The Unique Role of Physician Owned Medical Facili9es in Texas & The Future of Health Care in Texas

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1 The Unique Role of Physician Owned Medical Facili9es in Texas & The Future of Health Care in Texas Bobby Hillert Congress Avenue Bridge Strategies, LLC Principal Texas Ambulatory Surgery Center Society Executive Director Texas Physician Hospitals Advocacy Center Executive Director

2 Physician Ownership: Important in the Texas Medical Landscape The nation s first hospital was founded in 1751 by a physician (Dr. Thomas Bond) and Benjamin Franklin. Many of the early hospitals were created and managed by physicians. Physician-owned hospitals put patients and physicians in control the patientphysician relationship. Physician-owned hospitals, governed and controlled by the physicians who practice there, are some of the highest quality, most efficient hospitals in the nation (Medicare data, Consumer Reports, etc.). When physicians own and operate hospitals, patients directly benefit because physicians, who are delivering the care, are able to bypass the bureaucracy that typically exists in nonphysician owned hospitals and concentrate directly on what s truly important for a patient s care. Types of Facilities: Hospitals Ambulatory Surgery Centers (ASCs) Clinics Medical Office Buildings Imaging Centers Free-Standing Emergency Departments

3 Physician-Owned Hospitals What Are They? Definition: Any hospital with any amount of physician ownership. Joint-venture with a non-profit hospital (DFW examples: Baylor Health Care System, Texas Health Resources, Methodist, Cook Children s) Children s hospitals Hospitals specializing and excelling in certain specialties Full-service community hospitals Rehab hospitals Psych hospitals

4 Physician-Owned Hospitals Approximately 70 in Texas AMARILLO 2 Hospitals LUBBOCK 2 Hospitals DALLAS FORT WORTH 30 Hospitals EL PASO 2 Hospitals TYLER 1 Hospital AUSTIN 3 Hospitals BRYAN 1 Hospital BEAUMONT 2 Hospitals SAN ANTONIO 3 Hospitals HOUSTON AREA 19 Hospitals CORPUS CHRISTI 1 Hospital Rio Grande Valley 3 Hospitals

5 Physician-Owned Hospital Overview: Dallas-Fort Worth POHs

6 Texas Physician-Owned Hospitals: Economic Impact Texas Leads in Economic Impact of Doctor Owned Hospitals January 14, 2009 Dallas Morning News By Jason Roberson Texas physician hospitals also will pay close to $86 million in property, payroll and income taxes this year Physician owned hospitals in Texas will infuse $2.3 billion into the state s economy this year

7 Texas Physician-Owned Hospitals CMS Hospital Compare Data Dallas Averages: 12 POHs and 44 hospitals Without Physician Ownership Percent of patents who gave their hospital a ratng of 9 or 10 on a scale from 0 (lowest) to 10 (highest). Physician Owned 82% No Physician Ownership 64% Percent of patents who reported YES, they would definitely recommend the hospital. Physician Owned 83% No Physician Ownership 70% Aus9n Averages: Four POHs and Eight Hospitals Without Physician Ownership Percent of patents who gave their hospital a ratng of 9 or 10 on a scale from 0 (lowest) to 10 (highest). Physician Owned 83% No Physician Ownership 62% Percent of patents who reported YES, they would definitely recommend the hospital. Physician Owned 87% No Physician Ownership 69%

8 Texas Physician-Owned Hospitals Safety & Quality Complication rates at physician hospitals are measurably lower than at general hospitals. Patients are 3 to 5 times more likely to experience complications at general hospitals than at physician hospitals. At physician hospitals, nurse to patient ratios average 1 nurse to 4 patients; However, nurse to patient ratios at hospitals without physician ownership are typically 1 to 8 or higher. Mortality rates are significantly lower in physician hospitals than in other community hospitals for all medical procedures analyzed by the U.S. Department of Health and Human Services (HHS) there was a statistical significance. Source: Study of Physician-Owned Specialty Hospitals Required in 507(c)(2) of the Medicare Prescription Drug, Improvement, and Modernization Act of (HHS Study), 2005, p.53.

