Healthcare Reform Initiatives Affecting Physician Compensation


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The many ways in which healthcare reform affects the healthcare industry are still playing out. Undoubtedly, a question for physicians and the hospitals that employ many of them is “how will physician compensation be affected?”

PYA Principal Carol Carden recently spoke at the 2013 AICPA Healthcare Industry Conference, where she addressed this question with her presentation, “Current Reform Initiatives and Their Impact on Physician Compensation.”

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  • Stark:Exceptions typically require compensation to be set in advance, consistent with fair market value (FMV) and not determined in a manner that takes into account the volume or value of referrals.42 U.S.C. §1395nnAKS:Prohibits the knowingly and willful offer, payment, solicitation or receipt of remuneration for purposes of inducing or rewarding for referrals of services reimbursable by a federal health care program.42 U.S.C. §1320a-7b(b)IRS:Tax exempt hospitals/health systems must ensure that no part of its earnings “inure to the benefit of any private shareholder or individual. Transactions between tax exempt hospitals and physicians that are in excess of FMV could jeopardize the hospital’s tax exempt status.IRC Section 501(c)(3) and related regulations.
  • Is there a way to make this like train tracks with stops along the way?
  • Other models include:Value-based modelsJoint ownership
  • 2-4% MSR
  • Hospital IQR – Hospital Quality Reporting InitiativeIn all of the proposed models, gainsharing with providers is allowed, provided that participants can show that quality of care is not negatively impacted.
  • Healthcare Reform Initiatives Affecting Physician Compensation

    1. 1. Current Reform Initiatives and Their Impact on Physician Compensation November 14, 2013 Carol W. Carden, CPA/ABV, ASA,CFE New Orleans, Louisiana
    2. 2. Speaker Biography Carol Carden is a Principal with Pershing Yoakley & Associates, P.C., and provides business valuation and related consulting services to a wide variety of business organizations, primarily in the healthcare industry. Ms. Carden’s primary areas of expertise are in finance, valuation, managed care and revenue cycle operations for healthcare organizations. She has performed appraisals of businesses and securities for a wide variety of purposes such as mergers, acquisitions, joint ventures, management service agreements and other intangible assets. In addition to being a Certified Public Accountant, she has also earned the Accredited in Business Valuation (ABV) credential from the American Institute of Certified Public Accountants, the Accredited Senior Appraiser (ASA) credential from the American Society of Appraisers and the Certified Fraud Examiner (CFE) credential from the Association of Certified Fraud Examiners. She is the Chair of the Executive Committee for Forensic and Valuation Services and the former Chair of the Business Valuation Committee for the AICPA, was Chair of the 2010 National AICPA Business Valuation Conference and was on the planning committee for the 2011 AICPA National Healthcare Conference.
    3. 3. Agenda Healthcare Reform Initiatives Overview Regulatory Considerations Value-Based Payment Modifier Quality Incentives Medicare-Medicaid Parity Rise in Insured and Increased Access to Primary Care Accountable Care Organizations and Bundled Payments
    4. 4. Healthcare Reform Initiatives Overview
    5. 5. Navigating the Regulatory Environment STARK LAW Prohibited self-referrals for Medicare and Medicaid patients. ANTI-KICKBACK Knowingly and willful STATUTE offers, payments, or receipts for referrals. IRS-NFP IRC Section 501(c) 3 REQUIREMENTS requirements 100 m Road Menu
    6. 6. Compliance Issues Regarding HospitalPhysician Financial Relationships COMMERCIAL REASONABLENESS FAIR MARKET VALUE SENSE CENTS Overall Arrangement “WHY?” Scope Range of Dollars Only Key Question “HOW MUCH?”
