As the Affordable Care Act is implemented and healthcare expenditures continue to rise, providers and payers need to explore how to best set themselves up to succeed in an evolving marketplace. In this 5th webinar, Margaret Davino will discuss how the relationships between hospitals, physicians and other providers are changing and what structures are being used for providers and payers to work together, including accountable care organizations (ACOs). Margaret will also describe the different models of collaboration between hospitals and physicians, how these affect reimbursement, and what to expect in the future.

1. Margaret Davino, Esq. and Andrea J. Simon Ph.D.
Adapting to Affordable Care Act: Provider
And Healthcare System Collaboration
- Structuring successful relationships
Healthcare Innovation: Trends From The Trenches
March 14, 2014

2. Our Presenters
Andrea J. Simon, PhD
Corporate Anthropologist
President
Simon Associates
Management Consultants
Margaret Davino, Esq.
Healthcare Attorney
Kaufman Borgeest & Ryan

3. Margaret Davino
 A Partner in Kaufman, Borgeest & Ryan, Margie has been
involved with physician-hospital contracts, affiliation and/or
service contracts, employment agreements, managed care
issues, bylaws and governance matters, regulatory
compliance, medical staff affairs, establishing physician
practices, as well as mergers and the formation of hospital
systems.
 The biggest part of her practice at the current time is
relationships and collaborations between various providers,
including physicians, super-groups, hospitals and others.

4. Webinar Series
 Healthcare Innovation: Trends From The Trenches
Dianne Auger,
Senior Vice
President, Marketing
St. Vincent’s Medical
Center
President of the St.
Vincent’s Foundation
Linda MacCracken,
MBA
Vice President,
Advisory Services
Truven Health
Analytics
Kriss Barlow RN, MBA
Principal,
Barlow/McCarthy
Andrea J. Simon, PhD
Corporate
Anthropologist
President
Simon Associates
Management
Consultants
Margaret Davino,
Esq.
Healthcare
Attorney
Kaufman Borgeest
& Ryan

5. Webinar Series: Trends From The Trenches
 Why “Trends From The
Trenches?”
 Our job is to help you
“see, feel and think” in
new ways.
 Goal: Help you more
easily adapt to
changing times.

6. Challenge Before Us
“We don’t see things as they are. We see things as we
are.” ~Anais Nin
“The real voyage of discovery consists not in seeking
new landscapes but in having new eyes.” ~Marcel
Proust

7. Today’s Webinar
 Theme: With all the talk about healthcare reform what
is really happening?
 What are the many ways the industry is re-inventing
itself?
 What are the major innovations taking place?
 What is the impact for each of the different players?

8. Today’s Webinar
 From the perspective of someone who is dealing
with this from all sides: physicians, hospitals, payers,
regulators.
 And seeing the collaboration emerging, the
innovation taking hold and the creativity in action.

9. To be covered today
 Changes in the healthcare world and Why
 Role of Affordable Care Act (ACA)
 ACA’s goals and achieving such
 Effect of ACA on providers
 Accountable care organizations (ACOs)
 Healthcare provider consolidation/alignment
 Changing compensation models
 Effects of consolidation

10. Adapting to Affordable Care Act: Provider
and Healthcare System Collaboration—
Structuring Successful Relationships
Let Me Introduce Margaret Davino

11. Changes In The Healthcare Marketplace
 Consolidation among providers
 Different payment models: move towards capitation
and global payments; quality metrics
 Hospitals and physician groups forming insurance
companies
 Insurers’ directly working with their members
 Employer programs to keep employees healthy
 Direct contracts between employers and providers

12. Why Are All These Changes Happening?
 Answer: $$$$$$
 US spends approximately 17% of its gross domestic
product (GDP) on healthcare (versus 11% in Canada,
Germany and France)
 States’ overall largest expenditure is healthcare (30%
of NY State’s budget is spent on Medicaid)
 Medicare and Medicaid comprise 25% of US budget

13. Effect Of Increasing Medical Costs
 Rising insurance premiums (insurance premiums and
deductibles rose 50% from 2003 to 2010)
 Decreasing numbers of employers providing health
insurance (61% in 2010 versus 69% in 2001)
 Bankruptcies due to medical costs (over 50% of all
bankruptcies are due to medical bills)
 Affordable Care Act (Obamacare)

