Physicians and Physician Organizations Law Institute. Staying the Course: Maintaining a Physician Group Practice In Today s Healthcare Marketplace

Transcription

1 Physicians and Physician Organizations Law Institute Phoenix, AZ Staying the Course: Maintaining a Physician Group Practice In Today s Healthcare Marketplace Presented By: R. Michael Barry, JD, MBA Arnall Golden Gregory LLP Barbara J. Grant, CPA, CVA Pershing Yoakley & Associates, P.C. Page 0 Healthcare Trends Page 1 1

2 Glimpsing Today s Healthcare Marketplace Page 2 What Does the Physician World Look Like to the Public? The Jobs With the Most 1 Percenters Number of workers in thousands with pre-tax earnings of $380,000* # 1 Physicians 192,268 people New York Times, January 15, 2012 Page 3 2

3 What Do Physicians Look Like to the Government? Detroit Doctor Pleads Guilty in Connection with Medicare Psychotherapy Fraud Scheme Department of Justice, January 8, 2013 Houston Doctor Arrested on Charges of Health Care Fraud U.S. Attorney s Office, August 20, 2012 Former Lafayette, La Cardiologist Reports To Prison To Begin Ten Year Sentence, Department of Justice, Western District of Louisiana December 20, 2012 Orange County Doctor Sentenced to Year in Prison in $11 Million Medicare Scam Involving Patients Recruited from L.A. s Skid Row, U.S. Attorney s Office, December 18, 2012 Page 4 What Do Physicians Look Like to Hospitals and Insurers January 11, 2012 Cigna and Weill Cornell Physician Organization Launch First Collaborative Accountable Care Initiative in New York City * Collaborative Accountable Care is Cigna s approach to accomplish same population goals as ACOs Page 5 3

4 What Do Physicians Look Like to Hospitals and Insurers August 24, 2012, Becker s Hospital Review Key Physicians, BlueCross to Launch ACO in North Carolina The ACO involves 48 medical practices across Wake County.The partnership will work to reduce unnecessary hospital and emergency room visits. Physicians will share data in order to provide patients with higher quality care at less cost. Page 6 What Do Physicians Look Like to Hospitals and Insurers January 15, 2012, Health Affairs Slow Growth in Spending and Utilization Continues Persistently high unemployment, substantial loss of health insurance, lower median household income and burden of increased cost sharing by patients contributes to low 2009 and Page 7 4

5 What Do Physicians Look Like to Hospitals and Insurers November 12, 2012, Modern Healthcare Piedmont, Wellstar partner to cut costs Piedmont and WellStar, both not-for-profit systems, will remain independent under the terms of the agreement, known as the Georgia Health Collaborative. The collaborative will include more than 700 physicians in the Piedmont Physicians Group, the Piedmont Heart Institute and the WellStar Medical Group Page 8 What Do Physicians Look Like to Hospitals and Insurers December 20, 2012, Becker s Hospital Review Bon Secours, BCBS of South Carolina Expand Medical Home Program Eight BSMG physician practices will become medical homes as part of the expansion. More than 4,000 patients with diabetes, high blood pressure and/or heart failure who are members of BlueCross, BlueChoice or the state health plan will be eligible to participate in the expanded program. Page 9 5

6 What Do Physicians Look Like to Hospitals and Insurers December 31, 2012, Becker s Hospital Review Florida Blue, Holy Cross Hospital Physician Group Sign ACO Agreement Clinically integrated 230+ physician group to participate in Florida Blue Accountable Care Organization Page 10 What Does Your Practice Look Like To The Public? What is its mission? What are its values? Who are its doctors? Page 11 6

7 What Does Your Practice Look Like Internally? What are the ages of your physicians? How competent and efficient are the staff? Do you need to recruit a new physician(s)? Is your equipment up-to-date? Is your billing efficient and compliant? Is your EHR ready to go? Do you have enough access to capital for growth and expansion? Is your patient roster increasing? Page 12 What Changes Have Physicians Encountered In The Past (And Survived)? 1965: 1967: 1984: Enactment of Medicare - Reasonable Costs Paid Establishment of State Medicaid Programs - Federal matching programs Hospital Payments Changed to DRGs - Hospitals begin accepting risk to manage a patient Page 13 7

