Physician-Hospital Alignment and Compensation Models: The Second Generation (Plus Lessons Learned from the Original Alignment Transactions)

Transcription

1 Physician-Hospital Alignment and Compensation Models: The Second Generation (Plus Lessons Learned from the Original Alignment Transactions) Becker s Hospital Review 2018 Spine Meeting June 14, 2018 Max Reiboldt, CPA President/CEO, Coker Group Bashar Naser CFO, Gerald Champion Regional Medical Center

2 Agenda I. Situational Overview II. Structures for Second Generation Alignment III. Compensation in Second Generation Alignment Transactions IV. Negotiating Second Generation Transactions V. Conclusion/Q&A 2

3 I. SITUATIONAL OVERVIEW 3

4 First vs. Second Generation Alignment Models First generation transactions are the initial transactions between hospitals and physicians (gained popularity in 80 s and 90 s) These were focused on traditional forms of alignment and compensation Many fell short of aligning compensation incentives with targeted goals Many of these transactions are now under renewal; thus, becoming second generation models Overarchingly, second-generation models are any models that are the result of a previously established alignment structure While this could simply be a renewal of the old model, many second-generation alignment models are seeking alternative methods to be innovative Specifically, the ACA and MACRA s value-based reimbursement ( VBR ) reforms require providers to focus on providing high-quality care while reducing costs To provide more value to their patients, providers will need to align or partner in such a way that promotes team-based care Patient s care is coordinated among various providers Reduction of care being given in an independent and fragmented nature Alignment models that promote this type of care are typically those that have achieved full integration 4

5 Second Generation Alignment Models Additionally, contemporary models are now being pursued as a secondary initiative to the original alignment model: ACOs Clinically integrated networks ( CINs ) The value-based reimbursement reforms require providers to accomplish the following tasks: Measure healthcare outcomes Measure costs relative to the treatment of the patient s underlying condition Integrate patient care among a multitude of providers Perform advanced IT system processes such as: Retaining data centered on the patient Provide physicians at different locations with the ability to access various aspects of the patient s medical record Identify the processes of care for that condition as well as identify risks the patient will encounter during treatment 5

6 Industry Paradigm Shifts Continue Traditional healthcare delivery model Fragmented care management treating primarily sick people Episodes of care; utilization management Predominantly Production (volume)/fee-forservice (FFS) payments Disjointed provider base Integrated care management focusing on preventative care Coordinated delivery of care rendering appropriate services at appropriate place and time Performance (value); Quality/cost control; bundled payments; capitation; riskbased Collaboratives: ACOs/CINs/PCMHs / QCs Accountable care era healthcare delivery 6

7 Increasing Provider Risk Evolving Payment Models Fee-for-Service Providers are paid a specified amount for each service provided Pay-for-Performance Incentives are provided for higher quality care (that are measured by evidence-based standards) Value-Based Purchasing Bundled Payments Percentage of the reimbursement is at risk, which can be earned back by high-quality outcomes Single payment for episode of treatment that is shared by hospital and physicians Shared Savings Percentage of savings from reduced cost of care are shared with hospitals and physicians Global Payments All services are compensated in one payment that manages the patient across the delivery system Spine surgeons are keenly aware of these changes as they have been targeted to participate in various VBR programs, most commonly bundled payments. Many spine surgeons are successfully meeting the demands of value-based care by proactively developing centers of excellence to participate in VBR models. 7

8 Bundled Payment Model Example Inpatient Care and Related Readmissions Post-Acute Care Pre- Admission Includes costs for: Inpatient hospital fee Provider fee Supplies/implants/devices Radiology Anesthesia Lab/pathology Rehab Prescription drugs Bundled Payment Fee Spinal fusion is included in CMS Bundled Payment for Care Improvement ( BPCI ) model and also could be completed with commercial payers or employer-sponsored healthcare models 8

