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Final Kalkhof Tri State Hfma 09 15 11 Integrated Service Lines And Managed Care
 

Final Kalkhof Tri State Hfma 09 15 11 Integrated Service Lines And Managed Care

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    Final Kalkhof Tri State Hfma 09 15 11 Integrated Service Lines And Managed Care Final Kalkhof Tri State Hfma 09 15 11 Integrated Service Lines And Managed Care Presentation Transcript

    • HFMA 2011 Tri-State Fall Institute(Florence, Indiana) L E A D E R S H I P  P R O B L E M SO L V I N G  V A L U E C R E A T I O N September 15, 2011 Building a Value-Driven Integrated Service Line Care Continuum: Business Models, Strategic Pricing and Managed Care Contracting Strategy Christopher J. Kalkhof, FACHE Director, Healthcare Industry Group (New York Office)© Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.
    • Presentation Agenda Traditional vs. Population Managed Care Delivery Models Transitioning to a Service Line Focus Defining Service Line Core Capabilities Across Care Continuums ACOs, Clinical Integration and Emerging Payment - Transitioning to a Value-Driven Model of Care Clinical and Capital Resource Allocation Decisions Physician Alignment Models which Strengthen Service Line Performance and Manage Care Contracting Strategies Building Blocks to Establish a Distributed Care Delivery Network to Support Core Service Lines Service Line Pricing Process to Optimize Payer Reimbursement and Manage Financial Risk Lessons Learned Q&A and Program Close © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 2
    • Traditional vs. Population Managed Care Delivery ModelsCreating A Future Care Delivery and Financing Model "The best way to predict the future is to invent it." – Alan Kay "The future belongs to those who see possibilities before they become obvious." – John Sculley What type of organization do we need to become to have a sustainable business model under healthcare reform? © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 3
    • Traditional vs. Population Managed Care Delivery ModelsMacro View - Post ACA Delivery Models Best value for buyers and patients? TRADITIONAL CARE MANAGEMENT MODEL POPULATION MANAGEMENT CARE MODELMedicare and Medicaid continue to evolve ACO and other global capitation or their payment systems (e.g., ACOs) and bundled payment models growing margin gap – Shared risk for providersFFS with Quality and Other P-4-P Requires hospitals and physicians to align incentives… goal to control price and deliver patient care across careProviders compete for reduced revenues… Do more with less! continuums… “In-Network” emphasis”5% of patients with high cost/complex Key characteristics of a population care continues to consume 50%+ cost management model:More physicians seeking employment due – Integrates and coordinates care around to unsustainability of practices the clinical/social needs of patientsIndustry consolidation… big may “win” – Focus on health promotion/prevention but may not provide better value – Organized to manage acute and chronicContinued acute care focus disease from non-complex to complexDisaggregation of hospital services to – Balances financial/clinical incentives ambulatory… unused capacity increases – End-to-end patient pathwaysProviders at increased bankruptcy risk – Regional model approach © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 4
    • Traditional vs. Population Managed Care Delivery ModelsMacro Reimbursement Drivers Best value for buyers and patients? TRADITIONAL F-F-S VOLUME DRIVEN/NO GLOBAL-BUNDLED/FINANCIAL RISK/ RISK/COMPETING VS. ALIGNED INTERESTS COLLABORATIVE AND ALIGNED INTERESTSDiffuse collection of interests between A single global payment or an episode physicians and hospitals… non-aligned specific bundled paymentsPhysician focus at practice level and/or Allows the “contract holder” to use ambulatory invested interests funding to pay providers for servicesDeclining economics and declining which may not have been a prior favorable payer contracts… incents covered benefit… e.g., patient education physicians to compete directly with Risk adjusted payment levels hospitals for higher dollar services Flexibility to pays for services based onIT tools designed for F-F-S model and targeted quality metrics and outcomes limited access to capital makes it Shared risk aligns hospital and physician difficult to evolve from current model interest at a clinical and business levelMany regulatory barriers to hospital Organized to manage acute and chronic and physician alignment disease from non-complex to complexUnsustainable over long-term… Nash care in the most appropriate patient equilibrium continues care setting © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 5
    • Traditional vs. Population Managed Care Delivery ModelsMacro Alignment/Integration Drivers Best value for buyers and patients? INDEPENDENT / COOPERATIVE MODEL CLINICAL INTEGRATION / ALIGNMENTVolume rewarded regardless of quality Clinical integration model to manage and patient outcomes populations…Payer cost containment through price, – Process integration models payment rules and utilization controls – ACO type integration modelsPays each provider separately with no – FTC regulatory type integration models linkage to patient care coordination, Various disease/chronic care satisfaction or efficiency of services management programs in place andDoes not pay for non-medical services shared payer contractual arrangements such as patient education Complete care continuums...Provider decisions often made with little – Vertical integration with physicians patient understanding of options – Distributed network modelsIncents providers to focus on services – A true clinical and business strategic which reimburse the most vs. what is in alliance can create a market disruptive the best clinical interests of the patient care delivery service model © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 6
