Physician Hospital Integration
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©2010 LarsonAllen LLP 1 WICPA Conference Regulatory Overview on Hospital Physician Joint Venture August 20, 2009
description
Options for physician-hospital integration
Transcript of Physician Hospital Integration
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WICPA Conference
Regulatory Overview on Hospital Physician Joint Venture
August 20, 2009
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Agenda
• Introduction/Factors Driving Collaboration
• Potential Relationship Structure Models
• Range of Relationship Models
• Legal Considerations
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IntroductionFactors Driving Collaboration
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Introduction• More practices are developing closer affiliations with or
are being acquired by hospitals and health systems• Reasons for affiliations include:
– Reform on the horizon– Access to Capital: Need for an EMR and other capital
purchases– Call coverage– Primary care and/or Specialty coverage needs– Growth of physician management in hospitals – voice in
recruiting and governance– Reducing hospital – physician competition– Need for market share/volume growth– Assistance with contracting– Provider based status– Eliminating competition around provision of ancillary services
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Key Attritubutes Driving Hospital Physician Group Collaboration• Declining physician incomes • Lack of success recruiting new physicians• Short term income reductions related to recruitment of
new physicians limiting growth• Limited access to key resources
– Human– Capital– Technology
• Competition between physicians and hospitals for the same revenue streams
• Generational and multi-specialty internal group dynamics• Fear of risks of ownership for younger physicians• Changing markets towards outpatient service delivery• Dominant payer in the market with shrinking
reimbursement for physicians
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“No matter how innovative, equity-oriented, or financially beneficial the physician-health system relationship may be, they will fail in the absence of mutual trust and feelings of shared destiny that are engendered by the environment in which the relationships are forged. In institutions with strong physician-hospital relations, each party is confident that the other's decisions and actions are generally designed for the benefit of both.”
Holm, Craig E. and Brogadir, Stuart P. "Laying the Foundation for Successful Physician-Health System Partnerships," Journal of Healthcare Management. 45(1):
January/February, 2000.
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Potential Benefits of Closer Affiliation
Physician Benefits
• Enhanced Security
• Greater Income Predictability• Improved Lifestyle• Recruitment of additional
colleagues• Stabilized Referral Patterns• Joint Marketing / Branding
Strategy
• Economies of Scale• Leverage With Payers• Revitalization of Morale• Group purchasing power
Hospital Benefits
• Support Mission• Meet Growth Need• Enhance Future Supply of
Physicians/Improved Recruitment• Eliminate competition/threat of
competition for ancillaries• Align Incentives• Connect With Physicians at Different
Points in Career• Stabilize Primary Care network• Increased downstream revenue• Maintain local control of health care
system
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Overlapping Interests
Strategic Economic
• Increase Market Share• Expand Regional Presence• More Value to Health Plans• Expand Clinical Relationships• Improve Physician Recruitment / Retention
• Stabilize Practice• Capture Cost / Investment Synergies
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Overlapping Relationships
ClinicalRelationships
BusinessRelationships
• Hospitalists• Disease Management• Oncology• Clinical Research• Specialist Relationships• EMR
• Ancillary Services• EMR• Practice Management Service• Professional Services Agreements• Ambulatory Surgery Centers• Shared Equity
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Physician Values• Providing the best care for their patients
• Personal control over what they do and how they practice
• Limited control by others
• Doing well in comparison with peers
• Sense of fairness in relationships
• Environment of clinical inquiry
• Opportunities for dialogue and ability to influence decisions that affect them
• Maintaining collegial relationships with peers
• Choice of those with whom they work
Hospital Values• Providing the highest quality medical care possible for patients and the community
• Developing a seamless network of care with other health care systems
• Ensuring the qualifications of those who provide care in the hospital or as part of the system
• Doing well in comparison with peers
• Fostering teaching and research
• Serving customers and seeing all relationships as relationships with customers
Providing the
Best Care•Effectively•Efficiently
•Compassionately
In an
Environment of•Excellence
•Respect•Satisfaction
Can We Meet Somewhere in the Middle?
Fundamentals of Physician Practice Management, Table 10.1
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How Might All of This Affect the Delivery Side?
• Market consolidation accelerates leading to more vertically integrated delivery systems.
