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Partnering Physicians with

Hospitals/Health Systems

Joel R Sauer
Former CEO, Lutheran Medical Group

  Pressures on private practice

  Current integration trends

  Integration structures available

  Compensation Models

  Governance

  Understanding why

  Q&A
Pressures on Private Practice

I give up!
Financial pressures
  Costs up, reimbursement down
  Practice expenses have risen by over 6% per year over
the past three-plus years (source: MGMA)
  Over this same time period, Medicare reimbursement has
not kept up with national CPI
  Greater than 30% cuts for cardiology & radiology services
  Looming 23% cut Dec 1; 6% more Jan 1
  Commercial reimbursement trends with Medicare

  Leveraged impact to physician income

  2:1 for overhead around 50%
Working harder for less money
All Payors
Financial pressures (cont’d)
  Costs up, reimbursement down
  Practice expenses have risen by over 6% per year over
the past three-plus years (source: MGMA)
  Over this same time period, Medicare reimbursement has
not kept up with national CPI
  Greater than 30% cuts for cardiology & radiology services
  Looming 23% cut Dec 1; 6% more Jan 1
  Commercial reimbursement trends with Medicare

  Leveraged impact to physician income

  2:1 for overhead around 50%
  It’s going to get worse, not better!
Payor mix

  Aging population
  Medicare as percent of total is rising
  26% of orthopedic patients in 1988, now more than a
  Medicare has not historically been the best payor
  Sicker patients take more time
  Coding levels just don’t make up the difference

*Department of Orthopaedic Surgery, University of California at San Francisco, 500 Parnassus, MU

320W, San Francisco, CA 94143-0728
Practice complexity
  Added regulations
  Red Flag
  RAC
  Prior authorizations
  EHR Implementation
  Significant capital outlay
  Often raises costs in the early phases of adoption
  Can negatively impact volumes
  Leveraged impact
  Global payments
  Probably to hospitals/health systems
  Very complex algorithms to make money
Pressures on volumes

  Current economy
  Increases in pre-authorization
  New/Updated research

  Transition of primary care & other

specialties to employment
  No longer compensated for technical
  Ordering habits change
Looming Physician Shortages
  Baby boomer retirements
  Increase in women physicians (source: AMA)
  13.7% in 1972, now over 50% of graduates
  80% as productive as male physicians overall
  Rising malpractice costs
  Limits enrollment in high-risk specialties
  Alternative employment
  Growing administrative rolls
The new physician
  More interested in balance than
  Comfortable with the employment
  Not looking to be an entrepreneur
  Difficult to replace aging leaders
  #1 challenge facing practice
administrators according to 2009
MGMA poll
Current integration trends

Mass migration towards employment

Current Trends

  Thisisn’t the ’90s all over again!

  Primary care, cardiology &
orthopedics leading way
  65% of established physicians who
changed jobs in 2009 moved to
employment model; nearly 50% of
new fellows joined hospital positions
(Source: MGMA)
Percent of medical practices
owned by . . .

Source: MGMA (ran as part of Wall Street Journal article)

Integration options available

From first kiss to holy matrimony!

We’re just friends

  Recruitment support
  Very basic
  Hospital pays retainer or finder’s fee
  Collections guarantee; net income
  On-going practice support for 1 – 2 years
  Typically based on incremental costs
  “No loss” for practice in early years of
  Typically limited to hospital-based docs
Can we dance??

  Gain sharing
  Physicians participate in savings
generated inside the hospital; i.e.,
heart or ortho service lines
  Often include quality metrics

  Limited to hospital services

  Difficult to maintain long-term

  Hospitalstend to re-set indexes
  Dwindling economic value

  Compliance complexities
Friends with benefits

  Hospital coverage agreements

  Physicians are paid to cover, particularly
nights & weekends
  Fixed daily/monthly stipend; may be
based on RVUs or other production metric
  Cost or FTE based
  Net of collections

  Typically “exclusive”
  Common with anesthesia, hospitalists,
intensivists, trauma
  Physicians “practically” employed
I bought her a ring!

  Joint ventures
  Often on surgery centers or other
  Reimbursement bloom is off the rose
  Whole hospital
  Heart

  Orthopedics

  Can be challenging for non-profits

  Moratorium on new or expansion
  Government just doesn’t like ‘em!
Do you, physician, take IDS. . .

  Practice acquired
  Stock vs. asset purchase
  Full employment

  Ancillaries often moved to hospital

  Alignment for global payments

  Many models available, particularly for

compensation & governance
  Leverage matters!
Physician compensation
models in an IDS

You’ve seen one, you’ve seen one!

