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Microsoft PowerPoint - #60066 v1 - HOSPITAL/PHYSICIAN ... Microsoft PowerPoint - #60066 v1 - HOSPITAL/PHYSICIAN ... Presentation Transcript

  • HOSPITAL/PHYSICIAN ALIGNMENTS STRATEGIC MANAGEMENT OF HEALTHCARE ORGANIZATIONS May 14, 2003 Presented By Mr. Robert G. Rowland, MBA, FACMPE Principal, ECG Management Consultants, Inc.
  • AGENDA What Are We Talking About? Down Memory Lane – PCPs at Center Stage Where Are They Now? The Next Wave – Subspecialty Arrangements Beyond the Basics Why Can’t We Get Along? Case Studies DRAFT 7856060066(ppt) 1
  • LET’S GET TOGETHER Hospitals and physicians (individually or in groups) can Hospitals and physicians (individually or in groups) can work together in a variety of ways from informal, work together in a variety of ways from informal, unstructured arrangements to very complex, legal, and unstructured arrangements to very complex, legal, and financial relationships. Types of alignment can include: financial relationships. Types of alignment can include: Collaboration in planning a budgeting (e.g., hospital committees). Informal agreements (scheduling of cath lab, OR). Co-marketing (“the best physicians, the best care”). Centers of Excellence, “Institutes,” (bone and joint, sports medicine, heart). Service contracts (ER, employee health). Joint ventures (ASC). Employment of physicians. DRAFT 7856060066(ppt) 2
  • DOWN MEMORY LANE The Old Paradigm The good old days for physicians and hospitals The good old days for physicians and hospitals consisted of a cottage industry characterized by consisted of a cottage industry characterized by a high utilization of care and high profit margins. a high utilization of care and high profit margins. Hospitals Physicians High margins. “Captain of the ship.” Full beds. Focus on illness. Long stays. Unlimited resources. Limited paperwork and The “doctor’s workshop.” interference. High income and status. DRAFT 7856060066(ppt) 3
  • DOWN MEMORY LANE Physician-Hospital Arrangements of the ’90s Beginning in the late 1980s, the spectre of capitation Beginning in the late 1980s, the spectre of capitation drove hospitals to acquire physician practices. The drove hospitals to acquire physician practices. The major factors bringing them together included: major factors bringing them together included: Hospitals needed to affiliate with physician networks and medical groups to: » Accept global risk. » Gain access to referrals to maintain market share. » Manage information. » Manage pricing structure. Physicians needed to affiliate with hospitals and other physicians to: » Accept global risk. » Gain access to capital. » Manage information. » Utilize economies of scale for billing and other administrative functions. Examples: Medalia Medical Group, Swedish Partners Medical Group, University of Washington Physicians, MultiCare Medical Group DRAFT 7856060066(ppt) 4
  • DOWN MEMORY LANE Physician Acquisition – The Picture of Success DRAFT 7856060066(ppt) 5
  • DOWN MEMORY LANE Physician Acquisition – What Happened? A variety of factors prevented hospital-affiliated A variety of factors prevented hospital-affiliated physician networks from succeeding. physician networks from succeeding. Loss of Purpose Managed care revolution stalled, especially capitation. Less-integrated structures worked (e.g., IPAs). Loss of Control Too much centralization (staffing, billing, IT). Too little integration (care management, governance). Failure to create a new culture. Loss of $$’s Buying frenzy inflated purchases. » Physician compensation not carefully structured (WTMM). Financial projections were unrealistic. » Fallacy of physician mismanagement. DRAFT 7856060066(ppt) 6
  • WHERE ARE THEY NOW? From 1995 to 2003, many physician-hospital alignment From 1995 to 2003, many physician-hospital alignment models proved unsustainable and are no longer viable. models proved unsustainable and are no longer viable. Popular Physician Relationship Remaining Physician Relationship Models – 1995 Models – 2003 Health Health Health Health System System System System Multispecialty Multispecialty Multispecialty Multispecialty Group Group Group Group PCP Groups PCP Groups PCP Groups PCP Groups IPA IPA MSO MSO MSO PCP Groups MSO PCP Groups PPMC PPMC IPA IPA Multispecialty Multispecialty Group Group DRAFT 7856060066(ppt) 7
  • WHERE ARE THEY NOW? Current Status of Primary Care Networks Most health systems that are in deep cannot/will not, get out. Regardless of strategic value, the losses have been unsustainable. Many are restructuring – some achieving “breakeven.” Some have sold, transitioned, or downsized networks. DRAFT 7856060066(ppt) 8