• Integrated systems pursuing wholesale restructuring of: the governance models, management structures and strategies. More physicians embedded in the leadership and management models.
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Issues / Considerations/ Potential Barriers
• Financial Risks• Legal Considerations• Governance & Control (Trust)• Strategy Change• Change of Leadership
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Key Questions to Determine Affiliation Approach
• Will current organizational structures be the most effective model for serving our community in the future?
• What is the medical community’s vision for health care in our community?
• What are the goals and objectives of a closer affiliation between the hospital and its physicians?
• If applicable, what are the implications of the hospital’s public status on potential hospital physician integration?
• Culture - Is the organization ready for this? • What are the barriers to make this happen?• Are the long-term plans of both parties compatible?• What is the reaction if we do not integrate now?
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Potential Relationship Structure Models for Physician
Practices/Hospitals
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The Range of Affiliation Models
Collaborators
Joint Ventures
Provider BasedClinic
ProfessionalServices
Agreement
EmploymentModel
IntegratedSystem
REAL ESTATE TRANSACTION
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Physician Relationship Models
Autonomy Integration
Accountabil i ty
MSO Model
Real Estate
Professional Services Arrangement
Joint Venture
Integrated System
Contracted Physician
Employment
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Hospital Operations
Hospital
ClinicOperations
Com
mon
Op
eration
s
All MDs would remain
Employees ofSeparate
Organizations
All Clinic employees wouldBecome employees of
clinic division of hospital
All Assets would be transferred to hospital
Physician Practice(s)
Professional Services Model with Provider Based Billing
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Hospital Operations
Hospital
ClinicOperations
Com
mon
Operations
All MDs would remain
Employees ofSeparate
Organizations
Physician Practice(s)
Paid $ per RVU @ Market rate Productivity and Reimbursement by
Specialty
Long Term Contract for Services
Professional Services Model with Provider Based Billing (cont.)
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Professional Services Model• Pros
– Physicians can receive a higher comp per RVU
– Greater alignment, groups remain independent
– Recruitment and retention– Easily replicated with other
physicians– Hospital cost of operations
• Cons– Feds may change the rules– Contracts have to be re-
negotiated– Risk of increasing overall
cost– Groups perceive loss of
control - operations– Increased cost to patients– Hospital cost of operations
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Employment Model
• Physicians become hospital employees or employees of hospital controlled subsidiary
• Can be coupled with provider based clinics, creating Medicare reimbursement benefit
• Creates highest level of fund flow flexibility, although physician income still must meet market test
• Typically involves hospital purchase of practice and real estate (if physician practice owned)
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Integrated Delivery System• New non-profit system created with non-profit hospital division and
non-profit physician division• Typically involves significant governance change:
• Creates high level of fund flow flexibility, must meet market test• Can be coupled with provider based clinics, creating Medicare
reimbursement benefit• Typically involves practice acquisition and physician owned real
estate acquisition (if any)
SystemBoard up to 50% minus 1 physicians
HospitalBoard
PracticeBoard
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Legal Issues
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Legal Factors Affecting New Relationships
• Health Care Laws– Stark
– Anti-kickback
– Medicare coverage and billing rules, including anti-markup
– Corporate practice of medicine doctrine
• Other Laws Applied to Health Care Industry– False Claims Act
– Antitrust
– Tax exemption (intermediate sanctions)– Tax-exempt bond rules (private use limits)
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Other Legal Factors Driving New Structures
• Provider-Based Status – including provider-based rural health clinics
• Critical Access Hospital (“CAH”) Status• Privatization – public hospitals becoming private • “Under Arrangements” Rules – specialty service
contracts• “Gainsharing” – contracting for service line
management and/or shared program savings
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Provider-Based Status
• Departments and facilities considered “integral and subordinate” part of hospital
• Off-campus clinics (either built or acquired) have been hot-button issue for CMS
• The lure of provider-based status:– Hospital receives outpatient facility fee
– Physician services billed with site-of-service modifier and reimbursement reduced accordingly
– Net reimbursement generally higher
• Disadvantage of double co-pays for patients
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Criteria for Being Provider-Based• Licensure – usually under hospital license, consistent
with state law• Operation under ownership and control of hospital –
governance; final decision-making authority; etc.
