Developing Employment Agreement for Quality, Operational Efficiency and Patient Contact

E02: Developing Employment Agreements for Quality, Operational

Efficiency and Patient Contact

ANI: The Healthcare Finance ConferenceJune 29, 2011

George Batalis, CPA, Director, Pricewaterhouse Coopers, LLP

Curtis Bernstein, CPA/ABV CVA ASA, Director Valuation Services, Sinaiko Healthcare Consulting

Roger Logan, CPA/ABV ASA, Corporate Vice President, Catholic Health Partners

Introduction

George Batalis, CPA Director

Pricewaterhouse Coopers, LLP

Key Drivers

• Affordable Care Act• Accountable Care Organizations• Episode and Case (Bundled) Care Payments• Quality and P4P Initiatives• Physician Work Force Shortages• Reimbursement Reductions

Call to Action

• Focus of Clinical Integration• Employment of Physicians• Acquisition of Physician Practices• Acquire & Expand Ancillary and Ambulatory Services• Affiliate with other Hospitals and Health Systems

Current Environment

Collaboration Factors Factors driving hospitals to collaborate with physicians:

In this era that some researchers describe as one of “loose managed care,” hospitals have at least four reasons to align with physicians. Improves a hospital’s ability to compete for admissions Improve quality of care Control the cost of care Gain leverage with health plans in rate negotiations

Factors driving physicians to partner with hospitals: Increase physicians’ productivity Increase income beyond their professional fees though hospital joint

ventures on ancillary services, bonus payments for meeting certain quality objectives, hourly payment for attending medical staff meetings, joint ventures pertaining to real estate, and attractive bond offerings.

Better leverage in gaining entry to private insurers’ provider networks and negotiating better payment rates with those insurers.

Economic Challenges:

Declining physician compensation is leading all physicians to hospitals for help with supplementing their income in the following ways:

Call Pay Stipends Medical Directorships Subsidies

Hospitals are also faced with additional challenges with employed physicians and physician groups related to duplicative services that both the hospital and the physicians provide. Some of these duplicative services include, but not limited to, the following:

Billing & Collecting Coding & Documentation Support Administrative Oversight

Current Challenges Facing Hospitals & Health Systems

• Common Physician Payments from Hospital:

• Restructuring physician payments should take on the following attributes:

Regulatory compliant – fair market value Productivity based Aligned with hospital goals Tied to positive practice economics

Current Physician Economics

Contracted Physicians

(e.g., Hospital Based)

• Subsidies• Directorships• Call Pay

Employed Physicians

• Subsidize Physician Practice

• Directorships• Call Pay• Duplicative Services

Independent Physicians

(e.g., Community Based)

• Stipends• Directorships• Call Pay

Typical contracted physicians get a subsidy for collections guarantees or site coverage with little or none of their compensation at risk for their performance. To address physician performance and provide for a “risk/reward” environment the following are recommended to be included in contracted physician contracts:

Location/Site Stipend Ensure the critical coverage needs at the hospital are being met

Call Coverage Ensure call coverage for critical services, make the physicians responsible

for coordination and coverage of the call schedule Management Duties

Instead of just paying for medical directorships that are non-committal in the duties expected, the hospital must build specific detailed managerial and supervisory roles into the duties of the medical director positions

Quality/Operational Improvements Hospitals need to include quality and operational incentives that

physicians can impact change within the hospital

Restructuring Physician Contracts

Potential Physician Compensation Structure via Employment or

Professional Services Agreement

Management Stipend/Medical Directorship (s)*

Productivity Compensation via Net

Collections or Work RVU Methodology

Quality, Operational & New Program

Incentives*

Compensation Elements

* Structured through employment contract or professional services agreement consistent with a joint-venture / co-management company/contract with a hospital.

Example Compensation Model Methodology

Work RVU / Physician

Conversion Factor

Pro-forma Clinical Compensation /

Physician

X =Potential Compensation Methodology

+

Optional: • Medical

Directorship• Incentive

Compensation• Call Coverage

= Total Compensation

Pool

The largest portion of the compensation methodology would be a productivity based compensation methodology which would pay the physicians on a per work RVU basis. Also, the physicians would receive additional compensation from meeting performance incentives based around quality improvements and operational efficiencies, as well as for participating in managing certain aspects of the service line or medical directorships.

