Understanding Physician Practice Losses February 6, 2019 To Receive CPE Credit Individuals Participate in entire webinar Answer polls when they are provided Groups Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to training@bkd.com within 24 hours of webinar If all eligibility requirements are met, each participant will be emailed their CPE certificate within 15 business days of webinar 1
Presented By Randy Biernat, CPA, ABV Partner rbiernat@bkd.com Scott Bezjak, CPA, CGMA Partner sbezjak@bkd.com Getting to Know You Which HFMA Chapter are you a member of? 1. Western PA 2. Central PA 3. Northeast PA 4. Metro Philadelphia 5. Other 2
Today s Topics 1 Board Expectations for Employed Physicians 4 Four Buckets Framework for Evaluating Physician Spend (Including Losses) 2 Losses Are Not the Fault of Physicians Historic Overview of Physician Employment Drivers 5 Physician Portfolio Strategy 3 Employed Losses Are Often Overstated Purchased Services Analysis Overview of Reasonable Board Expectations 3
Physician Losses The physician workforce, whether employed or not, is every hospital s greatest asset The Main Topics & Focus of Governance Systems are losing money on physician employment (average of $176K per physician) Hospital systems are integrating physicians into hospital management Board Expectations: Physician Employment Strategic relative to service plan Appropriate to community needs Compensation is commensurate with work effort Appropriate at health system service line level Budgeted, managed & accountable Market-based cost levels, including physician pay Financially sustainable 4
Stakeholder Views Level of Responsibility Board Senior System Management Compliance Function Medical Group Management Physicians Patients Outside Stakeholders Expectations Re: Physician Employment Strategic, Sustainable, Supportable Sound Business Case, Meets Current & Future Community Needs Fair Market Value, Accuracy in Work Effort Performance Is Budgeted, Approved, Monitored & Managed to Reasonable Market Standards Fair Pay for Work Performed, Clinical Autonomy, Access to Appropriate Staff, Equipment, Space Access to Care, Quality Care, Affordable Done If Necessary, Equitable, Compliant This and Physician Losses Are Not the Fault of Physicians Historic Overview of Physician Employment Trends 5
Physicians Don t Want Employment Control over practice operations Efficiency in operations/less training Tax benefits Pride of ownership Flat Reimbursement for 20 Years $36.69 $35.99 $1000.00 $1,930.60 MPFS Conversion Factor in 1999 MPFS Conversation Factor in 2018 3.52% Market basket of medical care in 1999 Equivalent market basket in 2018 93% increase! Medical inflation growth in same period (general inflation at 2.17%) 6
How Practices Have Coped Seeking Compensation for Nonclinical Work Scaling Up Expanding Ancillary Services (Where Permitted) Joint Ventures Selling Out! Compensation for Nonclinical Work Clinical Productivity Traditional Seeking Compensation for Nonclinical Work Nontraditional E.R. Call Pay Medical Direction Services Profit on Mid-Level Providers/ Supervision Teaching/Research Co-Management Services ACO/Bundled Payments 7
Compensation for Nonclinical Work Independent Groups Revenue - Expense = Compensation Hospitals: How big of check can we get them to write Reimbursement Medicare Physician Fee Schedule Scaling Up (MPFS)-driven Medicare Road Map For sustainable expense levels across functional areas, including labor-all CPT-based Medicare Cost Profile Can be extended to an actual payor mix providing indication on what is affordable Compensation for Nonclinical Work Selling Out! Significant Incentives for Health System Physician Acquisition On-call coverage Outreach/collaboration with smaller health systems Control over referral network/patient spend Employment Compensation Levels Take into account all expected work effort Private Equity Groups/Other Groups Aggressively pursuing roll up strategies as well 8
Employed Losses Are Often Overstated Purchased Services Analysis Financial Reporting Practices Key Impacts Health systems often fail to account for physician services provided to the hospital corporation Physician call or coverage Subsidies (payor mix or low volumes) Management services/administrative services Most systems are not utilizing transfer pricing to assign physician cost proportionally to services provided Presented as a separate physician corporation in a consolidated entity 9
