new models for care delivery in the reform era 9.27.2012

New Models for Care Delivery in the Reform

Era 9.27.2012

1. Key Challenges of the Reform Era

2. Hospital and Physician Alignment Drivers

3. New Models of Care Delivery

4. Co-Management – A Transitional Model

1

2

3

Agenda

2

4

Key Challenges of the Reform Era

US National Debt at $15.9 Trillion

4

• Unless the U.S. government fixes the budget, US National debt (credit card bill) will topple $16 trillion this fall and rise to $22.1 Trillion within 4 years.

• US national debt passes 20% of the entire world’s combined GDP.

Each pallet equals $100 million dollars, full of

$100 dollar bills

A New Dialog

5Source: “U.S. Healthcare Costs” KaiserEDU.org

Annual IncreaseTotal Spend: 7.0%Medicare Spend: 6.8%Private Insurance Spend: 7.1%November 16, 2010

Federal Programs Going BROKE!

6

Social Security• Projected to be insolvent by 2033

Medicare• 2012 – 50 million people (80 million by 2030)• In the red in its largest fund in 2024• Trust fund that pays for disability benefits is projected to run

out of money in just 4 years

Cost-cutting steps have been successful and growth in Medicare spending per person has slowed markedly in recent years, but the situation is dire unless changes are made.

Source: Chicago Tribune – “Trustees Warn of Looming Insolvency for Social Security, Medicare” (4/25/12)

Source: OECD Health Data 2009

Spending Not Related to Quality or Value

7

84

82

80

78

76

74

72

Lif

e E

xp

ecta

nc

y in

Ye

ars

Health Spending Per Capita (USD PPP)

0 2,000 4,000 6,000 8,000

Reform Initiatives

8

PPACA / HCERA

Center for Medicare/Medicaid Innovation (CMI)

CMS Payment Cuts & Penalties

CMS Triple Aim

Pilots and Demonstrations

Legislative Battles and Reform Funding

• Physician Alignment• Provider Integration• New Model Adoption• Electronic Health Records

• Adopt New Models of Care Delivery• Shift Accountability and Risk to Providers• Redirect and Shrink the Dollars• Provide Coverage for the Uninsured

• Improve Quality• Increase Access• Reduce Costs

PREREQUISTES

OBJECTIVES

GOALS

PPACA (March 2010)

Legislative Reform Defining New Paradigms

9

Supreme Court Clearing the Way for Reform

10Source: Advisory Board

High Court Decision Ends Constitutional Uncertainty

Three Key Decisions Arguments Supporting Individual Mandate

Constitutional Discussion

Individual Mandate:Can the federal government compel individuals to purchase health insurance?

Medicaid Expansion:Is the ACA’s Medicaid expansion a violation of states’ rights?

Severability:Should the remainder of the ACA stand if a portion is struck down?

Supreme Court Decision

Upheld under Congress’ power to impose taxes

Medicaid expansion upheld; federal government may not withhold existing Medicaid funds if states forgo expansion

The remainder of the law can stand

Constitutional Authority Supreme Court Decision

Commerce Clause

Necessary and Proper Clause

Power to Tax and Spend ✓

“would reduce Medicaid spending by $771B over 10 years and $30B from Medicare” p6

11

Early On, Revenue Implications….

12

Readmission

Reductions

2010 2011 2012 2013 2014 2015 2016

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Revision of Certain Market Basket Updates

Medicare Advantage Payments

Hospital Readmissions Reduction Program

Medicaid Disproportionate Share (DSH)

Medicare Disproportionate Share (DSH)

Payment Adjustment for Conditions Acquired in Hospitals

Program in place

Reductions

Readmission

Then, Delivery Implications

13

2010 2011 2012 2013 2014 2015 2016

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Establish of CMMI

Medicare Shared Savings Program

Independence at Home Demonstration Project

Hospital Value-Based Purchasing Program

National Pilot Program on Payment Bundling

Value-Based Payment Modifier Under the Physician Schedule

Additional Requirements for Charitable Hospitals

Program in place Pilot or Demonstration Period

ACO’s

Value Based

Bundling

Integration Accelerating Across the Continuum

14Source: Sg2

Insights from the Front Lines of Change. . .

