Exclusive Contracting and Incentivizing Quality in Your Hospitalist Program

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Prepared for 2015 AHLA Physicians and Hospitals Institute

February 2 – 4, 2015

2015 AHLA Physicians and Hospitals Institute


Carol W. Carden, CPA/ABV, ASA, CFE

Mark Easterly, JD

Exclusive Contracting and

Incentivizing Quality in Your

Hospitalist Program

Page 1



Objectives

• Understand the role of hospitalists and review the

growth of hospital medicine as a hospital-based

service

• Learn how to use hospitalist incentives to improve

quality, safety, and patient satisfaction

• Review case study

• Understand compensation and valuation

methodologies for hospitalist contracts

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Page 3



Hospitalists in Modern Health Care Delivery

• Hospital medicine has been the “Quiet

Revolution” in health care delivery

• AHA survey found that 83% of hospitals with

>200 beds have hospitalist programs.

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Definition of a Hospitalist

• Term defined in 1996 NEJM article by Wachter/Goldman

from UCSF

• Hospitalists are hospital-based physicians that manage

medical inpatients

• An alternative to inpatient management by an office-

based PCP

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Definition of a Hospitalist

The Society of Hospital Medicine

www.hospitalmedicine.org

Hospitalists are physicians whose primary

professional focus is the general medical care of

hospitalized patients. Their activities include

patient care, teaching, research, and leadership

related to Hospital Medicine.

http://www.hospitalmedicine.org/

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Driving Forces Behind Growth of Hospital

Medicine Movement

• Changing approaches to delivery of care

– Managed care driven

• Need for efficient and cost-effective outpatient and

inpatient care

• Need for quality improvement

• Evolution of the internist away from hospital-based

practice

• Physician lifestyle expectations and demands

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Hospitals Benefit from Hospitalists

• Physician champions for patient safety

and quality improvements

• Standardization of care

• Patient throughput and length of stay

management

• Decrease ED wait times

• Recruitment of medical staff

• Nursing satisfaction and retention

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Workforce Facts

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Workforce Facts

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Workforce Facts

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Workforce Facts

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Workforce Facts

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National Providers

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Role of Hospitalist

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Medical Group-Based Programs

• Almost 90% of major multi-specialty medical groups have programs

• Many programs support multiple hospitals

• Cost savings are a strong motivation for using hospitalists

• Often at financial risk (e.g., capitation) for inpatient services

• Programs good at integrating care across multiple settings

• PCPs and hospitalists are partners in the medical group

• PCP can explain hospitalist role to the patient before admission

• The hospitalist can easily and frequently communicate with the PCP and

other MDs in the group (e.g, using an EMR)

• Smooth patient transfers to ECFs and rehab facilities because groups

often have contractual relationships with these providers

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Academic Hospital-Based Programs

• Leading the hospitalist movement academic medicine

• Teaching is an important priority for these programs

• These hospitals often care for very sick patients

• Hospitalists’ role often requires significant coordination with a

range of sophisticated specialists

• Because of house staff/specialization:

• Hospitalists rarely perform procedures

• Hospitalists less likely to see patients in ICU, CCU, or ED

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Community Hospital-Based Programs

• Represent the growth market for new hospitalist programs

• Virtually all hospitals with active plans to implement hospitalist

programs in the next 2 years are in this category

• Hospitalists have multi-dimensional responsibilities

• Admit some patients, admit and round on other patients, perform

consultations, do medical procedures, and see patients in the ICU,

CCU, and ED

• More likely to provide 24 hour, round-the-clock coverage

and to employ administrative and/or clinical support staff

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Hospitalist Program Models

• Completely Open Medical Staff

– Any physician can apply for privileges as

hospitalist

• Partially Closed Staff

– Multiple providers but closed to new applicants

• Exclusive Staffing

– Private provider via PSA

– Employed providers via direct employment

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Why Hospitalists for your Quality Improvement

Program?

• Physically present and

available

• Vested in hospital’s

success

• Volume/influence

• Contracted

– Employed or private

– Opportunity to exert

greater control

Page 20



Steps

• Identify opportunity for your hospitalist program

• Determine: closed vs. open staff model

• Issue RFP

• Award contract(s)

• Work with physicians on developing quality metrics

• Value financial incentive

• Execute

• Measure and reward achievement

Page 21



Legal Issues

• Stark

• Anti-kickback

• Civil Monetary Penalty Statue

• Tax exemption

• Anti-trust

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Stark Law 42 U.S.C. §1395nn

• Personal services

exception

• Fair market value

exception

• Bona fide

employment

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• Incentive Payment and Shared Savings Program

Exception (42 CFR §411.357(x))

• CMS proposed July 7, 2008

• “hospitals may sponsor quality-focused programs in

which objective improvements in quality or

individual patient care outcomes are rewarded with

payments to physicians responsible for the

improvements.”