    • Traditional vs. Population Managed Care Delivery ModelsCompetitive Positioning Best value for buyers and patients? INCREMENTAL-MARKET DRIVEN INNOVATION-MARKET LEADING Preparing for future state… but protective of  Creating future state: – Market disruptive alliances/technologies current model and current services – Leading change Characteristics:  Characteristics: – Filling service gaps – Program innovation – Protecting and balancing market share… – Population management incremental growth – Outpatient “hospitals w/o beds” – Transitioning select hospital services to – Built around Divisional Structure Service community based settings Lines and Physicians – Matrix and Modified Service Lines models  Success Measures: most common – Population managed is under financial Success Measures: risk-provider accountability – Market share (inpatient focused) – Quality of care and patient outcomes – Quality of care – Improved patient – Patient satisfaction experience/convenience Risks: – Preventive medicine/healthier popul. – Presumes future much the same as today – Minimal “out-of-network” leakage – Successful innovators  Risks: – “Fast Following” is a high risk strategy and – Early adoption, uncertainties and capital capital intensive intensive © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 7
    • Traditional vs. Population Managed Care Delivery ModelsHealthcare Reform Goals: Federal and State Objectives Combined Effects of Healthcare Reform – Federal and State Affordable Care Act and State Medicaid Medicare Payment Reforms Significant budget challenges, Significant budget challenges, no longer sustainable no longer sustainable Transform the Current Healthcare Delivery & Financing Model Reduce the cost More affordable growth trend and coverage and more promote high- Integrated care covered individuals value, effective care managed across the care Improve access, Hold providers continuum is at quality and patient accountable for the heart of safety their performance reform Financial incentives to Population and disease better align and care management coordinate care delivery Payment Reform The above supports a transition to a new model of care… ACOs are one example of a new model… based on population management! © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 8
    • Traditional vs. Population Managed Care Delivery ModelsStrategic Considerations: “C-Suite” Uncertainty - Future ModelsShared requirements for sustainable business models in the future…1. Reimbursement will reward value/penalize poor value and provider financial risk will increase.2. Effective physician alignment and integration is the cornerstone from which all future service mix and patient strategies must be built.3. The provider organization’s core care delivery model must account for the above two pivotal factors. Reimbursement Physician Alignment Care Delivery and Risk and Integration Model © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 9
    • Transitioning to a Service Line FocusLimitations in Traditional Hospital Services Approach Lack of a Reliable Measure of Success... patients do not “buy” a "med/surg" bed yet we contract for med/surg per diems. Inability to See the Big Picture... traditional hospital organizational structures consist of care delivery and management silos of activity. Internal, Hospital-Centric Focus… concentrates on providing services to patients… without addressing how to bring patients to the hospital to begin with or whether the services can be delivered closer to home… no one is responsible for growing the business. Focus on Cost Management and Benchmarks rather than on Growth, Improving Quality or Maintaining a Flexible Care Delivery Model... Cost management is important, especially in an era of budget cuts, reimbursement freezes or reductions… too much focus on cost management can paralyze an organization to a level of inaction. TRADITIONAL VS. SERVICE LINE APPROACH AT YOUR ORGANIZATION? © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 10 10
    • Transitioning to a Service Line FocusThree Basic Service Line Organizational Models1. Matrix Organization:  Organized around traditional departments and service lines.  Managers and staff have two lines of accountability.  Service Line and Department Managers make joint decisions.  Represents a 1st stage transitional model, but is a complex model to manage and can lead to directional conflicts.2. Modified Service Line Divisions:  Primary reporting built around self-contained Service Lines to take care of patients whom fall into Service Line category (e.g., cancer, cardio-vascular).  Primary focus is on service line growth which, however, can lead to conflicts with shared resources and potential to allocate more resources to traditional high reimbursement I/P services vs. the overall Service Line care continuum.3. Divisional Structure Service Lines:  Complete divisional focus on Service Line which encompasses the entire care continuum… hospital becomes a focused-factory model vs. all services model.  Can lead to organizational fragmentation if shared services culture is not present. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 11
    • Transitioning to a Service Line FocusSuccessful Service Line Business Models Service Lines are organized around specific physician/hospital core services (e.g., what are you best known for in the community… Cancer, Ortho/Rehab, Cardiac, Neuro-Sciences, Women’s, Geriatric, primary care, etc.)? In competitive markets, Service Lines allow hospitals to differentiate themselves as well as better attract/retain physicians vs. being a general acute providing all services. For health systems, Service Lines allow you a focused means to allocate resources to better meet market demand and become focused factory centers of excellence (e.g., the ABC Heart Institute, the XYZ Cancer Center). In a competitive market in which hospitals compete against both other hospitals and their own medical staff… Service Lines offer a physician alignment strategy which is critical for risk-based payer contracts. Organization has a culture of collaboration. Are designed to encompass the entire care continuum… i.e., not I/P focused. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 12 12
