ALTA BATES SUMMIT MED CTR-SUMMIT CAMPUS-HAWTHORNE 17 5.0 $96,851 COMMUNITY HOSPITAL MONTEREY PENINSULA 13 4.0 $59,453ALTA BATES SUMMIT MED CTR-ALTA BATES CAMPUS 10 5.0 $95,913 SHARP MEMORIAL HOSPITAL 15 4.0 $57,511CEDARS SINAI MEDICAL CENTER 42 5.0 $92,363 EISENHOWER MEMORIAL HOSPITAL 33 4.0 $57,403JOHN MUIR MEDICAL CENTER-WALNUT CREEK CAMPUS 16 4.0 $89,927 SCRIPPS MEMORIAL HOSPITAL - LA JOLLA 15 5.0 $55,670JOHN MUIR MEDICAL CENTER-CONCORD CAMPUS 14 3.0 $82,750 SADDLEBACK MEMORIAL MEDICAL CENTER 22 6.0 $55,150SAN RAMON REGIONAL MEDICAL CENTER 11 5.0 $81,761 HOAG MEMORIAL HOSPITAL PRESBYTERIAN 30 5.0 $55,061SANTA ROSA MEMORIAL HOSPITAL-MONTGOMERY 17 4.0 $80,297 CITY OF HOPE HELFORD CLINICAL RESEARCH HOSPITAL 11 4.0 $52,545STANFORD HOSPITAL 21 4.0 $77,921 ST. JOSEPH HOSPITAL - ORANGE 26 5.0 $51,482UCSF MEDICAL CENTER 10 7.5 $76,349 HUNTINGTON MEMORIAL HOSPITAL 16 5.0 $51,146PENINSULA MEDICAL CENTER 18 5.5 $74,200 ST. AGNES MEDICAL CENTER 19 4.0 $49,698COMMUNITY MEMORIAL HOSPITAL-SAN BUENAVENTURA 12 3.0 $73,680 LONG BEACH MEMORIAL MEDICAL CENTER 13 4.0 $48,839DOMINICAN HOSPITAL-SANTA CRUZ/SOQUEL 11 4.0 $72,660 SANTA BARBARA COTTAGE HOSPITAL 16 3.5 $46,268PROVIDENCE SAINT JOSEPH MEDICAL CENTER 13 4.0 $70,141 ST. JOHNS HEALTH CENTER 17 4.0 $41,355TORRANCE MEMORIAL MEDICAL CENTER 14 5.5 $67,701 CLOVIS COMMUNITY MEDICAL CENTER METHODIST HOSPITAL OF SOUTHERN 18 4.0 $35,861CALIFORNIA PACIFIC MED CTR-PACIFIC CAMPUS 34 4.0 $65,683 CALIFORNIA 10 4.0 $33,821ST. JOSEPHS MEDICAL CENTER OF STOCKTON 12 4.0 $64,828 All CA 2008 hospitals with N 10. Charges represent ―list‖ prices only. They vary a lot! 13
  • 14. Next, One More Bit of InformationHealth Care Charges: Big Markups! Source: http://www.medpac.gov/documents/Jun10DataBookEntireReport.pdf 14
  • 15. Corroboration …Mean Charges: $29,000Mean Total Costs: $9,100Markup: 219% 15 http://www.hcup-us.ahrq.gov/reports/factsandfigures/2008/pdfs/section1_1.pdf
  • 16. Time here is too precious to turn over to institutional detail.How is All of This Reimbursed? Look Here: And this is just for Medicare/Medicaid … 16
  • 17. Orthopedic Surgery Plays a Central Inpatient Role These are disproportionately Medicare patients. 17
  • 18. In each case, Medicare provides a nice, short, slick overview. Other third-party payersoften but not alwaysfollow Medicare‘s lead. 18
  • 19. Inpatient Rehabilitation Facilities Source: MedPAC, March 2011 Report to Congress, p.211. 19
  • 20. Why Not Focus Solely on Our Professional Fees? Start with your fees, for the same reason that flight attendants tell you to put on your own oxygen mask first. But re: the big picture, it‘s obvious: You‘re the QB/steward. Your actions affect outcomes, both clinical and financial. Knowing costs makes a difference! You have a responsibility to patient, payer, employer, family, colleagues, and the health system. If there is one fundamental policy issue that enjoys near unanimity, it is that fee-for-service must go away. As a practical matter, you are the one going forward who will be called to account for costs. 20
