1. E02: Developing Employment Agreements for Quality, Operational Efficiency and Patient Contact ANI: The Healthcare Finance Conference June 29, 2011George Batalis, CPA, Director, Pricewaterhouse Coopers, LLP Curtis Bernstein, CPA/ABV CVA ASA, Director Valuation Services, Sinaiko Healthcare Consulting Roger Logan, CPA/ABV ASA, Corporate Vice President, Catholic Health Partners
2. Introduction George Batalis, CPA DirectorPricewaterhouse Coopers, LLP
3. Current Environment Key Drivers• Affordable Care Act• Accountable Care Organizations• Episode and Case (Bundled) Care Payments• Quality and P4P Initiatives• Physician Work Force Shortages• Reimbursement Reductions Call to Action• Focus of Clinical Integration• Employment of Physicians• Acquisition of Physician Practices• Acquire & Expand Ancillary and Ambulatory Services• Affiliate with other Hospitals and Health Systems
4. Collaboration FactorsFactors driving hospitals to collaborate with physicians:In this era that some researchers describe as one of “loose managed care,”hospitals have at least four reasons to align with physicians. Improves a hospital’s ability to compete for admissions Improve quality of care Control the cost of care Gain leverage with health plans in rate negotiationsFactors driving physicians to partner with hospitals: Increase physicians’ productivity Increase income beyond their professional fees though hospital joint ventures on ancillary services, bonus payments for meeting certain quality objectives, hourly payment for attending medical staff meetings, joint ventures pertaining to real estate, and attractive bond offerings. Better leverage in gaining entry to private insurers’ provider networks and negotiating better payment rates with those insurers.
5. Current Challenges Facing Hospitals & Health SystemsEconomic Challenges:Declining physician compensation is leading all physicians to hospitals forhelp with supplementing their income in the following ways: Call Pay Stipends Medical Directorships SubsidiesHospitals are also faced with additional challenges with employedphysicians and physician groups related to duplicative services that both thehospital and the physicians provide. Some of these duplicative servicesinclude, but not limited to, the following: Billing & Collecting Coding & Documentation Support Administrative Oversight
6. Current Physician Economics• Common Physician Payments from Hospital: Contracted Independent Physicians Employed Physicians Physicians (e.g., Hospital Based) (e.g., Community Based)• Subsidies • Subsidize Physician • Stipends• Directorships Practice • Directorships• Call Pay • Directorships • Call Pay • Call Pay • Duplicative Services• Restructuring physician payments should take on the followingattributes: Regulatory compliant – fair market value Productivity based Aligned with hospital goals Tied to positive practice economics
7. Restructuring Physician ContractsTypical contracted physicians get a subsidy for collections guarantees or sitecoverage with little or none of their compensation at risk for their performance. Toaddress physician performance and provide for a “risk/reward” environment thefollowing are recommended to be included in contracted physician contracts: Location/Site Stipend Ensure the critical coverage needs at the hospital are being met Call Coverage Ensure call coverage for critical services, make the physicians responsible for coordination and coverage of the call schedule Management Duties Instead of just paying for medical directorships that are non-committal in the duties expected, the hospital must build specific detailed managerial and supervisory roles into the duties of the medical director positions Quality/Operational Improvements Hospitals need to include quality and operational incentives that physicians can impact change within the hospital
8. Potential Physician Compensation Structure via Employment orProfessional Services Agreement Compensation Elements Productivity Compensation via Net * Structured through Collections or Work RVU employment contract Methodology or professional services agreement Management consistent with a joint- Stipend/Medical venture / co- Directorship (s)* management company/contract with Quality, Operational & a hospital. New Program Incentives*
9. Example Compensation Model Methodology The largest portion of the compensation methodology would be a productivity based compensation methodology which would pay the physicians on a per work RVU basis. Also, the physicians would receive additional compensation from meeting performance incentives based around quality improvements and operational efficiencies, as well as for participating in managing certain aspects of the service line or medical directorships. Optional: X • Medical Potential = Pro-forma Clinical + = Total Work RVU / Conversion DirectorshipCompensation Compensation / Compensation Physician Factor • Incentive Methodology Physician Pool Compensation • Call Coverage
10. Example IncentivesQuality Performance Elements Operational Performance Patient Satisfaction Elements Infection Rates First morning start times Unplanned return to surgery Room turnover time Demand Matching Standardized clinical care processes SCIP Core Measure Compliance On time start rate Patient prep time Risk Adjusted Complication Rates Wait time Risk Adjusted Mortality Rates Cancellation rates Readmission Rates Utilization of block schedules Medical Records Compliance Case Delays AMI Patient Discharge by 11:00 am, by Aspirin at Arrival 2:00 pm Aspirin at Discharge Admission Protocols ACE inhibitor use for LSVD Staff turnover Throughput Beta blocker prescribed at discharge CHF Discharge Instructions LVF Assessment ACE inhibitor use for LSVD Adult smoking cessation counseling Door to Balloon Time
11. Fair Market Value and Commercial Reasonableness Benchmarks Curtis Bernstein, CPA ABV CVA ASA Director Sinaiko Healthcare Consulting
