Building Value-Driven Integrated Service Lines

HFMA 2011 Tri-State Fall Institute
(Florence, Indiana)

L E A D E R S H I P  P R O B L E M SO L V I N G  V A L U E C R E A T I O N September 15, 2011

Building a Value-Driven Integrated Service Line
Care Continuum: Business Models, Strategic Pricing
and Managed Care Contracting Strategy

Christopher J. Kalkhof, FACHE
Director, Healthcare Industry
Group
(New York Office)

© Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only.

Presentation Agenda
 Traditional vs. Population Managed Care Delivery Models
 Transitioning to a Service Line Focus
 Defining Service Line Core Capabilities Across Care Continuums
 ACOs, Clinical Integration and Emerging Payment - Transitioning to a
Value-Driven Model of Care
 Clinical and Capital Resource Allocation Decisions
 Physician Alignment Models which Strengthen Service Line
Performance and Manage Care Contracting Strategies
 Building Blocks to Establish a Distributed Care Delivery Network to
Support Core Service Lines
 Service Line Pricing Process to Optimize Payer Reimbursement and
Manage Financial Risk
 Lessons Learned
 Q&A and Program Close
© Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 2

Traditional vs. Population Managed Care Delivery Models
Creating A Future Care Delivery and Financing Model

"The best way to predict the future is
to invent it." – Alan Kay

"The future belongs to those who see
possibilities before they become
obvious." – John Sculley

What type of organization do we need to become to have
a sustainable business model under healthcare reform?


Macro View - Post ACA Delivery Models
Best value for buyers and patients?
TRADITIONAL CARE MANAGEMENT MODEL POPULATION MANAGEMENT CARE MODEL
Medicare and Medicaid continue to evolve ACO and other global capitation or
their payment systems (e.g., ACOs) and bundled payment models
growing margin gap
– Shared risk for providers
FFS with Quality and Other P-4-P
Requires hospitals and physicians to align
incentives… goal to control price
and deliver patient care across care
Providers compete for reduced revenues…
Do more with less! continuums… “In-Network” emphasis”
5% of patients with high cost/complex Key characteristics of a population
care continues to consume 50%+ cost management model:
More physicians seeking employment due – Integrates and coordinates care around
to unsustainability of practices the clinical/social needs of patients
Industry consolidation… big may “win” – Focus on health promotion/prevention
but may not provide better value – Organized to manage acute and chronic
Continued acute care focus disease from non-complex to complex
Disaggregation of hospital services to – Balances financial/clinical incentives
ambulatory… unused capacity increases – End-to-end patient pathways
Providers at increased bankruptcy risk – Regional model approach


Macro Reimbursement Drivers
TRADITIONAL F-F-S VOLUME DRIVEN/NO GLOBAL-BUNDLED/FINANCIAL RISK/
RISK/COMPETING VS. ALIGNED INTERESTS COLLABORATIVE AND ALIGNED INTERESTS
Diffuse collection of interests between A single global payment or an episode
physicians and hospitals… non-aligned specific bundled payments
Physician focus at practice level and/or Allows the “contract holder” to use
ambulatory invested interests funding to pay providers for services
Declining economics and declining which may not have been a prior
favorable payer contracts… incents covered benefit… e.g., patient education
physicians to compete directly with Risk adjusted payment levels
hospitals for higher dollar services Flexibility to pays for services based on
IT tools designed for F-F-S model and targeted quality metrics and outcomes
limited access to capital makes it Shared risk aligns hospital and physician
difficult to evolve from current model interest at a clinical and business level
Many regulatory barriers to hospital Organized to manage acute and chronic
and physician alignment disease from non-complex to complex
Unsustainable over long-term… Nash care in the most appropriate patient
equilibrium continues care setting

Macro Alignment/Integration Drivers
INDEPENDENT / COOPERATIVE MODEL CLINICAL INTEGRATION / ALIGNMENT
Volume rewarded regardless of quality Clinical integration model to manage
and patient outcomes populations…
Payer cost containment through price, – Process integration models
payment rules and utilization controls – ACO type integration models
Pays each provider separately with no – FTC regulatory type integration models
linkage to patient care coordination, Various disease/chronic care
satisfaction or efficiency of services management programs in place and
Does not pay for non-medical services shared payer contractual arrangements
such as patient education Complete care continuums...
Provider decisions often made with little – Vertical integration with physicians
patient understanding of options – Distributed network models
Incents providers to focus on services – A true clinical and business strategic
which reimburse the most vs. what is in alliance can create a market disruptive
the best clinical interests of the patient care delivery service model