  • 21. Too much of this remains in Managed Care 2.0!Managed Care 1.0: Openly Adversarial ―Instead of free choice at the time ―Managed care, as its name implies, of illness, employees henceforth involves those methods of financing were forced to make a choice and delivering health care services that among competing private health manage, or intervene, in care decisions plans that would then have a made by patients or doctors.‖ contractual right to regulate Gaynor, Martin, and Haas-Wilson, Deborah, ―Change, medical treatments the employees Consolidation, and Competition in Health Care Markets,‖ and their families received at the Journal of Economic Perspectives, Vol. 13, No. 1, Winter 1999, pages 141-164. time of illness. The preferred term in the industry for this intrusion These are representative of a into the doctor-patient relationship is ‗managing care.‘‖ 1990s consensus that managed care revolved around Reinhardt, Uwe, ―The Predictable Managed Care restricting the prerogatives of Kvetch on the Rocky Road from Adolescence to Adulthood,‖ Journal of Health Politics, Policy and physicians and their patients. Law, Vol. 24, No. 5, October 1999, pages 897 – 910. This legacy remains. 21
  • 22. The New Yorker, 14 December 2009“Testing, Testing,” Atul Gawande ―Our fee-for-service system, doling out separate payments for everything and everyone involved in a patient‘s care, has all the wrong incentives: it rewards doing more over doing right, it increases paperwork and the duplication of efforts, and it discourages clinicians from working together for the best possible results.‖ Source. 22
  • 23. Investors are right to ask, especially since CMS is the industry’s price leader:What Does the Future Hold? http://www.medpac.gov/documents/Jun10_EntireReport.pdf 23
  • 24. Meanwhile, Physician GroupPractices Have High Fixed Costs!Fixed costs are reflected in PE and PLI RVUs Mean Work RVUs  52%  Physician time  Technical skill and effort required  Mental effort, judgment, physician stress, … Practice Expense RVUs  44%  Based on an assessment by CMS of the mostly fixed costs of running an efficient practice, effectively amortized over many patients.  This includes office space, staff, IT, utilities, taxes, etc.  If a group practice is small and unable to capture economies of scale and scope … then this reimbursement is too low. Professional Liability Insurance RVUs  4% 24
  • 25. If Bill’s iPod costs $150/year and songs are “priced” at 5¢ each.Economics of Fixed Cost Businesses: Throughput! $300 Costs $250 Revenues ($0.05) Revenues ($0.04) $200 $150 $100 $50 $0 0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000 3,250 3,500 3,750 4,000 4,250 4,500 4,750 5,000 Break Even Low Utilization: High Utilization: Big Losses Big Profits 25
  • 26. A 3-physician medical oncology practice in Allentown, PA.Hematology Oncology Associates Friedman, et al., ―Taking the Pulse of a Practice,‖ Oncology Issues, 2005. Previously private practice group; bought by Lehigh Valley Hospital in 1999. Hospital-based (Dorothy Morgan Cancer Center). Also an office practice: patient visits, labs, nurse, and certified registered nurse practitioner. The practice subcontracts billing to the hospital.Productivity Measurement and Compensation: Physicians are ―salaried‖ but strongly incented using wRVUs exclusively. Individual RVU thresholds and group threshold. Bonus based linearly on RVUs over the threshold, but only if the group threshold is also met. If the practice loses money, the physicians feel some hit in their salaries. ―Salaries are therefore reflective of the direct productivity of the physician.‖ Various hospital obligations, including teaching, committee work, weekend rounds, and night call. How are these factored into compensation? 26
  • 27. Some Business Foundationsof Physician Group PracticesPart 2: The Group’s Business FunctionsDavid Butz PhDRoss School of Business, University of MichiganCareEvolutionDabAnalytics LLCNovember 2011 © David A. Butz. Please do not copy or distribute without written permission.