12. Do You Recognize This Document?
13. Fair Market Value• Stark, Anti-kickback and tax exempt laws ALL require physician compensation arrangements to be fair market value (FMV) Stark FMV Tax Exempt AKS• Enforcement climate is increasingly focused on FMV and commercial reasonableness
14. Stark and Anti-Kickback Law• Employment Exception under the Anti-Kickback Law – “[s]hall not apply . . . to any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items and services.• Employment Exception under the Stark Law – The employment is for identifiably services – The amount of remuneration paid is consistent with the fair market value of the services – The amount of remuneration paid does not take into account the volume or value of any referrals made by the referring physicians – The amount of compensation paid would be commercially reasonable even if no referrals are made to the employer; and – The employment meets such other requirements as the Secretary of Health and Human Services may impose by regulations as needed to protect against program or patient abuse.
15. FMV Definition• Fair Market Value Requirement under all Laws – No definition of FMV under Anti-Kickback Law – Stark Law definition: Fair market value means the value in arm’s-length transactions, consistent with the general market value. General market value means “. . . the compensation that would be included in a service agreement as the result of bona fide bargaining between well- informed parties to the agreement who are not otherwise in a position to generate business for the other party on the date of acquisition of the asset or at the time of the agreement.” Stark II, Phase III Final Rule (42 CFR Section 411.351)
16. “Almost” Safe Harbor• Stark II, Phase II created a “safe harbor” provision in the definition of fair market value relating to hourly payments to physicians for personal services. – Hourly rate, determined as the average of the median reported by at least four national services divided by 2,000 hours, is less than or equal to the average hourly rate for emergency room physician services in the relevant physician market – Surveys include Sullivan Cotter, Hay Group, Hospital and Healthcare Compensation Services, MGMA, Watson Wyatt, and William M. Mercer
17. Benchmark Surveys
18. Data Available for Benchmarking• wRVUs• Professional Collections• Encounters• Total RVUs – Includes practice expense RVUS for designated health services (DHS)• Total Collections – Includes ancillary revenues from DHS• Operating Expenses
19. Benchmarking Example Benchmark FTE 25th 75th 90thSub Specialty Status 2010 Data Percentile Median Percentile Percentile %ileNon-Invasive/General 1.0 473,475 428,296 611,771 838,094 1,216,953 31PInvasive/Interventional 0.6 350,134 610,536 762,549 962,796 1,204,643 24PElectrophysiology 1.0 850,422 615,358 742,237 948,202 1,123,496 63P Benchmark FTE 25th 75th 90thSpecialty Status 2010 data Percentile Median Percentile Percentile %ileNon-Invasive/General 1.0 5,770 5,408 7,117 9,315 12,134 30PInvasive/Interventional 0.6 4,575 7,465 9,447 12,529 16,081 27PElectrophysiology 1.0 12,293 8,040 9,846 12,447 17,116 74P Is there a perfect correlations? How do I weigh these?
20. Understanding Benchmarks• Which survey(s) does not include sign on bonuses in MGMA total compensation?• Which survey presents shareholder and non- AMGA shareholder data separately?• Which survey(s) include SCA physicians providing full time administrative services with clinic based physicians?
21. Correlating Statistics• Every physician is not paid for every possible service (e.g., not all physicians are medical directors)• According to the 2010 MGMA Compensation Survey, approximately 30% of providers receiving a quality based incentive bonus and less than 50% of physician earn any form of incentive bonus.