  • WHERE ARE THEY NOW? PCP Networks Remain Strategically Important Market acquisition. Community health opportunities. Leverage with specialists (pay attention to this one). DRAFT 7856060066(ppt) 9
  • THE NEXT WAVE Pressure, Pressure, Pressure The last 15 years have resulted in new pressures The last 15 years have resulted in new pressures for both hospitals and physicians. for both hospitals and physicians. Hospitals Physicians Compliance and Declining compensation. compensation concerns. Limited access to capital. “New revenue” mandate. Paperwork and the “hassle Information technology factor.” upgrade requirements. Declining professional Operational inefficiencies. status. Redistribution of power and income. Accelerating trend to group practice. DRAFT 7856060066(ppt) 10
  • THE NEXT WAVE Physicians Financial pressures brought on by the rise of managed care Financial pressures brought on by the rise of managed care and declining reimbursements have played a large role in and declining reimbursements have played a large role in recent years in changing the traditional physician services recent years in changing the traditional physician services industry, with increases in physician incomes for most industry, with increases in physician incomes for most specialties falling behind inflation from 1989 through 1998. specialties falling behind inflation from 1989 through 1998. 50% 45% 41% 40% 35% 34% Consumer Price Increase in 35% Index (36%) Earnings, 30% 28% 27% 1989–1998 25% All Specialties 22% (25%) 20% 15% 10% 9% 5% 3% 0% Noninvasive Invasive General Internal Pediatrics Orthopedics Family OB/GYN Cardiology Cardiology Surgery Medicine Practice Source: Medical Economics Continuing Surveys, 1999 AAMC Data Book. Cardiology Data Source: Medical Group Management Association Compensation and Production Survey, 1993–1999. DRAFT 7856060066(ppt) 11
  • THE NEXT WAVE Ambulatory Care – The Business is Booming Over the last decade, hospitals have experienced a significant Over the last decade, hospitals have experienced a significant increase in outpatient services, while inpatient services have increase in outpatient services, while inpatient services have remained relatively flat or declined in certain areas. remained relatively flat or declined in certain areas. Inpatient and Outpatient Services1 Inpatient Days and Outpatient 600,000 500,000 Visits (000s) 400,000 300,000 200,000 100,000 1995 1997 1999 2001 Inpatient Days Outpatient Visits 1 American Hospital Association: Hospital Statistics, 2003. But is there enough common ground to motivate hospitals and physicians to work together? DRAFT 7856060066(ppt) 12
  • THE NEXT WAVE Alternative Approaches Collaborate Coexist Compete Build branded products Invest and support selected Acquire specialty and and services with physician initiatives. primary care practices. physicians. Expand physician Recruit/employ Develop joint ventures. participation in replacement physicians. Pursue joint contacting management/governance. Leverage payor arrangements. Assure favorable physician relationships to maximize Share development of reimbursement terms with hospital payments. strategic plans and system-owned health plan. Develop/expand hospital- budgets. Resist initiatives that will be owned ancillary and perceived as threatening to ambulatory services. physician interests. DRAFT 7856060066(ppt) 13
  • THE NEXT WAVE The Reemergence of Subspecialty Relationships The large financial losses experienced by most hospital- The large financial losses experienced by most hospital- affiliated primary care networks have brought renewed focus affiliated primary care networks have brought renewed focus on hospital/physician relationships. Many hospital systems on hospital/physician relationships. Many hospital systems are rethinking their primary care strategies and considering are rethinking their primary care strategies and considering subspecialty relationships, for the following reasons: subspecialty relationships, for the following reasons: The relationships provide the ability to integrate clinical care and governance. With declining specialist payments, specialists are pursuing a variety of revenue-enhancing initiatives: » Specialty hospitals. » Ambulatory care centers. » Specialty carve-out networks. The Health Care Advisory Board estimates that 35% to 45% of a healthcare system’s revenues are vulnerable to defecting specialists. DRAFT 7856060066(ppt) 14
  • FACING THE FUTURE TOGETHER DRAFT 7856060066(ppt) 15