15

Payor Strategic Plan

Comprehensive Cardiology Alignment

Clinical Integration

Clinical Co-Management

(Spine & Transplant)

Orthopedic Institute

Hospital Efficiency Program

Training Directorship

Access Point Strategy

Safety Net Hospital

Crisis

Women’s Services Co-Management

Hospital and Physician Alignment Drivers

350

300

250

2002000 2005 2010 2015 2020

267

282

298

316

337

215229

244

260

271

Demand

Supply

Caregiver Supply Not Meeting Demand

17Source: SHP/VHA 2009 | Merritt Hawkins 2007

PCP Supply vs. Demand (in thousands)

2020 Deficits … PCP = 66,000 Specialist = 79,000

Caregiver Supply Not Meeting Demand

18

National Supply and Demand Projections for FTE Registered Nurses (2000 – 2020)

Source: Bureau of Health Professions, RN Supply & Demand Projections

3,000,000

2,500,000

2,000,000

1,500,000

1,000,0002000

Demand

Supply

20202006 2012

INPATIENT DISCHARGES

OUTPATIENT VISITS

MEDICAL ADMISSIONS

SURGERIES

Projected Ten Year Volume Growth With and Without Reform

With Reform

Without Reform

Volume Growth Widening the Gap

19Source: Sg2

8.5%

8.1%

7.4%

7.3%

11.2%

10.2%

23.1%

19.1%

Oct 2010 2020

Value-Based Purchasing

30-Day Readmissions

Hospital Acquired Conditions

1% 2% 3%

2011 2012 2013 2014 2015 2016 2017 2018 2019

1%

1% 2%

TOTAL 2% 3% 6%5%

Source: Sg220

Hospital Margins At Risk

Reimbursement At Risk

Hospital Drivers for Alignment

21

Lower Costs“The biggest potential income streams for both hospitals and physicians may reside in sharing savings from providers. To do that, hospitals and physicians must manage care together.” – PwC

“Physician orders are directly responsible for 80% of U.S. healthcare spending.” – Deloitte Center for Health Solutions

Better Quality“Better quality will finally pay off for hospitals but they need physicians to deliver it.” – PwC

New Payment Systems“Hospitals need to partner with physicians as a means of participating in ACO’s and other new payment arrangements.” – PwC

Expand Base, Increase Volume, Grow Market Share“High end expensive procedures are at risk unless we can expand the referral base.” – Michael Sachs, Sg2

$

Source: PricewaterhouseCoopers | Deloitte | Sg2

Operating Expense

Administrative Burden

Assessment / Audit Risk

Alignment with Hospitals

Physician Drivers for Alignment

22

Professional Fees

Ancillary Revenue

Leverage with Payors

Profitability & Personal Income

Source: Physician Compensation and Production Survey, MGMA, 2003-2009

80

60

40

20

0

2002 2004 2006 2008 2010

U.S

. Phy

sici

an P

racti

ce O

wne

rshi

p (%

) Physician-owned

Hospital-owned

Percentages of U.S. Physician Practices Ownedby Physicians and by Hospitals, 2002-2010

Practice Trends

23

Payment Reform Models Emerging

24

High

LowScope of Risk

Deg

ree

of

Co

mp

lexi

ty

Source: Sg2

Fee for service

Inpatient case rates (DRGs)

P4P/value-based purchasingBundled episodes (inpatient only)

Bundled episodes (pre- and postcare included)

Disease-specific capitation

Clinical integration program

ACO

Global capitation

Insurance product

High

New Models of Care Delivery

The Old Model

26

The New Model

27

Market Dynamics Accelerating New Models

28

More Care (32M uninsured, Baby Boomers, Chronic Disease)

Higher Quality (P4P, Shared Savings, Core Measures)

Less Money ($240B Cuts, $90B Penalties)

“Bottom line, if you attempt to use the same care delivery model moving forward, faced with the magnitude of reductions in forecasted revenue, you will go out of business.” Michael Sachs, Sg2

Consumers Employers

Health Plans Government Payors

Physicians Medical Groups

Hospitals Other Providers

Risk Shift

Bundled Payments

Value-Based Purchasing

Global Payments / Capitation

Pay-for-Performance

SharedSavings

FFSReimbursementCuts

Source: PricewaterhouseCoopers | DHG

Shifting Risk

29

Payment Reform Accelerating New Models

Source: PricewaterhouseCoopers 30

AccountabilityIndependent IntegrationAlignment

All Providers

Payers

Bundled Payments

Value-Based Purchasing

Global Payments / Capitation

Pay-for-Performance

SharedSavings

FFSReimbursementCuts

Variety of Alignment Options

31

High

Low Level of Integration

Co

mp

lexi

ty a

nd

Du

rab

ilit

y

Source: Sg2 2012

Voluntary model

Medical directorshipsCall coverage agreements

Next-generation PSA

IPA

MSOIT subsidy

Traditional PHO

GainsharingJoint Ventures

High

Co-management

Traditional Employment

Clinical integration PHO

Foundation Models

Full Integration

Clinic Model

~75% or more of the medical staff

~50% of the medical staff

~25% of the medical staff

Small (<10% of the medical staff)

% of Medical Staff Involved

Hospitals and Health Systems React

32

Question Posed of 279 Hospital and Health System Leaders:Which of the following initiatives is your organization likely to be pursuing within three years?