Cost Allocations of Physician Work Employed physicians are routinely asked to contribute via Clinical productivity (assign cost to clinic) Call compensation (assign cost to hospital) APP supervision (assign cost to clinic) Medical direction (assign cost to hospital) Clinical quality efforts (assign to ACO/CIN) Other time-based services, such as teaching, research, administrative tasks, etc. (assign to consumer of time) Internal Pricing Model Regardless of what the contract calls for in terms of payment mechanisms, an internal pricing model can be used to assign a physician s cost into appropriate buckets Accomplish by establishing & adopting a standard pricing model RealValue Pricing Model Inputs Example of Physician Services Pricing Model Demographics Employer Name Health System Compensation Paid $342,000 ESTIMATED INDIVIDUAL LOSS = $159,500 Specialty Area Gastroenterology Clinical Inputs Nonclinical Work Effort WRVUs 5,850 MLP Supervision Hours per Year 100 Clinic Days per Week 3 Administrative Time 100 Weeks Worked per Year 46 Paid Time Off 208 Annual Clinic Days 184 Annual Nonclinical Work Effort Hours 408 Clinic Hours per Day 9 Annual Clinic Hours 1,656 Total Active Work Effort Hours Call Coverage Inputs Clinical 1,656 Primary call rotation (# of docs) 3 Nonclinical 408 Total On-Call Hours (Primary) 2,920 Active Hours Total 2,064 Activations per Year 100 Clinical Time Once Called In (Hrs) 75 Effective Hourly Rate (without benefits) ~ $170 10
Purchased Services/RealValue Pricing Model Conclusion Paid Compensation & Benefits $ 392,000 $342K Comp, $50K Benefits RealValue Pricing Analysis Notes: Clinical Services $ 273,839 5,850 WRVUs at 130% of Medicare On-Call Coverage Services 71,635 1,713 discrete hours at $24.80 MLP Supervision Services 23,808 192 hours at $124 Other Time-Based Services 29,680 424 hours of PTO at $70 Indicated Value of Services $ 398,962 86,635 Variance 2% 21.7% Compliance Risk Scoring Conclusion Acceptable Compensation per WRVU (all in) $ 58.46 ~45th P of traditional surveys Purchased Services/RealValue Pricing Model Conclusion Takeaways Call coverage has value of 19.4% of the indicated value of services This equates to $76,207 of cost that is a hospital use of physician group resources. There is no reimbursement associated with this cost (per model) This charge-back would could change the loss profile significantly (allocated loss was $159,500) If the service was acquired from an independent group, it would not be costed back to the physician group 11
Understanding Practice Losses Four Buckets Framework Common Ways to View Losses Cost of doing business Defensive strategy Support of community needs Cheaper than locum tenens Or They Can Be Analyzed & Reconciled Financially 12
BKD Four Buckets Framework VOLUME Start-up Rural Programmatic Coverage Work effort PRACTICE EXPENSE Direct expense Indirect expense Operating leverage Market costs Reimbursed costs REIMBURSEMENT Payor mix Revenue cycle Charge capture Chargemaster Billing & coding Collections Denial mgmt. PHYSICIAN COMP Market costs Per unit costs Marginal analysis Contract structure Attribution Compliance Bucket 1 Volume Key Concept: Insufficient volume will drive practice losses Start-up/transitional volume Commitment to rural health care Programmatic commitment Call coverage Lack of work effort = acceptable = problematic 13
Bucket 2 Practice Expense Key Concept: Physician clinical services are cost-reimbursed Medicare classifications: Direct expense & indirect expense Structural market v. reimbursement profile Operating leverage fixed v. variable cost mix = acceptable = problematic Bucket 2 Illustrative Expense Gap Medical Assistant Actual cost: $15/hr + 35% benefits = $20.25 Medicare reimbursed cost: 27 /min or $16.20 Utilization 90% (36 hrs clinical, 4 hrs other) Hourly gap = $4.05, annual gap $11,800 Loss attribution $4,200 Unreimbursed time (nonclinical) $7,600 Structural reimbursement gap ($4.05 x 1,872) 14
Bucket 2 Example Calculation Specialty physician practice expense reconciliation positive! Medicare practice expense level $324,300 Actual reimbursed $317,800 (98% of MC) Practice expense per financials $219,100 Difference $98,700 (reimbursement > cost) Physician loss reconciliation $22,200 Bucket 3 Reimbursement Key Concept: Inadequate reimbursement for services drives losses Payor mix Revenue cycle Appropriate charge capture Chargemaster: completeness & accuracy of services & related price setting Billing & coding: appropriate billing for work performed Collections: point of service efficiency Denial management: pre-certifications, approvals, secondary insurance, timely follow up, etc. = acceptable = problematic 15