9 Impact of Changing Payment Models Operational Requires changes to how we are currently practicing Additional costs - IT tools, staffing, contracting, etc. Financial At-risk vs. guaranteed comp Changes in amount Changes in incentive drivers 9

10 First to Second Generation Alignment Models First Generation Compensation Models Changing Reimbursement Paradigm Compensation Incentive Models Varying Alignment Structures Second Generation Structures and Compensation Incentives Second generation structures and compensation models must connect the dots with reimbursement changes! 10

11 II. STRUCTURES FOR SECOND GENERATION ALIGNMENT 11

12 Building to Clinical Integration Stage I: Alignment & Integration* Initial alignment deals assessed Consider/pursue a range of alternative alignment models (limited to moderate to full) Potential expansion of outpatient access Ongoing alignment transactions being considered and concluded Development of an aligned entity via legal incorporation Stage II: VBR Strategies & Implementation* ACO or CIN participation with a strategic hospital partner Interoperable IT solutions providing communications across all providers and facilities Possible expansion of network as the consolidated/aligned organization pursues new alignment deals with high-performing physicians and/or outpatient facilities Operational integration, including revenue cycle mgmt, personnel, compliance, financial mgmt, etc. Official recognition from federal government as a CIN or ACO Continued focus on solidifying market share within primary market; not competing outside Engaging in payer contracting/reimbursement as a CIN/ACO based upon a combination of FFS, management assistance and at-risk (i.e., shared savings, etc.) reimbursement methodologies *A staged approach has proven an effective strategy for numerous health systems and private consortiums clinical integration and ACO/CIN ventures; Stages I and II typically run concurrently after the initial period (i.e., 1-3 years) of successful alignment transactions Note: Stage II alignment does not necessarily mean second generation Alignment models; however, it can if during the second generation transaction, the parties choose to further integrate. 12

13 Clinically Integrating to Deliver Value Clinical integration (CI) is a term used to describe a collaborative and coordinated approach to healthcare delivery CI is especially important in the US healthcare industry, where the two overarching imperatives behind the recent reform efforts are also related to the variables in the value equation CI s focus is on reliably producing high quality clinical outcomes in the most cost efficient manner possible If value is defined as quality per unit of cost (V = Q/C), then CI is, quite simply, a method of providing healthcare services that produce measurably higher value (i.e. a high quality to cost ratio) 13

14 Industry Impact on Spine As specialty surgeons, spine physicians have a unique advantage in the market While it is common for spine surgeons to be employed or fully aligned with a hospital via a traditional model, they are also effective in contemporary alignment models Moreover, spine surgeons have the ability to partner with a hospital in joint ventures, such as the development of a spine surgery center Key considerations for spine surgeons in second generation alignment models: Ownership of ancillaries in new model Partnership with hospital for development of ambulatory surgery center Development of a spine center of excellence Participation in shared savings or bundled payment models Co-management of spine service line Partnership on new technology/surgical systems PSA rather than employment Subspecialty considerations (i.e. pain management, physical medicine and rehabilitation, addiction medicine, neurology, and neuroradiology) Development of entire Musculoskeletal Center of Excellence The second generation models should be even more flexible to accommodate some/all of the above for spine surgeons and other related providers. 14

15 III. COMPENSATION IN SECOND GENERATION ALIGNMENT TRANSACTIONS 15

16 Flawed Historical Compensation Plans Flaws in compensation plans are becoming evident and unsustainable from an employer standpoint Some of the transactions that have occurred over the past five years have been flawed, largely due to the structure of the compensation and incentives Moreover, due to contract incentives being based on wrvus, physicians have not been incentivized to reduce costs or control the care process; rather, they were incented to be aggressive in coding and overall accumulation of wrvus This is critical, as VBR has continued to push for more control of these functions; thus, some surgeons and related providers should be equally engaged in the outcomes of the hospital s changing reimbursement As contracts are expiring, employers are reconsidering whether best to renew the contracts under a similar model (many of which are solely productivity based) or move toward new models (that include other, non-productivity incentives), which better support VBR Discussion Question: Are spine surgeons exempt from these characteristics? 16