14. Tenets Of Affordable Care Act (ACA)
 Expanding access to healthcare
 Controlling costs

15. ACA – How Can It Promote Access To Healthcare?
 Access to healthcare (equate w/health insurance)
 Employer mandate to provide health insurance
 Individual mandate to purchase health insurance
 Insurance Reform
 Can’t deny based on pre-existing conditions
 Coverage of children up to age 26
 Insurers must spend 85% of premiums on healthcare
 All policies must cover mandated “essential” benefits
 Expansion of Medicaid (but states may choose to expand)

16. Concept Of Access: More Insured Persons
 Employer mandate: delayed until 2015/2016
 Delayed until 2015 for employers with 100+ FTEs
 Delayed until 2016 for employers with 50-99 FTEs
(was supposed to be 2014)
 Penalty of $2,000 per employee if health insurance not
offered, & employee receives premium tax credit
 $3,000 penalty if coverage not affordable (for each
employee who receives a tax credit)

17. Access For Individuals: Through Exchanges
 Concept: 29 million people will sign up for coverage
through the exchanges by 2019
 Current governmental estimate that 6 million will sign up
by 3-31-2014 to avoid penalty
 4.2 million had signed up by end of February 2014
 Persons with income between 100-400% of federal
poverty level eligible for tax credit to help them afford
health insurance through an exchange

18. Relevance Of Exchanges To Providers
 More insured patients should mean less bad debt and charity care:
so plans to cut Medicare DSH payments
 But rates that providers are paid by insurers with exchange products
may be less than normal
 None of the exchange products in New York have out-of-network
benefits
 Narrow networks: hospitals and physicians
 The products on the exchanges have significant deductibles (average
deductible for bronze plan $5000, silver $2900, gold $1200,
platinum $350)

19. Other Provider Issue With Exchange Products:
3 Month Grace Period
 Insurers under the ACA may not drop an insured
who falls behind on premiums for 90 days
 Insurers are responsible for paying claims only
during the first 30 days of the 90 day grace period
 So providers will have to collect from the individual
patient for the other two months if the patient does
not pay premiums and insurance is dropped

20. Can providers pay for the premiums?
 HHS: Qualified health plans purchased through
exchanges are not “federal health care programs”
for purposes of the anti-kickback act
 BUT: CMS has “significant concerns” with payment
of premiums by hospitals, providers or commercial
entities
 Solution: Foundations

21. ACA – How Can It Control Costs?
 Value driven purchasing (e.g., limits on payments for
patients readmitted within 30 days of discharge)
 Payment reform: move to global payments
 Program integrity
 Comparative effectiveness
 Affordable Care Organizations (ACOs)

22. Hospital Value-based Purchasing
 Began 2013 based on hospital performance on
quality measures and efficiency measures
 Reduction in pay for hospital-acquired conditions
 Restriction on payment for patients admitted within
30 days after discharge (unnecessary readmissions)
Focus: ties to quality

23. CMS Bundled Payment Initiative: 4 Models
Model 1: payment to hospital for episode of care, with
separate payments by Medicare to physicians, and
gain-sharing allowed
Model 2: Acute care hospital stay plus post-acute care
Model 3: Retrospective post-acute care only
Model 4: Prospective lump sum paid to hospital for all
services (including physician) within a stay, including
related admissions within 30 days after

24. Patient Centered Medical Homes
 Provides additional payment to physician offices
that meet standards for coordination of care and
communication with patients
 Often an additional dollar amount per patient per
month

25. Clinical Effectiveness Research
 Clinical effectiveness: evaluate and compare
patient outcomes and benefits of two or more
medical treatments and services
 Includes protocols for treatment
 Care delivery
 Medical devices and drugs
 Diagnostic tools

26. Accountable Care Organizations (ACOs)
 Organization responsible for 5000+ Medicare FFS
beneficiaries under Medicare shared savings
program
 Must have formal structure w/shared governance
 Must have mechanism to receive and distribute
payments among participating providers
 Patients assigned to ACO based on PCP

27. Growth Of ACOs
 Last round announced 12-31-2013 (123 new
ACOs)
 Total 366 Medicare shared savings ACOs
 In all 50 states and DC (California leads)
 5.3 million Medicare covered lives
 Physician groups primary sponsor of ACOs

28. ACO Payment
 Providers in an ACO continue to submit claims and
be paid as always under Medicare fee for service,
but are also eligible to earn shared savings:
 If the ACO meets quality performance standards
 The estimated average per capita Medicare
expenditures per patient are under the benchmark
3 year contract with Medicare

29. ACOs In A Managed Care World
 Similar model to Medicare shared savings program
 Designates physicians participating and measures
the care provided
 Gives physicians incentives to manage care and
costs
 Requires meeting quality metrics