    • Defining Service Line Core Capabilities Across Care ContinuumsF-F-S Service Line Business Models Define service area(s) and clinical service line area. Determine which services result in the highest reimbursement. Define current and anticipated service line needs… inpatient and acute-care campus (I/P and O/P) focused. Determine capability to provide services… staffing, clinical and tech needs. Determine drivers of profitability… e.g., volume, price, cost, etc. Integrate Service Line strategy with organizational strategic plan and market branding strategy. Build organizational accountability and performance management mechanisms. Add Service Line components such as an ambulatory surgery center based on patient need and profitability contribution to Service Line. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 13
    • Defining Service Line Core Capabilities Across Care ContinuumsPopulation Management Service Line Business Models  What patient populations do we actually serve today?  What are the core service needs of these patients relative to the services that we provide (end-to-end patient care pathways)?  What is the associated care continuum relative to our service capabilities and capacity (inpatient, outpatient and ambulatory) and what does that vertically integrated care continuum look like at a procedural level?  What care is needed that we do not provide today and how do we incorporate those services into our Service Line?  How do we integrate the Service Line strategy with the organizational strategic plan and market branding strategy? THINK ABOUT HOW YOU WOULD APPROACH BUILDING A CA “KAISER- LIKE” CARE DELIVERY MODEL TO MANAGE PATIENT POPULATIONS 14 © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 14
    • Defining Service Line Core Capabilities Across Care ContinuumsPopulation Management Service Line Business Models  How will we address… …disease management… demand management… catastrophic care management… disability management… lifestyle management… individual needs within groups which cross multiple service lines… alignment of financial incentives… evaluation metrics… organizational resource allocations… referral coordination in-out of network… IT/data analytic needs… overall provider network and case management… patient clinical risk and complexity relative to the most appropriate care setting… improving the overall patient experience?  How do we price all of the above within our own organization and on a 3rd party payer basis (e.g., bundled payment or global capitation)? 15 © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 15
    • Defining Service Line Core Capabilities Across Care ContinuumsPopulation Management Service Line Business ModelsIllustration – Adult-Peds-Seniors: Trauma-Neuro-Spine Service Line Care Continuum Injury, illness, surgery or other intervention Trauma/ED-ICU- Hub-and-Spoke Illustration: Rehabilitation Decline in status due 5 to adverse advent Acute Care Services for Neuro-Spine-Ortho-Stroke Highest functional level achieved NO (Identify ongoing patient needs) YES Inpatient Rehabilitation – 4 IRFs & Other Sub-Acute Re-referred for additional careCare Complexity Level Highest functional level achieved NO (Identify ongoing patient needs) Goal Multi-Specialty Center YES 3 Re-referred for additional care Identification Ambulatory Rehabilitation Further rehabilitation Highest functional level achieved NO (Identify ongoing patient needs) goals identified, but not met at current level of YES Collaborative Care 2 Rehabilitation Re-referred for additional care rehabilitation Patient re- referred Highest functional level achieved NO (Identify ongoing patient needs) YES Community 1 Rehabilitation Highest functional level achieved NO (Identify ongoing needs) YES Discharge Highest functional level achieved for an individual at the time. Patients with long-term needs can receive expert follow-up and re-enter the care continuum if required. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 16
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsMedicare ACOs… Possible Framework for Medicaid As WellCMS demonstration program beginning January 2012: Requires integration across providers and across settings Demands genuine focus on quality and care coordination Offers framework for providers to be in chargeACO rule released March 31, 2011… but… …the proposed rule includes many more administrative and operational requirements than expected. – Key operational components of an ACO… Network Development and Management… Care Coordination, Quality Improvement and Utilization Management… Clinical IT… Data Analytics. – CMS original projected average cost of developing an ACO was approximately $1.8 mm. – AHA estimated costs of developing an ACO = Start-up costs of $5mm - $12 mm… ongoing annual operating costs of $6mm - $14 mm. No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 17 17
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsMedicare ACOs… Possible Framework for Medicaid As Well  ACOs and how they will interact with the Stark Law, the kickback statute, and Civil Money Penalties Law remains an open question. – Clinical integration models allow a “safe harbor” on the regulatory issues but require significant IT investments and a broad based alignment and clinical integration of care delivery with physicians and many provider organizations were hoping for a less costly and time consumptive solution through ACOs. How many providers will apply for ACO status in 2012? How many will wait-and-see? What are the risks of either option if the provider organization is revenue dependent on Medicare patients? No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 18 18