8 Healthcare Changes (Cont.) 1990 s: 1990 s: Physician Reimbursement becomes Resource Based Relative Value Scale ( RBRVS ) - Medicare develops a fee schedule to control costs Development of HMOs and Managed Care - Managing patient care via primary care physician Page 14 Healthcare Changes (Cont.) 1990 s: Federal Government develops Medicare Choices Plans (now known as Medicare Advantage Plans) - Pays capitated payments to HMO to manage a Medicare patient s care - Pays primary care on capitated basis Page 15 8

9 Healthcare Changes (Cont.) 1990 s: Hospitals React to Managed Care - Development of Various Integrated Systems o Hospitals purchase medical practice o Hospitals employ primary care physicians o Hospitals develop Physician-Hospital Organizations (PHOs) Page 16 Healthcare Changes (Cont.) 1990 s: Physicians React to Managed Care - Merger of Medical Practices - Sale of Medical Practice to Managed Service Organizations ( MSOs ) - Alliances with Hospitals through employment; joint ventures; PHOs - Physicians organize Independent Practice Associations ( IPAs ) to contract with employers and managed care organizations - Physicians organize their own insurance plans Page 17 9

10 Results Results Most activities resulted in dismal and costly failures. Hospitals failed to effectively collaborate with physicians. Hospitals failed to efficiently run medical practices. IPAs failed due to legal restraints (antitrust and financial commitment). Multiple physician-owned insurance companies failed. Page 18 Reasons for Failure Lack of patient accountability No monitoring of physician utilization or patient outcomes Lack of common electronic health records to follow patient Enormous financial and legal barriers ( If its free, I ll take two! ) Poor collaborative efforts between hospitals and physicians Page 19 10

11 Physician Legal Challenges During Same Time 1974: Anti-Kickback Statute - Misdemeanor 1977 : Anti-Kickback Statute becomes a felony : Hospitals become publicly traded Page 20 Physician Legal Challenges During Same Time (Cont.) 1984: 1986: Office of Inspector General becomes independent of Department of Health and Human Services ( HHS ) with its own budget Florida Study: High utilization by Orthopaedics of MRI Page 21 11

12 Physician Legal Challenges During Same Time (Cont.) 1988: Stark I: Prohibition of Ownership/ Referral of Medicare Patients for Lab Services 1990: Stark II: Prohibition increased to include additional designated health services ; now includes: Clinical laboratory services. Physical therapy services. Occupational therapy services. Outpatient speech language pathology services. Radiology and certain other imaging services. Radiation therapy services and supplies. Durable medical equipment and supplies. Parenteral and enteral nutrients, equipment, and supplies. Prosthetics, orthotics, and prosthetic devices and supplies. Home health services. Outpatient prescription drugs. Inpatient and outpatient hospital services. Page 22 Physician Legal Challenges During Same Time (Cont.) While Hospitals are able to offset DRG revenues by increasing ancillary income, physicians are now limited in their ability to expand ancillary income by way of the expanded list of designated health services unless they are able to operate within the confines of the applicable exceptions. Page 23 12

13 Physician Legal Challenges During Same Time (Cont.) Physicians learn to adapt to restrictions of Stark II and the expanded list of designated health services. Use of Group Practice exception and related requirements in order to own and certain ancillary services and to refer Medicare patients to the same Page 24 Costs of Healthcare Continue to Escalate And Fraud Continues to Escalate Page 25 13