30. Effects Of The ACA
 Healthcare provider consolidation/alignment
 Creation of organizations capable of managing population
health (with providers able to do so)
 Increased use of electronic health records
 More ambulatory care, e.g., medi-clinics to provide less
costly care to both newly insured and uninsured
 Consumer focus on costs with higher deductibles
 Focus on primary care and non-MD providers

31. Healthcare Provider Consolidation
 Hospital mergers and acquisitions/affiliations
 Hospital employment of physicians (last year more than
half of all graduating residents took jobs with hospitals)
 Hospital acquisition of physician practices
 Physician “super-groups”
 Hospital relationships with post-hospital care providers

32. Hospital Consolidation
 105 hospital mergers in 2012 alone (up to 50-60
annually in 2005-2007, pre-ACA and pre-
recession)
 Smaller number of hospital networks
 Independent hospitals are becoming uncommon
 Hospital consolidation includes hospitals both in the
same geographic region, and outside same region

33. Hospital Acquisition Of Physicians
 Physician practices are increasingly becoming part of
hospitals
 From 2004-2011, hospital ownership of physician practices
increased from 24% of practices to 49% (JAMA 11/13)
 More newly graduating physicians are now becoming
employed by hospitals than entering private practice

34. Drivers Of Hospital-Physician Alignment:
Hospital Perspective
 Concern with healthcare reform & need for primary
care
 Questions as to future responsibilities for bundled
payment
 Participation in ACOs
 Required specialty coverage for ED/trauma
 Increasing competition and shrinking market share
 Physician defection to other organizations

35. Drivers Of Hospital-Physician Alignment:
Physician Perspective
 Downward pressure on reimbursement and income
 Dealing with managed care
 Concern about increasing expenses
 Malpractice insurance
 Electronic medical records
 Uncertainty as to healthcare reform and the future
 Diminishing returns: seeing more patients, minimal
income growth, loss of personal time

36. Reimbursement Driver Of Hospital-Physician Alignment
 Position organization for ACOs and bundled payment
 Differential between physician and hospital
reimbursement
 May charge a facility fee (if physician office becomes
a hospital “provider-based” site)
 Increased managed care rates?
 Free-standing ASC Medicare payments 61% of
hospital Medicare payment for ambulatory surgery

37. Physician goals
 Positioning as to the future
 Ancillary business opportunities
 Diagnostic imaging, PT, clinical trials
 Compensation from hospitals
 Charity care
 On call/ED coverage
 Physician recruitment
 Joint venture opportunities with hospitals

38. Options For Hospital-Physician Alignment
Less
Integration
Professional
Services
Agreement
(Hospitalist,
On-call
coverage)
MSO
Services
Joint
Venture
Professional
Services
Agreement
“PSA”
Hospital
Employment
Full
Integration
Space
Leases
Medical Admin.
Services
Agreement
(Medical
Directorship)
Physician
Recruitment
Medical Staff
Membership
Captive PC or
Subsidiary
Employment
Model
Foundation/
Clinic Model
Co-Management
Agreement

39. Traditional Model: Medical Staff/Voluntary
Physicians
 Physicians apply for voluntary medical staff
membership on hospital medical staff
 Relationship governed by medical staff bylaws
 Physicians and hospital bill and collect separately
 Hospital may provide support such as CME,
technology services, physician referral line, general
marketing

40. Space Leases
 Hospital rents space to physician, often in a medical
office building
 Must meet Stark exception (similar to anti-kickback
safe harbor) for space leases: minimum one year,
signed, space specified, rent FMV set in advance
 Can also have a license agreement for session use

41. Physician Recruitment Agreement
 Hospital may support recruited physician to establish
own practice, or join established practice
 Physician must move from outside to inside hospital
service area (lowest # of contiguous zip codes for 75%
of patients) plus either (a) must move at least 25 miles
or (b) 75% of revenue from new patients
 Except graduating resident, physician in practice less than
one year, or employed by certain federal agencies

42. Medical Director Relationships
 Can be as an employee or independent contractor
 Stark employee or personal services exception
 But beware IRS issues with independent contractors
 Employment can be full time or part time
 Concern: Is this just a payment for referrals
 Payment must be fair market value
 Must define duties and time spent

43. Gainsharing Arrangements
 Hospital gives physicians a percentage share of any reduction in the
hospital’s costs for patient care attributable in part to the physicians’
efforts.
 Gainsharing arrangements implicate the civil monetary penalty act (“CMP”)
in section 1128A(b)(1) of the Social Security Act , which prohibits a hospital
from making a payment to a physician as an inducement to reduce or limit
services to Medicare or Medicaid beneficiaries under the physician’s care.
 Requires an advisory opinion or participation in a demonstration program
(such as through NJ Hospital Association) if Medicare/Medicaid involved
 Greater New York Hospital Association gainsharing program: applies only
to non-governmental patients, began in 2008 with Beth Israel