17 Compensation in VBR Environment Change has become an operative word Changing Plans: 41% changing models every year or two, 38% every three to five years* Changing Incentives: 39% of placements in 2017 included quality incentives, up from 32% in 2016** *Physician Compensation: Shifting Incentives, Healthleaders Media Council **Merritt Hawkins Review of Physician Recruiting Incentives 17

18 Evolution of Physician Compensation 1990s High guarantees No productivity expectations Significant benefit packages 2000s Strong focus on productivity (mainly wrvus) Guarantee treatment largely depends on locale Limited performance incentives (outside of productivity) Reasonable benefit package (no more pensions) 2010s Continued focus on productivity, although changing Significant focus on inclusion of performance incentives (outside of productivity) Decreasing guarantees Reasonable benefit package (no more pensions) Questions of what the future looks like 18

19 Impact of Changing Payment Models Statistics from 2017 Sullivan Cotter Physician Compensation Survey* related to frequency of value or quality-based incentives used in total compensation, as well as mean percentage of total cash compensation if used: Percentage Using Percentage of TCC Primary Care Physicians 58% 10% Medical Physicians 49% 11% Surgical Physicians 51% 11% Hospital-Based Physicians 45% 11% Additionally, 35% of respondents noted that they anticipate modifying the balance between productivity-based and performance or quality-based pay within the next 12 months Discussion Question: Given the percentages noted above for surgical physicians, where do you believe spine surgeons fall?? 19

20 Performance Incentives Sample measures that can assess quality as well as cost reduction in second generation compensation plans include: Quality Measures Chart Completion Patient Satisfaction Administrative Adherence Expense Control (Practice) Good Citizenship Targeted Cost Savings (Hospital) Adoption of EHR Coding and Compliance Referral Patterns Call Coverage Medical Home Success Hospital Service Line Cost Efficiency Bundles Discussion Question: Those bolded may be most applicable to spine surgeons; do these resonate with them today? Will they tomorrow? 20

21 Spine Surgeon Compensation Example Provider receives either Tier 1 calculation, Tier 2 calculation, or Tier 2/Tier 3 calculation wrvu $ Multiplier MGMA Benchmark Tier Proposed Tier wrvus Thresholds Below Median ----OR At or above median Above 75%tile: Incremental wrvus above 6,266 Total amount of productivity dependent upon the quality tier physician qualifies for Spine surgeons are evaluated on 5 quality metrics, each with equal weight Average Length of Stage Percent Mortality Percent ICU Cases Percent Unplanned Readmissions within 30 Days of Discharge Patient Satisfaction Scores Productivity Tier Factor 1 96% 2 98% 3 100% 21

22 Compensation Trends Takeaways The physician market has changed, with many more physicians employed/affiliated with health systems The reimbursement paradigm is changing, with a greater focus on VBR This does not mean that volume is going away, but balanced with other incentives With the number of physicians currently employed, there is a substantial focus on developing the right compensation model for the overall benefit of patient care throughout the health system, as opposed to simply aligning with all physicians in the community Discussion Question: Again, are spine surgeons an exception to the above? 22

23 IV. NEGOTIATING SECOND GENERATION TRANSACTIONS 23

24 Negotiation Considerations Structure of Agreement Alignment alternatives accommodated Terms within fair market value ( FMV ) and/or commercially reasonable perspective ( CR ) parameters Shift from traditional to contemporary alignment Changes in the Reimbursement Paradigm Alignment of incentives with VBR Participation in VBR Compensation/Incentives Compensation based on productivity and non-productivity measures (more on following slides) Governance structure regarding go-forward incentive structures Leadership and Governance Contract models should favor independence and autonomy for the practice Practices should ensure a voice in key elements (i.e. reimbursement, compensation/incentives, terms and conditions, etc.) Second-generation models should typically provide even more say-so in governance and leadership Terms and Conditions Must reflect structural, reimbursement and compensation components of the contract Corporate Considerations Overall corporate oversight and management and health system control measures 24