14 1995 Today: Quality Initiatives Since the 1990 s, there have been multiple demonstration projects by the federal government to account for costs of healthcare. Also, at state and federal levels, collaborative efforts with industry representatives to determine issues and solutions. All begin to focus on Quality Initiatives for hospitals and physicians. Page 26 Patient Protection and Affordable Care Act of 2010 ( PPACA ) Includes major health insurance reforms - Expansion of healthcare for certain Americans - Multiple Medicare and Medicaid payment reforms, including: o Reduces payment to Medicare Advantage Plans o Increases payments for Medicare Part D Page 27 14

15 Medicare is looking for: Quality Value Data/Technology Integration Innovation Page 28 Title III of PPACA: Improving the Quality and Efficiency of Healthcare Links payments to Quality Outcomes under the Medicare Program Page 29 15

16 Title III of PPACA: Improving the Quality and Efficiency of Healthcare (Cont.) Encourages Development of New Patient Models - Establishes Center for Medicare and Medicaid Innovation with CMS ( CMI ) o Purpose is to test innovative payment and service delivery models designed to reduce expenditures while improving coordination, quality, and efficiency of healthcare services to Medicare and Medicaid patients o Secretary will then select models Page 30 Title III of PPACA: Improving the Quality and Efficiency of Healthcare (Cont.) Establishes a New Model: Medicare Shared Savings Program ( ACO ) - Allows qualified groups of providers and suppliers to work together to manage and coordinate care for Medicare fee-for-service beneficiaries through an Accountable Care Organization Page 31 16

17 Other PPACA Payment Models Bundled Payments Physician Group Practice Demonstration Patient Centered Medical Home Page and the Future Where are physician practices now and where are they going? Page 33 17

18 Physicians Are Feeling the Pain Financially squeezed Decline in reimbursement and loss of income Increase in overhead, malpractice insurance, and working capital requirements Continuing uncertainty surrounding reimbursement Pressure to demonstrate quality of services Difficulty hiring / retaining sophisticated support staff Page 34 Physicians Are Feeling the Pain (Cont.) Inability to recruit new physicians; succession planning with no apparent exits Decreasing quality of life / conflicts with current expectations regarding balance of private practice and personal life Increasingly complex government oversight Healthcare reform settled, but application remains uncertain Page 35 18

19 Tactical Responses to Changes Increase hours/worked Manage to a better case mix cherry pick patients and payors Pursue revenue enhancement strategies Seek/demand stipends Convert to concierge Relocate Seek capital/technology partners, JVs Retire early Page 36 Strategic Responses to Changes Merge with other Medical Practices Create mega-group IPAs Secure Primary Care Referral Sources Maintain Leadership Roles in Hospital/Community Align with Hospitals Employment, Service Line Management, ER Call, PSAs Page 37 19

20 Hospital Employment Trend of hospital-owned physician practices is increasing. In 2005, only 25% of physician practices were hospital-owned. By 2010, approximately 68% of physician practices were hospital-owned. 1 Hospital-owned practices were the most successful in attracting physicians in % of established physicians were placed in hospital-owned practices. 49% of physicians hired out of residency or fellowship were placed in hospital-owned practices. 1 MGMA Physician Compensation & Production Survey: 2011 Report Based on 2010 Data 2 MGMA Physician Placement Starting Salary Survey: 2010 Report Based on 2009 Data Page 38 Staying the Course Page 39 20

21 Challenges to Maintaining Independent Practice Maintaining patient base, whether a primary care physician or a specialist Diminished managed care contracting power Limited political organization or power Hospital joint ventures with competing groups ACOs that exclude certain groups Page 40 Challenges to Maintaining Independent Practices (Cont.) Recruitment Mindset of Residents not wanting the responsibility of a practice Demographic challenges Competition from Hospital Systems on: o Salary o Benefits o Services Page 41 21

22 Challenges to Maintaining Independent Practices (Cont.) Reengineering by adding licensed billers like NPs/PAs who make money for the practice Seeking and/or maintaining ancillary income If colleagues join a hospital and have to leave ancillary joint ventures, joint venture may fail. Page 42 Strategies for Maintaining Independence Page 43 22