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsMedicare ACOs… Possible Framework for Medicaid As Well ACO Eligibility & Structure… an ACO may be formed by: – Physicians or certain allied health professionals in group practice arrangements.  Networks of such practices (Medicare certified only). – Joint ventures between such practices and hospitals. – Hospitals employing physicians or certain allied health professionals. – Start date for first ACOs… January 1, 2012. Must be a separate legal entity (LLC, LLP, Foundation, etc) with a TIN. Governing body must provide “proportionate representation” to various ACO participants. If approved, ACOs enter into 3-year agreement with CMS, beginning January 1 after approval – During 3 years, ACOs can remove but may not add ACO participants; ACO may add/remove suppliers. No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 19
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsMedicare ACOs… Possible Framework for Medicaid As Well Application process requires ACOs to document how they plan to: – Promote evidence-based medicine… Promote beneficiary engagement… Report internally on quality and cost metrics… Coordinate care. Operational Requirements… major obligations include: – Physician-directed quality assurance and performance improvement… Primary care providers must be exclusive to ACO… At least ½ of primary care MDs must qualify as “meaningful users” of electronic medical record technology by end of 1st year of participation… Demonstrated financial capacity to repay any amounts owed to CMS for shared losses… Full-time board-certified medical director physically present at ACO site… Agree to CMS publishing quality and cost-related performance data pertaining to the ACO. Reimbursement: Two Tracks for Payment, Shared Savings Methodology and a Defined Mechanism for Distribution of Gains/Losses. No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 20
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsClinical Integration – FTC Compliance GuidelineFTC review considerations typically encompass the following:1. Integration of facilities/practitioners that represents true inter- dependence in collaboration and productive information sharing.2. Participation of both specialists and primary care physicians, in a way that requires in-network referrals.3. Treatment of a broad spectrum of diseases/disorders accompanied by a comprehensive array of corresponding clinical protocols.4. Integrated information technology that allows network providers to efficiently and effectively exchange information regarding patients and practice experience.5. Integrated IT in which utilization and claims information is collected, analyzed, and distributed with the goals of lowering costs, reducing utilization rates, and improving the quality of care. No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 21
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsClinical Integration – FTC Compliance GuidelineFTC review considerations typically encompass the following:5. Integrated IT that enables the measurement of physician compliance and performance, in comparison to widely accepted, peer-reviewed benchmarks and standards.6. A high level of physician financial investment and commitment of time for training and utilization of the system, accompanied by agreement among physicians to comply with the standards, benchmarks, and protocols of the network.7. Processes for improving performance and compliance, with enforceable consequences for non-compliance.Greater Rochester IPA (Rochester, NY) – FTC advisory opinion “Gold Standard” for clinicalintegration. For-profit partnership (PHO) which is 50% owned by non-profit RochesterGeneral Health System (2 hospitals) and 50% owned by physician shareholders who madecapital investments ( 430 private practice, 230 employed by RGHS and 120 non-shareholders, representing 41 medical and surgical specialties). No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 22
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsClinical Integration – FTC Perspective: Collective NegotiationsFTC & DOJ Antitrust Policy Regarding “Collective” Contracting:Each case is evaluated by the specific criterion associated with providernetworks/ affiliations which are created through a clinical integrationbusiness model… if payer contracts do not involve a substantial sharing offinancial risk, there are some common themes the FTC looks for: Joint contracting is essential to achieve integration goals/results and is considered… an ancillary requirement. Same measures across all payers… same network for all payers. Common procedures at practice level for all contracted plans. Stable networks… non-exclusive… efficiency in credentialing. Mechanisms to monitor/control utilization, costs and assure care quality. – Selectively choosing network physicians to further these objectives. – Significant investment of human/financial capital to gain efficiencies. No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 23
    • ACOs, Clinical Integration and Emerging Payment and Value-Driven ModelsPayment, Risk Management and Clinical Integration Care Delivery and Financial Risk Continuum Full Global High Capitation Competitive Episodes of Care & Market and Degree of Financial Risk Gainsharing Global Hospital Provider Risk Is Capitation Dominant Global Hospital Case Rates Medical Homes Low High Acct Care Orgs Non-Competitive (Physician Model) Market and Required Risk Withholds Emerging Care Delivery & P-4-P Provider Risk is Hospital PPS (IP/OP) Uncommon Model? FFS Charges Low Degree of Clinical integration © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 24