Source: Health Leaders Media ,September 2012

Primary Care

PhysiciansSpecialists

Acute Care Hospital

Post-Acute Care

PCMH CIN

Patient Centered Medical Home (PCMH):Primary care approach that supports comprehensive, team based care, improved patient access and engagement; serves as “hub” of care coordination; focuses on chronic disease management

Clinical Integration Network (CIN):Acute care hospital, multispecialty physician network and other providers committed to quality and cost improvement, with support from joint negotiated commercial contracts

Accountable Care Organization (ACO):Model to promote accountability for a patient population by improving care coordination, encouraging investment in infrastructure, and redesigning the care continuum around quality

Readmission Risk/Penalties

Proposed ACO Structure

Proposed Bundled Payment Initiatives

$

$

Other Providers

(CAH)

Clinically Integrated Models

33Source: The Advisory Board

Co-Management: Model to align physician incentives around quality, cost and satisfaction with fair market compensation

Co-Management

Clinically Integrated Network (CIN or IPN)

Health System

Ambulatory Care Centers

Hospitals

CI Entity

Employee Health Plan

Private Practice

Physicians

Employed Medical Group

34

CIN is commonly defined as an integrated health network using proven protocols and measures to improve patient care, decrease cost, and demonstrate value to the market. After demonstrating value, the CIN negotiates with payers and large employers to support the network with incentives based on demonstrated value and achieved results.

CIN Components

35

CIN InfrastructureThe CIN is a Separate Business Entity with …

• Distinct leadership structure and staff• Independent budget and financial statements• Participating agreements with providers• Sustainable source of revenue

$ $

$

Clinically Integrated Network

36

Health System Investment/

Dues

Physician Investment/

DuesMarket Sources

(Payers, Employers)

CIN Legal Structures

PHO IPA Health System Subsidiary

Health System

Participating Physicians

Payers /Employers

PHO50% 50%

Health System

Payers /Employers

IPAParticipatingAgreement

100%

Participating Physicians

Health System

Payers /Employers

ParticipatingAgreements

100%

Participating Physicians

Subsidiary

37

Hospital Efficiency Program (HEP)

38

HEP Agreement

services

Validate Savings from HEP Performance

• Clinical Supply and Pharmacy• Medical Claims per Employee • Throughput and Average LOS

Define Fair Market Value Compensation for HEP Initiatives

• Base Fee (administration)• Incentive Component

(performance)

Design Compensation Methodology for Participating Physicians

Health System

Physician Org.(PHO, IPA, Sub)

CIN / HEP Benefits

39

• Defined in pilot programs in 44 states

• Built on 7 fundamental principles

• Focuses on comprehensive patient management

• Focuses on treatment and management of chronic conditions

• Manages expense of high cost, perpetual patients (Diabetes, COPD, Hypertension, Asthma)

• Increases access by leveraging physician extenders

• Qualifies for additional incentive based payments

Cornerstone of Accountable Care Organizations

Patient Centered Medical Home (PCMH)

Safety and Quality

CoordinatedCare

PersonalPhysician

Enhanced Access

Whole Person Orientation

Payment for Added Value

PhysicianDirectedPractice

40

Patients make appointments

Patients’ chief symptoms or reasons for visit determine care

Care is determined by today’s problem and time available today

Care varies by provider

Patients are responsible for coordinating their own care

Acute care is delivered during the next available appointment and to walk-ins

Patient must tell caregiver what happened

Operations center on physician’s schedule

Patients are registered in the medical home

PCMH systematically assesses all patient health needs to plan care

Care is determined by a proactive plan to meet patient’s needs (with our without an office visit)

Care is consistent with evidence-based guidelines

A prepared team of professionals coordinates all patient care

Acute care is delivered by open-access and non-visit contacts

PCMH tracks tests, consultations, ED visits, hospital visits and follow-up care

A multidisciplinary team works to serve patients

Source: Central Ohio PCMH Project

PCMH Care RedesignTraditional PCMH

41

PCMH Benefits and Risks

The PCMH is a health care approach that facilitates partnerships between patients, their families and personal physicians (and/or extenders). The PCMH follows a set of standards around care coordination and data monitoring that leads to demonstrated quality outcomes at reduced costs.