25 Key Contractual Terms To Be Negotiated Economic: Compensation Base Compensation Incentives Compensation Other Services (e.g. call, etc.) Ancillary Services; Call Pay Overhead Reimbursement Medical Directorships Benefits Outside Earnings Non-Economic: Governance Leadership Restrictive Covenants Term/Renewal Termination Duties and Responsibilities Voting/Management Committee Rights 25

26 Negotiation Process Similar to any other contract Imperative to stay organized and focused Compliance considerations taken into account to ensure compliance A third party consultant to assist in negotiations usually appropriate Consultant evaluates alternatives based on industry and market standards, and with FMV/CR considerations Strategy for each negotiation varies Many commonalities exist Negotiation assistance usually pays for itself Specific processes outlined below 26

27 Negotiation Process Issues Tracker Many elements to consider economic and non-economic Should be systematic and organized Simple matrix developed to document the issues (i.e. an issues tracker) Provides an overview of each component of the contract Red indicates an issue of disagreement or still undecided Yellow denotes additional vetting to finalize Green indicates agreement reached Tool to stay organized Seeks to track resolved areas; allows parties to focus on those issues that remain Focus on economic components, but heavy attention to operational and governance issues 27

28 Issues Tracker Example Term Details/Outstanding Discussion Point Level of Completion 1 Professional Liability Coverage 2 Overhead 3 Billing, Payer Contracts, etc. Practice to procure its professional liability insurance but its cost will be part of the overhead reimbursement. Action Items: Parties to discuss availability of tail coverage. Practice will employ its staff and operate the practice, passing through agreed-upon expenses to Asante (at no mark-up). All components of overhead will be defined and agreed upon prior to Closing and any subsequent adjustments will be presented to and pre-approved by the Co-Management Governance Committee. Practice Proposal: Practice to perform billing services on behalf of Hospital at fair market value fee. Hospital will own the payer contract agreements and such will bill under its tax identification number. Hospital Proposal: Hospital will perform billing services and own payer contracts. Further Discussion Required Agreement in Place Key Outstanding Discussion Point 28

29 Negotiation Process Financial Analysis Every negotiation requires thorough financial analysis ( FA ) FA should be completed (often by an independent party/consultant) for each party Hospitals may complete within their own finance area Report outlines main components of economic terms Serves as the basis of the parameters of FMV/CR rates Assists health system to understand return-on-investment parameters Report compares historical productivity, cost/overhead, and compensation to projected performance One of most critical points of the contract negotiations; requires expert opinions and counsel 29

30 Financial Analysis Example Provider Specialty Current FTE Projected TCC 2017 TCC Increase Over 2017 % Increase Over 2017 P1 Physician 1.00 $380,384 $273,472 $106, % P2 Physician 1.00 $606,206 $339,801 $266, % P3 Physician 1.00 $548,295 $285,689 $262, % P4 Physician 1.00 $514,141 $229,963 $284, % P5 Physician 1.00 $539,968 $358,723 $181, % P6 Physician 1.00 $667,274 $350,767 $316, % P7 Physician 1.00 $548,009 $384,231 $163, % P8 Physician 1.00 $635,649 $377,861 $257, % P9 Physician 1.00 $545,417 $379,416 $166, % P10 Physician 1.00 $534,930 $318,561 $216, % P11 Physician 0.50 $190,310 $168,937 $21, % Total Physicians $5,710,582 $3,467,422 $2,243, % Physician Average per FTE 1.00 $543,865 $333,727 $210, % APP1 Physician Assistant 1.00 $151,698 $133,171 $18, % APP2 Nurse Practitioner 1.00 $154,644 $119,512 $35, % APP3 Physician Assistant 1.00 $190,030 $165,863 $24, % APP4 Nurse Practitioner 0.40 $55,000 $14,439 $40, % APP5 Physician Assistant 1.00 $99,070 $23,333 $75, % APP6 Physician Assistant 1.00 $97,144 $29,271 $67, % APP7 Nurse Practitioner 1.00 $146,176 $53,500 $92, % Total APPs 6.40 $893,762 $539,089 $354, % APP Average per FTE 1.00 $139,650 $135,996 $3, % 30