  • 28. Why do physicians form group practices?  Negotiating leverage with payers.  Better night/weekend coverage  ED On-call can be better distributed across a larger group.  More opportunity for professional development.  Potentially better infrastructure  Higher levels of support & broader scope, as well.  Better capitalization.  Better amortized overhead.  Better specialization of talents.  Stronger leadership (e.g., an MBA, MHA, …)  President/CEO: Represents group to Sr. management, payers, …  Manages day-to-day operations of the group.  But … Practice leadership is almost uniformly MD. 28
  • 29. Consider the cost of taking ED “call” …The Cost of a Cardiologist’s Capacity Conventional Wisdom: Cost of capacity: At any given moment … How does ED call affect … •Must carry a pager. •The capacity of my practice? •No alcohol. •The capacity of my group? •Can‘t travel far. The cost looks quite different. •Leisure could be disrupted. Put differently, what is the cost of the flow of on-call services cardiologists provide? How much could this really cost? For you as a professional, and for your group, the ultimate question: How best to allocate your limited capacity? 29
  • 30. Group Finances & Governance  Business model driven by RVU generation.  Ancillary fees are important, but for most groups professional fees provide the lion‘s share of revenue.  Group/physician productivity: measured by RVU‘s.  Musthave organizational by-laws & principles of governance and professional expectation.  Compensation and staffing arrangements (e.g., ED call)  Business functions  Group access guidelines  Professionalism  Medical records  Compliance 30
  • 31. The Medical Staff and its By-LawsPhysicians are “Self-Governing” Policies and Governance Procedures Credentialing and Privileging Levels of Appointment  Active  Honorary  Consulting  Affiliate The Medical Staff‘s Relationship with the Hospital Hospital Rules and Regulations Physicians‘ Rights and Responsibilities  Most prominent: ED call obligations & Professional Liability Insurance  Administrative Responsibilities, etc  Due Process 31
  • 32. Physician-Led Health System Infrastructure Departments/Sections  Standing Committees  Conflict of Interest Formal Programs: Trauma,  Compliance Transplant, Bariatrics, …  Risk Management Centers: Cancer, Stroke,  IRB  Formulary Committee Spine, Cardiovascular, …  Medical Device Committee, … Women‘s Health  Materials Management  Central Sterile Supply Ancillary Services  Capital Budget  Blood Bank  Planning  Respiratory Therapy  Mortality & Morbidity  Transport  Disciplinary Committees  Dialysis  Privileging  Housecleaning  And much more …  Dietary  And the list goes on … 32
  • 33. Clinical Programs, VerifiedCenters, & Regional SystemsEx: Trauma Accreditation by the American College of Surgeons Rigorous standards  Patient registries  Explicit staffing requirements with job descriptions  Governance (Quality Assurance, Accountability, Feedback loops)  Documentation, beginning with patient registries  Protocols  Call schedules  Structured outreach and education  Specific training requirements  Re-accreditation every 3 years, including site visits by reviewers  Pre- and post-hospital requirements.  Much more Regional and often statewide, inclusive systems of care. 33
  • 34. Management Functions Run the GamutGeneral Accounting Billing/Claims General ledger Processing/Collections Standard, reporting  Billing Day end journal  Scheduling entries of deposits  Registration CME tracking  Insurance verification Bank reconciliations  Medic+ Revenue allocation  A/R  Collections reporting at month end  Claims Processing Group purchasing  Adjudication Human Resources  Processing  Reporting  Payroll  Collections  Benefits  Mail telephone techniques  Medical / Dental / Vision  Aging analysis  401K  Monthly collection reports  Life Insurance Source: Rocky Mountain MSO 34
  • 35. Management Functions Run the GamutOffice Operations Human Resources Marketing Medical records  Training Satisfaction surveys Coding  Recruitment  Patient retention Supplies  Place ads strategies Ancillary ordering,  Screen applicants  Direct mailing  Set up interviews tracking  Building ads  Check references On-call telephone  Press releases  Policies & Procedures service  Brochures  Evaluation/Merit System Patient  Phone book listings  Background Checks appointments  Counseling Managed Care Patient triage Health information Credentialing & Contracting Prevention Licensing/Malpractice  Contract analysis  Credentialing/CME  Contract negotiations  Licensing & renewals  Contract management  Medical Malpractice  Sub-capitation Source: Rocky Mountain MSO 35
  • 36. Intermediaries Include:Management Group PurchasingService OrganizationsOrganizations GPOs are organizations that act as purchasing intermediaries that negotiate contracts between Provide services to their customers—health care providers—and physicians and their vendors of medical products. GPOs‘ sources of practices. revenue include contract administrative fees, Administrative tasks, other fees obtained from vendors, and fees including billing, IT, resulting from direct charges to customers. compliance, etc. According to a 2009 study, on average, GPO Can also provide group contracts account for about 73 percent of purchasing of services, nonlabor purchases that hospitals make. supplies and benefits. Source: Group Purchasing Organizations: Services Provided to Customers and Initiatives Regarding Their Business Practices, General Accounting Office, August 2010, Page 4. 36