Quality Performance Elements Patient Satisfaction Infection Rates Unplanned return to surgery Demand Matching SCIP Core Measure Compliance Risk Adjusted Complication Rates Risk Adjusted Mortality Rates Readmission Rates Medical Records Compliance AMI

Aspirin at Arrival Aspirin at Discharge ACE inhibitor use for LSVD Beta blocker prescribed at discharge

CHF Discharge Instructions LVF Assessment ACE inhibitor use for LSVD Adult smoking cessation counseling

Door to Balloon Time

Example IncentivesOperational Performance

Elements First morning start times Room turnover time Standardized clinical care

processes On time start rate Patient prep time Wait time Cancellation rates Utilization of block schedules Case Delays Patient Discharge by 11:00 am, by

2:00 pm Admission Protocols Staff turnover Throughput

Fair Market Value and Commercial Reasonableness Benchmarks

Curtis Bernstein, CPA ABV CVA ASA Director

Sinaiko Healthcare Consulting

Do You Recognize This Document?

Fair Market Value• Stark, Anti-kickback and tax exempt laws ALL

require physician compensation arrangements to be fair market value (FMV)

• Enforcement climate is increasingly focused on FMV and commercial reasonableness

Stark

AKSTax Exempt

FMV

Stark and Anti-Kickback Law• Employment Exception under the Anti-Kickback Law

– “[s]hall not apply . . . to any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items and services.

• Employment Exception under the Stark Law– The employment is for identifiably services– The amount of remuneration paid is consistent with the fair market

value of the services– The amount of remuneration paid does not take into account the

volume or value of any referrals made by the referring physicians– The amount of compensation paid would be commercially reasonable

even if no referrals are made to the employer; and – The employment meets such other requirements as the Secretary of

Health and Human Services may impose by regulations as needed to protect against program or patient abuse.

I AM NOT AN ATTORNEY

FMV Definition• Fair Market Value Requirement under all Laws

– No definition of FMV under Anti-Kickback Law– Stark Law definition:

Fair market value means the value in arm’s-length transactions, consistent with the general market value. General market value means “. . . the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party on the date of acquisition of the asset or at the time of the agreement.” Stark II, Phase III Final Rule (42 CFR Section 411.351)

“Almost” Safe Harbor• Stark II, Phase II created a “safe harbor” provision in the

definition of fair market value relating to hourly payments to physicians for personal services.– Hourly rate, determined as the average of the median

reported by at least four national services divided by 2,000 hours, is less than or equal to the average hourly rate for emergency room physician services in the relevant physician market

– Surveys include Sullivan Cotter, Hay Group, Hospital and Healthcare Compensation Services, MGMA, Watson Wyatt, and William M. Mercer

Benchmark Surveys

Data Available for Benchmarking• wRVUs• Professional Collections• Encounters• Total RVUs

– Includes practice expense RVUS for designated health services (DHS)

• Total Collections– Includes ancillary revenues from DHS

• Operating Expenses

Benchmarking Example

Is there a perfect correlations?How do I weigh these?

Benchmark

Sub SpecialtyFTE

Status 2010 Data25th

Percentile Median75th

Percentile90th

Percentile %ile

Non-Invasive/General 1.0 473,475 428,296 611,771

838,094

1,216,953 31P

Invasive/Interventional 0.6 350,134 610,536 762,549 962,796

1,204,643 24P

Electrophysiology 1.0 850,422 615,358

742,237 948,202 1,123,496 63P Benchmark

%ileSpecialtyFTE

Status 2010 data25th

Percentile Median75th

Percentile90th

Percentile

Non-Invasive/General 1.0 5,770 5,408 7,117 9,315 12,134 30P

Invasive/Interventional 0.6 4,575 7,465 9,447 12,529 16,081 27P

Electrophysiology 1.0 12,293 8,040 9,846 12,447 17,116 74P

Understanding Benchmarks• Which survey(s) does not

include sign on bonuses in total compensation?

• Which survey presents shareholder and non-shareholder data separately?

• Which survey(s) include physicians providing full time administrative services with clinic based physicians?

MGMA

AMGA

SCA

Correlating Statistics• Every physician is not paid for every

possible service (e.g., not all physicians are medical directors)

• According to the 2010 MGMA Compensation Survey, approximately 30% of providers receiving a quality based incentive bonus and less than 50% of physician earn any form of incentive bonus.