    • Clinical and Capital Resource Allocation DecisionsService Line Organization: Resource Allocation Criterion Care Location Site & Decision Criteria Clinical RiskFrequency of Frequency of demand (cholecystectomy vs.Access weekly follow-up at PCP office) Establish clinicalInvasive vs. Anatomic invasiveness, sedation, vascular access, risk sortingNoninvasive potential for complications criterion relative toLikelihood of Conditions and chronic diseases with high need for acute/Admission potential for admission post-acute Facilitates physician and patient compliance with admission or onClinical Pathways clinical pathways campus care with Technologies requiring capital investment or high associated risk ofCapital Intensity level support admission vs. care Large fixed resources placed near statisticalMarket Demand delivered at an off- median areas of demand (current and growing)Operational Reduces variability and improves quality of campus, in theEfficiency care… specific care usage design vs. capacity fill communityCost Reduction Reduces hospital costs (rather than shifts costs) ambulatory care settingPhysician Alliance Balance between cooperation and competition Building blocks for resource allocations and site locations! 25 © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 25
    • Clinical and Capital Resource Allocation DecisionsPhysical Site of Service Delivery Decision Criterion  Ability to maximize patient catchment area Market Access  Ability to attract and retain physicians and staff and  Ability to project a positive image and attract new patients Competitiveness  Ability to have a dominant presence at the site/service cluster  Proximity to public transportation Accessibility  Convenient access for physicians, employees and patients  Availability of adequate contiguous land for new construction/expansion Deliverability  Compliant land use and ability to obtain zoning variance if necessary  Availability/ability to co-locate supporting service lines (e.g., ambulatory services serving multiple patient populations) Community  Likelihood of garnering support of neighbors in surrounding Impact community Flexibility  Ability to expand operations in future/availability of adjoining land Building blocks for resource allocations and site locations! © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 26
    • Physician Alignment Models Which Strengthen Service Lines and Payer ContractsAlignment Strategy - Employed and Independent Physicians PHOs and IPAs can serve as an organizing model for clinical integration and as a platform for offering member physicians various value-added services. – What about physician business alignment as more-and-more hospitals and physicians are in direct competition with each other? – Consider the nature of the physician’s practice today... e.g., completely office-based, primarily hospital-based or hospital-independent physicians pursuing service opportunities often offered by the hospital in an outpatient capacity. Hospitals are also employing more physicians for non-strategic reasons. Hospitals have... the capability to, if they have the will to... Explore and develop fast-track physician strategic alliances basis... i.e., < 1 year. Hospital-physician alliances can serve as the strategic framework for the development and implementation of a sustainable business model for the ambulatory care components of service line care continuums. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 27
    • Physician Alignment Models Which Strengthen Service Lines and Payer ContractsAlignment Strategy - Employed and Independent Physicians Physician Collaboration Models to Consider: 1 – Physician Enterprise Model (i.e., one in which the physicians and hospital retains respective asset/operating license ownership). – An Equity Joint Venture Model (e.g., can be specific to service lines). – Leasing Model (e.g., joint venture to acquire leasing equipment). – Time Share Lease Structure (e.g., fixed blocks of time in an ambulatory surgery center). – Under Arrangements Joint Venture (e.g., hospital and physicians form a JV to acquire imaging equipment and operate at a hospital). Note: A multitude of legal and regulatory issues are associated with any type of hospital-physician strategic alliance. (1) No Legal Opinion implied. Based on Layman’s understanding © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 28
    • Physician Alignment Models Which Strengthen Service Lines and Payer Contracts Alignment Strategy - Employed and Independent PhysiciansSome key issues to be addressed in developing a physician alliance strategy: Planning and deal execution process are key to developing a sustainable strategic physician alliance. Successful deal execution depends on a timely coordination of internal party discussions and the use of outside advisory resources (e.g., Legal). A hospital-physician strategic alliance model should consider: – Assessment of physician party(ies) interests, goals and objectives. – Business planning to determine project feasibility. – Review of structuring options, including areas of legal risk and reimbursement analysis. – Organization of the deal process and timelines to commit (planning assessment to execution should be less than one year). – Agreement between parties on governance and sharing of financial reward/risk. – Ownership and management terms. – Physician investor eligibility requirements, redemption terms, rights of first refusal and non-compete provisions. No Legal Opinion implied. Based on Layman’s understanding 29 © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 29
    • Building Blocks to Establish a Distributed Care Delivery Network for Service LinesEvolving From Volume to Value Driven Care Delivery ModelsTraditional Health Services Organization Pyramid: Current vs. Future Current Future Acute Value for… “Payments and * Patients/Families? referrals not linked Rehab & * Purchasers? to value” Sub-Acute * Physicians? “No direct “Payments linkage to cost, Ambulatory and referrals quality or are linked to outcomes” value” Physicians E.G., A population of 800,000 (13% seniors) generates approximately 10 million ambulatory care services, which in turn generates “X” admissions © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 30