  • FACING THE FUTURE TOGETHER The Strategic Drivers 1. Outpatient services are more attractive from multiple perspectives. Higher growth – Better payor mix – Improved profitability – Facilitation of expanded patient services. 2. Physicians desire additional technical reimbursement and control. Physicians seek new and expanded treatment locations for their patients; at the same time they look for additional sources of revenue from each patient encounter to offset declining reimbursement and increasing overhead. 3. Affiliations can assist in physician recruiting. New recruits view an opportunity for additional revenue from the technical services provided to their patients as a sign of a group’s strength and increasingly will not consider joining groups without this advantage. 4 Patients prefer the convenience of nonhospital care settings. Parking, registration, finding where to go – everything is easier in an off- campus setting. Physicians are motivated and well-positioned to Bottom Line be active partners in developing and servicing the outpatient business and want to be involved. DRAFT 7856060066(ppt) 16
  • FITTING THE FUTURE TOGETHER Show Me the Money! Outpatient service affiliations are on the rise11and offer physicians Outpatient service affiliations are on the rise and offer physicians and hospitals a vehicle to increase market competitiveness, align and hospitals a vehicle to increase market competitiveness, align incentives, and increase revenue, while maintaining autonomy. incentives, and increase revenue, while maintaining autonomy. Benefits to Hospital Benefits to Physicians Secures opportunity to expand services Diversifies revenue and increases in high-growth areas of the community. compensation. Offers a new delivery model to the Supports recruitment and retention. community (lower cost, ease of access). Secures strong market advantage – Through aligned incentives, supports makes the hospital a partner instead of collaboration and trust between hospital an adversary. and physicians. Enables physician voice in facility’s operation. Shared Benefits Potentially high return on investment. Improved patient care in convenient setting. Increased collaboration and trust. Aligned incentives. 1 According to a survey by the Governance Institute, eight of 10 hospitals face at least one competing physician-owned or co-owned venture; over half face three or more such ventures. DRAFT 7856060066(ppt) 17
  • BEYOND THE BASICS Five Optional Alignment Structures Equity Joint Ventures (ASC, Imaging, etc.) JV scope and size vary from discreet services to free standing specialty hospitals Strategic partners beyond physicians may be included (e.g., facilities and technologies). Partners share risk and reward proportional to investment risk. Hospital-based, outreach-based and mobile services. Reinvestment exposes partner to capital calls. Buy/sell potential is controlled to protected all partners. DRAFT 7856060066(ppt) 18
  • BEYOND THE BASICS Five Optional Alignment Structures (continued) Hospital-Within-a-Hospital Hospital retains ownership and control of a clinical service line including revenues. An entire clinical service is “carved out” for purposes of management, and financial and operational reporting (e.g., service line revenue and cost accounting). Physician specialists together with hospital executives compose a service line executive management committee. A dedicated service executive is hired to report to the executive management committee. Medical directors are assigned. A co-management agreement is put into place with bonus opportunities. Other arrangements are “layered-in” (e.g., equity JVs and professional services). DRAFT 7856060066(ppt) 19
  • BEYOND THE BASICS Five Optional Alignment Structures (continued) Clinical Service Line Co-Management Time limited, renewable, contractual arrangement. Physician time contracted to focus on clinical, operational, financial and strategic efficiency and effectiveness. Payment in the aggregate at “reasonable rates” with hourly payments and bonus payments for clinical quality and service. Contract(s) approved annually by the hospital board through the CEO. Medical director contracts included with the co-management managers. Physicians are active managers. DRAFT 7856060066(ppt) 20
  • BEYOND THE BASICS Five Optional Alignment Structures (continued) Under Arrangement Provided for within Stark II legislation. Serve useful for a discreet line of business (e.g., cath lab, imaging suite, operating room). Hospital retains actual ownership of service line but partners with physicians based upon what physicians bring to the “table” (e.g., facilities, clinical technologies, clinical staff, supplies, management). Hospital must retain control over service and provide a “reasonable” level of service to partners based upon what each brings and risks assumed. DRAFT 7856060066(ppt) 21
