PYA Principal Lori Foley presented on “Hospital-Owned Orthopaedic Practices” at the Tennessee Orthopaedic Society Annual Meeting. With many providers considering hospital employment, this session focused on: Employment activity specific to orthopaedics including some of the pros and cons that private practice physicians should consider when evaluating this option. Other alignment arrangements taking place between hospitals and orthopaedic practices.

1. Hospital-Owned
Orthopaedic Practices
2014 Annual Conference Tennessee
Orthopaedic Society
September 27, 2014
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2. Agenda
• Current Market Trends
• Hospital/Physician Alignment
– Clinical co-management arrangements
– Professional services agreements
– Hospital employment & key considerations
• Key considerations
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3. Current Market Trends
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4. Hospital Employment Trends
HealthLeaders Intelligence Report
Does your hospital/system plan to
employ a greater percentage of
physicians in the next 12-36 months?
Source: HealthLeaders Intelligence Report, September 2012.
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Top 5 Service Lines
69%
47%
46%
43%
42%
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5. Hospital Employment Trends
• American Academy of Orthopedic Surgeons 2012
Orthopedic Census Report showed hospital/medical center
employment up from 7% in 2008
Current Practice Setting 2012
44%
8%
18%
12%
9%
9%
Source: AAOS Orthopedic Surgeon Quick Facts, http://www.aaos.org/research/stats/surgeonstats.asp.
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Private Orthopedic Group
Practice
Private Solo Practitioner
Private Multi-Specialty
Practice
Academic
Hospital/Medical Center
Other
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6. State of the Physician Practice-
What You Said
Is your group considering integration with a hospital/health
system within the next 12 months?
2011
13%
87%
Yes
No
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18%
2013
82%
Yes
No
Source: TN Orthopaedic Society member responses, August 2011 and 2013
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7. State of the Physician Practice-
What You Said
Rate your group’s ability to sustain its financial independence in
the next 3 to 5 years.
14.00%
47.00%
28.95%
34.21%
Source: TN Orthopaedic Society member responses, August 2011 & 2013
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39.00%
36.84%
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50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Not confident Uncertain Very confident

8. Employed Physician Estimate
% of Total US
Physicians
Primary Care 48% 50% 24%
Specialty 52% 30% 15.6%
Total 100% 39.6%
Predicting the next five years…
• Increasing number of newly trained physicians seeking employment
• Nearly one-third of practicing physicians are 55 or older
• More than 40% of physicians still practice in groups of fewer than five
• AAMC analysis forecasting a shortage of 160,000 physicians by 2025
• Medicare program sustainability and healthcare reform impact
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Estimated %
Employed
Weighted Estimate
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9. Haven’t We Been Here Before?
• 1980’s – Hospitals employed PCPs in anticipation of capitated,
managed care contracting, “Gatekeepers”
• 1990’s – Hospitals were losing significant dollars on employed
physician groups; began divesting their physician practices
• 2000’s – New wave of physician employment by hospitals, including
PCP’s and specialist
• Today – “Hospital-Physician Integration”
– There are new rules
– Hospitals and physicians are wiser
– Partnering for the future is critical for success
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10. Top 10 Medical Practice
Challenges in 2014
1. Preparing for the transition to ICD-10 diagnosis coding
2. Dealing with rising operating costs
3. Preparing for reimbursement models that place a greater share of financial risk on the practice
4. Preparing for value-based payments (e.g., shared savings, capitation/global payments,
quality/outcome)
5. Managing finances with the uncertainty of Medicare reimbursement rates
6. Understanding payers’ criteria for physician performance ratings and its impact on provider
networks and tiering
7. Collecting patient due balances (self-pay, high deductibles, and HSA)
8. Participating in the CMS EHR Meaningful Use incentive program
9. Negotiating contracts with payers
10. Understanding the total cost of an episode of care
Source: Medical Group Management Association, “What Keeps You Up At Night? Exploring the Challenges Facing MGMA Members,” presented on July 17, 2014.