44. Professional Services Agreements
 Agreement between hospital and physician group
to provide professional services in a specialty area
 Can be exclusive (e.g., anesthesia, radiology) or
non-exclusive (e.g., rehab or reading EEGs)
 May be for on-call coverage in a specialty area
(and to ensure hospital meets EMTALA obligations in
ER)

45. Professional Services Agreements:
Issues To Consider
 Restrictions on group (e.g., can they provide similar
services elsewhere, or have an outside entity)
 Responsiveness to calls
 Care for all, including uninsured and Medicaid
 Financial: who bills and collects, hospital payment,
global payments, participation with all payers

46. Clinical Co-management Agreements
 Provides compensation to physicians for co-
management of a hospital clinical service line
 Hospital contracts with physician LLC (formed by
physicians) for co-management services
 Each party appoints members of an advisory
committee to oversee performance goals/standards

47. Clinical Co-management Agreements
 Compensation:
 Fixed: for performance of administrative duties
 Incentive: based on achieving defined performance
standards (e.g., reduction in complications, timeliness)
 Comp must be FMV and set in advance
 Cannot pay physicians for reduced levels of care to
Medicare/Medicaid patients under CMP law

48. Professional Services Agreement -
Physician Enterprise Model
 Physicians (and perhaps staff) remain employed by
practice, which contracts with hospital for services
 Hospital pays single FMV service fee to practice for
all services, space, equipment, staff
 All clinical services performed by physician group
billed by hospital

49. Captive PC Arrangements
 Hospital sets up separate professional corporation to
allow separate physician billing and avoid mingling of
bills
 Shareholder(s) of PC employed by hospital
 Physicians may be employed by the PC with benefits
from the PC
 Captive PCs may seek tax-exemption as “supporting
organizations” of tax-exempt hospital

50. Physician Employment
 Gives most control and flexibility to hospital
 Stark employee exception & anti-kickback safe
harbor: identifiable services, FMV payment,
contract would be commercially reasonable without
referrals
 Con: hospital infrastructure sometimes clashes with
management of physician practices

51. Physician Employment & Remaining In Current
Office
 Physician employed by hospital
 Hospital leases/subleases space from physician’s PC
to allow physician to remain in current office
location
 Staff may also be provided by physician PC (or
may be employed by hospital)

52. Practice Acquisition
 Very common to see hospitals acquiring doctor practices
 Value of practices has dropped
 Common model: acquisition of practice and employment of
physician
 No safe harbor for acquisition by a hospital
 Total comp (acquisition costs plus subsequent compensation)
may be subject to scrutiny as to whether these are disguised
payments for referrals (Sulzbach case)

53. Other Option For Physicians Wishing To
Consolidate: Super-groups
 Super-groups: large physician groups, most often
multi-disciplinary
 Can often achieve preferable managed care rates
 Under Stark, can bill all ancillaries referred within
group under “in-office ancillary services exception”
 Feds/OIG concerned about proliferation of
ancillary services (e.g., radiation oncology-urology)

54. Changing Compensation Models For Future
 Move away from fee for service payment to global
payment
 Payment for an episode of care
 Inclusive of multiple providers
 May include complications (Geisinger warrants their
cardiac surgery for 90 days)

55. Providers Becoming Payers
 Question: can providers
eliminate the middle box
(insurers) and either become
Insurers or contract directly?
Employers
Insurance companies/payers
Providers (hospitals, doctors,
LTC, home care, etc.)

56. Less Expensive Providers/Care
 Reference pricing: patient decides to be treated by a
lower-cost provider with less cost to the patient
 CALPERS steers patients for joint replacements to
providers who will charge no more than $30,000
 If a patient goes elsewhere, patient pays the charge in
excess of $30,000
 Cleveland Clinic is offering a bundled price for cardiac
surgery to employers (Bloomberg, March 5, 2014)

57. Changing Physician Payment Models
 Conventional wisdom: at least 20% of salary must be
at risk to be a factor in behavior
 Potential components of compensation:
1. Base salary
2. Productivity component (RVUs, percentage of
collections, encounters)
3. Bonus (can be based upon meeting delineated goals
and objectives, quality, PQRI, documentation, etc.)