Bucket 3 Example Calculation Actual collections as a % of Medicare 97.7% Typical percentage 111.5% Impact to specialist physician practice Actual collection $849,510 (or $35.17/TRVU) Collections at 25 th P MGMA 969,694 (or $40.14/TRVU) Dollar difference for clinic $120,000 Physician loss reconciliation value $27,200 Bucket 4 Physician Compensation Key Concept: Physician employment cost has exceeded related reimbursement levels Non-Part B services are unreimbursed by insurers at the medical group level Contract structure is marginally important Payment structures should match work effort & cost allocations should follow = acceptable = problematic 16
Bucket 4 Example Calculation Provider expense $1,058,200 Medicare reimbursement $513,400 Actual reimbursement $531,700 Actual expense $555,100 or 210% greater Physician loss reconciliation $236,800 Summary Loss Reconciliation Category Amount Notes Purchased Services ($76,200) Decrease Loss Bucket 1 Volume No Impact No Impact Bucket 2 Practice Expense ($22,200) Decrease Loss Bucket 3 Reimbursement $27,200 Increase Loss Bucket 4 Physician Expense $236,800 Increase Loss Assigned Loss Subtotal $165,600 17
Conclusion: Employed Physician Losses How much should we be losing on employed physicians? Financial decision-making answer Is the arrangement likely to be accretive to the system on a risk-adjusted, net basis? That is, is the sustainable clinic-level loss outweighed by the facility-level referral relationship, after risk is considered? Strategic decision-making answer Is the net system level loss on a risk adjusted basis critical to the success of the organization s mission or key business initiatives? If so, how should the loss be accounted for? How are we calculating & attributing the loss? How are we monitoring & managing? Strategic Losses: Risks & Physician Portfolio Analysis 18
Practical Explanation of Physician Losses ($10 Million) Strategic Losses: Physician Portfolio Analysis & Risk 19
Environmental Items That Affect Physician Need & Access Increased Insurance Coverage Medicaid Expansion & Employer-Based or ACA Aging of Physicians Community Demographics (Baby Boomers) Lifestyle Preferences Health Insurance Plan Changes Risks in Your Physician Portfolio Retirement doctors that support large volumes at the hospital corporation Retirement doctors that fill a physician need that aligns with mission Scarcity of population health specialties Psychiatry, OB/GYN, Cardiology, Pulmonology, Gastroenterology, Hospitalists, Neurology Geography concentrations for certain specialties Primary care physicians that refer to system specialty physicians 20
Better Inventory of Your Employed Physicians Requires More Information FTE vs. headcount Medicare/Medicaid acceptance rate Age of physician & estimated retirement age HCC score & MIPS score Volumes (practice/hospital/referrals) Research or teaching physician Compensation & incentives Call coverage requirements Management or administrative duties Diversity Physician Portfolio Scorecard Analysis A Combination of Profitability & Quality Factors Profitability Factors FTE Volumes (practice/hospital/referrals) Compensation & Incentives Call coverage requirements Quality Factors Medicare/Medicaid acceptance rate Age of physician & estimated retirement age HCC score & MIPS score Research or teaching physician Management or administrative duties Diversity 21
Physician Portfolio Scorecard Matrix Low Profitability High Quality Training Doc High Quality Low Profitability Superstar Doc High Quality High Profitability Killer Doc Low Quality Low Profitability Cash Cow Doc Low Quality High Profitability Low Quality High Profitability Physician Portfolio Scorecard Matrix Low Profitability Training Doc Potential for Superstar status Quality component increases future value Easier to change profitability than quality Superstar Doc The Best docs Other hospitals want them High compensation demands Maintain Superstar status High Quality Low Quality Killer Doc The worst of all worlds Physicians need to move quickly to improve status Drastic reductions in compensation or unemployment Cash Cow Doc Historically valuable to system Potential retirements Possible decrease in compensation Opportunity to understand quality measurements & improve status High Profitability 22
Physician Portfolio Scorecard Matrix Low Profitability High Quality Training Doc High Quality Low Profitability Superstar Doc High Quality High Profitability Low Quality Killer Doc Low Quality Low Profitability Cash Cow Doc Low Quality High Profitability High Profitability 23
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rbiernat@bkd.com sbezjak@bkd.com bkd.com/hc The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered. 25