    • Building Blocks to Establish a Distributed Care Delivery Network for Service LinesWhat Does a Distributed Network Model Look Like? Hub-and-Spoke Distributed Network Model: Acute, Post-Acute and Ambulatory Patient-Centric Population Management With the Site of Care Emphasis on Patient Complexity and Care Setting Services Level 1 - Primary Care Physicians Ambulatory Spokes, Value Network Linkages and Integration Patient Demand Level 2 - Specialists, Home Care, direct care providers Allied Health and Telemedicine Ambulatory Spoke/Node Group Practice Level 3 - Single and Multi-Service Ambulatory Services O/P Facility Node/Amb. Community Hub Patient Acuity Level 4 - Sub-Acute Care/SNF Facility I/P Facility Node/Off Acute Campus Level 5 - Trauma/Acute/Rehab & Other Alliance Hospitals Regional I/P Facility Hub © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 31
    • Building Blocks to Establish a Distributed Care Delivery Network for Service LinesWhat Do We Think “Network Value” Looks Like? Safe Elevates the importance of evidence-based safety programs and initiatives Effective Supports hospital/physician interdisciplinary team approach to care Patient- Better support of patient populations managed with ease of navigation between different levels of care/care setting… allowing patients to receive Centered care in the right setting… how, when and where they want to receive care Accessible Improves the availability of services across the care continuum Enhances quality of care through improved efficiencies, by sharing Efficient resources and clinical expertise to manage patient care in the most appropriate setting Equitable Providing needed medical and social support to all patients Improves coordination of continuum of care across all “in-network” Integrated providers/levels of care… seamless transition from one care level to anotherAppropriate Necessary/appropriate capacity and staffing in place for care provision on- Resources campus/in the community/at homeEnables Pop. Inpatient, outpatient, ambulatory and wellness resources are organized around the needs of the patient to manage patient care across the care Mgmt. continuum © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 32
    • Building Blocks to Establish a Distributed Care Delivery Network for Service LinesKey Service Line Care Continuum Priorities – Post the ACA 1. Improving Access and Regional Integration Integrates and coordinates care around the needs of patients, rather than service types, professional boundaries, organizational structures or covered benefits; thereby actively addressing service gaps. 2. Population Management Organizing the distributed network model to deliver patient care “in-network” to the Hospital or Health System; with resources organized around service lines, patient need/clinical risk; with care being provided in an ambulatory setting, whenever appropriate, safe and effective for patients. 3. Transitional Platform and Physician Alignment Adapting distributed network model to account for the continued decanting of acute care based services to ambulatory settings and integration of physician alignment strategies. 4. Wellness/Prevention/ Chronic Care Management Develop capabilities to prevent acute/chronic care events across the Hospital/Health System network as well as effectively manage chronic care. 5. Aging in Place Improving the medical, social and wellness needs of the elderly, whom represent a significant portion of the patient population for the Hospital/Health System. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 33
    • Building Blocks to Establish a Distributed Care Delivery Network for Service LinesE.G., Ambulatory Services Strategy Map - Service Lines WHAT WILL DRIVE MARGINS? – Managed growth in high margin Service Lines… Collaboration vs. competition with physicians… Affiliated physician in-network care management… Increased cost- efficiencies in care delivery. HOW? – Attract Service Line patient population through targeted referring physicians who value leading edge technology and expertise… Aligning with physicians critical to core Service Lines… Co-location of ambulatory hubs in close proximity to where key Service Line physicians practice… PHO financial incentives to provide care at “in-network” designated ambulatory hubs… Employed PCPs refer to PHO specialist physicians… Combined on- campus/off-campus care options… Clinical risk/patient complexity sorting criterion. WHAT WILL THE INTERNAL FOCUS BE? – Ensure clinical excellence through leading edge programs and techniques in focused specialty areas… Strategy integration with facility-based services… Develop population management capabilities… Continuous innovation and adaptable models WILL OUR PEOPLE BE PREPARED TO DO THAT? – Yes, with appropriate technology… Yes, by recruiting critical expertise. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 34
    • SERVICE LINE: WHAT AND WHERE SERVICES? Revitalized D&T Acute Campus Services Select Physician and EmergencyStrategic Alliances Center New PCP practices Strengthen Medical Home Senior Care Solutions Model w/Rehab Services Co-Located Practices Cancer Hub and Node SitesTIA Clinics Designated ASC Sites Cardiac Rehab & Congestive Heart Failure Services Value Network IT Post-Acute Infrastructure Virtual Women’s Services Service Hubs Monetize Under After Hours PCP Network Utilized-Wrong Site vs. More Urgent Care Sites Properties © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 35
    • Service Line Pricing Process to Optimize Payer Reimbursement/Manage RiskE.G., Cancer Service Line – The Pieces of the PuzzlePopulation Management Clinical Human Resources Core Capabilities Medical Director Central vascular accessPopulations Served Endoscopic or Radiologic Guided Biopsies Medical OncologistsAdult Medical Multidisciplinary TeamEstablished cancer diagnosis Excluded Capabilities Oncology NursingHigh-risk pre-cancer Radiation Oncologist Breast cancer screeningDisease treated by infusion therapy Chemotherapy Sensitivity testing Radiation Therapy Support Staff Multiple Sclerosis Cystoscopy Support Staff Osteoporosis Hospice care Crohns Disease Core Capabilities Hysteroscopy Ulcerative Colitis Radiation Therapy Invasive procedures Rheumatoid Arthritis Diagnostic Oncology Radiology Select chemotherapies Chronic Infection PET Scan Staging procedures (Outpatient)Populations Excluded Tissue Diagnostics Stem cell transplantationHospice patients Biopsies Tumor markers Bone marrowOncologic emergencies Flow cytometryPediatrics Infusion Center:Clinical drug research patients Cytotoxic chemotherapy Anti-arthritic therapy A hospital needs to accuratelyDEFINE A SERVICE LINE AT Blood administration track resources used toTHE PROCEDURAL CODE First dose antibiotics support a service line and inLEVEL (e.g., MS-DRGs, ICD- Hydration9/ICD-10, HCPC, CPT, APC, Peripheral vascular access effect… create a service line Pharmacy (Oncology)APG, EAPG, etc.). Clinical trials related to supportive care: financial statement. prevention, screening, and quality of life © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 36