Competitive Positioning
INCREMENTAL-MARKET DRIVEN INNOVATION-MARKET LEADING
 Preparing for future state… but protective of  Creating future state:
– Market disruptive alliances/technologies
current model and current services
– Leading change
 Characteristics:  Characteristics:
– Filling service gaps – Program innovation
– Protecting and balancing market share… – Population management
incremental growth – Outpatient “hospitals w/o beds”
– Transitioning select hospital services to – Built around Divisional Structure Service
community based settings Lines and Physicians
– Matrix and Modified Service Lines models  Success Measures:
most common – Population managed is under financial
 Success Measures: risk-provider accountability
– Market share (inpatient focused) – Quality of care and patient outcomes
– Quality of care – Improved patient
– Patient satisfaction experience/convenience
 Risks: – Preventive medicine/healthier popul.
– Presumes future much the same as today – Minimal “out-of-network” leakage
– Successful innovators  Risks:
– “Fast Following” is a high risk strategy and – Early adoption, uncertainties and capital
capital intensive intensive


Healthcare Reform Goals: Federal and State Objectives

Combined Effects of Healthcare Reform – Federal and State
Affordable Care Act and
State Medicaid
Medicare Payment Reforms
Significant budget challenges,
Significant budget challenges,
no longer sustainable
no longer sustainable

Transform the Current Healthcare Delivery & Financing Model
Reduce the cost More affordable
growth trend and coverage and more
promote high- Integrated care covered individuals
value, effective care managed across
the care Improve access,
Hold providers continuum is at quality and patient
accountable for the heart of safety
their performance reform
Financial incentives to
Population and disease better align and
care management coordinate care delivery
Payment Reform
The above supports a transition to a new model of care… ACOs are
one example of a new model… based on population management!

Strategic Considerations: “C-Suite” Uncertainty - Future Models

Shared requirements for sustainable business models in the future…
1. Reimbursement will reward value/penalize poor value and provider financial
risk will increase.
2. Effective physician alignment and integration is the cornerstone from which
all future service mix and patient strategies must be built.
3. The provider organization’s core care delivery model must account for the
above two pivotal factors.

Reimbursement Physician Alignment Care Delivery
and Risk and Integration Model


Transitioning to a Service Line Focus
Limitations in Traditional Hospital Services Approach

 Lack of a Reliable Measure of Success... patients do not “buy” a "med/surg"
bed yet we contract for med/surg per diems.
 Inability to See the Big Picture... traditional hospital organizational structures
consist of care delivery and management silos of activity.
 Internal, Hospital-Centric Focus… concentrates on providing services to
patients… without addressing how to bring patients to the hospital to begin
with or whether the services can be delivered closer to home… no one is
responsible for growing the business.
 Focus on Cost Management and Benchmarks rather than on Growth, Improving
Quality or Maintaining a Flexible Care Delivery Model... Cost management is
important, especially in an era of budget cuts, reimbursement freezes or
reductions… too much focus on cost management can paralyze an organization
to a level of inaction.
TRADITIONAL VS. SERVICE LINE
APPROACH AT YOUR ORGANIZATION?
© Copyright 2011. Alvarez & Marsal Healthcare Industry Group, LLC. All Rights Reserved. Confidential. For discussion purposes only. 10 10

Three Basic Service Line Organizational Models

1. Matrix Organization:
 Organized around traditional departments and service lines.
 Managers and staff have two lines of accountability.
 Service Line and Department Managers make joint decisions.
 Represents a 1st stage transitional model, but is a complex model to manage and
can lead to directional conflicts.
2. Modified Service Line Divisions:
 Primary reporting built around self-contained Service Lines to take care of
patients whom fall into Service Line category (e.g., cancer, cardio-vascular).
 Primary focus is on service line growth which, however, can lead to conflicts with
shared resources and potential to allocate more resources to traditional high
reimbursement I/P services vs. the overall Service Line care continuum.
3. Divisional Structure Service Lines:
 Complete divisional focus on Service Line which encompasses the entire care
continuum… hospital becomes a focused-factory model vs. all services model.
 Can lead to organizational fragmentation if shared services culture is not present.


Successful Service Line Business Models

 Service Lines are organized around specific physician/hospital core services
(e.g., what are you best known for in the community… Cancer, Ortho/Rehab,
Cardiac, Neuro-Sciences, Women’s, Geriatric, primary care, etc.)?
 In competitive markets, Service Lines allow hospitals to differentiate
themselves as well as better attract/retain physicians vs. being a general
acute providing all services.
 For health systems, Service Lines allow you a focused means to allocate
resources to better meet market demand and become focused factory
centers of excellence (e.g., the ABC Heart Institute, the XYZ Cancer Center).
 In a competitive market in which hospitals compete against both other
hospitals and their own medical staff… Service Lines offer a physician
alignment strategy which is critical for risk-based payer contracts.
 Organization has a culture of collaboration.
 Are designed to encompass the entire care continuum… i.e., not I/P focused.


Defining Service Line Core Capabilities Across Care Continuums
F-F-S Service Line Business Models

 Define service area(s) and clinical service line area.
 Determine which services result in the highest reimbursement.
 Define current and anticipated service line needs… inpatient and
acute-care campus (I/P and O/P) focused.
 Determine capability to provide services… staffing, clinical and tech
needs.
 Determine drivers of profitability… e.g., volume, price, cost, etc.
 Integrate Service Line strategy with organizational strategic plan and
market branding strategy.
 Build organizational accountability and performance management
mechanisms.
 Add Service Line components such as an ambulatory surgery center
based on patient need and profitability contribution to Service Line.