58. Determining Physician Salaries
 Use outside source to determine FMV: MGMA, Sullivan
Cotter, salary surveys
 Salary may be related to percentile of MGMA/SC for
that specialty
 If above 50/75th percentile, from a compliance standpoint,
document why the qualifications justify
 Salary may be tied to productivity, e.g., Dr. A receives
salary at 75th percentile with requirement she generate 75th
percentile of RVUs for that specialty, or salary is adjusted

59. Basis For Productivity
 If a physician’s salary is based (in whole or in part) on
productivity, the RVUs or collections are based upon a
physician’s personally performed services
 But can include personally performed interpretations of
ancillary services such as imaging
 Productivity expectations are often graduated for new
physicians
 A new physician may have a salary guaranty for 1-2 years

60. Legal Issues In Determining Physician Salaries
 Stark law
 Anti-kickback law
 Civil monetary penalties act (a hospital can’t pay a
physicians for reducing services to Medicare/Medicaid
beneficiaries)
 Excess benefit regulations (applies to insiders: persons
who at any time in 5 years before transaction were in
position to exercise substantial influence over entity)

61. Effect Of Consolidation: Higher Prices
 Larger organizations have greater negotiating
leverage
 Primary driver of growth in healthcare spending has
been price increases
 Antitrust concern if market power is too great
 St Luke’s Hospital in Oregon ordered to divest
physician group acquired (on appeal)

62. What Does The Future Hold
 More consolidation of hospitals
 More consolidation of physicians
 Slow move toward bundled payment
 More providers involved in insurance products
 More ambulatory care
 Potential regulation of hospitals as to charges to the
uninsured
 Narrow networks? (United dropping docs in Conn.)

63. And, Innovation!
Perspective On Adaptation

64. 64
Market Evolution
Change
Matters !!!

65. Major Themes
 Times They Are A’ Changing
 Innovation is the application of better solutions that
meet new requirements, unarticulated needs, or
existing market needs.

66. Quick Thoughts On Change
 Want to change? Have a crisis or create one!
 Clearly pressure on rising costs and not exceptional
outcomes has created a crisis that is pushing new
ideas in all directions.

67. Brain Hates Change
 Habits are hard to change and it is easier to see
how the next generation is going to play in this
game than it is to watch those well established in
their fields adapt to the changing times.

68. More Ideas The Better
 Research quite compelling: the more ideas you have
the more likely you will have great ones.
 You just don’t know which ones they are.
 Leads to abundant testing, prototyping, piloting and
pivoting.

69. Big Ideas At The Intersections
 Often, the really big ideas come at the intersections
 To see how they intersect requires new types of skills,
leaders that can “see, feel and think” in new ways and
managers that can visualize something that others might
not be able to see much less actually do
 Need those “risk takers” not the “care takers”– and
certainly not the “undertakers

70. One Concern
 Strategy + Business Winter 2013 list of the most
Innovative Companies.
 Not one was from Healthcare.
 The list of top spenders was dominated by auto and
healthcare companies, but not the most innovative.
 “Innovation success is not about how much money
companies spent but in how they spent it.”

71. Next Webinar April 25th At Noon EDT
 Webinar #6: The Future of Healthcare Marketing is Digital
 April 25, 2014 at 12:00 PM EST
 Featured Speaker: Ben Dillon, Co-Owner and VP of Geonetric Inc.
 In this webinar, Geonetric’s eHealth Evangelist, Ben Dillon, will share insights on how
healthcare marketing and communications must urgently become more personalized,
more automated, and more sophisticated than ever before. Ben will present new
research from the 2013 Survey on Initiatives in eHealth, examine how leading
healthcare organizations are using digital communication tools to attract and
engage patients, explain how communications are evolving to support the
healthcare organizations of the future, and share the skills and tools your
organization will need to be successful.
 Register now!

72. Thanks To Our Sponsor: HIxD
 Healthcare Innovation by Design (HIxD) is a global network of
healthcare delivery and experience innovators.
 HIxD is the premier resource for healthcare innovation knowledge,
networking and career development.
 HIxD's 6800 members are executives, entrepreneurs, clinicians,
designers, architects, engineers and IT professionals.
http://www.healthcareinnovationbydesign.com

73. For More Conversation And Information
Andrea J. Simon, PhD
Corporate Anthropologist
President, Simon Associates Management Consultants
asimon@simonassociates.net
Office 914-245-1641
www.simonassociates.net
@simonandi
@Andisamc
Margaret Davino, Esq.
Healthcare Attorney
Kaufman Borgeest & Ryan
mdavino@kbrlaw.com