  • BEYOND THE BASICS Five Optional Alignment Structures (continued) Full Integration Substantially all the specialists required as employed by the hospital or health system. Practice assets are often purchased. Employment agreements are provided. Physicians become leaders in full program management and strategic and business decision making. Compensation provides secure base salaries and bonus opportunities for full program performance. Physicians participate in capital investments strategies and methods. Physicians may have discreet equity opportunities. DRAFT 7856060066(ppt) 22
  • BEYOND THE BASICS Among the crucial design issues in affiliations are corporate Among the crucial design issues in affiliations are corporate structure, governance structure, financing arrangements, structure, governance structure, financing arrangements, determining which services/facilities are included, determining which services/facilities are included, management structure, and operations structure. management structure, and operations structure. Corporate Structure Limited Liability Limited Liability S-Corporation/ S-Corporation/ Partnership Partnership Tax-Exempt Tax-Exempt Company (LLC) Company (LLC) C-Corporation C-Corporation Governance Structure Hospital Control Equal Share (50/50) Physician Control Physician Control Hospital Control Equal Share (50/50) Financing Plan External External Hospital/ Hospital/ Equity Equity Financing Financing Hospital/ Hospital/ Equity Options Equity Options Physician Physician Purchase Purchase (Banks/ (Banks/ Physician Debt Physician Debt (Puts/Calls) (Puts/Calls) Equity Equity Schedule Schedule Vendors) Vendors) DRAFT 7856060066(ppt) 23
  • BEYOND THE BASICS (continued) Services Plan Existing Facility Existing Facility Carved-Out Carved-Out New Facility and New Facility and Existing Facilities Existing Facilities With Expanded With Expanded Services in Services in Services Services and Services and Services Services Services Existing Program Existing Program Management Structure Independent Independent Hospital Management Hospital Management Combination Combination Management Management Operational Structure Joint Venture/ Joint Venture/ Hospital Employees Independent External Operator External Operator Hospital Employees Independent Employees Employees DRAFT 7856060066(ppt) 24
  • BEYOND THE BASICS Oh Yea …Will I Go to Jail? Along with the financial, governance, operational, and strategic Along with the financial, governance, operational, and strategic considerations, there are several legal considerations that may affect considerations, there are several legal considerations that may affect the structure of the joint venture. These considerations are covered the structure of the joint venture. These considerations are covered more thoroughly in ATTACHMENT A and include the following: more thoroughly in ATTACHMENT A and include the following: Federal Law State Law Antikickback statute. Certificate of need. The Stark Law. Licensure. Hospital tax-exempt status Corporate practice of medicine. issues. Fee splitting. Reimbursement considerations. Securities law compliance. DRAFT 7856060066(ppt) 25
  • WHY CAN’T WE GET ALONG? Barriers to Alignment Although the benefits are compelling, the barriers to entry can Although the benefits are compelling, the barriers to entry can be significant. Successful joint ventures are built from trust, be significant. Successful joint ventures are built from trust, identification of common goals, and a clear business plan. identification of common goals, and a clear business plan. Hospital Barriers Physician Barriers Loss of revenue. Access to Capital. Loss of control. Exposure to additional risk. Legal concerns. Noncompete agreements. Development complexities. Development complexities. Relationship complexities. Relationship complexities. Snowball effect. Lack of management expertise. Retained earnings. DRAFT 7856060066(ppt) 26
  • WHY CAN’T WE GET ALONG? The Culture Thing Many hospitals and physicians overlook the inherently Many hospitals and physicians overlook the inherently different perspectives held by the organizations. different perspectives held by the organizations. Hospitals Medical Groups/Physicians Big Small Community Focus Internal Focus Long-Range Perspective Short-Term Perspective Management Control Owner (Doctor) Control Bureaucratic Anarchistic Delegated Decision Making Consensus-Based Organizational Funds Personal Funds Need and Want Integration Need, but Do Not Want, With Physicians Integration With Hospitals Address Potential Differences Avoid Confrontation DRAFT 7856060066(ppt) 27