    7. 7. The Push Towards Quality and Lower Cost Rebuilding Primary Care Workforce Expanding Authority to Bundle Payments Encouraging Integrated Health Systems Increasing Medicaid Payments to Primary Care Physicians Linking Payment to Quality Outcomes
    8. 8. The Train Has Left the Station… 2010 Medicaid demonstration project – fee-for-service to global fee Healthcare reform begins with consumer-focused initiatives (i.e., focused on insurance reform) 2011 Center for Medicare and Medicaid Innovation – explore models of payment based on quality Physician quality reporting – Physician Compare website 2012 Hospital readmissions – Reduction in payments to hospitals for preventive readmissions ACO program launch – Shared savings Hospital valuebased purchasing program 2013 Bundled payment initiatives Medicare – Medicaid parity Value-based purchasing – physician payments phased in 2015 to 2017
    9. 9. Value-Based Payment Modifier
    10. 10. The Future is Now • Pay for volume • No quality measured Value- Based Payment • Quality per click • Process improvement Fee For Service THEN • Quality outcomes of episodes • Whole system improvement Care Coordination NOW FUTURE
    11. 11. Calculation of Value-Based Payment Modifier in CY 2015 Groups of Physicians with 100 or more Eligible Professionals PQRS Participation (Groups that selfnominate/register for PQRS as a group and report at least one measure, or elect PQRS Administrative Claims) Elect QualityTiering Calculation Upward, downward, or no adjustment based on quality-tiering Non-PQRS Participation (Groups that do not selfnominate/register for PQRS as a group and do not report at least one measure) No Election 0.0% (no adjustment) Source: Summary of 2015 Physician Value-based Payment Modifier Policies -1.0% (downward adjustment)
    12. 12. PQRS – History 2007 and 2008 PQRI introduced 74 Measures 1.5% Lump incentive 2009 and 2010 2.0% Incentive payment Group Reporting option established Remove electronic prescription measures 2011 1.0% Incentive for reporting Individual Measures increased 2012 0.5% Incentive for reporting Incentive Changes 2013 0.5% Incentive for reporting Reporting year for 1.5% payment adjustment in 2015 2014 0.5% Incentive for reporting Reporting year for 2.0% payment adjustment in 2016
    13. 13. Tiered Value-Based Payment Modifier Both upside reward and downside risk Focused on outliers in quality and cost Composite scores for cost and quality Three tiers – High, Average, and Low Additional upward adjustment for care of sickest patients Sum of upward adjustments will be offset by downward adjustments
    14. 14. PERFORMANCE The Curve First Curve Fee-for-Service Quality Not Rewarded Pay for Volume Fragmented Care Acute Hospital Focus Stand Alone Providers Thrive Straddle Second Curve Value Payment Continuity of Care Required Systems of Care Providers at Risk for Payment IT Centric Physician Alignment Revenue Drops Minimal Reward for Quality Volume Decreases No Decisive Payment Change Pay for Volume Continues High Cost IT Infrastructure Physicians in Disarray TIME
    15. 15. Quality Incentives
    16. 16. Quality Incentive Compensation Overview – Arrangements by which hospitals compensate physicians for Overview – Arrangements by which hospitals compensate physicians the achievement of certain pre-defined quality indicators for the achievement of certain pre-defined quality indicators Increasingly common arrangements  Quickly becoming components of (or even fully characterizing) many physician-hospital alignment arrangements Example factors generally considered when evaluating quality incentives:  Core measures  Risk reduction  Patient satisfaction  Quality related educational activities  Specialty specific outcomes measures
    17. 17. Co-Management Model Hospital Hospital Pays for: • Base management fees • Incentive Compensation (limited) Including: - Quality - Operational Efficiency $ Hospital Physicians Management Company/ LLC/Committee Service Contract to Manage Hospital’s Service Line at Risk for Quality and Operational Goals Physicians
    18. 18. OIG Opinion No. 12-22 Cardiac catheterization clinical co-management arrangement between a hospital and a cardiology group. The group received a fixed fee and a performance-based fee that was “at risk” based on the achievement of pre-determined metrics. Performance fee based on the following: Employee Satisfaction – 5% Patient Satisfaction – 5% Quality of Care – 30% Cost Reduction – 60%
    19. 19. Areas of Concern Noted by the OIG Stinting on Patient Care Payments to Induce Patient Referrals “Cherry Picking” Unfair Competition The OIG states that “hospital cost-savings programs, in general, and the arrangement in particular, may implicate at least three Federal legal authorities: the civil monetary penalty, the anti-kickback statute and the physician self-referral law.”
    20. 20. Keys to Compliance Civil Monetary Penalty • Cost-savings component implicates the CMP; however, sanctions not sought due to the following safeguards: Patient care is monitored through third-party utilization review and internal committee and board review Benchmarks are structured so that physicians have flexibility to use cost-effective clinically appropriate materials Term is limited to three years and is subject to a cap AntiKickback Statute • Sanctions not imposed for the following reasons: FMV compensation and management responsibilities are robust Compensation is not variable with number of patients treated Hospital operates only cardiac cath lab within 50 mile radius and the group does not provide cath lab services elsewhere Specificity of measures ensure that pay is for quality improvement, not referrals Three year term Self referral law (Stark Law) falls outside of OIG’s jurisdiction. As such, the opinion does not discuss whether the arrangement implicates this law.
    21. 21. Keys to Compliance • OIG states that, if the agreement is renewed, then reviewing and rebasing quality metrics is essential. – “We would expect that quality improvement and cost saving measures under the Agreement would be subject to adjustment over time, to avoid payment for improvements achieved in prior years and to provide incentives for additional improvements in the future. Continuing compensation for conduct that has come to represent the accepted standard of care could, depending on the circumstances, implicate the anti-kickback statute.”