Population Management Service Line Business Models

 What patient populations do we actually serve today?
 What are the core service needs of these patients relative to the
services that we provide (end-to-end patient care pathways)?
 What is the associated care continuum relative to our service
capabilities and capacity (inpatient, outpatient and ambulatory)
and what does that vertically integrated care continuum look like
at a procedural level?
 What care is needed that we do not provide today and how do
we incorporate those services into our Service Line?
 How do we integrate the Service Line strategy with the
organizational strategic plan and market branding strategy?
THINK ABOUT HOW YOU WOULD APPROACH BUILDING A CA “KAISER-
LIKE” CARE DELIVERY MODEL TO MANAGE PATIENT POPULATIONS
14


 How will we address…
…disease management… demand management… catastrophic care
management… disability management… lifestyle management…
individual needs within groups which cross multiple service lines…
alignment of financial incentives… evaluation metrics… organizational
resource allocations… referral coordination in-out of network… IT/data
analytic needs… overall provider network and case management…
patient clinical risk and complexity relative to the most appropriate care
setting… improving the overall patient experience?
 How do we price all of the above within our own organization and
on a 3rd party payer basis (e.g., bundled payment or global
capitation)?

15


Illustration – Adult-Peds-Seniors: Trauma-Neuro-Spine Service Line Care Continuum
Injury, illness, surgery or
other intervention

Trauma/ED-ICU- Hub-and-Spoke Illustration: Rehabilitation Decline in status due
5 to adverse advent
Acute Care Services for Neuro-Spine-Ortho-Stroke

Highest functional level achieved NO (Identify ongoing patient needs)
YES

Inpatient Rehabilitation –
4 IRFs & Other Sub-Acute
Re-referred for additional care
Care Complexity Level

Goal
Multi-Specialty Center
YES

3 Re-referred for additional care Identification
Ambulatory Rehabilitation Further
rehabilitation
Highest functional level achieved NO (Identify ongoing patient needs) goals identified,
but not met at
current level of
YES

Collaborative Care
2 Rehabilitation
Re-referred for additional care rehabilitation
Patient re-
referred
YES

Community
1 Rehabilitation

Highest functional level achieved NO (Identify ongoing needs)
YES

Discharge
Highest functional level achieved for an individual at the time. Patients with long-term needs can receive expert follow-up and re-enter the care continuum if required.


ACOs, Clinical Integration and Emerging Payment and Value-Driven Models
Medicare ACOs… Possible Framework for Medicaid As Well

CMS demonstration program beginning January 2012:
 Requires integration across providers and across settings
 Demands genuine focus on quality and care coordination
 Offers framework for providers to be in charge
ACO rule released March 31, 2011… but…
 …the proposed rule includes many more administrative and operational
requirements than expected.
– Key operational components of an ACO… Network Development and
Management… Care Coordination, Quality Improvement and Utilization
Management… Clinical IT… Data Analytics.
– CMS original projected average cost of developing an ACO was
approximately $1.8 mm.
– AHA estimated costs of developing an ACO = Start-up costs of $5mm - $12
mm… ongoing annual operating costs of $6mm - $14 mm.
No Legal Opinion implied. Based on Layman’s understanding


 ACOs and how they will interact with the Stark Law, the kickback
statute, and Civil Money Penalties Law remains an open
question.
– Clinical integration models allow a “safe harbor” on the
regulatory issues but require significant IT investments and a
broad based alignment and clinical integration of care delivery
with physicians and many provider organizations were hoping
for a less costly and time consumptive solution through ACOs.

How many providers will apply for ACO status in
2012? How many will wait-and-see? What are the
risks of either option if the provider organization is
revenue dependent on Medicare patients?


 ACO Eligibility & Structure… an ACO may be formed by:
– Physicians or certain allied health professionals in group practice
arrangements.
 Networks of such practices (Medicare certified only).
– Joint ventures between such practices and hospitals.
– Hospitals employing physicians or certain allied health professionals.
– Start date for first ACOs… January 1, 2012.
 Must be a separate legal entity (LLC, LLP, Foundation, etc) with a TIN.
 Governing body must provide “proportionate representation” to
various ACO participants.
 If approved, ACOs enter into 3-year agreement with CMS, beginning
January 1 after approval
– During 3 years, ACOs can remove but may not add ACO participants;
ACO may add/remove suppliers.


 Application process requires ACOs to document how they plan to:
– Promote evidence-based medicine… Promote beneficiary
engagement… Report internally on quality and cost metrics…
Coordinate care.
 Operational Requirements… major obligations include:
– Physician-directed quality assurance and performance improvement…
Primary care providers must be exclusive to ACO… At least ½ of
primary care MDs must qualify as “meaningful users” of electronic
medical record technology by end of 1st year of participation…
Demonstrated financial capacity to repay any amounts owed to CMS
for shared losses… Full-time board-certified medical director physically
present at ACO site… Agree to CMS publishing quality and cost-related
performance data pertaining to the ACO.
 Reimbursement: Two Tracks for Payment, Shared Savings Methodology
and a Defined Mechanism for Distribution of Gains/Losses.