  • 37. Employed Physicians and System AlliancesEmployed Physicians Pennant Health AllianceWhy have an independent  Physician/hospital networkphysician group at all?  ―Sponsors:‖ 9 hospitals and 100+ outpatient venues.Why not have the hospital  UMHS, 6 Trinity hospitals, Metro Healthbuy them out and run Hospital in Wyoming, MI.them. This could align  Services emphasize supply chain, IT, andincentives and reduce revenue cycle.overhead costs.  Streamlining business processes, reducing costs, increasing revenue and providing the best health care for our patients.  Support and strengthen independent MI providers. 37
  • 38. Intermediaries Include:Patient-Hospital Independent PracticeOrganization Association Longstanding and tested. A single- or multi-specialty association of A separate legal entity otherwise independent physicians for formed by physicians and at purposes that may include some or all of least one hospital for the following: purposes of joint contracting.  Contracting among the other IPA The PHO objective, in other physicians, with independent physicians, words, is to negotiate with health systems, and with payers. contracts with third-party  Care coordination and guided referrals. payers to provide both  Modest administrative services. physician and hospital services. 38
  • 39. Status Quo: Physicians Organize in Many WaysCaptive Group Practices Independent Group PracticesGroup-Model HMOs Independent Group Practice/Network Model HMO Physicians contract via the group HMOs & Physician Groups have multiple partners Fixed patient fee (PMPM) Commit to as little as a fee schedule Little autonomy, but … guaranteed patient flow and …Staff-Model HMOs Independent Practice Association (IPA) Physicians are salaried HMO employees A loose physician arrangement No financial risk and no upside The IPA negotiates on behalf of physicians Stable lifestyle The IPA provides other nominal services The physician maintains considerable autonomyIntegrated Delivery Systems Physicians are salaried hospital employees No financial risk and no upside Stable lifestyleHospital-Based Practices Practices/Depts. are "owned" by the hospital. Physicians are salaried. Stable lifestyle 39
  • 40. Professional Liability Insurance (PLI) Historically, procured by the group through the commercial insurance market. Administratively, the group stands as intermediary between physician, plaintiffs, defendants, insurer, hospital. The physician is just one interested party among many. Largergroups (hospitals, as well) are now forming group captives, or more formally, risk retention groups (RRGs). The group and its physician members are self-insured, up to a point, with insurance and re-insurance to hedge against the largest claims. The legal, financial, regulatory, and management hurdles are substantial. The potential, though, is huge! 40
  • 41. Which Services Matter Most to Orthopedic Groups? Imaging, procedures, etc. matter, but isn‘t growth still hospital-based? 41
  • 42. Community-Based Group Practices Even more business-focused, RVU-driven, referral- based: available, affable, and then able. The medical staff may be quite ―diverse.‖ Side deals may abound; trust may be short.  Dr. Smith has a nice deal as trauma director.  Who still takes ED call and who has managed to opt out?  Your colleague, Dr. Lee, is a terrific surgeon (or not), but she does 250 of the total 450 cases, and at 61 years old shows no signs of slowing down. You are splitting up the residual with others. Your group and most others have relationships and admitting privileges at multiple hospitals, as well as interests in various other venues.  Your interests, attention, and physical presence may be more divided.  Care may be more difficult to coordinate. 42
  • 43. A 3-physician medical oncology practice in Allentown, PA.Hematology Oncology Associates Friedman, et al., ―Taking the Pulse of a Practice,‖ Oncology Issues, 2005. Previously private practice group; bought by Lehigh Valley Hospital in 1999. Hospital-based (Dorothy Morgan Cancer Center). Also an office practice: patient visits, labs, nurse, and certified registered nurse practitioner. The practice subcontracts billing to the hospital.Productivity Measurement and Compensation: Physicians are ―salaried‖ but strongly incented using wRVUs exclusively. Individual RVU thresholds and group threshold. Bonus based linearly on RVUs over the threshold, but only if the group threshold is also met. If the practice loses money, the physicians feel some hit in their salaries. ―Salaries are therefore reflective of the direct productivity of the physician.‖ Various hospital obligations, including teaching, committee work, weekend rounds, and night call. How are these factored into compensation? 43
  • 44. What do we make of the trend of hospitals buying up group practices?Employing a Physician is a ≥$500K Investment Hospitals lose $150,000 to $250,000 per year over the first 3 years of employing a physician — owing in part to a slow ramp-up period as physicians establish themselves or transition their practices and adapt to management changes. The losses decrease by approximately 50% after 3 years but do persist thereafter. … For hospitals to break even, newly hired PCPs must generate at least 30% more visits, and new specialists 25% more referrals, than they do at the outset. After 3 years, hospitals expect to begin making money on employed physicians when they account for the value of all care, tests, and referrals. Kocher R. and Sahni N.R. Hospitals Race to Employ Physicians - The Logic Behind a Money- Losing Proposition N Engl J Med 2011; 364:1790 – 1793, 05/12/ 2011. 44
  • 45. Some Business Foundationsof Physician Group PracticesPart 3: What the Future May HoldDavid Butz PhDRoss School of Business, University of MichiganCareEvolutionDabAnalytics LLCNovember 2011 © David A. Butz. Please do not copy or distribute without written permission.