9 Texas Physician-Owned Hospitals Medical Industry Support The American Medical Association (AMA) is writing to express support for physician-owned specialty hospitals and opposition to an extension of the 18-month moratorium on physician referrals to specialty hospitals, which was imposed by the MMA Act of AMA Letter to Congress, April 22, 2005 Many large hospital systems joined TMA in the fight restricting physician ownership, noting that partnering with physicians creates new opportunities for both parties to improve patient care and lower costs. TMA s summary of the 2005 TX Legislature

10 Physician-Owned Hospitals: The Outlook

11 Washington, DC Physician Hospital Ownership History MEDICARE PART D 18-month moratorium expires. MEDICARE PART D Senator John Breaux (D-LA) adds harmful POH language to the Medicare Part D bill. SENATE LEGISLATION Senators Chuck Grassley (R-IA) and Max Baucus (D-MT) introduce legislation to stop POHs. BUDGET DEFICIT ACT Senator Grassley adds an9 POH language to the Budget Deficit Act June 2003 December 2003 May 2005 June 2005 October 2005 MEDICARE PART D Signed into law with an 18-month moratorium on new POHs. CMS CMS enacts a moratorium lite on new POHs.

12 Washington, DC Physician Hospital Ownership History SCHIP BILL Harmful POH language removed from House SCHIP bill BUDGET DEFICIT ACT Signed into law and creates a new CMS study on POHs; confirms moratorium-lite. SCHIP BILL Clean SCHIP bill passes without POH language. February 2006 July 2007 September 2007 December 2007 SCHIP BILL General Medicare language (including POH) removed from Senate SCHIP bill. MEDICARE BILL Health bill passes without threatened POH language. SCHIP BILL Harmful POH language added to House SCHIP bill.

13 Washington, DC Physician Hospital Ownership History SCHIP BILL Harmful POH language removed from House SCHIP bill. MEDICARE BILL Clean Medicare bill passes without POH language. SCHIP BILL Clean SCHIP bill passed and signed into law. MENTAL HEALTH PARITY Senator Baucus adds harmful POH language to mental health parity legislation. APPROPRIATIONS BILL Senator Baucus adds harmful POH language to appropria9ons bill (war spending). MENTAL HEALTH PARITY POH language removed as bill passes; threat on AMT tax bill removed. March 2008 April 2008 May 2008 June 2008 July 2008 September 2008 January 2009 APPROPRIATIONS BILL Senate adopts House version (no POH language). FARM BILL Senator Grassley adds harmful POH language to agriculture legislation. RURAL HEALTH BILL Senator Grassley offers standalone bill with harmful POH language.

14 Washington, DC Evolution of Anti-POH Legislation Moratorium on New POHs Medicare Part D law called for a prohibition on new POHs. Expired and resulted in a positive government study of POHs. Moratorium Light CMS added a six-month moratorium and would not end it until CMS reported to Congress. Deficit Reduction Act S (Budget Deficit Act of 2005) required CMS to deliver a report to Congress on charity care by POHs and directed CMS to continue the moratorium. It resulted in requiring all hospitals to notify patients of hospital ownership.

15 Washington, DC Evolution of Anti-POH Legislation July 2007 March 2008 April 2008 First House SCHIP Bill Requirements: Medicare provider agreement as of July 24, No increase in ORs or beds. Limit amount of physician ownership to no more than 40 percent. Limit each individual physician s interest to no more than 2 percent. H.R eventually failed. Farm Bill H.R made changes to please Nebraska and Wisconsin senators. Eligible hospitals could expand by 100 percent. No ownership caps for individual and aggregate physician ownership. POH provisions eventually stripped. Mental Health Parity The POH provisions in H.R were nearly the same as the House s July 2007 SCHIP bill. Introduction of expansion provision for POHs. Bill eventually failed.

16 Washington, DC Evolution of Anti-POH Legislation May 2008 June/July 2008 January 2009 War Bill War appropriations bill witnessed the expansion clause for a handful of hospitals. The bill changed by starting with no more than 40 percent aggregate physician ownership to the greater of 40 percent or the percentage of ownership as of date of enactment. POH language was stripped. Medicare SGR Bill POH provisions were similar to the appropriations bills. Eventually removed from the bill. Second House SCHIP Bill Requirements: Medicare provider agreement as of January 1, No increase in ORs or beds. Limits ownership to the aggregate as of date of enactment. No limit on individual ownership. Limited expansion. POH provision removed before bill signed into law.