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11. Physician Alignment Today
More Common
Medical Directorships
Real Estate JV
Equipment JV
Clinical Co-
Management
Physician Employment
Professional Services
Agreement
Medical Home
Models
Call pay
Less Integration More Integration
Bundled
Payments
Less Common
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ACO
PHO/ Narrow
Network
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12. Professional Services Agreement
• Allows physicians to provide clinical and/or administrative
services under a contractual arrangement that is designed
to be an independent contractor relationship
• Four common types of PSA
– Traditional
– Global
– Practice management/contracting
– Hybrid
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13. Professional Services Agreement
• Allows physicians to provide clinical and/or administrative
services under a contractual arrangement that is designed
to be an independent contractor relationship
• Common examples of PSA
– Medical director agreements
– Coverage agreements
– Leased employee agreements
– Hospital coverage agreements
– Clinical co-management agreements
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14. Two Common Types of PSAs
• Traditional
– Hospital contracts with physicians for professional services
– Hospital employs and manages staff, purchases or leases practice
assets, assumes operations
– Hospital negotiates payer contracts, bills and collects for services
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• Global
– Hospital contracts with group for global services
– Group maintains ownership and management of practice and staff
– Hospital negotiates payer contracts, bills and collects for services

15. Example PSA
Physicians
Clinic & Staff
Clinic Ancillaries
$ Compensation Model
PSA
$ Professional and Technical Fees
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Hospital
PSA
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16. Clinical Co-Management Agreements
Contractual arrangements designed to recognize
and appropriately reward participating medical
groups/physicians for their efforts in hospital
service line
• Development
• Management
• Quality and efficiency improvement
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17. Clinical Co-Management
Agreements Are Not
• One Size Fits All
• Hospital Employment
• Medical Directorships
• Opportunities for Passive Income
• Gainsharing Relationships
• An ACO
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18. Advantages of Clinical Co-Management
Arrangements
Potential for improved clinical and financial
outcomes for both the hospital and the physician
group
Develops the framework for value-based care and
reimbursement models in preparation for both federal
and commercial payer opportunities
Relatively easy to unwind if performance goals are
not achieved
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19. Co-Management Model
Hospital Physicians
Management
Company/
LLC/Committee
•Base management fees
•Incentive Compensation
(limited) Including:
- Quality
- Operational
Efficiency
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Service Contract
to Manage Hospital’s
Service Line at Risk
for Quality and
Operational Goals
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Hospital
pays
for: $
Hospital Physicians

20. Example: Orthopaedic Clinical Co-
Management Agreement
• Proposed benefits
– Increased physician volume without risk
– Increased alignment with hospital
– Defense of market from suburban providers and
the stemming of any outmigration
– Potential expansion into other local community
markets
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21. Example: Orthopaedic Clinical Co-
Management Agreement
• Proposed tasks
– Clinical protocol development
– Supplies management and procurement
– Quality standards definition and improvement
– OR design/process management
– Technology & service planning
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22. Example: Orthopaedic Clinical Co-
Management Agreement
• Revenue structure
– Hospital pays Management Company fair market
value for consulting services
– Physicians potentially earn revenue
o By providing consulting services for Management Co.
o By achieving quality measures
o As a shareholder – distributions of earnings from
Management Co.
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23. Hospital Employment
• Often referred to as “Buy & Employ” model
• Hospital purchases practice and employs physicians and
staff either as:
– Employee of hospital
– Employee of hospital’s physician enterprise
• Hospital typically assumes control of practice operations,
billing and collections, policies & procedures, risk
• Depending on the structure, practice may fall under new
regulatory/industry guidelines such as Joint Commission
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24. What it is, and Should be!