  • 46. Front/Center: What Sway Do Group Practices Have? Still true going forward? 46 46
  • 47. What Do We Mean by “Fragmented?” Donald Berwick: ―A common criticism of U.S. health care is the fragmented nature of its payment and delivery systems. Because in many settings no single group of participants — physicians, hospitals, public or private payers, or employers — takes full responsibility for guiding the health of a patient or community, care is distributed across many sites, and integration among them may be deficient. Fragmentation leads to waste and duplication — and unnecessarily high costs.‖ ―Launching Accountable Care Organizations — The Proposed Rule for the Medicare Shared Savings Program,‖ NEJM, 31 March 2011. 47
  • 48. Conventional Wisdom from NEJM, Dec. 30, 2010, R. Kocher and N. Sahni,“Physicians versus Hospitals as Leaders …”“Much of [the US’s high health ―Achievement of this level of carecare] cost derives from high rates coordination will require theof unnecessary hospitalizations development of larger integratedand potentially avoidable delivery organizations —complications, and these, in turn, preferably, accountable careare partially driven by fee-for-service organizations (ACOs) thatincentives that fail to adequately incorporate primary care practicesreward coordinated care that structured as patient-centeredeffectively prevents illness.‖ medical homes and that can… support new investments in information systems and care―The desired consequence of these teams and can maintain servicechanges is enhanced tertiary hours resembling those of retailers.prevention, leading to substantial A move toward ACOs will meanreductions in unnecessarily major changes in the structure ofexpensive specialty referrals and physicians‘ practices, …‖tests and avoidable complications.… 48
  • 49. Thomas L. Greaney, New England Journal of Medicine, December 22, 2010.“Accountable Care Organizations–The Fork in the Road” ―ACOs offer a much-needed vehicle for integrating health care delivery and reducing the well-documented shortcomings of the system that are attributable to payment and organizational features that reward high volume rather than low cost or high quality.‖ 49
  • 50. Avery Johnson, Wall Street Journal, March 28, 2011“The Model of the Future?” “The health-care law promoted accountable-care organizations. But its hard to know what they are.”  "An ACO is like a unicorn; everyone thinks they know what one is, but no one has ever seen one," says Gene Lindsey, President and Chief Executive of Atrius Health.  Elliott Fisher, the Dartmouth Medical School professor who helped coin the term ACO, and who worked with members of Congress to draft the ACO concept into the health-care law, concedes that "there are some really important questions about whether this will work."  But, Dr. Fisher adds: "I think its the best hope we have.‖ 50
  • 51. Health care’s greatest bottleneck will be MDs 1910:The Flexner Report leads to many medical schools closing. 1965:The push to train more physicians begins. By 1980, the number of graduates roughly doubled.  40 years of rapid workforce growth. 1980– 2010: No appreciable increase in the number of US-trained MD graduates (allopathic).  Going forward, US-trained MDs reaching retirement age will almost offset new allopathic graduates. An abrupt near-steady state. 51
  • 52. Revisiting Operations ManagementEach year, starting circa 1970, roughly 16,000physicians have entered the ―workforce pipeline‖ bygraduating from allopathic medical schools(throughput). They spend four decades practicingbefore reaching retirement age (flow time). If there isno attrition at all during these four decades, it followsthat in 2010, with the pipeline full, the size of the US-trained, allopathic physician workforce (i.e., inventory)is roughly ____ physicians. 40 Years 16K/Yr 640,000 US-MDs when full. 1970 2010 52