• Increases quality and reduces cost of chronic patient care

• Enhances access and continuity of care

• Aligns PCP physicians around care delivery

• Focuses on integrated care management

• Patient survey results help drive quality improvement

• Presents opportunity for enhanced reimbursement

• Creates possible competitive advantage

• ROI uncertain and difficult to measure

• Demands increased administrative support

• Requires (significant) IT investment

• Creates significant change in culture and practice patterns

• Requires progressive use of technology and other models of patient interaction

Benefits

Risks

Source: NCQA, 2011 42

Hospital

Payer

Employer

Community

Government

Primary Care

Provider

OtherCaregivers

PharmaceuticalManufacturer

Nurse

Specialists

Social Worker

Patient

Payer: Improved member satisfaction, lower costs, opportunity for new business models

Hospital: Lower admissions and re-admissions; more appropriate use of ED; integration with physicians; enhanced reimbursement(?)

Specialists: Increased level of integration with PCPs, increased efficiency, focus on reducing re-admissions

Government: Lower healthcare costs, healthier population

Employer: Lower costs, more productive workforce, improved employee satisfaction

Primary Care Provider: Increased focus on patient health, greater access to information, increased use of quality metrics, better reimbursement,

Patient: Less costly, more convenient care; coordinated services, productive long-term relationship with all physicians

Accountable Care Organization (ACO)

43

ACO Structure

44

Component Rule

Legal Structure

• Legal entity under state and federal law• Capable of receiving / repaying shared savings / losses• Separate legal entity if 2 or more independent participants

Governance

• Defined governance structure in ACO application• ACO participants must control 75% of board• Beneficiaries must be included in governance

Leadership and Management

• ACO must have operations manager under control of board• ACO clinical management by of one of ACO physicians• QA / PI initiatives and protocols must be defined

Mid-Cycle Structural Changes

• New participants may be added to ACO during period• Must notify CMS of any changes within 30 days

IT Initiatives

• Percent of PCPs qualifying for EHR incentive program weighted heavily in scoring of quality measures

• ACO required to promote evidence based medicine, report internally on quality and cost metrics and coordinate care

Source: CMS

ACO Participants

45

What is an ACO Professional?• MD or DO• Practitioner (PA, nurse practitioner, clinical nurse specialist)

Who Can Participate in an ACO?• ACO professionals in group practice arrangement• Networks of individual practices of ACO professionals• Partnerships between hospitals and ACO professionals• Hospitals employing ACO professionals• Critical Access Hospitals (CAHs) that bill under Method II*• Federally Qualified Health Centers (FQHCs)• Rural Health Clinics (RHCs)

*Under Method II a CAH bills for both facility and professional services, which provides CMS with the data needed to perform various programmatic functions

Source: CMS

Assignment

• > 5,000 Beneficiaries• Preliminary Prospective Assignment• Retrospective Reconciliation• Unrestricted Provider Choice

Billing• Providers Bill Normally• Receive FFS

Comparison• Total Cost Incurred Compared to Target

Expenditures• Compare to Defined Targets

Bonus• Dependent on Savings and Quality

Metrics• Size Determined by Selected Model

Distribution• Determined by ACO Participants• Defined Governance Structure

ACO Mechanics

46

1

2

3

4

5

Source: CMS

Key Imperatives for Success

47

• Develop and utilize ambulatory network

• Appropriately utilize pre and post acute care providers

• Reduce preventable acute care episodes

• Avoid unnecessary readmissions

Manage Utilization Risk

Maintain Exceptional Quality

Operate Under Elevated Transparency

• Develop quality care standards

• Create care pathways across providers

• Coordinate care across sites of care, over time

• Adopt IT systems that allow for data capture and use

• Continue to provide data to ACO partners and CMS

• Develop communication strategy amongst participants

Source: The Advisory Board Company

ACO Care Redesign

48

Patient base split among multiple providers with competing interests

Organization is physician-led system of care encompassing all patient services

Responsibility for patient care transitioned from one provider to the next

Organization is held accountable for overall clinical results, cost and efficiency

System designed to react to acute events rather than focus on prevention

Population served receives prevention and wellness services

Current payment system supports specialist services over primary care

Core of organization is primary care supported by specialists

Non-clinical demands on physicians time increasing diverting physicians attention from providing medical services

Physicians supported by practice teams that increase practice efficiency and quality

Technology adoption and use varies among PCP, specialists and hospitals

IT infrastructure coordinated to measure and report standardized metrics focused on quality

Fee-for-service delivery system rewards non-coordinated care throughout system

Delivery system capable of coordinating care across all settings

Source: AMGA

Traditional ACO

Where the ACOs Are

Source: The Advisory Board Company 49

Co-Management

Co-Management Objectives

51

• Integrate physicians’ clinical expertise into hospital’s management competencies

• Align incentives and enhance clinical, operational and satisfaction outcomes

• Improve quality and increase access, regionalization and standardization of services