Determining FMV Compensation - AGAIN

• Should the physician producing at the 90th percentile wRVUs earn 90th percentile compensation per wRVU?– Maybe, but unlikely– The physician should not be compensated at the 90th

percentile compensation per wRVU solely for clinical services– The 90th percentile compensation per wRVU should be earned

through a culmination of multiple services

Specialty wRVUs

Comp / wRVU (75P)

Extended Comp

90th %ile Comp

% Higher

Comp / wRVU (90P)

Extended Comp

% Higher

Internal Medicine 7,214 $ 50 $ 359,009 $ 316,038 113.6% $ 61 $ 443,255 140.3%

General Cardiology 12,450 70 868,245 637,929 136.1% 92 1,144,716 179.4%

Hem Onc 7,905 103 816,194 783,651 104.2% 127 1,004,208 128.1%

Compensation per wRVU Trend

Source: MGMA Physician Compensation and Productivity Survey: 2010 Based on 2009

Stacked Compensation

• Need to determine if the total compensation is reasonable.• Additional benchmarking:

– Compensation per wRVUs– Compensation to professional collections– Compensation per total RVUs– Compensation to total collections– Compensation per encounter

Paying for Call Coverage, Medical Directorships, P4P, Supervision, Sign On Bonus, Etc.

Post -Transactional Management and

AdministrationRoger Logan, CPA/ABV ASA

Corporate Vice PresidentCatholic Health Partners

3-D Perspective

Affiliation Options

Employment

Clinical Co-Management or

Co-DevelopmentMedical Directors and Hospital

Based Services

Cardiology

Internal

Medicine

Vascular

SurgeryOrthopedics

Clinical and Quality Operations and Financial

Legal And Regulatory Compliance

Cardiovascular

Surgery

Family

Medicine

Du

e D

ilig

ence

Physical

Medicine

Urgent

Care

Rheumatology

Fair Market Value and Commercial Reasonableness

Cli

nic

al S

ervi

ces

and

Com

mu

nity

N

eed

Calculating the Risks

CY 2011 - Case ExampleAssumptions

– Employed Procedural Specialists– Physician compensation model reflects the following key

components:

Individual Productivity Component

Quality/Clinical Measures Component

Practice Efficiency and Financial Component – The compensation plan is developed and derived through

the due diligence efforts by CHP and its independent legal and compensation valuation advisors; and will be subject to initial and ongoing annual reviews to assure consistency and regulatory

Case Example 2011 Compensation Summary

Employed Specialist Physicians For Illustration and Discussion Purposes OnlyCY 2011Physician

A. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3Adjusted

wRVUs Scheduled Tiers (2) wRVUs (1) 10,000 12,000 14,000

Tier From To Payout Rates \I - 7,000 38.00$ 266,000$ 266,000$ 266,000$ II 7,001 11,000 43.00$ 129,000 172,000 172,000 III 11,001 15,000 48.00$ - 48,000 144,000

wRVUs in Excess of Highest Tier Paid @ 48.00$

Personal Performed Productivity 395,000$ 486,000$ 582,000$

85.7% 85.7% 85.7%B. Practice Efficiency Incentive (3)

Practice Efficiency Incentive 5.0% 19,750$ 24,300$ 29,100$

4.3% 4.3% 4.3%C. Quality and Clinical Measure Incentives (4)

100.0%

Quality and Clinical Incentive 11.7% 46,215$ 56,862$ 68,094$

10.0% 10.0% 10.0%

Total Compensation by Physician Before Professional Adjustments 460,965$ 567,162$ 679,194$

$/wRVU 46.10$ 47.26$ 48.51$

100.0% 100.0% 100.0%

COMPENSATION COMPONENTS

The targeted operational improvements in operations and incentive will be calculated as a % of the individual professional production.

Targeted Quality Incentive will be based on the achievement of specified quality and clinical measures incentives and targeted @ 10% of Total Comp

CPT Code

Pay for Performance

Nonpayment for Preventable

Complications

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Market Trends

CPT Code

Volume

Reimbursement Rate

Quality

Productivity

Efficiency

Today Tomorrow

Source: Sullivan Cotter and Associates; 2011


Employed Specialist Physicians For Illustration and Discussion Purposes OnlyCY 2013Physician


wRVUs Scheduled Tiers (2) wRVUs (1) 10,000 12,000 14,000

Tier From To Payout RatesI - 7,000 33.00$ 231,000$ 231,000$ 231,000$ II 7,001 11,000 38.00$ 114,000 152,000 152,000 III 11,001 15,000 43.00$ - 43,000 129,000

wRVUs in Excess of Highest Tier Paid @ 43.00$

Personal Performed Productivity 345,000$ 426,000$ 512,000$

74.2% 74.2% 74.2%B. Practice Efficiency Incentive (3)

Practice Efficiency Incentive 8.0% 27,600$ 34,080$ 40,960$

5.9% 5.9% 5.9%C. Quality and Clinical Measure Incentives (4)