• Administration and supervision – under direct supervision of hospital as “main provider”
• Clinical integration – hospital staff privileges and same clinical oversight
• Financial integration – hospital P&L• Public awareness – identified as hospital site• Location – off-campus locations are subject to more
stringent requirements; some sites will not qualify
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Drawbacks of Provider-Based Status
• Must comply with EMTALA regulations• Must comply with hospital’s provider agreement
and conditions of participation• DRG payment window applies (72- hour window)• Off-site departments (except RHCs) must notify
patient of co-insurance amount prior to service• Must meet applicable hospital life-safety code
requirements – can be costly• Medicare patients billed a facility fee and subject
to double co-insurance
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Services “Under Arrangements”
• Transaction under which hospital contracts with third party to provide specific services to hospital patients
• Specialized services are often provided under arrangements– E.g., specialized imaging; cardiac catheterization;
lithotripsy; radiation therapy; intra-operative monitoring
• Hospital purchases service at fair market value and bills for it
• “Provider-based” and “under arrangements” are different, but distinctions can be confusing
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“Under Arrangements” and Stark
• Entity providing services may be an independent organization or jointly owned by hospital and third party (e.g., physician entity)
• Stark issues – services not “designated health services” (“DHS”) on their own become DHS when provided by hospital as inpatient or outpatient services
• Not generally an issue in past, because “entity” billing for service (and therefore covered by Stark) was hospital, and physicians do not have ownership in hospital, but …
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“Under Arrangements” Under Fire• New definition of “entity” effective October 1, 2009
– Current definition: only the entity that bills or submits a claim is furnishing DHS under Stark
– New definition: deemed to be furnishing DHS if “performed the services” – e.g., under arrangements
– CMS refuses to define “performed the services,” saying it should have its “common meaning” and providers know when they’ve performed the service
• Converts physician ownership in entity providing services “under arrangements” into deemed ownership interest in hospital
• Stark Law has very few ownership exceptions
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“Gainsharing”• “Incentive payment” and “shared savings”
programs – Service Line Co-Management, etc.• Intended to align incentives
– hospitals paid DRG – at risk– physicians paid fee for service – no stake in hospital
costs
• Chief legal barriers:– Stark Law, anti-kickback, tax-exemption; and– Civil Monetary Penalty law – prohibits payments by
hospitals to induce a physician to reduce or limit items or services furnished to their Medicare and Medicaid patients under the physician’s direct care
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“Gainsharing”
• Many concerns for potential abuse:– “stinting”
– “cherry picking”
– “steering”– “quicker & sicker discharges”
• Gainsharing deals were banned for a time, now are being done on limited basis with many safeguards
• Specific Stark Law exception has been proposed but not final yet
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Critical Access Hospital (“CAH”) Status
• Cost-based reimbursement from Medicare – often yields higher revenues
• Intersection with provider-based rules– After January 1, 2008, all off-campus CAH provider-
based facilities (e.g., acquired clinic) must be 35 miles from nearest hospital or CAH
– Required distance is 15 miles in mountainous terrain
• However, rural health clinics (RHCs) are not subject to this requirement
• Therefore, incentive to qualify remote clinic as RHC if possible
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Privatization• Conversion of public hospitals (county, municipal,
district, state university) to private, non-profit, tax-exempt status
Pros Cons
• Contracting flexibility• Escape open meeting laws• More H.R. flexibility• Often reduce staff costs• Easier to JV with physicians• Escape “safety net” status
• Loss of public funding• Loss of taxing authority• More antitrust exposure• Tax exemption under fire• More uncertain future
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Affiliation Models
• Affiliation Agreements• Partial Professional Service Agreements• Professional Service Agreements• Asset Purchase Agreements• Medical Group Mergers
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Affiliation Agreements – What’s Involved?