17 Washington, DC Federal Health Bills Oct 2009 Nov 2009 March 2010 House Bill H.R would have ended the whole hospital exemption on January 1, Senate Bill H.R would have extended the date for under development hospitals to February 1, New Health Care Law Whole hospital exemption ends on date of enactment ( ). Under development POHs will have until December 31, 2010 to acquire Medicare number.

18 Washington, DC Physician Hospital Ownership History Federal Health Care Bill No new physician ownership allowed after March 23, All existing hospitals grandfathered in. No expansion of physician ownership, operating rooms, beds or procedure rooms allowed. Hospitals currently under development (several in Texas) have until December 31, 2010 to get their Medicare provider number. Many new projects across the country have been killed.

19 The State of Texas Ambulatory Surgery Center Environment

20 Overview: A Sample of ASCs in Each State VT 21 - NH 56 - MA 44 - CT 7 - RI 25 - DE NJ 4 - DC MD

21 Overview: A Sample of the 400 Texas ASCs Employ 7,300 Texans. $1.7 billion economic impact. $424 million in taxes. El Paso 9 ASCs West Texas Over 40 ASCs Dallas/Fort Worth Over 100 ASCs AusTn Area Over 18 ASCs East Texas Over30 ASCs San Antonio Over 30 ASCs Houston Area Over 80 ASCs South Texas Over 20 ASCs

22 Breakdown: A Sample of the Nearly 400 Texas ASCs Specialty ASCs with this specialty Percentage with this specialty Ophthalmology % 42 Gastro 93 24% 63 Plas9cs % 15 Pain Mgmt 66 17% 13 Foot % 0 Oral 59 15% 0 OB GYN % 2 Urological 24 6% 1 Otolaryngology 82 21% 1 Orthopaedic 72 19% 1 Thoracic 11 3% 0 Neurological 26 7% 0 Sole Specialty

23 A Snapshot: The Texas ASC Industry Over a quarter of arthroscopic shoulder surgeries for Texas residents were performed in ASCs (Medicare). 41 percent of colonoscopies for Texans were performed in ASCs (Medicare). 65 percent of cataract removal/lens insertion surgeries in Texas occurred in ASCs (Medicare). 48 percent of arthroscopic surgeries of the knee for DFW residents were performed in ASCs (Medicare). 45 percent of carpal tunnel surgeries for residents of Houston were performed by ASCs. 67 percent of complex cataract surgeries for rural residents were performed in ASCs.

24 Texas ASC Industry: State Public Policy Issues Physician Ownership Workers Comp Managed Care ASC ReporTng

25 The Short-Term Future: What the Texas Health Care Landscape Could Look Like

26 Washington: Austin: The recently passed health care bill will result in our health care system remaining pretty much the same over the next few years. However, the 2011 Texas Legislature could usher in these changes much sooner.

27 Key Public Policy Trends Washington, DC & Austin Washington, DC Austin Progressive Payment Models Large Medicare pilot projects; several years away State employees possible; 2011 Insurance Coverage Insurance Exchanges could complete change individual, small group, and employer insurance States could play the biggest role in determining this future Physicians employees of health system Declining Medicare Rates leading to physician realignment Corporate Practice of Medicine in TX: coming soon Commercial Insurance Reimbursement Commercial plans following Medicare s lead State Government playing larger role in PPOs; network adequacy

28 Key Public Policy Trends Washington, DC & Austin Washington, DC Austin Health Care IT Medicare incentive payments for hospitals/ physicians Medicaid program starting an incentive payment plan Imaging Medicare cuts began in 2007; continuing with the new health care bill Legislature will examine in-office imaging. Retail/Emergency Clinics Little action at the federal level. State regulates freestanding ERs.

29 Public Policy and Industry Trends: Progressive Payment Models (ACOs) BACKGROUND A number of progressive payment models accountable care organizations (ACOs), bundled payments, gainsharing, medical homes, etc. exist at the federal and state levels. TAKEAWAY ITEM Federal lawmakers wanted to switch health care to a system that utilized the bundled payment model. However, they believed that providers were not ready for that yet. OUTLOOK There will be a strong push in the 2011 Texas Legislature to ACO pilot projects for the state employee health plans in select cities (Dallas, Houston and Lubbock).