Clinical Integration – FTC Compliance Guideline

FTC review considerations typically encompass the following:
1. Integration of facilities/practitioners that represents true inter-
dependence in collaboration and productive information sharing.
2. Participation of both specialists and primary care physicians, in a way
that requires in-network referrals.
3. Treatment of a broad spectrum of diseases/disorders accompanied by a
comprehensive array of corresponding clinical protocols.
4. Integrated information technology that allows network providers to
efficiently and effectively exchange information regarding patients and
practice experience.
5. Integrated IT in which utilization and claims information is collected,
analyzed, and distributed with the goals of lowering costs, reducing
utilization rates, and improving the quality of care.

Clinical Integration – FTC Compliance Guideline

FTC review considerations typically encompass the following:
5. Integrated IT that enables the measurement of physician compliance
and performance, in comparison to widely accepted, peer-reviewed
benchmarks and standards.
6. A high level of physician financial investment and commitment of time
for training and utilization of the system, accompanied by agreement
among physicians to comply with the standards, benchmarks, and
protocols of the network.
7. Processes for improving performance and compliance, with
enforceable consequences for non-compliance.
Greater Rochester IPA (Rochester, NY) – FTC advisory opinion “Gold Standard” for clinical
integration. For-profit partnership (PHO) which is 50% owned by non-profit Rochester
General Health System (2 hospitals) and 50% owned by physician shareholders who made
capital investments ( 430 private practice, 230 employed by RGHS and 120 non-
shareholders, representing 41 medical and surgical specialties).

Clinical Integration – FTC Perspective: Collective Negotiations

FTC & DOJ Antitrust Policy Regarding “Collective” Contracting:
Each case is evaluated by the specific criterion associated with provider
networks/ affiliations which are created through a clinical integration
business model… if payer contracts do not involve a substantial sharing of
financial risk, there are some common themes the FTC looks for:
 Joint contracting is essential to achieve integration goals/results and is
considered… an ancillary requirement.
 Same measures across all payers… same network for all payers.
 Common procedures at practice level for all contracted plans.
 Stable networks… non-exclusive… efficiency in credentialing.
 Mechanisms to monitor/control utilization, costs and assure care quality.
– Selectively choosing network physicians to further these objectives.
– Significant investment of human/financial capital to gain efficiencies.

Payment, Risk Management and Clinical Integration

Care Delivery and Financial Risk Continuum
Full Global High
Capitation
Competitive
Episodes of Care &
Market and
Degree of Financial Risk

Gainsharing
Global Hospital
Provider Risk Is
Capitation Dominant
Global Hospital
Case Rates
Medical Homes Low High
Acct Care Orgs
Non-Competitive
(Physician Model)
Market and
Required
Risk Withholds Emerging Care Delivery
& P-4-P Provider Risk is
Hospital PPS (IP/OP) Uncommon Model?
FFS Charges Low

Degree of Clinical integration

Clinical and Capital Resource Allocation Decisions
Service Line Organization: Resource Allocation Criterion

Care Location Site &
Decision Criteria Clinical Risk
Frequency of Frequency of demand (cholecystectomy vs.
Access weekly follow-up at PCP office) Establish clinical
Invasive vs. Anatomic invasiveness, sedation, vascular access, risk sorting
Noninvasive potential for complications criterion relative to
Likelihood of Conditions and chronic diseases with high need for acute/
Admission potential for admission post-acute
Facilitates physician and patient compliance with admission or on
Clinical Pathways
clinical pathways campus care with
Technologies requiring capital investment or high associated risk of
Capital Intensity
level support
admission vs. care
Large fixed resources placed near statistical
Market Demand delivered at an off-
median areas of demand (current and growing)
Operational Reduces variability and improves quality of campus, in the
Efficiency care… specific care usage design vs. capacity fill community
Cost Reduction Reduces hospital costs (rather than shifts costs) ambulatory care
setting
Physician Alliance Balance between cooperation and competition
Building blocks for resource allocations and site locations! 25

Clinical and Capital Resource Allocation Decisions
Physical Site of Service Delivery Decision Criterion

 Ability to maximize patient catchment area
Market Access  Ability to attract and retain physicians and staff
and
 Ability to project a positive image and attract new patients
Competitiveness
 Ability to have a dominant presence at the site/service cluster
 Proximity to public transportation
Accessibility
 Convenient access for physicians, employees and patients
 Availability of adequate contiguous land for new
construction/expansion
Deliverability  Compliant land use and ability to obtain zoning variance if necessary
 Availability/ability to co-locate supporting service lines (e.g.,
ambulatory services serving multiple patient populations)
Community  Likelihood of garnering support of neighbors in surrounding
Impact community

Flexibility  Ability to expand operations in future/availability of adjoining land

Building blocks for resource allocations and site locations!