    • Service Line Pricing Process to Optimize Payer Reimbursement/Manage RiskE.G., Cancer Service Line – The Pieces of the PuzzleAdjunct Diagnostics and Community Outreach Facility Requirements Cancer Education ExamTherapies Cancer Control and Detection Procedure roomsDiagnostic Laboratory Home Care Medical records areaDiagnostic Radiography Infusion area with treatment chairs Administration and disposal of CytotoxicEnterostomal Maintenance drugs Co-location or inclusion of clinical laboratoryLymphedema Management Referral to professional services servicesPain Management Assessment of and intervention for Co-location or inclusion of routine diagnosticRehabilitation Services oncologic emergencies servicesVascular Access Maintenance Assessment and management of side Room to service support services effects of therapy or disease: pain, Conference roomNetwork Infrastructure vomiting, malnutrition, dehydration Room for spiritual servicesCancer Database and Registry linked to NCDBCancer Research Skin and wound care Certifications, Accreditations,Case Management Management of vascular access devicesClinical Protocols and MembershipsEMR Supportive and Integrative The Joint Commission American College of Surgeons Commission onPatient Navigation Services Oncologic Care CancerQuality Assurance and Improvement Genetic Counseling American College of Surgeons Image (cosmetic) Enhancement American College of Radiology (ACR)Hospice Nutritional Support Services American College of Radiation OncologyProfessional Education Palliative Care (ACRO)Cancer center hotline Pastoral Care Participation in National Cancer InstituteCommunity Involvement Programs Bioethical Counseling sponsored programsCommunity Wellness Activities Community Clinical Oncology Program (CCOP) Psychosocial Oncology Care (CancerHealth Education Resources Distress Management) Institutional Review BoardSpeakers Bureau Survivorship Services © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 37
    • Service Line Pricing Process to Optimize Payer Reimbursement/Manage RiskService Line Pricing Considerations Do you have the data to price correctly? – How do you know it is correct? How will you account for both physician costs and physician compensation? Multiple quality/incentive funds? How will you manage patient care/pay for care which goes “out of network”? Impact on Revenue Cycle? Impact on contracting process? Comparative external benchmarks on payer reimbursements? Where are there gaps in the service line care continuum… cost to fill? Per Diem Conversions to MS-DRG Costs? WITH GLOBAL CAP/BUNDLED PAYMENTS… YOU CANNOT GET IT WRONG GOING OUT THE GATE! © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 38
    • Service Line Pricing Process to Optimize Payer Reimbursement/Manage Risk Preparing Service Line P&Ls – Inpatient Illustration Inpatient Services - A Core Service Line P & L (Tertiary/Quaternary Service Level) Commercial 3rd Party Payers Pay to Actual % of BC % of BC for Comm. Payers Cases Actual Days ALOS Charges Total Cost Cost/Day Net Income Ave. PD Cost % Payments Paid Breakeven Core Service Lines3,676,966 representPayer 1Payer 2 17 96 425 1,964 25.0 $ 20.5 can 18,409,913 $ 2,923,413 8,642,509 79.51% $ 1,507,010 46.94% 7,443,733 40.99% 40.43% $ $ 3,546 $ 1,416,403 $ 3,790 1,198,776 6,879 4,400 194.0% 116.1% 70%+ of all508 22.0 9,333,443Payer 3Payer 4 51 24 patient revenues and 1,122 21.2 6,534,899 7,352,584 4,020,352 78.78% 61.52% 3,882,317 2,494,456 41.60% 38.17% $ $ 3,460 4,910 3,470,267 1,525,896 6,553 7,914 189.4% 161.2% be the principal source of profitPayer 5Payer 6 20 19 435 518 21.8 27.3 3,523,656 4,005,415 2,511,578 2,916,214 71.28% 72.81% 1,453,609 1,696,964 41.25% 42.37% $ $ 3,342 3,276 1,057,969 1,219,250 5,774 5,630 172.8% 171.8%Payer 7 15 274 18.3 2,081,169 1,473,573 70.81% 898,855 43.19% $ 3,280 574,718 5,378 163.9%Other Payers 43 1,174 27.3 10,617,803 6,532,594 61.52% 4,254,728 40.07% $ 3,624 2,277,866 5,564 153.5%Totals/Wtd Aves 285 6,420 22.5 $ 58,183,264 $ 36,372,817 62.51% $ 23,631,672 40.62% $ 3,681 $ 12,741,145 $ 5,666 153.9% Government and Other 3rd Party PayersMedicare 95 1,619 17.0 $ 12,576,944 $ 4,504,610 35.82% $ 5,255,160 41.78% $ 3,246 $ (750,550) $ 2,782 85.7%Medicaid 135 3,508 26.0 $ 32,688,190 $ 7,799,230 23.86% $ 12,999,919 39.77% $ 3,706 $ (5,200,689) $ 2,223 60.0%Mgd. Medicaid 25 563 22.5 $ 5,235,088 $ 1,501,549 28.68% $ 2,099,873 40.11% $ 3,730 $ (598,324) $ 2,667 71.5% Building a Population Management Model Requires an Accurate Picture ofOther HMO 14 358 25.6 $ 3,298,640 $ 19,899 0.60% $ 1,302,044 39.47% $ 3,637 $ (1,282,145) $ 56 1.5% Payments and Services Utilization Across the Care Continuum in Your MarketUninsured 4 60 15.0 $ 468,228 $ 850 0.18% $ 190,670 40.72% $ 3,178 $ (189,820) $ 14 0.4%Other 4 71 17.8 $ 540,255 $ 128,868 23.85% $ 222,085 41.11% $ 3,128 $ (93,217) $ 1,815 58.0%Totals Gov/Other 277 6,179 22.3 $ 54,807,345 $ 13,955,006 25.46% $ 22,069,751 40.27% $ 3,572 $ (8,114,745) $ 2,258 63.2%All Payers Comb. 562 12,599 22.4 $ 112,990,609 $ 50,327,823 44.54% $ 45,701,423 40.45% $ 3,627 $ 4,626,400 $ 3,995 110.1% Commercial pricing for the above service line is impacted by government fixed payments, which result in financial losses. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 3939
