Key issues in physician alignment and compensation 6 7-15

Polsinelli PC. In California, Polsinelli LLP
Key Issues in Physician Alignment
and Compensation
Janice A. Anderson
Bruce A. Johnson
1
50539195

real challenges. real answers. sm
Learning Objectives
Understand payment policy and its impact on
compensation and alignment strategies
Discuss the impact of the Medicare Access and
CHIP Reauthorization Act of 2015, CMS future
goals and recent enforcement actions
Understand the need to develop new incentive
compensation and alignment techniques
Describe physician compensation and
alignment best practices
2

Health Care Reimbursement Trends
Physicians
– Stagnant/declining Medicare Part B reimbursement
– CMS/private payer focus on improving quality and reducing costs
– Pay for performance, value based purchasing, shared savings,
bundled payment and other arrangements
– Medicare Value Based Payment Modifier and other adjustments
provide potential for +/- % Medicare physician service adjustment
Hospitals and Other Healthcare Providers
– Value based purchasing, pay for performance, bundled payment and
shared savings arrangements
– Medicare Value Based Purchasing Program results in +/- 6% in
Medicare payments for hospital services based on performance
(e.g., HAC, readmissions etc.)
– Overall: Quality as the theme; cost management as the goal
3

Improve
Care
• Bundled
payments
• No pay for
errors
Improve
Value
• Pay for
prevention
• Pay based on
diagnosis
• Pay based on
performance
(high quality,
low cost) (i.e.,
Medicare
Value Based
systems (+/-
4%/6%)
Coordinate Care
• Medical home and
other
• Care
management
fees
• Utilization-based
performance
incentives
• Condition-specific
partial
comprehensive
care payments
Adapted from: Transitioningto Accountable Care: Incremental Payment Reform to Support Higher Quality, More Affordable Health Care. Harold D. Miller. Center for
Healthcare Quality & Payment Reform www.chqpr.org.© 2012 D. Walker Keegan, Medical Practice Dimensions – Used with Permission
Direction of Payment Reform
Straight Fee for Service is becoming extinct…
4

The Future
On January 26, 2015, CMS announced the future for new
payment models to reward high quality, low cost care
Divided payment models into 4 categories with goal to
have 30% of Medicare payments in new payment/delivery
models by 2016 and 50% by 2018 (CMS estimates that
20% of Medicare payments are in new payment/delivery
models in 2014)
Formed the Learning and Action Network, as a
collaboration of HHS, payers, employers, providers,
consumers, states, etc. to accelerate transition
5

6

7

So, What Does All This Mean?
Value Based Payment means that more of the
reimbursement dollar will be earned for doing
things other than rendering a health care service
Focus needs to be on those competencies
needed to score well under value-based
programs
Hospital utilization declining, but new business
opportunities are arising
8

The Medicare Access & CHIP
Reauthorization Act of 2015
Signed into law on April 16, 2015
Repeals permanently SGR
Positive updates (0.5%) until 2019
Introduces Merit-based Incentive Payment System
(MIPS) and provides an option for Alternative
Payment Models
9

MIPS
– Ends, and improves upon, PQRS, EHR/MU and VBM and
replaces with a new P4P program
– 4 categories make up a new composite score
Quality (30%)
Resource Use (30%)
Meaningful Use (25%)
Clinical Practice Improvement (15%)
– Scores below performance thresholds leads to penalties of
4% (2019) – 9% (2022)
– Scores above leads to bonuses of 4% (2019) – 9% or higher
(2022)
10

Alternative Payment Models
– 5% bonus from 2019-2025 for physicians to join new
risk-based models and would be exempt from MIPS;
also eligible for an increased update (0.75% vs. 0.25%)
after 2025
Release of claims data commencing 2015
New support for gainsharing
– Incorporates “medically necessary” into CMP restriction,
permitting hospitals to pay physicians to reduce
medically unnecessary services
– HHS required to reestablish new safe harbors for
gainsharing
11

Future Depends on Development and
Implementation of New Competencies
As FFS erodes, Hospitals and Physicians will be paid for
new and different activities
– Ability to work across the continuum differently
– Implement Evidenced Based Protocols
– Care Coordination
– Managing the Total Cost of Care
– Quality Control
– HIT and use of data
– Patient-Centered Care
– Population Health and Wellness
– Bundled Services
– Patient Engagement
12

New Payment Models Affect
Compensation Structures
Changing definition of “production”
– wRVUs -- predominate measure of physician clinical “work”
– Movement to population health, panels and similar measures
– Performance on “non-production” measures beyond clinical
service (i.e., “value,” not volume)
Fair Market Value is critical legal issue (total comp)
Incorporation of incentives focused on hospital,
department/service line, patient satisfaction, and/or clinic
quality, cost and other measures
Adherence to evidence-based protocols and removal of
variation; clinical integration and alignment across
providers/settings and the continuum of care
13