Physician Alignment Models Which Strengthen Service Lines and Payer Contracts
Alignment Strategy - Employed and Independent Physicians

 PHOs and IPAs can serve as an organizing model for clinical integration
and as a platform for offering member physicians various value-added
services.
– What about physician business alignment as more-and-more hospitals
and physicians are in direct competition with each other?
– Consider the nature of the physician’s practice today... e.g., completely
office-based, primarily hospital-based or hospital-independent
physicians pursuing service opportunities often offered by the hospital
in an outpatient capacity.
 Hospitals are also employing more physicians for non-strategic reasons.
 Hospitals have... the capability to, if they have the will to... Explore and
develop fast-track physician strategic alliances basis... i.e., < 1 year.
 Hospital-physician alliances can serve as the strategic framework for
the development and implementation of a sustainable business model
for the ambulatory care components of service line care continuums.


 Physician Collaboration Models to Consider: 1
– Physician Enterprise Model (i.e., one in which the physicians and
hospital retains respective asset/operating license ownership).
– An Equity Joint Venture Model (e.g., can be specific to service lines).
– Leasing Model (e.g., joint venture to acquire leasing equipment).
– Time Share Lease Structure (e.g., fixed blocks of time in an
ambulatory surgery center).
– Under Arrangements Joint Venture (e.g., hospital and physicians
form a JV to acquire imaging equipment and operate at a hospital).
Note: A multitude of legal and regulatory issues are associated with
any type of hospital-physician strategic alliance.
(1) No Legal Opinion implied. Based on Layman’s understanding



Some key issues to be addressed in developing a physician alliance strategy:
 Planning and deal execution process are key to developing a sustainable strategic
physician alliance.
 Successful deal execution depends on a timely coordination of internal party
discussions and the use of outside advisory resources (e.g., Legal).
 A hospital-physician strategic alliance model should consider:
– Assessment of physician party(ies) interests, goals and objectives.
– Business planning to determine project feasibility.
– Review of structuring options, including areas of legal risk and reimbursement
analysis.
– Organization of the deal process and timelines to commit (planning assessment to
execution should be less than one year).
– Agreement between parties on governance and sharing of financial reward/risk.
– Ownership and management terms.
– Physician investor eligibility requirements, redemption terms, rights of first refusal
and non-compete provisions.
No Legal Opinion implied. Based on Layman’s understanding 29

Building Blocks to Establish a Distributed Care Delivery Network for Service Lines
Evolving From Volume to Value Driven Care Delivery Models

Traditional Health Services Organization Pyramid: Current vs. Future
Current Future
Acute Value for…
“Payments and * Patients/Families?
referrals not linked Rehab & * Purchasers?
to value” Sub-Acute * Physicians?
“No direct
“Payments
linkage to cost,
Ambulatory and referrals
quality or
are linked to
outcomes”
value”
Physicians

E.G., A population of 800,000 (13% seniors) generates approximately 10
million ambulatory care services, which in turn generates “X” admissions

What Does a Distributed Network Model Look Like?

Hub-and-Spoke Distributed Network Model:
Acute, Post-Acute and Ambulatory
Patient-Centric Population Management With the Site of Care
Emphasis on Patient Complexity and Care Setting Services

Level 1 - Primary Care Physicians Ambulatory Spokes,
Value Network Linkages and Integration

Patient Demand
Level 2 - Specialists, Home Care, direct care providers
Allied Health and Telemedicine Ambulatory Spoke/Node
Group Practice
Level 3 - Single and Multi-Service
Ambulatory Services O/P Facility Node/Amb.
Community Hub

Patient Acuity
Level 4 - Sub-Acute Care/SNF Facility I/P Facility Node/Off
Acute Campus
Level 5 - Trauma/Acute/Rehab & Other
Alliance Hospitals Regional I/P Facility Hub


What Do We Think “Network Value” Looks Like?

Safe Elevates the importance of evidence-based safety programs and initiatives
Effective Supports hospital/physician interdisciplinary team approach to care

Patient- Better support of patient populations managed with ease of navigation
between different levels of care/care setting… allowing patients to receive
Centered care in the right setting… how, when and where they want to receive care
Accessible Improves the availability of services across the care continuum
Enhances quality of care through improved efficiencies, by sharing
Efficient resources and clinical expertise to manage patient care in the most
appropriate setting
Equitable Providing needed medical and social support to all patients
Improves coordination of continuum of care across all “in-network”
Integrated providers/levels of care… seamless transition from one care level to another
Appropriate Necessary/appropriate capacity and staffing in place for care provision on-
Resources campus/in the community/at home

Enables Pop. Inpatient, outpatient, ambulatory and wellness resources are organized
around the needs of the patient to manage patient care across the care
Mgmt. continuum


Key Service Line Care Continuum Priorities – Post the ACA

1. Improving Access and Regional Integration
Integrates and coordinates care around the needs of patients, rather than service types,
professional boundaries, organizational structures or covered benefits; thereby actively
addressing service gaps.
2. Population Management
Organizing the distributed network model to deliver patient care “in-network” to the
Hospital or Health System; with resources organized around service lines, patient
need/clinical risk; with care being provided in an ambulatory setting, whenever
appropriate, safe and effective for patients.
3. Transitional Platform and Physician Alignment
Adapting distributed network model to account for the continued decanting of acute care
based services to ambulatory settings and integration of physician alignment strategies.
4. Wellness/Prevention/ Chronic Care Management
Develop capabilities to prevent acute/chronic care events across the Hospital/Health
System network as well as effectively manage chronic care.
5. Aging in Place
Improving the medical, social and wellness needs of the elderly, whom represent a
significant portion of the patient population for the Hospital/Health System.