  • CASE #1: BMC CARDIOLOGY NETWORK Framework The Players Physicians: » Cardiology Group A (10 cardiologists). » Cardiology Group B (10 cardiologists). Hospitals (both hospitals are part of Sutter Health System): » BMC. » Riverview General Hospital (RGH). The Environment Cardiology Group A is a well-organized medical group that has a dominant market position and practices primarily at RGH. Cardiology Group B is in San Francisco and practices at BMC, with significant competition from other nationally recognized cardiology programs. BMC and RGH are both part of Sutter Health System but have recently experienced increasing competition internally and externally. DRAFT 7856060066(ppt) 28
  • CASE #1: BMC CARDIOLOGY NETWORK Process Results As a result of the planning process, the following As a result of the planning process, the following decisions were made by the stakeholders: decisions were made by the stakeholders: The two medical groups would merge. A unified cardiology program encompassing the two facilities would be created. The two hospitals would provide additional financial and programmatic support. DRAFT 7856060066(ppt) 29
  • CASE #1: BMC CARDIOLOGY NETWORK Cardiology Program Design BMC BMC RGH RGH Regional Cardiology Regional Cardiology $6.0 Million Capital Program Program $1.0 Million Capital Commitment Commitment Merged Cardiology Merged Cardiology Group Group Consolidated medical staff. Physician recruitment. Merged medical direction. » One cardiovascular surgeon. Unified program vision and development. » One EPS physician. Commitment to expand and/or develop. » One new cardiology chief. » Cath labs. » EPS lab. » Cardiac care unit. » Diagnostic rooms. » Ancillary space. DRAFT 7856060066(ppt) 30
  • CASE #2: ORTHOPEDIC JOINT VENTURE The Players, Problem, and Process The Players ACME Orthopedic Group (AOG) – seven physicians, very successful and aggressive medical group. Memorial Hospital – 300-bed hospital in competitive market. The Problem AOG acquired land for a new medical office building and surgery center away from the Memorial Hospital campus. AOG represents a very large share of hospital volume. The hospital must come up with an attractive alternative. The Process Shared planning occurred around: Office space. Ambulatory surgery needs. Managed care threat. Research institute. DRAFT 7856060066(ppt) 31
  • CASE #2: ORTHOPEDIC JOINT VENTURE AOG’s Importance AOG is a community leader in orthopedics and is very important AOG is a community leader in orthopedics and is very important to the success of Memorial Hospital’s orthopedic service line, to the success of Memorial Hospital’s orthopedic service line, contributing over half of Memorial’s orthopedic surgical volume. contributing over half of Memorial’s orthopedic surgical volume. Inpatient Surgery Cases Outpatient Surgery Cases Other Cases (71%) Other Cases Other (73%) Other 3,877 Orthopedic Orthopedic AOG 5,785 Surgeons Surgeons AOG (58.7%) (41.3%) (51.87%) (48.13%) 1,567 647 Orthopedic 2,082 1,080 Cases (29%) 920 Orthopedic Cases (27%) 1,002 All Cases Orthopedic Cases All Cases Orthopedic Cases DRAFT 7856060066(ppt) 32
  • CASE #2: ORTHOPEDIC JOINT VENTURE The Results AOG, Memorial, and other physicians will participate in a joint venture to construct and operate an ambulatory surgery center on the Memorial campus. AOG is to be the principal tenant in an office building to be constructed on the Memorial campus. AOG, Memorial, and other providers will collaborate to develop an “Orthopedic Institute,” designed to meet provider and community needs. DRAFT 7856060066(ppt) 33
  • CASE #2: ORTHOPEDIC JOINT VENTURE Orthopedic Institute Structure Relationships among participants in the institute, Relationships among participants in the institute, ambulatory surgery center, medical office building, ambulatory surgery center, medical office building, and contracting network are illustrated below. and contracting network are illustrated below. Orthopedic Institute Orthopedic Institute at Memorial at Memorial r) Memorial Memorial (Ow ne Research Medical Office Medical Office (Ten ant) Education Building Building Services Development AOG Marketing % AOG 20 40% Ambulatory Ambulatory Contracting Contracting Surgery Surgery 40% Network Network Center Center Other Other Musculoskeletal Contract Negotiation Musculoskeletal Providers Contract Administration Providers Provider Network Management Medical Management DRAFT 7856060066(ppt) 34
  • CONCLUSIONS Consider relationships with a full range of potential partners (even enemies). Develop and refine multiple initiatives. Realize that financial pressures facing physicians are likely to continue for some time, resulting in increased friction between and among primary care providers, specialists, and healthcare systems. It will not get better. Involve physicians and board members in all stages of the planning process. Although legal issues are shaping or narrowing hospital/ subspecialty relationship possibilities, do not allow the legal landscape to drive your strategy. Design strategies with flexibility in mind, because the balance of power between medical groups, hospitals, and other providers could change over time and expose your vulnerabilities. DRAFT 7856060066(ppt) 35