Physician Compensation
Legal Concerns
Common Compliance Requirements –
– Compensation must be fair market value and
commercially reasonable in relation to
physician work
– Pay for personally performed services only;
not linked to referrals
– Promote appropriate patient treatment and
care
14

Fair Market Value Standard
Enforcement focuses on Definition of Fair
Market Value
Value in arms-length transactions, consistent with
the general market value. Price well informed
parties and bona fide bargaining, without regard to
“anticipated or actual” referrals.
15

Recent Enforcement Impacts
Compensation
Toumey -- Lucrative part time employment agreements
designed to funnel procedures to the hospital
Halifax -- Employment bonus arrangement with the pool
including hospital services
Citizens – Claims involving employment agreements where
the compensation was alleged to be excessive, bonus
arrangements allegedly encouraged referrals, etc.
OIG issues Fraud Alert on June 9, 2015 warning against
compensating physicians for referrals
Cases and guidance illustrate the government’s focus on the
structure of physician compensation arrangements
16

Key Take-Aways -- Fair Market Value
The Importance of Fair Market Value
Fair Market Value is requirement in all key Stark exceptions, including
employment; it prohibits compensation based on anticipated referrals
How is FMV determined? Over 90th %ile on survey data may be enough
to find that arrangement exceeded FMV.
Need to consider “gap” between production/compensation and whether
productivity can lead to anticipated referrals
Best Practice – if the aggregated total amount to be paid under a
physician contract exceeds the 90th %ile (or unacceptable gap ) based
on applicable survey data, a separate analysis should occur to determine
if the arrangement nonetheless is FMV 17

Key Take-Aways – Evaluating Commercial
Reasonableness
Evaluating Commercial Reasonableness
Commercial Reasonableness is NOT the same as FMV
Commercial Reasonableness is an additional requirement
What does “Commercial Reasonableness” mean in the context of
physician contract?
How to evaluate Commercial Reasonableness
18

Important to Include the
Right Incentives
Quality, Efficiency and Other Incentives
– Quality – PQRS and other standards vs. home grown
– Stewardship – Chart/billing completion, etc. vs.
reduction of hospital operating costs per case
– Expenses management – Practice vs. hospital or other
expenses outside of provider control
– Access to care -- Schedule vs. location-specific
payment differentials (e.g., clinic vs. hospital locations)
– Required Referrals (contract term vs. incentive)
– Risk-based measures (panel size, risk performance)
19

BUT BE AWARE!!
Incentive Program Concerns
– Financial incentives to reduce or decrease patient care (now can
pay to reduce “unnecessary care”)
– Hospital payments for physician referrals, “stinting” on care,
“cherry-picking” or steering of patients
– Overutilization and elimination of patient choice
– Stacking

21
Recommendations for Incentive Goals
Quality targets are less problematic than efficiency targets
(Use Specifications Manual)
It now may be easier to pay based on efficiency targets
due to new “medically necessary” carve out
FMV applies to goal weighting and amount; consider and
incorporate partial performance

22
Physician Compensation Best Practices
Best Practices
– Aligned with goals, payors, and payment systems –
today and future
– Pay for work and “production” – with evolving definitions
– Commercially reasonable activities
– Market competitive to recruit and retain
– Yet, FMV is crucial (total comp)
– Consistent and equitable
– Simple, understandable, able to be tracked and
administered
– Adaptable to changing circumstances
– Compliant

23
Sample Physician Performance
Dashboard
PHYSICIAN DASHBOARD

Physician Alignment and
New Delivery Models: WHY?
Current reimbursement and payment systems
– Incentivize volume
– Misaligned incentives resulting in fragmented care and
adversarial relationships among providers (e.g., hospitals
and physicians), providers and payers, etc.
New Models
– Incentivize quality, efficiency and access
– Aligned incentives directed at increased “clinical
integration”, coordination and team work
– End result: Breakdown traditional “silos” of care delivery
24

What’s Different About Physician and
Hospital Alignment Today?
Must allow for coordination of care across
continuum
Requires broad medical staff participation (both
employed and independent)
Different payor contracting (P4P/capitation)
Must drive quality and efficiency to maximize
reimbursement under health reform
Better aligned and engaged physicians
Eliminate waste and reduce costs
Patient-centeredness
Manage patient health, not just episodic patient
care
25