E.G., Ambulatory Services Strategy Map - Service Lines

 WHAT WILL DRIVE MARGINS?
– Managed growth in high margin Service Lines… Collaboration vs. competition with
physicians… Affiliated physician in-network care management… Increased cost-
efficiencies in care delivery.
 HOW?
– Attract Service Line patient population through targeted referring physicians who value
leading edge technology and expertise… Aligning with physicians critical to core Service
Lines… Co-location of ambulatory hubs in close proximity to where key Service Line
physicians practice… PHO financial incentives to provide care at “in-network” designated
ambulatory hubs… Employed PCPs refer to PHO specialist physicians… Combined on-
campus/off-campus care options… Clinical risk/patient complexity sorting criterion.
 WHAT WILL THE INTERNAL FOCUS BE?
– Ensure clinical excellence through leading edge programs and techniques in focused
specialty areas… Strategy integration with facility-based services… Develop population
management capabilities… Continuous innovation and adaptable models
 WILL OUR PEOPLE BE PREPARED TO DO THAT?
– Yes, with appropriate technology… Yes, by recruiting critical expertise.

SERVICE LINE: WHAT AND WHERE SERVICES?
Revitalized D&T Acute Campus Services
Select Physician and Emergency
Strategic Alliances Center New PCP practices
Strengthen Medical Home
Senior Care Solutions
Model w/Rehab Services
Co-Located Practices Cancer Hub and
Node Sites
TIA Clinics Designated ASC Sites
Cardiac Rehab &
Congestive Heart
Failure Services Value Network IT
Post-Acute Infrastructure
Virtual Women’s Services
Service Hubs Monetize Under
After Hours PCP Network Utilized-Wrong Site
vs. More Urgent Care Sites Properties

Service Line Pricing Process to Optimize Payer Reimbursement/Manage Risk
E.G., Cancer Service Line – The Pieces of the Puzzle

Population Management Clinical Human Resources Core Capabilities
Medical Director Central vascular access
Populations Served Endoscopic or Radiologic Guided Biopsies
Medical Oncologists
Adult
Medical Multidisciplinary Team
Established cancer diagnosis Excluded Capabilities
Oncology Nursing
High-risk pre-cancer
Radiation Oncologist Breast cancer screening
Disease treated by infusion therapy Chemotherapy Sensitivity testing
Radiation Therapy Support Staff
Multiple Sclerosis Cystoscopy
Support Staff
Osteoporosis Hospice care
Crohn's Disease Core Capabilities Hysteroscopy
Ulcerative Colitis Radiation Therapy Invasive procedures
Rheumatoid Arthritis Diagnostic Oncology Radiology Select chemotherapies
Chronic Infection PET Scan Staging procedures (Outpatient)
Populations Excluded Tissue Diagnostics Stem cell transplantation
Hospice patients Biopsies Tumor markers
Bone marrow
Oncologic emergencies
Flow cytometry
Pediatrics
Infusion Center:
Clinical drug research patients
Cytotoxic chemotherapy
Anti-arthritic therapy
A hospital needs to accurately
DEFINE A SERVICE LINE AT Blood administration track resources used to
THE PROCEDURAL CODE First dose antibiotics
support a service line and in
LEVEL (e.g., MS-DRGs, ICD- Hydration
9/ICD-10, HCPC, CPT, APC, Peripheral vascular access effect… create a service line
Pharmacy (Oncology)
APG, EAPG, etc.). Clinical trials related to supportive care: financial statement.
prevention, screening, and quality of life


E.G., Cancer Service Line – The Pieces of the Puzzle

Adjunct Diagnostics and Community Outreach Facility Requirements
Cancer Education Exam
Therapies Cancer Control and Detection Procedure rooms
Diagnostic Laboratory
Home Care Medical records area
Diagnostic Radiography Infusion area with treatment chairs
Administration and disposal of Cytotoxic
Enterostomal Maintenance drugs Co-location or inclusion of clinical laboratory
Lymphedema Management Referral to professional services services
Pain Management Assessment of and intervention for Co-location or inclusion of routine diagnostic
Rehabilitation Services oncologic emergencies services
Vascular Access Maintenance Assessment and management of side Room to service support services
effects of therapy or disease: pain, Conference room
Network Infrastructure vomiting, malnutrition, dehydration Room for spiritual services
Cancer Database and Registry linked to NCDB
Cancer Research Skin and wound care Certifications, Accreditations,
Case Management Management of vascular access devices
Clinical Protocols
and Memberships
EMR Supportive and Integrative The Joint Commission
American College of Surgeons Commission on
Patient Navigation Services Oncologic Care Cancer
Quality Assurance and Improvement Genetic Counseling American College of Surgeons
Image (cosmetic) Enhancement American College of Radiology (ACR)
Hospice Nutritional Support Services American College of Radiation Oncology
Professional Education Palliative Care (ACRO)
Cancer center hotline Pastoral Care Participation in National Cancer Institute
Community Involvement Programs Bioethical Counseling sponsored programs
Community Wellness Activities Community Clinical Oncology Program (CCOP)
Psychosocial Oncology Care (Cancer
Health Education Resources
Distress Management) Institutional Review Board
Speakers Bureau
Survivorship Services