31 Financial Analysis Example (cont d) Provider Specialty Current FTE Total Cash Projected Conversion Market %ile Market %ile Compensation wrvus Factor Market %ile P1 Physician 1.00 $385, , $ P2 Physician 1.00 $611, , $ P3 Physician 1.00 $553, , $ P4 Physician 1.00 $519, , $ P5 Physician 1.00 $544, , $ P6 Physician 1.00 $672, , $ P7 Physician 1.00 $553, , $ P8 Physician 1.00 $640, , $ P9 Physician 1.00 $550, , $ P10 Physician 1.00 $539, , $ P11 Physician 0.50 $192, , $ Total Physicians $5,763, , $ Physician Average per FTE 1.00 $548, , $ APP1 Physician Assistant 1.00 $153,698 >95 4, $ APP2 Nurse Practitioner 1.00 $156,644 >95 4, $ APP3 Physician Assistant 1.00 $192,030 >95 5,120 >95 $ APP4 Nurse Practitioner 0.40 $55, $ APP5 Physician Assistant 1.00 $101, , $ APP6 Physician Assistant 1.00 $99, , $ APP7 Nurse Practitioner 1.00 $148, , $ Total APPs 6.40 $906, , $ APP Average per FTE 1.00 $141, , $

32 Negotiation Process Letter of Intent ( LOI ) With FA completion plus issues tracker, letter of intent ( LOI ) developed LOI encapsulates all terms and conditions both economic and non-economic relative to transaction Legal counsel may be involved, but may be deferred LOI updated as issues resolved; will be basis of definitive agreements Used as the primary negotiating tool, revising until resolution During revisions, additional meetings may help resolve key issues 32

33 Letter of Intent Example Key Terms: Participating Providers Effective Date Term/Termination Duties of Providers Duties of Hospital Economic Terms Compensation Incentives Overhead Valuation Asses Purchases Governance Management Committee Income Distribution Plan Other Terms and Conditions 33

34 Negotiation Process Definitive Agreements Once LOI agreed (if not fully executed), definitive agreements drafted: PSA CCMA Employment Agreement Operating Agreement (CIN, ACO, etc.) Asset Purchase Agreement Management Services Agreement Development of comprehensive LOIs help process be more efficient If negotiation process is followed, quick effectuation of the definitive agreements is likely 34

35 Keys to a Successful Transaction Multiple other considerations for parties to evaluate Ensure the parties work collaboratively to reach a mutually agreeable outcome Following key guidelines to be pursued Understand the process and the overall flow of negotiations. Respect the changes in the industry. Delineate the key needs and expectations of both parties. Create a negotiation subgroup. Avoid misunderstandings at all times. Allow for changes in the future, posttransaction. 35

36 V. CONCLUSIONS / Q&A 36

37 First Generation Contracts Lessons Learned 1. Physician market share does not mean success, so health systems have become more selective relative to transactions. (PSAs are much more popular now than 3 years ago.) Spine surgeons often prefer this element of independence. 2. Incurring losses in physician transactions may not be offset by downstream revenue (increased site-neutral payments). Spine surgeons are no exception, especially as relates to costs. 3. Ensure organization s productivity and revenue goals are being met. (FFS still prevails.) 4. Consider infrastructure required to support non-productivity incentives. (FFV payments must exist to require such.) Spine surgery bundles are becoming prominent. 5. Gradually begin tapering off productivity goals and replace with alternative incentives. Mirror reimbursement trends and know spine surgery markers. 37