22. Determining FMV Compensation - AGAIN • Should the physician producing at the 90th percentile wRVUs earn 90th percentile compensation per wRVU? – Maybe, but unlikely – The physician should not be compensated at the 90th percentile compensation per wRVU solely for clinical services – The 90th percentile compensation per wRVU should be earned through a culmination of multiple services Comp / Comp / wRVU Extended 90th %ile % wRVU Extended % Specialty wRVUs (75P) Comp Comp Higher (90P) Comp HigherInternal Medicine 7,214 $ 50 $ 359,009 $ 316,038 113.6% $ 61 $ 443,255 140.3%General Cardiology 12,450 70 868,245 637,929 136.1% 92 1,144,716 179.4%Hem Onc 7,905 103 816,194 783,651 104.2% 127 1,004,208 128.1%
23. Compensation per wRVU TrendSource: MGMA Physician Compensation andProductivity Survey: 2010 Based on 2009
24. Stacked Compensation Paying for Call Coverage, Medical Directorships, P4P, Supervision, Sign On Bonus, Etc.• Need to determine if the total compensation is reasonable.• Additional benchmarking: – Compensation per wRVUs – Compensation to professional collections – Compensation per total RVUs – Compensation to total collections – Compensation per encounter
25. Post -Transactional Management and AdministrationRoger Logan, CPA/ABV ASA Corporate Vice President Catholic Health Partners
26. 3-D Perspective
27. Calculating the Risks
28. CY 2011 - Case ExampleAssumptions – Employed Procedural Specialists – Physician compensation model reflects the following key components: Individual Productivity Component Quality/Clinical Measures Component Practice Efficiency and Financial Component – The compensation plan is developed and derived through the due diligence efforts by CHP and its independent legal and compensation valuation advisors; and will be subject to initial and ongoing annual reviews to assure consistency and regulatory
29. Case Example 2011 Compensation Summary Employed Specialist Physicians For Illustration and Discussion Purposes Only COMPENSATION COMPONENTS CY 2011 PhysicianA. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3 Adjusted wRVUs Scheduled Tiers (2) wRVUs (1) 10,000 12,000 14,000 Tier From To Payout Rates I - 7,000 $ 38.00 $ 266,000 $ 266,000 $ 266,000 II 7,001 11,000 $ 43.00 129,000 172,000 172,000 III 11,001 15,000 $ 48.00 - 48,000 144,000 wRVUs in Excess of Highest Tier Paid @ $ 48.00 Personal Performed Productivity $ 395,000 $ 486,000 $ 582,000 85.7% 85.7% 85.7%B. Practice Efficiency Incentive (3) The targeted operational improvements in operations and incentive will be calculated as a % of the individual professional production. Practice Efficiency Incentive 5.0% $ 19,750 $ 24,300 $ 29,100 4.3% 4.3% 4.3%C. Quality and Clinical Measure Incentives (4) Targeted Quality Incentive will be based on the achievement of specified 100.0% quality and clinical measures incentives and targeted @ 10% of Total Comp Quality and Clinical Incentive 11.7% $ 46,215 $ 56,862 $ 68,094 10.0% 10.0% 10.0% Total Compensation by Physician Before Professional Adjustments $ 460,965 $ 567,162 $ 679,194 $/wRVU $ 46.10 $ 47.26 $ 48.51 100.0% 100.0% 100.0%
30. Market TrendsReimbursement CPT Nonpayment for Reimbursement Rate Code Preventable CPT Code Complications Pay for Volume Performance Today TomorrowPhysician Compensation Efficiency Quality Productivity Source: Sullivan Cotter and Associates; 2011
31. Case Example 2013 Compensation Summary Employed Specialist Physicians For Illustration and Discussion Purposes Only COMPENSATION COMPONENTS CY 2013 PhysicianA. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3 Adjusted wRVUs Scheduled Tiers (2) wRVUs (1) 10,000 12,000 14,000 Tier From To Payout Rates I - 7,000 $ 33.00 $ 231,000 $ 231,000 $ 231,000 II 7,001 11,000 $ 38.00 114,000 152,000 152,000 III 11,001 15,000 $ 43.00 - 43,000 129,000 wRVUs in Excess of Highest Tier Paid @ $ 43.00 Personal Performed Productivity $ 345,000 $ 426,000 $ 512,000 74.2% 74.2% 74.2%B. Practice Efficiency Incentive (3) The targeted operational improvements in operations and incentive will be calculated as a % of the individual professional production. Practice Efficiency Incentive 8.0% $ 27,600 $ 34,080 $ 40,960 5.9% 5.9% 5.9%C. Quality and Clinical Measure Incentives (4) Targeted Quality Incentive will be based on the achievement of specified 100.0% quality and clinical measures incentives and targeted @ 20% of Total Comp Quality and Clinical Incentive $ 92,460 $ 114,168 $ 137,216 19.9% 19.9% 19.9% Total Compensation by Physician Before Professional Adjustments $ 465,060 $ 574,248 $ 690,176 $/wRVU $ 46.51 $ 47.85 $ 49.30 100.0% 100.0% 100.0%
32. Quality Measures• Accordingly, CHP has identified over 800 Industry Standard Quality Measures from organizations such as Centers for Medicare & Medicaid Services (CMS), Joint Commission on Accreditation of Healthcare Organizations (JCAHO), National Quality Foundation (NQF), and Agency for Healthcare Research and Quality (AHRQ) for possible in the following areas: Acute Care Long-Term Care Emergency Department Ambulatory Surgery Behavioral Health Physician / Clinic Home Health Health Plan / Population Based
33. Reimbursement Market Trends Quality Patient Improvement Population Consumer Down the Value Road Physician Compensation Value Quality Productivity ?Source: Sullivan Cotter and Associates; 2011
34. Sample Performance Matrix Patient Satisfaction Clinical Utilization and OutcomesExamines patients’ perceptions of Describes the clinical performance oftheir care experience including their hospital and business unit and refersperceptions of the overall quality of to such things as access to hospitalcare, outcomes of care, and unit- and specific service volumes, clinicalbased care at a single point and efficiency, and quality of care.various points of time.Financial Performance and Condition System Integration and ChangeDescribes how each hospital and Describes a Sample Hospital’s abilitybusiness unit manages their financial to adapt to its changing health careand human resources. It refers to a environment. More specifically, itfinancial health, efficiency, examines how clinical informationmanagement practices, and human technologies, work processes, andresource allocations, targets and community relationships functionresults. within the health and hospital systems across the region.
35. Performance Measures• Process of care - A healthcare service provided to or on behalf of an individual or population• Outcome of care - The health state of an individual or population resulting from healthcare• Access to care - An individual or populations attainment of timely and appropriate healthcare• Experience of care - An individual or populations report concerning observations of and participation in healthcare• Structure of care - A feature of a healthcare organization or clinician relevant to its capacity to provide healthcare• Provider of care – Direct linkage to the provider of care
36. Transitioning to a Performance Metrics• Relevance to stakeholders - The topic area of the measure is of significant interest, and financially and strategically important to stakeholders (e.g., businesses, clinicians, patients).• Health importance - The aspect of health the measure addresses is clinically important as defined by high prevalence or incidence, and a significant effect on the burden of illness (i.e., effect on the mortality and morbidity of a population).• Applicable to measuring the equitable distribution of health care - The measure can be stratified, or analyzed by subgroup to examine whether disparities in care exist among a population of patients.• Potential for improvement - There is evidence indicating that there is overall poor quality or variations of quality among organizations indicating a need for the measure.• Susceptibility to being influenced by the health care system - The results of the measure can be put into actions or interventions that are under the control of the user, leading to improvements that are known to be feasible.