Service Line Pricing Considerations

 Do you have the data to price correctly?
– How do you know it is correct?
 How will you account for both physician costs and physician
compensation?
 Multiple quality/incentive funds?
 How will you manage patient care/pay for care which goes “out of
network”?
 Impact on Revenue Cycle?
 Impact on contracting process?
 Comparative external benchmarks on payer reimbursements?
 Where are there gaps in the service line care continuum… cost to fill?
 Per Diem Conversions to MS-DRG Costs?
 WITH GLOBAL CAP/BUNDLED PAYMENTS… YOU CANNOT GET IT WRONG GOING OUT
THE GATE!


Preparing Service Line P&Ls – Inpatient Illustration
Inpatient Services - A Core Service Line P & L (Tertiary/Quaternary Service Level)
Commercial 3rd Party Payers
Pay to
Actual % of BC % of BC for
Comm. Payers Cases Actual Days ALOS Charges Total Cost Cost/Day Net Income Ave. PD Cost %
Payments Paid Breakeven
Core Service Lines3,676,966 represent
Payer 1
Payer 2
17
96
425
1,964
25.0 $
20.5
can
18,409,913
$ 2,923,413
8,642,509
79.51% $ 1,507,010
46.94% 7,443,733
40.99%
40.43%
$
$
3,546 $ 1,416,403 $
3,790 1,198,776
6,879
4,400
194.0%
116.1%
70%+ of all508 22.0 9,333,443
Payer 3
Payer 4
51
24
patient revenues and
1,122
21.2 6,534,899
7,352,584
4,020,352
78.78%
61.52%
3,882,317
2,494,456
41.60%
38.17%
$
$
3,460
4,910
3,470,267
1,525,896
6,553
7,914
189.4%
161.2%
be the principal source of profit
Payer 5
Payer 6
20
19
435
518
21.8
27.3
3,523,656
4,005,415
2,511,578
2,916,214
71.28%
72.81%
1,453,609
1,696,964
41.25%
42.37%
$
$
3,342
3,276
1,057,969
1,219,250
5,774
5,630
172.8%
171.8%
Payer 7 15 274 18.3 2,081,169 1,473,573 70.81% 898,855 43.19% $ 3,280 574,718 5,378 163.9%
Other Payers 43 1,174 27.3 10,617,803 6,532,594 61.52% 4,254,728 40.07% $ 3,624 2,277,866 5,564 153.5%
Totals/Wtd Aves 285 6,420 22.5 $ 58,183,264 $ 36,372,817 62.51% $ 23,631,672 40.62% $ 3,681 $ 12,741,145 $ 5,666 153.9%
Government and Other 3rd Party Payers
Medicare 95 1,619 17.0 $ 12,576,944 $ 4,504,610 35.82% $ 5,255,160 41.78% $ 3,246 $ (750,550) $ 2,782 85.7%
Medicaid 135 3,508 26.0 $ 32,688,190 $ 7,799,230 23.86% $ 12,999,919 39.77% $ 3,706 $ (5,200,689) $ 2,223 60.0%
Mgd. Medicaid 25 563 22.5 $ 5,235,088 $ 1,501,549 28.68% $ 2,099,873 40.11% $ 3,730 $ (598,324) $ 2,667 71.5%
Building a Population Management Model Requires an Accurate Picture of
Other HMO 14 358 25.6 $ 3,298,640 $ 19,899 0.60% $ 1,302,044 39.47% $ 3,637 $ (1,282,145) $ 56 1.5%
Payments and Services Utilization Across the Care Continuum in Your Market
Uninsured 4 60 15.0 $ 468,228 $ 850 0.18% $ 190,670 40.72% $ 3,178 $ (189,820) $ 14 0.4%
Other 4 71 17.8 $ 540,255 $ 128,868 23.85% $ 222,085 41.11% $ 3,128 $ (93,217) $ 1,815 58.0%
Totals Gov/Other 277 6,179 22.3 $ 54,807,345 $ 13,955,006 25.46% $ 22,069,751 40.27% $ 3,572 $ (8,114,745) $ 2,258 63.2%
All Payers Comb. 562 12,599 22.4 $ 112,990,609 $ 50,327,823 44.54% $ 45,701,423 40.45% $ 3,627 $ 4,626,400 $ 3,995 110.1%

Commercial pricing for the above service line is impacted by
government fixed payments, which result in financial losses.