• Position both hospital and physicians for healthcare payment reform (bundled payments, P4P, etc.) in either / or an employed physician or independent physician scenario

• Provide legal, FMV to physicians for their time, effort, expertise, and results

• Create a successful recruitment platform for high-quality physicians

Co-Management

52

• Committee Involvement• Day-to-Day Management• Strategic Plan Development• Clinical Care Management• Quality Improvement• Staff Oversight• Materials Management• Budget Development

• Clinical Outcomes• Patient Safety• Satisfaction• Operational Processes• Financial Performance

Physician LLC

Physician LLC

Equipment*Staffing*Supplies

Hospital

FMV Compensation

Management Services

Management Fee Distributions

Investment

Performance Metrics

Fixed Duties

Governance Committees

Physicians

*Only one of two may be included

Co-Management Fundamentals

53

Valuation •In return for provision of management services, physicians receive compensation at Fair Market Value (ie, commensurate with what a full-time, 3rd party manager of CV services would command)

Fixed Duties •Physicians are tasked with specific, non-clinical duties that further the goals of the service line and are paid for their time and effort

Performance Metrics •Physicians are expected to improve upon historical hospital performance in key areas such as clinical outcomes, quality, efficiency and satisfaction and are paid according to their level of success in achieving pre-determined targets

Governance •The physicians form a physician LLC that contracts with the hospital and they, in turn, organize themselves in committees to effectively manage the hospital’s service line and accomplish the fixed duties and performance metric goals

Invasive Labs 1 Chair +

2 Members + Hospital Staff

Governance - Sample

LLCLLC

Hospital

Heart and Vascular Executive Committee

4 CPM Managers + Hospital Staff

Finance & Capital 1 Chair +

2 Members + Hospital Staff

Quality & Clinical 1 Chair +

4 Members

Medical Directors (7)

CHF Disease

Chest Pain

Hospital Coord (2)

Non-Invasive

IT Implementation

Cardiac RehabCommittee Structure• The Heart and Vascular Executive Committee will report to the VP• The LLC Managers will be the 4 physicians on the HVEC• Hospital representatives will set on the Finance & Capital and Invasive

Labs Committees to assist the physicians in business management

Hospital Representation

Physician Only

Board4 LLC Managers

Board4 LLC Managers

4 LLC Managers3 Committee Chairs8 Committee Members7 Medical Directors

54

Sample Metrics List

Development of Performance Incentives and Supporting Metrics Fosters Hospital/Physician-Manager Collaboration

SAMPLE: Sample Cardiology Metrics

Clinical Outcomes (35%)Patients given ACE inhibitor/ARB for LVSDSTEMI patients receiving PCIPatients receiving aspirin w/in 24hrs of arrivalPatients with Beta Blockers at discharge

Patient Safety (35%)Lead dislodgement in patients with pacer/ICDPneumothorax in patients with pacer/ICDPCI in-hospital risk-adjusted mortality rate

Operational (20%)On-Time Catheterizations (All Cases)Turnaround Time

Satisfaction (10%)Increase in PG “Overall Communication with Doctors”Increase in PG “Would Recommend”

55

Sample Metric

56

Development of Performance Incentives and Supporting Metrics Fosters Hospital/Physician-Manager Collaboration

SAMPLE: Median fluoro time (PCI Only). Measures the length of radiation exposure to patients during the PCI.

REFERENCE: ACC-NCDR PCI Metric

CURRENT PERFORMANCE: 11.8 Minutes

The following table sets forth the targeted levels of performance and the compensation associated therewith:

Range Floor Range Ceiling Annual Payout

> 8.3 Minutes > 6.5 Minutes

> 10.0 Minutes

≤ 10.0 Minutes

≤ 8.3 Minutes

$0

$20,000

$40,000

≤ 6.5 Minutes - $60,000

• Facilitates collaboration between hospital and physicians on service line improvement

• Creates platform for improved quality, reduced cost and enhanced access in preparation for pay for performance and bundled payments

• Provides reasonable and stable financial return to physicians for new and existing management functions

• Requires minimal capital investment by physicians or hospital

• Minimizes regulatory risk due to favorability with CMS and OIG

• Arrangement is reversible if it fails to achieve results

• May lead to decreased costs based on physician engagement

• Positions hospital and physicians for future integration models

Co-Management Benefits

57

Questions

Reform Challenges

59

Paralyzed by Confusion

Embracing the Opportunities

Existing in Denial

Resigned to Acceptance

High

Resiliency

Low

Low Understanding High

Reform Challenges our Personal Paradigms

Appendix

Physician Alignment Process

61

Hospital

Employed Physicians

Affiliated Physicians

Physician LLC

JV Cath LabPhysician Equity (X)