Common Alignment Strategies
Traditional
Medical director
Pay for call
IT support
Service bureaus
MSOs
Board service
Advisory council
Co-marketing
Functional
Joint ventures
IPAs/PHOs
Pay for quality
Gain share
Co-management
Joint venture
MSOs
PSA
Foundations
Employment
26
Clinically integrated
networks
ACOs
Hospital efficiency
agreements
Patient Centered
Medical Home
Shared Savings
Bundled payments
MA and other at-risk
initiatives
Strategic
Level of Alignment

Traditional and Functional Models
Traditional models being replaced/eliminated with models
directed at longer term objectives (e.g., performance-based
pay for call)
In many communities, those physicians who are willing to
be employed, are employed
Initial “honeymoon” period completed; relationship
restructuring to promote alignment
– Example: Migration of Cardiology to Professional Service
Agreement (rather than employment) models to promote shared
accountability and other goals

Functional Relationship Models
Quality and efficiency incentive compensation
– Employment
– Professional Service Agreements
– Variations to address value-based compensation metrics
Service Line Co-management
– Expansion to new areas
– Orthopedics, Oncology, Urology and others
– Arrangement structures vary

Employment Illustration
Base
Compensation
Production/RVU
Based
Productivity
Bonus Comp.
Value-Based
Base Compensation
• wRVU based payment for services
• Periodic payment “Draw” based on past or
expected total compensation
FMV limit on total compensation
Productivity Bonus Compensation
• wRVU based payment in excess of “Draw”
Value-Based Compensation
• Flat dollar amounts or additional $ per wRVU
• Linked to performance on value-based metrics:
• CGCAHPS
• Patient Satisfaction/Citizenship
• Quality
• External bonuses (e.g., ACO or CIN, MA
plan etc.)
• Other

PSA Illustration
Hospital Owned Service
Line and Practices
Physician
Employer
Entity
Management
Entity
PSA Service
Arrangement
$ for services^
Co-management
Services*
^ * Potential value-based
incentive compensation
Common Objectives:
• Staffing certainty
• Compensation certainty
• Alignment for value
• Physician entity decision-
making re staffing and other
variables within resources

Strategic Models
ACO, PHO, “Clinical Integration” and other Network
organizations
– Hospital Efficiency Agreements
– Bundled payments and similar initiatives
– Innovation center initiatives (e.g., CPCI)
– Commercial/self-insured payor arrangements (shared
savings, care management etc.)
– Centralized Care Management and Coordination (housed in
Clinically Integrated Networks)

What are Others Doing?
Strategic Models
Medicare Shared Savings Program as resource to
stimulate clinical integration
– Shared savings arrangement
– Patients, information and data creating opportunity
– Mandated “structure” (can help avoid some local
community politics)
– Fraud and abuse waivers (and opportunities)
– “Deemed” clinical integration for antitrust purposes
– Additional opportunities
– New MSSP Final Rule – Track 1 extension and Track 3
model
– Next Generation ACO model

Medicare ACOs
ACOs:
• 404 MSSP
• 19 Pioneer
• 99% Track 1
(shared savings
upside only)
7.92M Medicare
FFS Beneficiaries
287 additional
commercial ACOs
(estimated) (not
shown)^
Sources: CMS Fast Facts, April 2015; HealthAffairs blog, “ACO Results: What we know so far

ASC
CIN (Payer
Contracting)
Special Purpose
Arrangements
Hospital
(Inpatient
Services)
MD/
Groups
Ancillary
Service
Providers
Participation
Agreements
Co-Management
Agreement
Strategic/Special Purpose Models
Co-Management
Agreement
Special
Committee
CIN serves as
convener/coordinator for
multiple otherwise
separate silos
$ Shared savings
from payer for
pre-defined
bundle/ episode

Understanding Total Spend
Example: Hip Fracture Repair (2005)
Source: Miller, D.C., et al, Large Variations in Medicare Payments for Surgery Highlight Savings Potential from Bundled Payment Programs, Health Affairs,
30(11).

What are Others Doing?
Strategic Models
Managed Care Organization and other
At-risk Networks
– Medicare Advantage
– Commercial at-risk arrangements

At Risk Model Funds Flow Illustration
Commercial Payer (Licensed Insurer)
Managed Care Organization/CIN
(Less OH/Administration Fee)
PCP Capitation
Part A & B Claims Paid by Payer
$ $
Cumulative Surplus (Part A & B)
PCP MCOPerformance-Based Gainshare
and Administrative Costs
Other
$
$
$ $

MCO Compensation Variables
FFS
Capitation (PMPM)
– Base
– FFS carve outs
Performance bonus
– Patient Satisfaction
– Encounters and access
– Communication
– Clinical Quality/P4P Star Rating
– Other