38 First Generation Contracts Lessons Learned 6. Tie new incentives to organizational goals, such as cost-savings, quality, etc. and prepare to respond to MACRA/MIPS requirements (service line metrics as well). 7. Begin tying incentives to reimbursement changes, such as shared savings and/or the quality/cpia/aci metrics being measured for MIPS (again, service line considerations). 8. Leverage newly prioritized metrics to reap additional reimbursement incentives (i.e. commercial or MIPS increases). 9. Continually reassess compensation structures in light of regulatory and industry trends. (Spine services may necessitate exceptions.) 10. Payment reform is here and real (MACRA); unable to ignore the non-ffs world. (Spine services will continue to be vitally important to all providers.) 38

39 Q&A 39

40 Contact Max Reiboldt, CPA President/CEO, Coker Group T: Bashar Naser CFO, Gerald Champion Regional Medical Center T:

41 APPENDIX 41

42 Traditional Alignment Models Limited Integration Managed Care Networks (Independent Practice Associations, Physician Hospital Organizations): Loose alliances for contracting purposes Recruitment/Incubation: Economic assistance for new physicians Group (Legal-Only) Merger: Unites parties under common legal entity without an operational merger Call Coverage Stipends: Pay for unassigned ED call Medical Directorships: Specific clinical oversight duties Typically Physician-to- Physician Typically Physician-to- Hospital Moderate Integration Service Line Management: Management of all specialty services within the hospital MSO/ISO: Ties hospitals to physician s business Clinical Co-Management: Physicians become actively engaged in clinical operations and oversight of applicable service line at the hospital Equity Group Assimilation: Ties entities via legal agreement; joint practice ownership Joint Ventures: Unites parties under common enterprise; difficult to structure; legal hurdles Either Physician- Physician or Physician-Hospital Full Integration ACO/CIN/QC: Participation in an organization focused on improving quality/cost of care for governmental or non-governmental payers; may be driven by practices or hospital/groups Employment Lite : Professional services agreements (PSAs) and other similar models (such as the practice management arrangement) through which hospital engages physicians as contractors Employment*: Strongest alignment; minimizes economic risk for physicians; Group (Legal and Operational) Merger: Unites parties under common legal entity with full integration of operations *Includes the Physician Enterprise Model (PEM) and the Group Practice Subsidiary (GPS) model, both of which allow the practice entity to remain intact even after employment of the physicians by the hospital. 42

43 Contemporary Alignment Models STRATEGY BASIC CONCEPT COMPENSATION FRAMEWORK Patient-Centered Medical Homes Team of providers and medical individuals collaborating to provide patient-centric care in a focused ambulatory care environment; can be part of ACO/CIN model Varying incentives based on contractual relationships with payers Quality Collaboratives Clinically Integrated Networks Consortium of providers focused on furthering the quality outcomes for a defined population Interdependent healthcare facilities form a network with providers that collaboratively develop and sustain clinical initiatives Internal or external funding sources determine scope and structure of available funds Incentive (i.e. at-risk) compensation based on achievement of predetermined measures Accountable Care Organizations Participating hospitals, providers, and other healthcare professionals collaborating to deliver quality and cost effective care to Medicare (and other) patient populations Incentive (and punitive) financial impacts based on cost savings and quality While the traditional forms of alignment, and specifically those we have highlighted on the previous slides, still offer key opportunities for spine surgeons, we believe that significant focus on these contemporary alignment models will be critical going forward. 43

44 CIN Overview Primary focus of a CIN/CIO is to create a high degree of interdependence among participating providers through care coordination and data transfer/sharing/application The engagement of physicians will help lead the way to change: Significant clinical buy-in will be necessary to re-tool a care delivery process Physicians are arguably the most equipped to influence change amongst medical staff, physician and non-physician caregivers Whether physician-based or hospitalbased, new delivery models necessitate HEAVY buy-in from participating providers Provider Groups, Care Practition ers, etc. Payers Care Process Transformation Aligned network of providers* *Can be a network of independent yet aligned group of private practices/physicians Hospitals and Health Systems 44