Lessons Learned
The Final Word – Irrespective of “Healthcare Reform”

 Much of what a hospital does today can be done in an off-campus ambulatory setting.
 Hospitals are not in the “hospital” business, they are in the “patient care” business.
 Most solutions to a hospital’s current problems lay outside the four walls of the hospital.
 Superior access, quality, outcomes, efficiencies, patient experiences, physician alignment,
clinical integration and purpose built facility designs will lead to a sustainable business
model under either volume driven or value driven models of care.
 Current models such as in development ACOs and early stage clinical integration models
will not achieve the desired “savings” being sought by deficit ridden government
agencies, because the necessary infrastructure and hospital-physician-payer incentive
alignment to achieve the desired outcomes… largely does not exist across the U.S.
healthcare system.
 Competitive, mature urban markets no longer support the general, all services hospital.
 There will be multiple pricing and risk models emerging over the next few years… most
will not achieve substantial savings, absent hospital-physician-payer financial alignment
and collaboration.


Lessons Learned
The Final Word – Irrespective of “Healthcare Reform”

 Care delivery models should be designed around:
– The clinical risk/clinical complexity needs of the patient.
– Patient and their physician preference of care setting.
– The real “bending the cost curve” value is in the delivery model… not price controls.
 Health Plan “Managed Care” systems are not designed for managing…
– Direct patient care by patient care setting.
– Patient care coordination and referral navigation.
– Patient clinical risk or high cost/complex care.
 ACA and State Medicaid reform and current managed care contracts… may grow to
represent 80%+ of patient revenues by 2016 or earlier. Organizational sustainability will
to a large degree depend on “paying me right” (value-driven) vs. “paying me more”
(volume-driven) and will impact all operations, programs and services.
 Managed care agreements represent a provider’s only significant opportunity to improve
their net patient revenues and offset underpayments/bad debt/cost shifting from
government payers and the uninsured.

“THINK STRATEGIC OPPORTUNITY!” PLAN AND ACT NOW BEFORE
IT GETS MORE DIFFICULT UNDER HEALTHCARE REFORM.

Presenter - Christopher Kalkhof

 Chris is a Director with Alvarez & Marsal’s Healthcare Industry Group, based in New York City. He has more than 26 years of
diverse healthcare management experience and he specializes in managed care strategy development and contract negotiations;
contract implementation and integration with revenue cycle/case management processes; provider-payer collaborations; physician
alignment and integration; strategic planning and new product development.
 Over the last several years, Chris has spent much of his time assisting clients optimize their net managed care revenue potential,
resulting in net rate increases and revenue improvements of nearly $500 million. Over the span of his career he has gained
managed care related work experience in over 20 states and has directly negotiated hundreds of payer agreements for hospital,
behavioral health, physician, IPA/PHO, home care, hospice and skilled nursing facility clients. He has also reviewed hundreds of
additional payer contracts.
 Recent or prior relevant experience has included:
– Developing a broad-based payer pricing and contracting strategy for a 400+ bed tertiary hospital as well as leading the contract
re-negotiations process for 50+ payer product contracts.
Christopher Kalkhof – Working with a multi-hospital system to develop an ambulatory services strategy to support the health systems core service
lines and close access gaps while also creating new access points within their respective service line care continuums; while also
being in alignment with their clinical integration and ACO strategy under federal healthcare reform.
– Working with a health system and their clinically integrated PHO to develop a broad-based payer contracting, patient retention
Director, and employer outreach strategy as well as commercial reimbursement benchmarking.
Healthcare Industry
– Working with a large safety net health system to reorganize the managed care department, build a contracts administration
Group
unit, develop service line strategies/external strategic alliances for the organizations inpatient Traumatic Brain Injury, Burn,
Spine, Severe Wound and Polytrauma rehabilitation facility as well as developing enrollment growth and provider contracting
ckalkhof@ strategies for a system owned health plan.

alvarezandmarsal.com  Prior to joining A&M, Chris was: Director/National Managed Care Lead for a Big 4 firm’s provider consulting practice; Interim SVP of
Delivery Systems/Payer Relations for Saint Vincent Catholic Medical Centers of NY and Co-Chair of the system’s PHO; Interim VP
347.254.2433 Managed Care for Christ Hospital (Jersey City, NJ); Director of Managed Care at Doctors Hospital (Houston, TX) through the
bankruptcy and post-bankruptcy ownership change to physicians; Partner in a practice management firm; Director of Marketing
Administration and Professional Relations for a large health insurer; and Product Development Manager for a HMO.
▲ Chris received his Master of Health Administration degree from Tulane University and his Bachelor of Science, degree from
Allegheny College. He is a former Chapter President of the HFMA WNY and has received the HFMA Bronze, Silver and Gold awards
and has also served as a Yerger judge on two occasions. He is also a Fellow in the American College of Healthcare Executives and a
frequent presenter on managed care revenue improvement and physician alignment topics for the HFMA, ACHE, MGMA, WRG and
other professional groups. In 2008, Chris served as a member of the NYS Office of Medicaid Inspector General’s Medicaid
Managed Care Compliance Program Guidance Advisory Committee.

Building Value-Driven Integrated Service Lines

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