Compliance Considerations -- Stark
Stark Prepaid Plan and Risk Share Exceptions
– Prepaid Plan -- Services furnished by an organization
(or its contractors or subcontractors) to enrollees, of
specified prepaid health plans
– Risk-sharing arrangements
Arrangements including withholds, bonuses, and
risk pools) between a MCO or an IPA and a
physician (directly or indirectly) for services to
“health plan” enrollees
Does not violate AKS, Federal or State law
governing billing or claims submission

Compliance Considerations -- AKS
AKS Safe Harbor (t) -- MA/ State Medicaid Plans:
– “Any payment between:”
Eligible MCO (i.e., MA and other government plans) and “First
Tier Contractor” (e.g., JSA); First Tier Contractor and
Downstream Contractor (e.g., physician group); or between two
Downstream Contractors
Signed written agreement specifying items/services covered
Specific terms, including no FFS claims for services covered by
agreement, 1 year term, consideration of dual-eligibles
No “swapping” remuneration in exchange for FFS business
No Fair Market Value (FMV) requirement (but limited to certain
plans)

Compliance Considerations -- AKS
Antikickback Statute Personal Services Safe Harbor (d)
Signed written agreement specifying items/services
covered
1 year term with specific terms
Aggregate compensation set in advance, consistent
with FMV, does not take into account volume or value
of any referrals or other business between the parties
Services do not involve counseling/business
arrangements or activities that violate Federal or State
law
Aggregate services are commercially reasonable
41

Compliance Considerations – Physician
Incentive Plans
Physician Incentive Plans (PIP) requirements
• PIP -- any compensation arrangement to pay physician
or group that may have the effect of reducing or limiting
services furnished to any plan enrollee
• No specific payment as inducement to limit/reduce
medically necessary services to any particular enrollee
• Stop-loss required if PIP places physician/group at
“substantial financial risk”
• Allows “pooling of patients” (with commercial and other
plans) under defined circumstances

Payment and Compensation
Framework
Source Recipient and Type of Relationship/Payment
ACO/ PHO/ MCI/
IPA Intermediary
Hospital/HS
Provider Org.
Medical Group PA,
PC, PLLC
Provider MD/ DO/
Other
Public/ Private/
Commercial Payor
•FFS/Pay for Performance
•Patient Centered Medical Home
•Bundled Payment
•Shared Savings Arrangement
•Capitation or Other “at Risk” Arrangement
ACO/ PHO/ IPA
Intermediary
•Shared Savings Arrangement (Proceeds)
•Capitation or Other “at Risk” Arrangement
Hospital/HS/
Provider Org.
•P4Quality
•Co-Mgmt
•Gain Share
•PSA
•Employment
•Ind. Contractor
Medical Group PA,
PC, PLLC
•Ownership
•Employment
•Ind. Contractor

44
New Delivery Model Goals
Hospitals and Physicians are implementing to:
Demonstrate improved outcomes, quality care
and patient satisfaction
Implement quality improvement initiatives
Enhance linkage and alignment with physicians
Improve performance on hospital pay-for-
performance measures
Position themselves at an advantage in the
market on the basis of quality/cost
Share in payor gains

45
Progression to Accountable Care
“Clinical Integrated Network”
•Provider network
•The “team” for clinical integration
“Clinical Integration”
•What the CIN does
•Participants collaborate on care
•Game plan and rules
•Operational and legal concepts
Shared Savings, Bundled Payment and Other Programs
•Payment method from funding source
“Accountable Care Organization”
•Market and payor engagement
•Clinical integration to achieve goals
•Population health management
•Shared savings and/or risk

Key Takeaways
• Changes are occurring rapidly and sitting on the sidelines is
no longer an option
• Over time, hospitals and other providers will be shopped
based on quality and price
• Payment reform causes health care providers to face
significant reimbursement losses from “value-based”
variables
• New business opportunities to expand outside of traditional
areas i.e., hospital, physician group or other
• Collaboration to achieve quality and efficiency of care
• Alignment of compensation structures to payer environment
to position for future financial success
46

About the Presenters
Janice A. Anderson, Esq.
161 North Clark Street
Suite 4200
Chicago, Illinois 60601
312.873-3623
janderson@polsinelli.com
You may also visit us on the Web
at www.polsinelli.com
Janice Anderson is a Shareholder at Polsinelli PC and has 25
years
¡
experience focusing on health regulatory and compliance
issues as well as over 30 years
¡
experience working in the health
care industry.
47
Bruce A. Johnson is a Shareholder at Polsinelli PC with 25
years
¡
experience as a health care lawyer and management
consultant focusing on health care organization, physician practice,
compensation, clinical integration and compliance issues.
Bruce A. Johnson, Esq.
1515 Wynkoop Street
Suite 600
Denver, Colorado 80203
303.583.8203
brucejohnson@polsinelli.com

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