100.0%

Quality and Clinical Incentive 92,460$ 114,168$ 137,216$

19.9% 19.9% 19.9%

Total Compensation by Physician Before Professional Adjustments 465,060$ 574,248$ 690,176$

$/wRVU 46.51$ 47.85$ 49.30$

100.0% 100.0% 100.0%




Quality Measures• Accordingly, CHP has identified over 800 Industry Standard Quality Measures

from organizations such as Centers for Medicare & Medicaid Services (CMS), Joint Commission on Accreditation of Healthcare Organizations (JCAHO), National Quality Foundation (NQF), and Agency for Healthcare Research and Quality (AHRQ) for possible in the following areas:

Acute Care Long-Term Care

Emergency Department Ambulatory Surgery

Behavioral Health Physician / Clinic

Home Health Health Plan / Population Based

Market Trends

?

Quality Improvement

Patient Population

Consumer Value

Productivity

Quality

Value

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Down the Road

Source: Sullivan Cotter and Associates; 2011

Sample Performance MatrixPatient Satisfaction

Examines patients’ perceptions of their care experience including their perceptions of the overall quality of care, outcomes of care, and unit-based care at a single point and various points of time.

Clinical Utilization and Outcomes

Describes the clinical performance of hospital and business unit and refers to such things as access to hospital and specific service volumes, clinical efficiency, and quality of care.

Financial Performance and Condition

Describes how each hospital and business unit manages their financial and human resources. It refers to a financial health, efficiency, management practices, and human resource allocations, targets and results.

System Integration and Change

Describes a Sample Hospital’s ability to adapt to its changing health care environment. More specifically, it examines how clinical information technologies, work processes, and community relationships function within the health and hospital systems across the region.

Performance Measures • Process of care - A healthcare service provided to or on

behalf of an individual or population

• Outcome of care - The health state of an individual or population resulting from healthcare

• Access to care - An individual or population's attainment of timely and appropriate healthcare

• Experience of care - An individual or population's report concerning observations of and participation in healthcare

• Structure of care - A feature of a healthcare organization or clinician relevant to its capacity to provide healthcare

• Provider of care – Direct linkage to the provider of care

Transitioning to a Performance MetricsRelevance to stakeholders - The topic area of the measure is of significant interest, and financially and strategically important to stakeholders (e.g., businesses, clinicians, patients).

Health importance - The aspect of health the measure addresses is clinically important as defined by high prevalence or incidence, and a significant effect on the burden of illness (i.e., effect on the mortality and morbidity of a population).

Applicable to measuring the equitable distribution of health care - The measure can be stratified, or analyzed by subgroup to examine whether disparities in care exist among a population of patients.

Potential for improvement - There is evidence indicating that there is overall poor quality or variations of quality among organizations indicating a need for the measure.

Susceptibility to being influenced by the health care system - The results of the measure can be put into actions or interventions that are under the control of the user, leading to improvements that are known to be feasible.

Example – The Value PropositionAssigned Area Value % Area Value % Area Value %

PERFORMANCE AREA(S) Weight Weight 10% Weight 20% Weight 30%

Patient Care Considerations 40.0% 4.0% 55.0% 11.0% 75.0% 22.5%Percent Time Response

Response Time(s) (a) Achieved TimeEmergency Response 90.0% within 30 minutes 5.0%Urgent Response 90.0% within 4.0 hours 5.0%Service Preparation and Start-Times 90.0% within 30 minutes 5.0%Post-Op visits on inpatients 90.0% within 24 -48 hours 5.0%Reports (Pre and Post Operative) 90.0% within 24 hours 5.0%

JCAHO and Other Core Measures (b)Quality Targets and Service Standards 5.0%Patient Protocols and Pathways 5.0%ACO/PCMH Recommendations and Improvements 5.0%

Service Productivity 15.0% 1.5% 10.0% 2.0% 5.0% 1.5%Percent Time Targeted

Adequate Staff and Service Coverage (c) Achieved PerformanceProfessional Sevice and Call Coverage Requirments 95.0% 90% of Svc. Rqmts 5.0%Workload/Workforce Management Target of Section 98.0% Top 25 Percentile 5.0%Resource Utilization and Service Efficiency Rating 91.0% Top 25 Percentile 5.0%

Medical Staff and Referral Source Relations 15.0% 1.5% 15.0% 3.0% 5.0% 1.5%

Committee MembershipsParticipation 5.0%Leadership 5.0%

Service Satisfaction (d) > 90% 5.0%

CY 2011 CY 2013 CY 2015

Example –The Value Proposition(Continued)