    • Lessons LearnedThe Final Word – Irrespective of “Healthcare Reform” Much of what a hospital does today can be done in an off-campus ambulatory setting. Hospitals are not in the “hospital” business, they are in the “patient care” business. Most solutions to a hospital’s current problems lay outside the four walls of the hospital. Superior access, quality, outcomes, efficiencies, patient experiences, physician alignment, clinical integration and purpose built facility designs will lead to a sustainable business model under either volume driven or value driven models of care. Current models such as in development ACOs and early stage clinical integration models will not achieve the desired “savings” being sought by deficit ridden government agencies, because the necessary infrastructure and hospital-physician-payer incentive alignment to achieve the desired outcomes… largely does not exist across the U.S. healthcare system. Competitive, mature urban markets no longer support the general, all services hospital. There will be multiple pricing and risk models emerging over the next few years… most will not achieve substantial savings, absent hospital-physician-payer financial alignment and collaboration. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 40
    • Lessons LearnedThe Final Word – Irrespective of “Healthcare Reform” Care delivery models should be designed around: – The clinical risk/clinical complexity needs of the patient. – Patient and their physician preference of care setting. – The real “bending the cost curve” value is in the delivery model… not price controls. Health Plan “Managed Care” systems are not designed for managing… – Direct patient care by patient care setting. – Patient care coordination and referral navigation. – Patient clinical risk or high cost/complex care. ACA and State Medicaid reform and current managed care contracts… may grow to represent 80%+ of patient revenues by 2016 or earlier. Organizational sustainability will to a large degree depend on “paying me right” (value-driven) vs. “paying me more” (volume-driven) and will impact all operations, programs and services. Managed care agreements represent a provider’s only significant opportunity to improve their net patient revenues and offset underpayments/bad debt/cost shifting from government payers and the uninsured.“THINK STRATEGIC OPPORTUNITY!” PLAN AND ACT NOW BEFORE IT GETS MORE DIFFICULT UNDER HEALTHCARE REFORM. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 41
    • Presenter - Christopher Kalkhof  Chris is a Director with Alvarez & Marsal’s Healthcare Industry Group, based in New York City. He has more than 26 years of diverse healthcare management experience and he specializes in managed care strategy development and contract negotiations; contract implementation and integration with revenue cycle/case management processes; provider-payer collaborations; physician alignment and integration; strategic planning and new product development.  Over the last several years, Chris has spent much of his time assisting clients optimize their net managed care revenue potential, resulting in net rate increases and revenue improvements of nearly $500 million. Over the span of his career he has gained managed care related work experience in over 20 states and has directly negotiated hundreds of payer agreements for hospital, behavioral health, physician, IPA/PHO, home care, hospice and skilled nursing facility clients. He has also reviewed hundreds of additional payer contracts.  Recent or prior relevant experience has included: – Developing a broad-based payer pricing and contracting strategy for a 400+ bed tertiary hospital as well as leading the contract re-negotiations process for 50+ payer product contracts.Christopher Kalkhof – Working with a multi-hospital system to develop an ambulatory services strategy to support the health systems core service lines and close access gaps while also creating new access points within their respective service line care continuums; while also being in alignment with their clinical integration and ACO strategy under federal healthcare reform. – Working with a health system and their clinically integrated PHO to develop a broad-based payer contracting, patient retention Director, and employer outreach strategy as well as commercial reimbursement benchmarking. Healthcare Industry – Working with a large safety net health system to reorganize the managed care department, build a contracts administration Group unit, develop service line strategies/external strategic alliances for the organizations inpatient Traumatic Brain Injury, Burn, Spine, Severe Wound and Polytrauma rehabilitation facility as well as developing enrollment growth and provider contracting ckalkhof@ strategies for a system owned health plan.alvarezandmarsal.com  Prior to joining A&M, Chris was: Director/National Managed Care Lead for a Big 4 firm’s provider consulting practice; Interim SVP of Delivery Systems/Payer Relations for Saint Vincent Catholic Medical Centers of NY and Co-Chair of the system’s PHO; Interim VP 347.254.2433 Managed Care for Christ Hospital (Jersey City, NJ); Director of Managed Care at Doctors Hospital (Houston, TX) through the bankruptcy and post-bankruptcy ownership change to physicians; Partner in a practice management firm; Director of Marketing Administration and Professional Relations for a large health insurer; and Product Development Manager for a HMO. ▲ Chris received his Master of Health Administration degree from Tulane University and his Bachelor of Science, degree from Allegheny College. He is a former Chapter President of the HFMA WNY and has received the HFMA Bronze, Silver and Gold awards and has also served as a Yerger judge on two occasions. He is also a Fellow in the American College of Healthcare Executives and a frequent presenter on managed care revenue improvement and physician alignment topics for the HFMA, ACHE, MGMA, WRG and other professional groups. In 2008, Chris served as a member of the NYS Office of Medicaid Inspector General’s Medicaid Managed Care Compliance Program Guidance Advisory Committee. © Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 42 42