37. Example – The Value Proposition CY 2011 CY 2013 CY 2015 Assigned Area Value % Area Value % Area Value % PERFORMANCE AREA(S) Weight Weight 10% Weight 20% Weight 30%Patient Care Considerations 40.0% 4.0% 55.0% 11.0% 75.0% 22.5% Percent Time Response Response Time(s) (a) Achieved Time Emergency Response 90.0% within 30 minutes 5.0% Urgent Response 90.0% within 4.0 hours 5.0% Service Preparation and Start-Times 90.0% within 30 minutes 5.0% Post-Op visits on inpatients 90.0% within 24 -48 hours 5.0% Reports (Pre and Post Operative) 90.0% within 24 hours 5.0% JCAHO and Other Core Measures (b) Quality Targets and Service Standards 5.0% Patient Protocols and Pathways 5.0% ACO/PCMH Recommendations and Improvements 5.0%Service Productivity 15.0% 1.5% 10.0% 2.0% 5.0% 1.5% Percent Time Targeted Adequate Staff and Service Coverage (c) Achieved Performance Professional Sevice and Call Coverage Requirments 95.0% 90% of Svc. Rqmts 5.0% Workload/Workforce Management Target of Section 98.0% Top 25 Percentile 5.0% Resource Utilization and Service Efficiency Rating 91.0% Top 25 Percentile 5.0%Medical Staff and Referral Source Relations 15.0% 1.5% 15.0% 3.0% 5.0% 1.5% Committee Memberships Participation 5.0% Leadership 5.0% Service Satisfaction (d) > 90% 5.0%
38. Example –The Value Proposition (Continued) CY 2011 CY 2013 CY 2015 Assigned Area Value % Area Value % Area Value % PERFORMANCE AREA(S) Weight Weight 10% Weight 20% Weight 30%Financial Responibility 10.0% 1.0% 10.0% 2.0% 10.0% 3.0% Annual Budgets: Preparation and Achievement (e) 2.0% Cost Containment and Service Efficiencies (f) 2.0% Management Care Participation Targets(g) 4.0% Fee Management Targets(g) 2.0%Organizational Development Participation 5.0% 0.5% 5.0% 1.0% 2.0% 0.6% Attendance @ Non-sectionMeetings 2.5% Interdisciplinary Efforts on System/Hospital Issues 2.5%Human Resource Management 15.0% 1.5% 5.0% 1.0% 3.0% 0.9% Staff Development and Training Participation 5.0% Staff Supervision and Management 5.0% Staff Satisfaction 5.0% TOTAL PERFORMANCE WEIGHT 100.0% 10.0% 100.0% 20.0% 100.0% 30.0%
39. Case Example 2015 Compensation Summary Employed Specialist Physicians For Illustration and Discussion Puproses Only COMPENSATION COMPONENTS CY 2015 PhysicianA. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3 Adjusted wRVUs (1) 10,000 12,000 14,000 Base Salary $ 33.00 (2) $ 330,000 $ 396,000 $ 462,000 70.0% 67.8% 65.7%B. Practice Efficiency Incentive (3) The targeted operational improvements in operations and incentive will be calculated as a % of the individual professional production. Practice Efficiency Incentive 0%-5% $ - $ 9,900 $ 23,100 0.0% 1.7% 3.3%C. Value Consideration: Quality and Clinical Measure Incentives (4) Targeted Quality Incentive will be based on the achievement of specified 100.0% quality and clinical measures incentives and targeted @ 30% of Total Comp Quality and Clinical Incentive $ 141,570 $ 178,200 $ 218,064 30.0% 30.5% 31.0% Total Compensation by Physician Before Professional Adjustments $ 471,570 $ 584,100 $ 703,164 Professional Expense Adjustments (i.e., discretionary exenses) (5) - - - Net Physician Compensation Available $ 471,570 $ 584,100 $ 703,164 $/wRVU $ 47.16 $ 48.68 $ 50.23 100.0% 100.0% 100.0%
40. Positioning for ACOs/PCMHs and Episode-of-Care Payments1: Creating a Case Rate for Each Provider in Each Phase of an Episode of Care – e.g., paying each physician a single fee for a patient’s hospital stay2a: Including a Warranty in Each Provider’s Case Rate – e.g., including the cost of any related hospital readmissions in the hospital’s DRG payment2b: Bundling Case Rates for All Providers in a Particular Phase of an Episode of Care – e.g., paying a single fee to both the hospital and physicians managing the hospital stay3: Bundled Rates with Warranties – e.g., paying a single fee to the hospital and physicians, covering the initial admission and readmissions4: Combining the Case Rates for all Phases of an Episode – e.g., paying a single fee for both inpatient and post-acute care
42. The Future Revisited Aggregation Definitions Performance Service of Services Line CPT Hospitalization Outcomes/SafetyICD10 - CM APR - Procedure DRG Episodes Readmissions MS - of Care Providers Quality DRG (ETGs) Time APR - Reimbursement Horizon Condition DRG PricingResource Consumption Profiles Allocation of $ Service Analytics Payment Cost Analytics ACO Payee Reform Market Analytics Pricing Analytics Solvency Bundled Payment for Viability Case of Care Capital