• Not yet adopted as final rule

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• Incentive Payment and Shared Savings Program

Exception (42 CFR §411.357(x))

– “In many cases, incentive payment and shared savings

programs can be structured to satisfy the requirements of

existing exceptions (e.g., bona fide employment, personal

services arrangements, fair market value compensation,

or indirect compensation).”

– “However, in other circumstances, the existing exceptions

to [Stark] may not be sufficiently flexible to protect

payments to physicians under incentive payment

programs.” 73 Fed. Reg. 38551

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Request for Proposal

• Written RFP

• Clearly describe services, roles, and

objectives

• Set timetable for response

• Outline significant contract terms

• Include medical director or program leader

role?

• Local groups or include national providers?

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Closing the Hospitalist Service

• Check applicable state law

• Check hospital and medical staff bylaws

• Check current contractual relationships

• How to define “hospitalists”

– Self declaration or delineation of privileges

– Ex. Hospitalists def. as Internal Medicine but no clinical

practice

• Action by hospital board of directors

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Preparing the Exclusive Agreement

• Clearly define services, expectations and standards

• Exclusivity language: “Group shall be the exclusive provider of Hospitalist

Services at the Hospital”

• “Clean Sweep” provision: “Physician agrees that his or her Medical Staff

membership and privileges at the Hospital shall terminate at such time that (i) Physician is

no longer retained by Exclusive Group; (ii) the Hospital withdraws its approval of the

Physician as an approved provider; or (iii) the Exclusive Agreement is terminated.

Physician further agrees that, notwithstanding any rights to notice, hearing, and review that

may be established by Hospital Policies, Medical Staff bylaws, or by state law, the Hospital

has no duty to provide notice or hearing in the event the Medical Staff membership and

privileges of Physician are so terminated. Physician shall be deemed to have automatically

resigned Medical Staff membership and privileges at the Hospital under such

circumstances, and hereby waives any notice or hearing.”

• Include quality metrics and compensation set in advance

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Quality Metrics

• Decide what to measure

• Set targets

• Generate and analyze reports

• Distill key indicators into dashboard

• Develop action plan for improvement and

achievement of metrics

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Quality Metrics

• CMS Core Measures

• Mortality Index

• 30-day readmission rates

• Discharge before 11:00

a.m.

• Physician documentation

response time

• Patient satisfaction

(HCAHPS, Press Ganey)

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Goals Effective Impact

Standardization for comparison across hospitals

National benchmark

Hospital accountability and incentive to improve quality

Demonstrate performance

Enhanced public accountability

Transparency and reporting

Quality Metrics

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Quality Metrics

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Point

Allocation

Benchmark

and Baseline Target

2014 Results

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

Final

Results

1 - CORE MEASURES: Process of Care Weighted Value 40%

Heart Failure (HF)

Pneumonia

2 - CUSTOMER EXPERIENCE Weighted

Value 40%

Patient Satisfaction (Based on Press Ganey Scores)

Time Physician Spent with you 33%

Physician kept you informed 34%

Friendliness/courtesy of physician 33%

4 - MORTALITYWeighted

Value 20%

Sample

Quality Metrics

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Other Possible Metrics• Medication reconciliation

• Physician throughput

• Provider satisfaction

– Primary care physician

– Specialist

• EHR adoption and Meaningful Use compliance

• ICD 10 compliance

• “Good Citizenship”

• Is it measurable? Is it legal?

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Length of Stay (LOS)

• All hospitals measure.

• Direct bottom line impact

• Hospitalists in position to best influence LOS

• Caution against using LOS as an incentivized quality metric

• Civil Monetary Penalty statute implications 42 U.S.C. § 1320a-7a(b)

– Prohibits knowingly paying a physician an inducement to reduce or

limit the services provided to a federal health program beneficiary

– Potential $2,000 penalty on both hospital and physician

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CMP Rule • 1999 OIG Special Advisory Bulletin re: Gainsharing

– “OIG recognizes that hospitals have a legitimate interest in enlisting

physicians in the efforts to eliminate unnecessary costs. Savings that

do not affect the quality of care may be generated in many ways . . .

[including] reducing lengths of stay.” “Nonetheless, the plain

language of [CMP rule] prohibits tying physicians’ compensation to

reductions or limitation in items or services.”

• 2012 GAO Report to Congress: “Implementation of Financial Incentive

Programs Under Federal Fraud and Abuse Laws”

– “Financial inventive programs . . [and] payments from a hospital to a

physician designed to reward quality that lead to a reduction or

limitation or services furnished to hospital patients . . . Implicate the

CMP law.”