Assigned Area Value % Area Value % Area Value %PERFORMANCE AREA(S) Weight Weight 10% Weight 20% Weight 30%

Financial Responibility 10.0% 1.0% 10.0% 2.0% 10.0% 3.0%

Annual Budgets: Preparation and Achievement (e) 2.0%Cost Containment and Service Efficiencies (f) 2.0%Management Care Participation Targets(g) 4.0%Fee Management Targets(g) 2.0%

Organizational Development Participation 5.0% 0.5% 5.0% 1.0% 2.0% 0.6%

Attendance @ Non-sectionMeetings 2.5%Interdisciplinary Efforts on System/Hospital Issues 2.5%

Human Resource Management 15.0% 1.5% 5.0% 1.0% 3.0% 0.9%

Staff Development and Training Participation 5.0%Staff Supervision and Management 5.0%Staff Satisfaction 5.0%

TOTAL PERFORMANCE WEIGHT 100.0% 10.0% 100.0% 20.0% 100.0% 30.0%

CY 2011 CY 2013 CY 2015


Employed Specialist Physicians For Illustration and Discussion Puproses OnlyCY 2015Physician


wRVUs (1) 10,000 12,000 14,000

Base Salary 33.00$ (2) 330,000$ 396,000$ 462,000$

70.0% 67.8% 65.7%

B. Practice Efficiency Incentive (3)

Practice Efficiency Incentive 0%-5% -$ 9,900$ 23,100$

0.0% 1.7% 3.3%C. Value Consideration: Quality and Clinical Measure Incentives (4)

100.0%

Quality and Clinical Incentive 141,570$ 178,200$ 218,064$

30.0% 30.5% 31.0%

Total Compensation by Physician Before Professional Adjustments 471,570$ 584,100$ 703,164$ Professional Expense Adjustments (i.e., discretionary exenses) (5) - - -

Net Physician Compensation Available 471,570$ 584,100$ 703,164$

$/wRVU 47.16$ 48.68$ 50.23$

100.0% 100.0% 100.0%




Positioning for ACOs/PCMHs and Episode-of-Care Payments

1: Creating a Case Rate for Each Provider in Each Phase of an Episode of Care

e.g., paying each physician a single fee for a patient’s hospital stay2a: Including a Warranty in Each Provider’s Case Rate

e.g., including the cost of any related hospital readmissions in the hospital’s DRG payment

2b: Bundling Case Rates for All Providers in a Particular Phase of an Episode of Care

e.g., paying a single fee to both the hospital and physicians managing the hospital stay

3: Bundled Rates with Warrantiese.g., paying a single fee to the hospital and physicians, covering the

initial admission and readmissions4: Combining the Case Rates for all Phases of an Episode

e.g., paying a single fee for both inpatient and post-acute care

Health Plan

Health System ACO

Optional rehab package services

Other MDs, PT

New contract New

contract

New contract

Contracting Model -ACO Lead

PPO contract amendment - outlines terms

PPO contract amendment - outlines terms

Physician and Surgeon

Groups/IPA

PPO contract amendment - look to hospital for payment

PPO contract amendment - look to hospital for payment

Adapted: Copyright © 2010 Integrated Healthcare Association.

Hospitals

New contract

The Future RevisitedService

LineCPTCPT

APR -DRGAPR -DRG

ICD10 -CM

ICD10 -CM

MS -DRGMS -DRG

APR -DRGAPR -DRG

Aggregation of Services

Episodes of Care (ETGs)

DefinitionsHospitalizationHospitalization

ProcedureProcedure

ProvidersProviders

Time Horizon

Performance

Outcomes/SafetyOutcomes/Safety

ReadmissionsReadmissions

QualityQuality

ReimbursementReimbursement

Resource Consumption Profiles

Service Analytics

Cost Analytics

Market Analytics

Pricing Analytics

SolvencySolvency

ViabilityViability

CapitalCapital

Bundled Payment for Case of Care

Bundled Payment for Case of Care

Payment ReformPayment Reform

Pricing

ACO PayeeACO Payee

Allocation of $

ConditionCondition

George Batalis, Pricewaterhouse Coopers; (813) 222-6240; [email protected]

Curtis Bernstein, Sinaiko Healthcare Consulting; (720) 240-4440; [email protected]

Roger W. Logan, Catholic Healthcare Partners; (513) 639-2843; [email protected]

Developing Employment Agreement for Quality, Operational Efficiency and Patient Contact

Health & Medicine