• Clinic not ready yet for full integration but desires closer ties with Hospital
• Often includes recruitment assistance, EMR, medical directorships, joint venture on ancillaries (e.g., imaging, ASCs), service-line co-management
• Clinic may sell right of first refusal/first negotiation
• Typically exclusive
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Affiliation Agreements – Potential Uses
• First step toward future collaboration• Clinic interested in financial support but not
ready to merge with Hospital• Clinic’s stability is important to the Hospital• Desire that the Clinic remain independent• Stark and anti-kickback laws pose challenges
(e.g., prohibition of physician ownership of certain designated health services)
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Partial Professional Services Agreement – What’s Involved?• Hospital contracts for Clinic’s services for a
particular service line (e.g., hospitalist and ER services; joint replacement program)
• Hospital pays Clinic for providing professional services at fair market value
• Hospital bills third party payors for services provided under agreement
• Clinic continues to bill payors for its other services
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Partial Professional Services Agreement – Potential Uses• Hospital desires to expand services and Clinic is
reluctant to take financial risk• Less costly for Clinic to provide professional
service than for Hospital to build its own• Collaboration may lead to more integration down
the road• Stark billing requirement that a group practice
bill 75% of its services in its own name may pose challenges
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Professional Services Agreement – What’s Involved?• Clinic sells all of its operating assets to Hospital• Clinic continues to employ physicians (may also
include mid-levels)• Clinic staff typically become employees of
Hospital• Hospital typically bills for all Clinic services as a
provider-based clinic • Hospital pays Clinic for its services, typically on
a RVU basis plus benefits
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Professional Services Agreement – Potential Uses• Clinic physicians not ready to commit to
employment• Open meeting laws and other public disclosure
requirements may discourage employment• Clinic desires to avoid financial risk of payor
contracts and overhead costs• Hospital and Clinic desire increased revenue
from provider-based billing• Hospital seeks a closer (exclusive) relationship
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Professional Services Agreement – Potential Uses (Cont’d.)• Physician leadership in development• Clinic desires to maintain own benefits, internal
compensation and shareholder decisions• Renegotiation of compensation may pose
challenges down the road• Allows a potential way to unwind relationship if
unsuccessful down the road
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Asset Purchase Agreements – What’s Involved?
• Like mergers of the past, Clinic sells all of its assets to Hospital
• But unlike mergers of the past, physicians need to play an active role in management of the new organization and have compensation that is aligned with system goals
• Part of the asset sales price (e.g., goodwill portion) put into retention bonus
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Asset Purchase Agreements – What’s Involved (Cont’d)• Physicians may be employed by a new clinic
entity, with active involvement on a Clinic Operations Committee
• Physicians paid per RVU with individual and system bonuses
• Clinic physicians able to take a leadership role• Difficulty in unwinding the affiliation may create
challenges down the road if relationship is unsuccessful
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Medical Group Mergers - What’s Happening
• Full mergers increasingly popular among specialty groups, where groups merge and share a common bottom line
• Divisional mergers also popular, which allows groups to merge, with separate profit centers, followed by a full financial merger later
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Medical Group Mergers (Cont’d)
• Management Services Organizations, that provide billing, collection, employee benefits and other services to clinic owners of the MSO have found limited success in some hospital-based specialty groups (e.g., ER, anesthesiology, radiology, pathology)
• Some medical communities exploring “community partnerships” where a new entity is formed to start discussions toward the “next generation” of payor contracting (e.g., allocation of payments for episodes of care)
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Medical Group Mergers (Cont’d)
• For profit management companies also play an important role in some specialty groups (e.g., oncology, concierge care, pain management) by providing access to capital
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Questions For Hospitals
Key Questions Hospitals Are/Should Be Asking Relative to Physician Relationships:
• Will we have enough physicians (breadth and depth) to support our community’s needs and our market strategies?
• Are our key physician groups willing and able to grow organically or do they need financial assistance to do so?
• If financial support is required, what relationship models will allow us to accomplish our mutual goals?
• Do we, the hospital, and our physician groups share a common goal of local health care delivery or are we vulnerable to “take over” by a larger system?
• Do we have positive/collaborative relationships with our physicians?
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Questions For Physician Practices
Key Questions Physicians Are/Should Be Asking Relative to Hospital Relationships:
• Do we have to do something right now? Is this the best option for us currently?
• Is this the right hospital partner for us?
• What happens if the hospital or health system is taken over by a larger health system?
• What relationship model will allow us to accomplish our financial goals while maintaining as much autonomy as possible?
• What would be the conditions for exiting this agreement if need be?
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Thank you!Curt Mayse, MBA, FACMPE