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CMP Rule

• OIG issues proposed rules October 3, 2014 (79 Fed. Reg. 59717)

– “The statute does not limit this prohibition to reductions or limitation of

medically necessary services.”

– “Given the changes in the practice of medicine over the years,

including collaborative efforts among providers and practitioners, and

the rise of widely-accepted clinical metrics, we are considering a

narrower interpretation of the term ‘reduce of limit services’ than we

have previously held.”

– Solicited comments on definition of “reduce or limit services” and

safeguards “to ensure the goal of the statute is met: to prevent

hospitals from paying physicians to discharge patients too soon.”

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Case Study

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Case Study

• 872 staffed beds

• Major academic medical center

• Internal medicine residency program

• Open staff model

– 5 employed hospitalists;

– 40+ private;

– 4 major groups; one affiliated with major multispecialty group

• 40% of all discharges from hospitalists

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Case Study

Hospital Concerns:

• Physician handoff

• Use of consultants

• Quality improvement

• Unassigned ED admission

• Lack of control

• Maintaining existing provider relationships

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Leadership

• Engaged Physicians

– Stakeholders formed Hospitalist Governance Council

– Individual Group Leaders

• Department of Medicine Chair

• Hospital Chief Quality Officer

• Hospital Administration

• Medical Executive Committee

• Board of Trustees

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Case Study

• Hospitalist Governance Committee set performance

standards

• Hospital issues RFP

• HGC determines quality metrics

• Create dashboard

• External valuation for subsidy and financial incentive

• Board of Directors action to close service

• Execute contracts, measure performance

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Performance Standards for Hospitalists

• Provide 24/365 in-house coverage (physicians/mid-level providers) for all patients

• Must personally see and examine patients within six hours of admission/observation

• Orders on chart within one hour of arrival on the floor

• Should alert HMH staff physicians on Day 1 that their patient has been admitted

• Brief discharge summaries on the day of discharge for next level of care

• Participate daily in care coordination rounds

• 100% core measures compliance

• Low Hospital Acquired Conditions (HAC) rate

• Define an acceptable overall Hospitalist Quality Index

• Consultants cannot bring on other consultants without approval of Attending

• No hospitalists can be responsible for the care of more than 25 patients/day

• No hospitalists can admit/observe more than 15 new patients in a 24-hour period

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Performance Measure Dashboard

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Case Study: Results

• Closed staff

• Several “co-exclusive” contracted hospitalist groups

– Mix of employed and private

• Unassigned ED coverage

• Quality measures with financial incentives

• Quarterly data reports and payment

• Functioning Hospitalist Governance Council

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Employed Hospitalists

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Employed Hospitalists

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Economics of a Hospitalist Program

Predominant

mode of

payment is

shift based

Performance

incentives are

common

87% - 93% of

hospitalists

programs

require a

subsidy

• Average

subsidy is

$156,063

for adult

programs

• Average

subsidy is

$105,985

for pediatric

programs

Exclusive

arrangements

are common

Specialty

hospitalists

becoming

more common

• Critical

care/

intensivist

and

surgicalist

Page 48



Fair Market Value Considerations

Key Concepts

Determined from the perspective of hypothetical buyers and

sellers without the ability to refer business to one another.

Reasonable knowledge of the relevant facts by both parties

Neither party is under compulsion to buy or sell services

Separate definitions for IRS and Stark/OIG purposes

Page 49



Fair Market Value• IRS Definition1

– Fair market value (FMV) is defined as the price at which the property or service would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of the relevant facts”

• OIG/Stark Definitions2

– Fair Market Value: the value in arm’s-length transactions, consistent with the general market value

– General Market Value: the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or 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 service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals

1 Treas. Reg. § 20.2031-1(b) (2005); Rev. Rul. 59-60, 1959-1 C.B.237. 2 42 C.F.R. § 411.351 (2011).

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COMMERCIAL REASONABLENESS

FAIR MARKET VALUE

Compliance Issues Regarding Hospital-

Physician Financial Relationships

Overall Arrangement

“WHY?”

SENSE CENTS

Range of Dollars Only

“HOW MUCH?”

Scope

Key Question

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Commercial Reasonableness• Department of Health and Human Services Definition1

– An arrangement which appears to be “a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.”

• Stark Definition2

– “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential designated health services (DHS) referrals.”

• OIG Threshold 3

– Compensation arrangements with physicians should be “reasonable and necessary.”