30 Public Policy and Industry Trends: What an ACO Looks Like Manage Continuum of Care 3 Days Before Surgery Surgery/ Hospitaliza tion 30 Days After Hospital

31 Public Policy and Industry Trends: What Are These Models? Progressive payment models come in a variety of forms and are hard to define. Accountable care organizations (ACOs), bundled payment plans, gain-sharing, physician-hospital organizations (PHO), integrated health organizations (IHOs) and medical homes are some examples. Examples: Austin Pediatric Surgeons This has been completed (Medicaid project). It saved nearly $80,000 (with the surgeons receiving half of the savings). Austin Regional Clinic This should begin in September 2010 and involve the patient-centered medical home (Medicaid project). Medicare Physician Group Practice Demonstration Project This includes 10 physician groups, averaging 500 physicians and 22,000 beneficiaries (National Medicare project). MedPAC has found increased quality; however, no savings yet. Baptist Health System (San Antonio) The acute care episode (ACE) demonstration project is one of five national pilot projects (Medicare) to examine a shared savings surgery initiative. The system found $2 million in savings.

32 Public Policy and Industry Trends: Insurance Coverage BACKGROUND The new health care law requires states to develop health insurance exchanges. Many of the new insureds will be Medicaid. TAKEAWAY ITEM This will likely wipe out the individual and small group markets. In addition, large employers exploring this option. Insurance might not be more affordable due to the fact that states will still be in control of mandates. OUTLOOK It is too early to tell if this will have an impact on decreasing the cost of insurance. It could have a positive impact if: the pools are increased (place all state employees, Medicaid and SCHIP into the exchanges), have community rating like FEHBP and pre-empt mandates.

33 Public Policy and Industry Trends: Commercial Insurance Reimbursement BACKGROUND Commercial insurance plans are making major changes regarding in-network reimbursement. Out-of-network providers are facing major changes as well. TAKEAWAY ITEM Health care providers are witnessing lower reimbursement rates from commercial plans. OUTLOOK This could lead to a greater consolidation of physician practices. In particular, one and two person provider groups could try to consolidate with other groups.

34 Public Policy and Industry Trends: Physician Employment BACKGROUND Texas is one of the few states that does not allow corporate entities (with a few exceptions) to employ physicians. Due to increased financial pressures on practices, a growing number of physicians are expressing an interest in being employed by health care systems. In addition, health care systems are growing more interested in this model as well. TAKEAWAY ITEM This is a state issue that will come up in the 2011 TX Legislature. Last year s legislature witnessed an attempt to allow hospitals to employee physicians in counties a population of 50,000 or less. OUTLOOK Health and hospital systems will continue utilizing the 501a model that is popular in Texas. In particular, a management services organization (MSO) model that is physician-owned could be attractive.

35 Industry Integration Industry Developments in Texas Note: I am not suggesting that this potential acquisition occurred as a result of accountable care models. However, it does represent an industry trend of large health systems to acquire smaller, independent facilities. Two Steps: St. David's to manage Austin Heart practice Doctor/hospital affiliations new trend in health care Austin American-Statesman, Dec 2, 2009 St. David's HealthCare to buy Heart Hospital of Austin Austin American-Statesman, February 16, 2010

36 Public Policy and Industry Trends: Primary/Emergency Care Clinics BACKGROUND Seeking a new avenue for adding a new patient stream, both physicians and hospital systems have added primary and emergency care clinics and free-standing emergency departments. TAKEAWAY ITEM The state of Texas made its first attempt at regulating the industry in 2009 with the licensing of free-standing emergency departments (HB 1357). There has not been any action at the federal level. OUTLOOK Free-standing emergency departments will attempt to amend the law by allowing more primary care services in this setting. Health and hospital systems will continue developing these facilities as a way to draw patients.

37 Public Policy and Industry Trends: Imaging BACKGROUND The latest Medicare rule concerning physician payment made a very negative impact on imaging in the ancillary setting. In particular, cardiology took a major hit while oncology avoided large cuts. TAKEAWAY ITEM There will be continued pressure on imaging in the in-office setting. As a result, more imaging will be driven back to the hospital setting (which can pay four times as much). OUTLOOK Health and hospital systems will continue partnering with physicians (in particular, cardiologists) in 501a partnerships s Budget Deficit Act First large cuts to in office imaging 2009 s Medicare Bill AddiTonal cuts to in office In office credentaling (2012) 2010 s Reform Law Cuts to in office MRI, PET, CT

38 To subscribe to the State of Texas Health Policy analysis newsletter, please your contact information to: Bobby Hillert Congress Avenue Bridge Strategies, LLC

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