Co-ManagementCall CoveragePanel Reads

FMV CompensationCo-Management Fee

Fixed DutiesPerformance MetricsCall PaymentPanel Reads

EmploymentReverse MSO Practice LeaseNon Inv. Imaging Acquisition

Non Inv. Imaging Acquisition Investment

No Investment: Call/Panel Participation

Independent Physicians

Investment

Hospital Equity (Y)

$ Based on equity & effort

$ Based on equity & effort

$ Based on effort only

Comprehensive Cardiology Alignment Model

62

Who We Are – DHG Healthcare Consulting

David Petrel – Sr. ManagerHudson, OH(330) 650-1752Michael Lutkus – Sr. AssociateHudson, OH(330) 620-0740

Degree of Alignment

Reso

urce

s

High

LowTactical Strategic Transformational

Foundation

InstituteIndividual Employment Contracts

PSA

MSO

Recruitment Support / Income Guarantee

PHO

Volunteer Medical Staff

IT Deployment

Directorship / Pay for Call

PCMH

Physician Enterprise

Clinical Integration

ACO HIZ

Co ManagementJoint Venture

Bundled Payments

Source: Sg2

Physician Alignment Models

64

"To avoid large and ultimately unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above . . .

These choices are difficult, and it always seems easier to put them off -- until the day they cannot be put off anymore . . .

unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth."

Ben Bernanke – Federal Reserve ChairmanSpeech to Dallas Regional Chamber 4/7/10

A Growing Crisis . . .

65

Family Practice

Internal Medicine

Pediatrics

Geriatrics

Colon and Rectal Surgery

Endocrinology

Neurology

Gastroenterology

Critical Care

Psychiatry

Immunology

Emergency Medicine

Oncology

Orthopedic Surgery

Urology

Cardiology

Radiology

-6% -4% -2% 0% 2% 4% 6% 8%

7%

5%

5%

5%

1%

1%

1%

0%

0%

0%

0%

-1%

-1%

-1%

-2%

-3%

-4%

Proposed PFS Reimbursement Changes

66Source: Beckers, 2012

Critical Success Factors

Trust

Communication & Transparency

Change Management

No “One Off Deals”

Physician Leadership

Adapt Guiding Principles/Physician Compact

67

1

2

3

4

5

6

5 Key Issues

Does the hospital have sufficient urgency?

Is there enough trust between the hospital and physicians?

Can we measure and document what we are good at and not so good at?

Do we fully understand the legal and tax issues associated with true Physician Alignment?

Do we have the infrastructure and the ability to finance the alignment strategy? !

68

1

2

3

4

5

GI Interest in Employment Moderate to Low

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

65.00%

70.00%

Specialty Level of Interest in Hospital Employment

aLeast Interested in Employment Interested in Employment Most Interested in Employment

GI

Radiol-ogy

Oncology

Pulmonology

Anesthesia

PCP

Cardiology

Ob-Gyn

Orthopedics

Source: PwC 2010, DHG 2012

Surgery

Neurology

Family Medicine

69

Physician-Hospital Organization (PHO)

Joint Venture between the Health System and Physicians.

Allows physicians to maintain ownership of their practices while agreeing to accept manage care patients

Ownership interests dictate board structure, investment, and distribution methodology

70

50%

Payers

50%PHO

Health System Physicians

Professional Services Agreement (PSA)

71

Physicians HospitalClinical ServicesManagement Services

FMV Compensation

Billing and Collection for Technical and Professional Component of IR Procedures

PSA

Ownership

Pros Cons

Better professional reimbursement Possible time away from clinical work

Increases economic feasibility for program growth

Possible coverage constraints

Dedicated and fairly compensated

Maintain autonomy

$

Employment Models

72

Physician Practice Responsibility

wRVU Model

Bump Model

Practice Management Model

Net Income Model

Low High

Model Pros Cons

wRVU Model• Easy to understand model• Incents physician for productivity• Payor blind• Quality incentives incorporated into model

• Limited incentive for expense management• No payor risk to physician

Bump Model• Incents physician equally above defined baseline for all

wRVU’s• Payor blind• Quality incentives incorporated into model

• Limited incentive for expense management• No payor risk to physician

Practice Management Model

• Incents physicians to manage practice expenses• Payor blind• Quality incentives incorporated into model

• No direct allocation of centralized costs• No payor risk to physician

Net Income Model

• Maintains physicians commitment to practice success• Most similar to private practice• Adjusted frequently to reflect practice changes• Quality incentives incorporated into model

