STRUCTURING THE PRACTICE-HOSPITAL

ALIGNMENT – INNOVATIVE APPROACHES

Steven J. Morris MD JD FACPAtlanta Gastroenterology Associates,

LLCOctober, 2013

TransparencyFebruary 8, 2011

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Room & Supplies Professional Medications Diagnostics

Cost Per Procedure – Greater SF Bay Area MSA

Diagnostic Colonoscopy Providers

Colonoscopy in the SF Bay Area*

$887$1,249

$1,963

$2,876$3,333

$3,769

$5,596

$7,245

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Room & Supplies Professional Medications Diagnostics

* Safeway Health 2011

Cost Comparison: high to low

Hernia Repair: $3500:16,700 4:1 Gallbladder: $4200:21,500 5:1 Cardiac Cath: $3500:25,000 7:1 Arthroscopy: $3400:32,000 9:1 Colonoscopy: $887:8600 10:1

Non Profit HospitalsHospital Name Operating Profit CEO Compensation

U of Pittsburgh M.C. $769,000,000 $6,000,000

Cleveland Clinic $572,000,000 $2,600,000

Barnes Jewish Hospital $489,000,000 $2,335,000

N.Y. Presbyterian/Weill Cornell M.C.

$383,000,000 $4,360,000

Indiana U. Health- Methodist Hospital

$360,000,000 $2,100,000

Florida Hospital -Orlando

$352,000,000 $3,000,000

Montefiore M.C.- Bronx $196,000,000 $4,000,000

Methodist U. Hospital - Memphis

$151,000,000 $2,200,000

Norton Hospital- Louisville, Ky.

$118,000,000 $2,200,000

** Brill, StevenTime Magazine 3/4/2013

Hospital Physician Alignment

• Traditional Relationship• Hospital Based Service

Agreements• Professional Service

Agreements• Employment

Hospital Based Service Agreements

Co-management service agreements between health systems and physician groups

Variety of services: Medical director services Strategic planning Human resource duties Scheduling and staffing

Legal Considerations: service agreements

Stark Law Structure to meet FMV or Personal Service

exceptions Anti-Kickback Statutes (AKS)

Never tie compensation to volume/value False Claims Act CMS requirements Tax Exempt status

Hospital Employment

National trend towards hospital employment

Reasons: Scarcity of Primary Care Physicians Mantra of “work-life” balance Quality Initiatives

Pay-for Performance, PQRIHealthcare Reform

Accountable Care Act

Hospital Employment

Direct Hospital Employment Simplest model if no state statutory

prohibitions Foundation Model

States with corporate practice of medicine laws

Hospital controls board and obtains tax exempt status

Physician leasing model Subsidiary/Affiliated Entity Models

Transitional models

Professional Service Agreeement

Employment Lite Independent Contractor Agreement -

usually with a group Physicians remain within their corporate

structure Physicians reassign their right to

payment to the hospitals Hospital bills all payers for their services

Employment v PSA

EMPLOYMENT PSA

W2 Employee More favorable

reimbursement Less Overhead No Complex

Regulation Lifestyle Safer Legal Model Fear

Remain Independent Maintain group

dynamics Easier to unwind Avoid employment

stigma Collaboration with

hospital on quality and other initiatives

PSA Basic Scenarios

Global Payment PSA Hospital K with practice for global payment rate

Practice Management Arrangements Hospital employs physicians Practice entity is retained and enters into another

K with hospital for management services Traditional PSA

Hospital K with physicians via practice Hospital employs the practice staff

Hybrid Arrangements

Compensation

Parties calculate wRVU based compensation and conversion factor

Combination of historical productivity and payer mix

Length of conversion factor Length of agreement/renewal Usually all parties do separate valuations

and negotiate the final number

2012 MGMA Annual Report

Specialty Median Physician work RVU

Median Compensation to work RVU Ratio

Median Physician Compensation

Cardiology- Invasive

9,406 $57.03 $521,454

Dermatology 7,840 $55.46 $428,382

Gastroenterology

8,492 $56.44 $481,347

Internal Medicine

4,795 $46.35 $215,689

Orthopedic Surgery

7,981 $63.54 $520,1119

Source: MGMA Physician Compensation and Production Survey: 2012 Report Based on 2011 Data.  Used with permission from the Medical Group Management Association, 104 Inverness Terrace East, Englewood, Colorado, 80112.  www.mgma.com.

Applicable Healthcare Laws

Stark Law Anti-kickback Statute IRS Rules on Employment/Independent

contractor 501(c) (3) principles Antitrust

Monopolization Concerted Action

Process – Your Group

Evaluate your group Size Geography Community

Goals of Transaction Stabilization Future Growth

Bundling ASC’s; Pathology; Imaging

Process- Your Group

What strengths does your group have Size, geography, quality initiatives, service

lines, centers of excellence What can you add to your partner? What needs do you have: ? EMR ? Capital Transaction timing

Earnings and growth New ASC’s Market place consolidation: early movers do

better!!

Do’s and Don’t’s

Yes: Combine PSA with other transactions Use PSA as an employment segue Use PSA to adapt to a changing marketplace

No Unrealistic compensation expectations Unwillingness to truly “partner”

Strategic planning Increase market share Quality initiatives Align hospital and practice goals

Process - Hospital Partner

Vision Open to PSA v Employment Model

Alignment Geography Inpatient v Outpatient

Size and Financial Strength Bigger not always better

Local v National

Hybrid Agreement

‘Crossing the Rubicon’ Maintain employees, office space, EMR, Equipment

Five Year Term with Renewal Reevaluate wRVU Bilateral renewal options

Bundled Sales Pathology Research division Existing ASC’s

Coverage Agreements Hospitals Geographic regions

Hybrid Agreements

Service Lines Governance

Committees : Practice, Ancillarieso Compositiono Dispute resolution

Growth Practice – organic, acquisition Research ASC

Summary

Advantages Accounts Receivable Growth Financial & Strategic Partner Maintain Independence

Disadvantages Complex regulatory environment Financial risk mitigated but still present “Backlash” Obligations of partnership