1 63 Fed. Reg. 1700 (Jan. 9, 1998).2 69 Fed. Reg. 16093 (March 26, 2004).3“OIG Compliance Program For Individual and Small Group Physician Practices,” Notice, 65 Fed. Reg. 59434 (Oct. 5, 2000); OIG Advisory Opinion

No. 07-10, September 20, 2007, pg. 6, 10; “OIG Supplemental Compliance Program Guidance for Hospitals,” Notice, 70 Fed. Reg. 4858 (Jan. 31,

2005).

Page 52



Factors in Determining CR

Business Purpose

Provider Analysis

Facility Analysis

Resource Analysis

Independence & Oversight

Commercial

Reasonableness

Determination

Page 53



Commercial Reasonableness

Does the proposed service represent a reasonable necessity essential

to the functioning of the hospital?

Is the specific purpose of the service clearly identifiable and appropriately

defined?

Does the proposed service relate to the business and/or clinical plans

of the hospital?

Does the proposed service contribute to the hospital’s profits and/or the

development of a service line?

BUSINESS PURPOSE

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PROVIDER

ANALYSIS

Does the role require a physician to perform the services?

Does the role require a physician of a certain specialty to perform the

services?

Has the amount of time demanded of the physician in the proposed role

been considered?

Do any salary considerations exist related to providers of similar specialty

and experience in comparable organizations and positions?

PROVIDER ANALYSIS

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Is patient demand/number of hospital patients sufficient to justify the

service?

Are patient acuity levels such that the proposed service is necessary?

Do patient needs dictate the need for a separate and distinct physician

for the proposed services?

Is the size of the hospital and its relevant departments appropriate

for the proposed service?

FACILITY ANALYSIS

Page 56




Counsel

In – house

Outside

Valuation Firm

Internal

External

Internal

Management

Board

WHO DECIDES?

Page 57



Factors Impacting Compensation

Payer mix

Productivity level

Many times measured by

encounter data

Supply/demand for

physicians in the local market

Hospitalists were the third

most highly recruited

specialty according to Merritt

Hawkins

Level of at-risk/incentive

compensation

Page 58



Components of a Typical Subsidy

1

Fair market value

physician

compensation

2

Physician benefits

& malpractice

expense

3

Fair market

value MLP

compensation

4

MLP benefits &

malpractice

expense

5

Billing and

overhead

expense

6

Offset by

projected

collections

Page 59



Subsidy Calculation Example

Example Hospital Financial Support Analysis

Low Scenario High Scenario

REVENUE

Professional collections, rounded $1,490,935 $1,490,935

EXPENSES

Physician Expenses:

Number of physician hours 17,072 17,072

Indicated fair market value hourly rate $110 $130

Physician compensation $1,877,920 $2,219,360

Physician benefits $281,688 $332,904

Total Physician Compensation and Benefits $2,159,608 $2,552,264

Other Expenses:

Malpractice insurance $58,761 $69,174

Billing, collections, and accounting $89,456 $119,275

Other office overhead $61,787 $61,787

TOTAL EXPENSES $2,369,612 $2,802,500

Operating Income (Loss) ($878,677) ($1,311,565)

Total Financial Support, Rounded $879,000 $1,312,000

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Questions?

Page 61



Web Resources

www.hospitalmedicine.org

www.pressganey.com

www.thefrontierproject.com

www.hhs.gov

www.qualitynet.org

www.hcahpsonline.org

www.hospitalcompare.hhs.gov

www.studergroup.com

http://www.pressganey.com/

http://www.pressganey.com/

http://www.hhs.gov/

http://www.qualitynet.org/

http://www.hcahpsonline.org/

http://www.hospitalcompare.hhs.gov/

Page 62



Contact Information

Carol Carden, CPA/ABV, ASA

PYA

(800) 270-9629

[email protected]

www.pyapc.com

http://twitter.com/carolcardenpya

Mark Easterly, JD

Houston Methodist

(713) 441-2571

[email protected]

www.houstonmethodist.org

mailto:[email protected]

http://www.pyapc.com/

https://urldefense.proofpoint.com/v2/url?u=http-3A__twitter.com_carolcardenpya&d=AwMFAg&c=QmPtDiFixEjkMvDKaP3E2Vb9C2z4M0PdarxyAHQ2iDQ&r=qvnjCM7ZBkchjjhdgS-GgJ5wQIX39xkpiNem_9YAl3w&m=y29_7xN2DsVPQzFCi80AWgr0hE5BjBBWZXLPCKz_TR0&s=8rdLD2_hag-awl5crl5HTPLb2J-N5TC0qhwqBH4iJUU&e=

mailto:[email protected]

http://www.houstonmethodist.org/

Exclusive Contracting and Incentivizing Quality in Your Hospitalist Program

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