• Physician assumes allocation of centralized costs• Hospital must be able to deliver data quickly and

accurately to assist physician in practice management

Health System Physicians

Win | Win Criteria

Payers

Quality Membership Contracting Information Technology

Care Redesign

Clinical Integration Program

Health System Patients & Communities Physicians

• Enhanced Reimbursement for Demonstrated

Quality

• Transformational Care Redesign (System of

Care)

• Co-leadership with Physicians

• Reduction in Operating Costs (Waste)

• Demonstrated Quality

• Improved coordination of care, resulting in

higher patient satisfaction and demonstrated

quality of care that is cost efficient

• Enhanced Reimbursement for Demonstrated

Quality

• Long-term Viability of Private Practice

• Position for Physicians in Governance

• Improved Network Coordination

• Enhanced Patient Care and Satisfaction

The Value of Clinical Integration to…

Clinical Integration

73

Models of Group Alignment

74

Merger of existing independent practices into large practice with defined governance, management, billing and income distribution

Physician buy into ASC (or other facility) that provides efficient workshop and supplemental income with limited management responsibility

Degree of IntegrationLow High

Independent practices align under Association guidelines for purposes of joint contracting

Physicians (and other providers) align around health management and accountability of defined Medicare beneficiary population. Shared Savings drive compensation

IPA ASC Investment Group Practice Consolidation ACO

Independent Physician Association (IPA)

75

IPA is a owned by the Physicians and contracts with health systems and payers as one network for services.

Creates a large network of providers that retain control, ownership and the financial accountability over medical decision-making

100%

Payers / Employers

Participating PhysiciansHealth System

IPAParticipating Agreement

ASC Investment

76

Health SystemJoint Venture

Employed &Independent

Physicians

Payers

Joint Ventures contract with Health Systems and Payers as one network for services

Employed and Independent Physicians buy into ASCs or other facilities that provide supplemental income with little management responsibility.

Ownership interests dictate Board Structure, Investment, and Distribution Methodologies.

Group Practice Consolidation

Multi-Specialty Group• Advantages of SSG … plus …• Greater Coordination of Care• Internal Referrals• Market Presence

Single-Specialty Group• Information Sharing• Economies of Scale• Negotiating Leverage• Support for Ancillaries• Shared Cost of Technology and

Practice Overhead

Control Over Referral Sources

Combined Interests & Talents

Payor Relationships

Enhanced Market Access

Risk Sharing

Peer Consultation / Review

Pooled Capital

Merger or Acquisition Into a Larger

Medical Group

ADVANTAGES

77

78Source: Sg2

Co-Management

Source: Sg2 79

Source: Sg2 80

81Source: Sg2

82Source: Sg2

83Source: Sg2

84Source: Sg2

85Source: Sg2

86Source: Sg2

Hospital Margins At Risk

87

2013-2015Hospital

Readmissions Penalties Phased-in

2014Disproportionate Share Hospital

Payment Reductions

Phase-in Begins

2015Acquired Hospital Infection Penalties Phase-in Begins

Cumulative Impact of Market Basket Update and Productivity Factor ReductionsCumulative Impact of Market Basket Update and Productivity Factor Reductions

Source: AHA, MedPAC, PPACA & assorted documents

2010 2011 2012 2016 2017 2018 20192013 2014 2015

-0.25-0.50

-2.00

-3.50

-5.20

-7.80

-9.40

-11.55

-13.70

-15.85

-13.70

-11.55

-9.40

-7.80

-5.20

-3.50

-2.00

-0.50

-0.25-0.25

-1.50 -1.50-1.70 -1.60 -1.60

-2.15 -2.15 -2.15

50 MillionNo Coverage

27 MillionNo Coverage

21 MillionNo Coverage

18 MillionNo Coverage

Payment Models Shifting Risk

88

Payors Ratcheting Up Performance Risk to Target Inefficiencies

Performance Risk Utilization Risk

Quality of CareCost of Care Volume of Care

Bundled Pricing

• Episodic Efficiency

• Readmission Reduction

• Care Standardization

Pay-for-Performance

• Process Reliability

• Clinical Quality

• Patient Experience

Shared Savings

• Chronic Care Management

• Care Substitution

• Disease Prevention

Source: The Advisory Board

Provider Coordination Required

89Source: Sg2

Source: Sg2 2009 | ACHE 2009

Private Payor Professional Reimbursement Changes

Overhead / Expense Management

Practice Growth

Malpractice Costs

Pay for Call

Hospital Relations

Regulation

Quality

Workload

78%

74%

71%

32%

28%27%

22%17%

15%

14%

78% Financial Challenges

Patient Safety and Quality

Care for the Uninsured

Physician Alignment

Personnel Changes

Healthcare Reform

Patient Satisfaction

Capacity

Technology

Malpractice

43%

41%

32%

30%

26%

22%

16%

9%2%

Top Hospital ConcernsTop Physician ConcernsPhysician Concerns Hospital CEO Concerns

Medicare Professional Reimbursement Changes

Hospital-Physician Concerns

90

Employment Trends

1980 1985 1990 1995

Deg

ree of In

tegratio

n

2000 2005 2010 2015

Employment of hospital based specialists.