Compensation for something

  Mostwant some portion based on

  Lessons learned from the ’90s
  Subspecialties tend to be more
production based; primary care
often has a guarantee
  Full spectrum from 100% salary to
100% production based
  Inverse relationship between
guaranteed comp & control
Production models
  Often use CMS “work” RVU
  Payor blind
  Not perfect, but darn good

  For most part, unit value is in line with

market reimbursement
  Doesn’t reward toys

  Equal pay for equal work across specialties

  But have specialty specific RVU rates
  Maintained by 3rd party
  Most PMs automatically track; no new
Production models (cont’d)

  RVU
rate can be fixed, or float
based on survey data (e.g., MGMA)
  Median compensation / Median
production = RVU Comp Rate
  Caution: Survey data can move
precipitously from year to year, up &
  May want to set collars
  Use multiple surveys

  Less volatile with larger “N”

  Good to have a “Plan B”

Other production metrics

  Charges or net revenue (cash)

  Practice net income/loss
  Not a big fan of either
  Physicians typically don’t control non-
clinical aspects of practice, like billing
office and other costs
  Dwelling on “loss” tends to demoralize
Other production metrics (cont’d)

  Patient encounters
  Easy to understand
  Buta bit tricky to define
  More hassle to create & maintain

  Not always a standard PM report

  Gives all encounters same value
  No reward for higher complexity
  Disconnects physician compensation from
proper coding
  Disconnects compensation from market
value, federal & commercial
Remember you’re now partners!

  Hospitals/IDSs are typically

  New market share is critical

  Physician partners have the greatest

ability to add business
  Can’t simply say “no”

  Blazing new trails isn’t easy!

In a production based model . . .

  Need to protect physicians from

unproductive time – like new clinics/
  Convert hours to RVUs (by
specialty) based on “norms”
  Inflate value of new patients

  Guarantee certain base

  Always check compliance!

Beyond just the exam room
  Additional compensation for agreed
upon metrics
  Quality
  Patient satisfaction
  Market share
  Panel size
  CPOE and/or EHR Implementation
  Percent of comp, fixed amount
  Needs to be significant enough to
motivate, but not distract
  All for one??
Compensation pooling

  Pool by group or by specialty

  Physicians then decide how to
distribute (compliantly)
  Potential for sharing across entire
  Prepare for global payments
  Quality is not an individual thing

  Very powerful; scary for many

Compensation summary

  Keep it simple
  Reward hard work; reward what you
want & need
  Pay appropriately

  Incentivize behaviors that help the

system succeed
  Test your models at the extremes

Who’s in charge here?!?

Keep in mind

  New employer is at risk

  More guaranteed comp = less
  Ultimately the employer is in charge
Sure you’d love to be in control of
everything, but . . .

  Focus on what’s really important

  Hiring/Firing physicians
  Appropriate to have significant control,
particularly with production based
  Guard against over population
(balancing act)
  Need to protect employer from bad
  Contract language is important!
What’s really important?

  Clinical staffing
  Always top of mind with doctors
  Can’t be an open check book

  Base on FTEs, not absolute amount

  Build in normal CPI

  Measure against benchmarks

  Office hours
  Guaranteed vs production
  Daily schedules
What’s really important (cont’d)?

  Quality
  Systems need – and physicians should
want – to maintain control
  Will become critically important to an
IDS in the future
  Market share
  Direct financial – global payments

  Population based medicine

  This area can really impact daily

physician life; production
What’s really important (cont’d)?

  Coding
  Employer is at risk for coding misdeeds
  Thereforeemployer has right to watch
carefully & motivate good behavior
  Need checks & balances on this power
  Many subjective aspects
  “Due process”

  EHR unintended consequences

  Particularly early in adoption
What’s really important (cont’d)

  Compensation
  Control over pool
  Ability to react to market conditions,
strategic objectives, etc.
  Difficult negotiation
Understanding Why

If you don’t know where you’re

going, you’ll probably get there!
Sustainable integration
  Money goes a long way, but . . .
  Physicians in general are motivated
to provide good healthcare
  Integration centered on improving
the product
  Quality
  Patient experience
A better mousetrap

  One integrated clinical record

  Eliminate waste & duplication
  Reordered tests simply because not
  “Unreliable” testing

  One registration; one “new patient”

  Accountable Care Organization
  Global payments
  Medical Home

Joel R Sauer
(260) 433-3672
  Designing Incentives that Reward High-Quality, Cost
Effective Care
  hfma.org/leadership – Fall/Winter special report
  Healthcare in Three Acts
  Eric Cohen & Yuval Levin, Feb 2007
  Integrated delivery system structural options
  Bruce A. Johnson, JD, MPA; Connexion Jan 2008
  Physician Autonomy in an Integrated Delivery System
  James G. Bruggemann, MD & Daniel K. Zismer, PhD; Group Practice
Journal, Oct 2008
  The Cost Conundrum
  Atul Gawande; New Yorker, Annals of Medicine, Jun 2009
  What does the future hold for the larger, independent,
multispecialty group?
  Daniel K. Zismer, PhD & Peter E. Person, MD, MBA; Group Practice
Journal, April 2007