    22. 22. Medicare-Medicaid Parity
    23. 23. New Primacy of Primary Care • Enhanced Medicare payments - For 2011-15, Medicare pays 10% bonus for: o PC services furnished by PC practitioners o Professional component of surgical procedure performed in HPSA • Enhanced Medicaid payments - Payment rates to PC physicians increased in 2013 and 2014 to 100% of Medicare rates • Significant new funding for community health centers • Increase PC workforce by 16,000 by 2016 - Expand National Health Services Corps - Other scholarships, loan repayment, and workforce training programs
    24. 24. Overview of Initiative States estimated to receive $8.5 billion in 2013 and $6.1 billion in 2014 to fund Medicaid parity payments. November 1, 2012 • CMS issues final regulation implementing payment of Medicaid services at Medicare levels for 2013 and 2014 March 31, 2013 Nationally, ave rage Medicaid payments are approximately 66% of Medicare rates. • Deadline for states to submit a state plan amendment July 1, 2013 • According to CMS, ¼ of states had implemented the temporary payment increase
    25. 25. Estimated Medicaid Rate Increases by State Approximately 73% overall increase in Medicaid rates. Source:
    26. 26. Who Does it Impact? • Eligibility requirements include: – Medicaid fee-for-service and managed care payments for primary care services delivered by a family practice, internal medicine or pediatric medicine physician – Self-attestation regarding board certification in above-mentioned specialties – If not board certified, then the physician must self-attest that at least 60% of Medicaid codes billed are Evaluation & Management codes and vaccine administration codes – Also applies to certain related subspecialties outlined in the regulations
    27. 27. Impact on Physician Compensation Hospitalist Subsidy Example Hospitalist Services Agreement Financial Assistance Calculation Low High REVENUE Professional Collections $ 60,450 265,460 325,910 2,932,360 TOTAL EXPENSES 56,250 60,450 265,460 325,910 Other Expenses: Liability Insurance Office Overhead Total Other Expenses 2,300,000 368,000 2,668,000 54,450 Medical Director Compensation 2,300,000 2,200,000 352,000 2,552,000 EXPENSES Physician Compensation and Benefits: Physician Base Compensation Physician Benefits Total Physician Compensation and Benefits 2,100,000 $ 3,050,160 Estimated Net Income Before Subsidy (Loss) $ (832,360) $ (750,160) Subsidy, rounded Medicaid Parity Offset Revised Subsidy, rounded $ $ $ (830,000) $ 180,000 $ (650,000) $ (750,000) 197,143 (553,000)
    28. 28. Rise in Insured and Access to Primary Care
    29. 29. Effects of the PPACA on Primary Care Enactment of provisions of the PPACA are expected to increase the number of covered individuals by 32 million. By 2019, primary care visits are predicted to increase between 15.07 million to 24.26 million. Assuming stable levels of physicians’ productivity, the increased demand would require between 4,307 to 6,940 primary care physicians. Source: Abraham, Jean Marie, Hofer, Adam N. and Moscovice, Ira. Expansion of Coverage under the Patient Protection and Affordable Care Act and Primary Care Utilization. The Milibank Quarterly. Vol. 89, No.1. 2011
    30. 30. Decline in Uninsured Source:
    31. 31. Demand on the Rise “Demand for Family Physicians Fuels Salary, Compensation Increase, Survey Finds” Rise in Compensation Drivers of Pay Increase • Median first year compensation for family practice physician (without OB) increased $7,000 between 2011 and 2012 • Median compensation for all primary care physicians increased $5,000 between 2011 and 2012 • Increases due in large part to rise of ACOs and integrated delivery systems that require the services of primary care physician • Healthcare reform extending coverage to more people has created additional demand for services Supply • According to the Merritt Hawkins 2013 Review of Physician and Advance Practitioners Recruiting Incentives, family practice and internal medicine physicians are the most highly recruited specialties Source: Demand for Family Physicians Fuels Salary, Compensation Increase, Survey finds. American Academy of Family Physicians. July 9, 2013.
    32. 32. Accountable Care Organizations and Bundled Payments
    33. 33. ACO – Where are they now? Nine of the original 27 organizations are leaving the Pioneer ACO program; seven of the nine will join the MSSP. As of January 2013, 250 ACOs provided care to four million beneficiaries (27 ACOs at initiation). Based on a white paper released by Premier healthcare alliance, only 21% of commercial payers offer upside savings arrangements.