  • 53. Elevate the WorkforceThe Future of Nursing: Leading Change, AdvancingHealth, Institute of Medicine, Nov 17, 2010.http://www.iom.edu/Reports/2010/The-Future-of-Nursing-Leading-Change-Advancing-Health/Recommendations.aspx?page=1Recommendation 1: Remove scope-of-practice barriers.Advanced practice nurses should be able to practice to the fullextent of their education and training.Recommendation 2: Expand opportunities for nurses to leadand diffuse collaborative improvement efforts.Recommendation 3: Implement nurse residency programs.Recommendation 4: Increase the proportion of nurses with abaccalaureate degree to 80 percent by 2020. 53
  • 54. Elevate the WorkforceThe Future of Nursing: Leading Change, AdvancingHealth, Institute of Medicine, Nov 17, 2010.http://www.iom.edu/Reports/2010/The-Future-of-Nursing-Leading-Change-Advancing-Health/Recommendations.aspx?page=1Recommendation 5: Double the number of nurses with adoctorate by 2020.Recommendation 6: Ensure that nurses engage in lifelonglearning.Recommendation 7: prepare and enable nurses to lead changeto advance health.Recommendation 8: Build an infrastructure for the collectionand analysis of interprofessional health care workforce data. 54
  • 55. “Patient-Centered Medical Homes in Ontario”Walter W. Rosser, M.D., Jack M. Colwill, M.D., Jan Kasperski, R.N., M.H.Sc., and Lynn Wilson, M.D.New England Journal of Medicine, January 6, 2010. 10.1056/NEJMp0911519 ―The Family Health Team [FHT] model ―Physician payment is based on age- and sex- [introduced in 2004] is designed to expand based capitation that is calculated from the capacity of primary care through Ontario‘s fee-for-service experience. Additional development of interdisciplinary teams and fees are provided for services deemed to to improve the breadth and quality of care require added emphasis … through incentives provided by a blended … payment model. Today, about 720 ―Since income is not based primarily on physicians in 150 FHTs serve more than 1 physician visits, practices can explore broader million patients. [emphasis added.] roles for team members … The total number … of visits per patient has not declined, but more ―Physicians have responsibility for a defined visits appear to be occurring with team panel of patients and are assisted by other members other than the primary physician. health professionals, such as nurses, nurse … practitioners, psychologists, pharmacists, One effect that is already obvious is an social workers, and health educators. A increase of approximately 40% in physicians‘ typical physician panel includes about 1400 incomes: the average net income for a family patients, smaller than a typical U.S. practice. physician has increased from $180,000 Inclusion of a nurse practitioner adds 800 (Canadian) in 2004 to $250,000 within FHTs … patients to the expected practice size. 55
  • 56. “Patient-Centered Medical Homes in Ontario”Walter W. Rosser, M.D., Jack M. Colwill, M.D., Jan Kasperski, R.N., M.H.Sc., and Lynn Wilson, M.D.New England Journal of Medicine, January 6, 2010. 10.1056/NEJMp0911519 ―Per capita, Canada has one third fewer Consider reading this article while replacing active physicians than the United States, every occurrence of ―patient-centered‖ with 15% more primary care physicians, and half ―capacity-centered.‖ Is the meaning much the as many specialists. Consequently, the same? Put differently, does a capacity- heavy responsibilities of Canadian centered business model provide the specialists promote shared care with family economic foundation that enables a patient- physicians, and specialists rarely see centered medical home? patients without referral. … Ontario‘s large investment in FHTs signifies its commitment For a different perspective on medical homes: to enhancing the capacity and quality of The Patient Centered Medical Home primary care. [emphasis added.] (Robert Graham Center, November 2007) … http://www.graham-center.org/PreBuilt/PCMH.pdf Ontario continues to convert fee-for-service The analysis does not presume any particular practices to patient-centered medical homes, focus either on ―capacity‖ or on the importance so far with positive results, including more of management principles. On the contrary, graduates entering family medicine. there is a sense that medical homes ―counter market dynamics‖ that otherwise obstruct equity, efficiency, and quality. 56