• Strategic move for the future of your practice
• PARTNERSHIP between the hospital and physicians
• Improve clinical quality within your practice and the hospital
– Improved patient care should be driving force for practice and hospital
• An opportunity to gain market leverage
– Payers
– Competitors
• An opportunity to improve operational and financial performance of
your practice
– Cash Flow
– Expense Reductions
– Management Expertise and Assistance
• A chance to grow your practice
– Access to capital
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25. What it is Not, and Should not be!
• All my troubles and worries are over! NOT!!!
– Some issues will be gone, new ones will take their place
– It’s still your practice and your patients
• We will have all the money we will need! WRONG!!
– Easier access to capital, but there still is a cost
– Hospital is not a bank
• We will continue to run our practice like we want to!!
GUESS AGAIN!!
– There will be constraints
– Part of a larger group, “Group Mentality”
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26. Strategic Issues to Consider
• Is there a shared organizational vision and mission?
• Is this an organization you want to be identified with?
• Do you TRUST administration?
– Can you work with them?
– Do they listen?
• Is the Board of Trustees dedicated to the hospital’s and patient’s best
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interest?
– Are they supportive of physician employment initiative?
• Has the hospital articulated a clear business strategy?
• Can I improve the quality of care provided to my patients?
• Is there access to new referral sources?
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27. Tactical Issues to Consider!
• Does the hospital currently have other practices they own or manage?
– What do those physicians say about their experience?
• What’s the hospital’s financial status?
• What is the physician network legal structure?
– Separate for-profit corporation?
– Hospital department?
• Is there a formal governance structure for the clinics?
– Who is on this board?
– How did they get there?
• Is there a competent, professional, practice manager overseeing day to
day operations?
– Will/Can you retain your current manager?
– Who at the hospital would provide management support to your practice?
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28. Tactical Issues to
Consider Continued!
• Do they have appropriate infrastructure?
• Who handles day-to-day business/practice decisions?
• How is physician comp structured?
– Formula/Methodology?
• Physician and employee benefits?
• How are expenses divided?
– Shared versus Individual
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o Staff
o Supplies
o Building/Rent
o Capital Costs
• Equipment purchases, who decides?
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29. Advantages
• Physicians are able to focus on patient care and quality
• Access to capital for growth and expansion
• Professional practice management support
– Business decision making
– Legal/Regulatory
– Financial
– Business development, strategic planning
• Potential for improved cash flow
• Payer Contracting
• Technology Improvements
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– EMR
• “Seat at the Table” – Governance, shared decision making
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30. Disadvantages
• Often Loss of Control, Loss of Autonomy related to:
– Corporate Policies and Procedures
– Group Decision Making, Governance
– Staffing, (#, who, discipline, compensation, benefits)
– Physician Compensation
– Insurance/Payer Participation
– Malpractice Coverage
– Ancillary Services, (Lab, X-ray, etc.)
– Practice Financial Issues
o CBO
o Monthly Reporting
– Corporate demands on your staff’s time and responsibilities
– Hospital Bureaucracy
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31. Key Considerations
Culture • Shared vision and foundation of trust
• Meaningful physician input and
leadership Leadership
• Effective practice management
structure/mechanisms Operations
• FMV and aligned with system
objectives Compensation
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32. Impact on Orthopedic Surgeons
• Assess integration or alignment need in light of
future reimbursement models
– Referral patterns
– Prospective, Point of Care, Retrospective viewpoints
• Regional expansion strategy
– Volume and market share still matter
– Rules have changed with aim as preferred partner in
orthopedic surgical care
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33. Form Follows Function
• No set recipe for alignment
• Risk is relative: mitigate, not eliminate
• Start with what you want to achieve, select a vehicle
that will get you there
• Manage uncertainty by maintaining options
• Innovation, new services, better performance still
matters
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34. Thank You!
Contact:
Lori A. Foley, CMA, PHR, CMM
Principal
lfoley@pyapc.com
(404) 266 – 9876
www.pyapc.com
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