    34. 34. Medicare ACO in a Nutshell (“Shared Savings Program”) ACO providers ACO operations Beneficiary assignment Performance requirements Shared savings payment Regulatory waivers • Mandatory - Sufficient PCPs to care for at least 5,000 beneficiaries • Optional - Other Medicare enrolled providers • Legal entity, governing body, management structure, medical director • Meet patient-centeredness, evidence-based medicine, coordination, and cost-effectiveness goals & measures • Patients assigned by CMS based on PCP TIN • Patients retain freedom of choice •Receive shared savings payments if meet certain performance standards on 33 quality measures (or pay back Medicare); more demanding over time •Minimum Savings Rate (MSR) • 1-sided – 50% shared savings • 2-sided – 60% shared savings, at risk for 2% over benchmark • Waiver from requirements of Stark Law, Anti-Kickback Statute, and Gainsharing CMP, Antitrust
    35. 35. Medicare ACO: How You Get Paid ACO is eligible for annual payment based on Medicare savings – Savings = difference between Medicare’s projected total expenditures for ACO’s assigned beneficiaries (“benchmark”) and actual total expenditures – Must be above Min Sav. Rt. • Savings are based on FFS payments to all providers, including non-ACO providers. Actual • Savings ACO participant receives same Medicare Part A and Part B FFS payments Benchmark • MSR $ACO $CMS
    36. 36. Funds Sharing Challenges Based on equity? Return of withhold Based on revenue? Sharing of bonuses Utilization targets? Funding of losses Some other way?
    37. 37. Shared Savings Models-MSSP One-Sided Model (performance years 1 & 2) Sharing Rate (assuming maximum performance on quality measures) FQHC/RHC Participation Incentives Maximum Sharing Cap Shared Losses Cap Up to 50% Up to 2.5 percentage points Payments capped at 7.5% of ACO's benchmark N/A
    38. 38. Considerations for Primary Care Critical to the success of an ACO or bundled payment initiative Will likely be a shortage by 2014 – even more so than currently Care delivery will likely shift to mid-level practitioners changing the cost structure of practices Work relative value unit assignments likely to increase over the next few years
    39. 39. Bundled Payments for Care Improvement Initiative Five-year initiative launched January 31, 2013 Private payers already using bundled payments Based on Medicare ACE Demonstration Project – free range ACO Pricing based on discount of payer’s historic total cost Single payment for defined group of services within specified episode of care Gain-sharing incentives
    40. 40. Bundled Payment Initiative Pilot MODEL MODEL 2 MODEL 3 Types of Services Included in Bundle • Inpatient hospital and physician • Post-acute care services services • Related readmissions • Related post-acute care services • Other services defined in the • Related readmissions bundle • Other services defined in the bundle Expected Discount Provided to Medicare To be proposed by applicant; CMS requires minimum discount of 3% for 30-89 days post-discharge episode; 2% for 90 days or longer episode MODEL 4 • Inpatient hospital and physician services • Related readmissions To be proposed by applicant To be proposed by applicant; subject to minimum discount of 3%; larger discount for MSDRGs in ACE Demonstration Traditional fee-for-service Traditional fee-for-service payment to payment to all providers and Payment from CMS all providers and suppliers, subject to suppliers, subject to to Providers reconciliation with predetermined reconciliation with target price predetermined target price Prospectively established bundled payment to admitting hospital; hospitals distribute payments from bundled payment Quality Measures To be proposed by applicants, but CMS will ultimately establish a standardized set of measures that will be aligned to the greatest extent possible with measures in other CMS programs
    41. 41. Bundled Payments - So, How’s it Working So Far? Case Study from DataGen and New York-Presbyterian Hospital Addresses Key Success Factors for the Bundled Payment Care Initiative Understanding data is critical to success Determination of episodes that offer the greatest opportunity Engaging physicians Influencing utilization of post-acute care services Source: New Case Study Examines Key Success Factors for Medicare Bundled Payment Initiative. Yahoo! Finance. September 4, 2013. Patient Engagement
    42. 42. Key Implications for Valuations
    43. 43. Common Types of Physician Alignment Strategies Hospitalist Strategies Physician Practice Acquisitions (“Buy and Employ” Transactions) Quality Incentives Physician Alignment Transactions Direct Employment Call Pay Arrangements Clinical Co-Management Agreements
    44. 44. Physician Alignment Vehicles More Common Physician Employment Medical Directorships Physician Leasing Agreement Physician Services Agreement Real Estate JV Co-Management Equipment JV More Integration Less Integration Physician Advisory Council EMR Quality PHO Shared Savings Less Common
    45. 45. Impact on valuations We will be living in the “straddle” for several years Benchmark compensation data will take 2 – 3 years to catch-up to changes in the industry and will, therefore, not be as meaningful As appraisers, the “art” part of our analysis will become more prominent and we will have to develop new approaches and be prepared to defend them
    46. 46. Contact Information Carol Carden, CPA/ABV, ASA, CFE Principal (865) 673-0844 ext 213