Hospital and health systems acquire primary care practices.

• Expansion of hospitalist model• Refocus on primary care strategy and referring physician relationships• Employment of

Specialists

Many hospitals divest of primary care practices, refocus on core business.

Growing interest in alignment and willingness to partner with physicians.

Some ‘New’ Models Not So New

Source: Sg2 2008 91

Reform: Impact on Providers

92

Vo

lum

e

Reim

bu

rsemen

t

Acco

un

tability

& R

isk

Pro

viders

An

alytics• Insured +32M

• Inpatient +5%

• Outpatient +4%

• Medicare Cuts

• $240 B

• Hospital Consolidations

• Physician Owned

Hospitals and ancillaries

• Communication

• Performance Tracking

• CMS Reporting

• $90B in penalties

• P4P/Bundling

• Shared Savings

Payment Reform Shifting Risk

93

Performance Risk Utilization Risk

Cost of Care Quality of Care Volume of Care

Bundled Pricing• Episodic Efficiency• Readmission

Reduction• Care Standardization

Pay-for-Performance• Process Reliability• Clinical Quality• Patient Experience

Shared Savings• Chronic Care Management• Care Substitution• Disease Prevention

Source: The Advisory Board

Shifting Risk to Providers

Clinically Integrated Models Emerging

Source: Sg2 94

Degree of Alignment

System Resources Required

High

LowIndependent Strategic Alliance Integration

Paying for Call

Voluntary Medical Staff

Spectrum of Alignment Models

Venture Arrangement

RelocationSupport/IncomeGuarantee

Gainsharing

Directorships

Co-marketing

Co-Management

PCMH

CIN or IPN

HEP

ACO

EmployedPhysician Enterprise

March 2010PPACA Made

Law

95

$2.64 Trillion$2.64 Trillion17.4%

96Source: Congressional Budget Office

Healthcare as a Percentage of Gross Domestic Product

82.6%

Per capita = $7,960

Rising Costs Bankrupting System

Integrating Across the Care Continuum

Strategic Focus at the Speed of Change

#1 Cost Reduction/Payer Leverage

#2 Physician Alignment and Clinical Integration

#4 Service Line Optimization

#5 Developing Networks and Integration Across the Continuum

#3 Geographic Coverage, Access, and OP

#6 New Payment Models and Trials

97

Organizational Change

98

Strategic Readiness

Physician “Real Income” Declining

99Source: Health Leaders 2011

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

-40%

-50%2001 2006 2011 2016

Practice Cost Increase(MEI Estimates)

SGR1 MedicarePhysician Payment Updates

60% GapIncrease

Gap Increase Between Practice Cost Increase, Payment Updates

Practice Consolidation Accelerating

100

Physician Distribution by Practice Setting2

1998/1999 vs. 2008

N=4,700

37.4%

32.0%

9.6%

14.5% 14.2%

19.4%

3.5%6.1%

Solo/2-Physician

Practices

3-5 Physician Practices

6-50 Physician Practices

50+ Physician Practices

1998-99

2008

Source: PwC 2010

Improved Quality Outcomes

Sample Hospital 1 – CABG Mortality Rates

Source: Thomson Reuters 2009 | Advisory Board 2009

Pre-Adoption

Year 1

1%

4.2%

Year 2 Year 3

2%1%

Co-Management Benefits

Pre-Adoption

Year 1

13.2%

15.1%

Year 2 Year 3

10.7%

11.1%

Sample Hospital 1 – CABG Complication Rates

Effect on Top 100 Hospital RankingsTop Quintile (1

Years)

Top Quintile (3 Years)

32%

68%

Physician-Led ManagementAdministrative Management

92%

8%

101

Physician Engagement

Sample Hospital 4 – Number of Active Staff Surgeons

Source: Beckers ASC 2010 | HFMA 2009 | DHG Client 2010

OR Utilization

Sample Hospital 2 – OR Utilization Rate and %

Volume of Budget

1

2

3

4

5

6

Before After

141%

60%

Num

ber

of

OR

s at

Capaci

ty

Co-Management Benefits

10 20 30 40 50 60

Before

After

76

40

70 80

Service Line Excellence

Sample Hospital 3 – Quality and Volume

After one year….

Quality

Ranked the #1 provider of overall orthopedic care in Ohio

Volume

Experienced an increase of 1,000 cases per year

102