  • ATTACHMENT A LEGAL CONSIDERATIONS
  • LEGAL CONSIDERATIONS A. Federal Law Antikickback Statute – Federal statute prohibits the giving or receiving of remuneration in return for goods or services reimbursable by Medicare or Medicaid. Joint ventures should seek to conform to elements of established regulatory “safe harbors.” In order to obtain protection offered by a safe harbor, all elements must be satisfied. However, the failure to comply with a safe harbor is not a violation of the statute. The Stark Law – Federal statute prohibits the rendering of certain “designated health services” reimbursable under Medicare or Medicaid by entities that have a “financial relationship” with the patient’s referring physician unless a regulatory exception is applicable. Established exceptions to the Stark Law accommodate many typical relationships between hospitals and physicians. Hospital Tax-Exempt Status Issues – Federal tax laws prohibit a tax-exempt entity from bestowing a private benefit or inurement on individuals or taxable entities. Tax-exempt hospitals must operate exclusively in furtherance of their charitable purposes, and a private benefit should only be incidental to any hospital activity. Regulations and published Internal Revenue Service rulings provide extensive guidance to the structuring of tax-exempt hospital/physician joint ventures and other business relationships. DRAFT 7856060066(ppt) 37 A-1
  • LEGAL CONSIDERATIONS A. Federal Law (continued) Reimbursement Considerations – Reimbursement under Medicare may vary significantly based on the setting in which the service is provided and the status of the service provider. Careful consideration should be given to the potential change in reimbursement resulting from a shift of patient services from a hospital setting to an outpatient joint venture environment. Securities Law Compliance – Federal and state laws regulate the offering of ownership interests in business ventures (i.e., securities). These laws generally seek to assure that appropriate written disclosure of the facts regarding the potential risks of the investment is made in advance by the offeror to the investors. There are broad exemptions available under federal and state laws, which will permit the offering of joint venture securities to “qualified” investors if appropriate notice is given to state regulators. DRAFT 7856060066(ppt) 38 A-2
  • LEGAL CONSIDERATIONS B. State Law Certificate of Need – Many states require that certain providers (e.g., hospitals) seek prior approval for a purchase of capital equipment or to establish a new healthcare facility or service. In some cases financial thresholds are established so that only significant expenditures or projects are subject to these requirements. The requirements and procedural rules vary from state to state. Licensure – Most outpatient healthcare joint ventures require the issuance of a state license for the services they provide (e.g., ambulatory surgery centers). This is true even if the service provided by the joint venture would not require a separate license if delivered in a hospital or a physician’s office. The requirements may vary from state to state. DRAFT 7856060066(ppt) 39 A-3
  • LEGAL CONSIDERATIONS B. State Law (continued) Corporate Practice of Medicine – All states prohibit the practice of medicine by a person or entity that is not licensed by that state to practice medicine. Some states, however, refuse to license an entity that is not solely owned and managed by a physician licensed in that state and prohibit the employment of physicians by nonlicensed entities for the purpose of delivering medical care. The specific requirements vary from state to state. In many states in which this prohibition exists, a joint venture between a physician (or his/her professional corporation) and a hospital would be limited to the ownership or management of a facility or the employment of nonphysician personnel in a facility in which the medical services are provided by a licensed physician. Fee Splitting – Most states prohibit the sharing of a physician’s professional fee with another physician who did not share in the delivery of the medical care that generated the fee or with a nonphysician under any circumstances. These laws can prevent a joint venture from sharing the revenue generated by the physicians utilizing the joint venture facility or, at a minimum, they will affect the design of the structure of the venture. DRAFT 7856060066(ppt) 40 A-4