23 Strategies for Independence 1. Merge 2. Hospital Affiliation 3. Secure the primary care docs in a multi-specialty group 4. Enhance physicians recruitment 5. Maximize alternative revenue sources 6. Active Political Participation 7. Concierge Medicine Page 44 Practice Mergers Bigger is not always better, but the odds favor size Major issues with merging Culture, personality fit Governance Compensation Operational differences Tax implications Impact on referral sources Impact on hospital relationships Page 45 23

24 Practice Mergers (Contd.) True merger versus umbrella/integrated-butseparate organizations Legal issues - Antitrust, Stark, Anti-Kickback, State Law Must use Stark Group Practice rules to develop compensation formulas that share ancillary revenue Page 46 Hospital Affiliation Various Mechanisms to bridge the gap between hospitals and physicians without standard employment Call Coverage Agreements Recruiting Agreements Medical Directorships Management Agreements Joint Ventures Professional Services Agreements Page 47 24

25 Add Primary Care Physicians Specialist Physician + Primary Care Physician = expanded opportunities Also, challenges with regard to compensation, control and integration Consider impact of full time integration to the practice; and the inherent challenges of a part time arrangement Page 48 Competitive Recruitment Remaining independent requires that a practice continue to evolve / grow. Why will a top physician be attracted to the independent practice? Compensation (the easy answer) Flexibility Sense of Ownership (possible, though not guaranteed); Autonomy (possible, though not guaranteed) Page 49 25

26 Enhance Alternative Revenue Other than the straight treatment of patients (i.e., direct provision of physical care), how else might a physician practice generate patient-centric revenue? Smart use of non-physician revenue producers Payor system participation; quality iniatitives Clinical trials; ancillary services Page 50 Politically Active Physicians bring large numbers, but limited participation Consider ability to effectuate change at a local or state level, versus national level Focus need not be solely based upon reimbursement Certificate of Need Supervision Requirements Quality of care initiatives Page 51 26

27 Concierge Medicine Fewer patients, more time with each patient, higher compensation? Maybe! Fewer patients, more time with each patient, lower compensation? Maybe! Use a third party facilitator to establish? What if the Practice is divided? The Option of Opting Out of Medicare Page 52 Strategic Goals for an Integrated Practice Page 53 27

28 Strategic Goals for an Integrated Practice Align providers for coordinating and managing care in the region, to provide high quality care at the lowest cost possible. Create an organization that accepts responsibility to manage its physicians to comply with all quality goals and metrics established by the organization, health systems and payors, and to manage all cost containment initiatives. Page 54 Strategic Goals (Cont.) Develop a medical practice that would be attractive to enable the recruitment of physicians in both primary care and specialty care that are not currently serving the region. Develop approved clinical processes, documentation of such processes, and compliance with such processes, and development of other inpatient and outpatient quality of care measures. Enhance strategic planning and succession planning. Page 55 28

29 Strategic Goals (Cont.) Improve provider manpower planning, including mid-level providers. Develop new services or expand existing services: imaging, therapy, ambulatory surgery centers, service line co-management (inpatient and outpatient services), pharmacy, workers compensation, and real estate development. Aggregate providers to be positioned to be the high quality providers of choice for ACOs or Bundled Payment programs. Page 56 Strategic Goals (Cont.) Consolidate Compliance Plan management. Enhance patient satisfaction. Create political power to influence local and federal decisions. Page 57 29

30 Business Goals for an Integrated Practice Page 58 Business Goals: Consolidation Billing and related software and capital costs Technology infrastructure, both clinical and business Finance/Accounting/Cash Management Human Resources and Benefits Management Shared risk Page 59 30

31 Business Goals: Consolidation (Cont.) Payor Contracting Hospital Contracting Legal Accounting and consulting Marketing and branding General corporate and professional malpractice insurance Page 60 Documenting Goals and Strategies Page 61 31

32 Documenting Goals and Strategies Bylaws/Operating Agreements / Shareholder Agreements Employment/Member Agreements Mission Statements / Vision Page 62 Governance Documenting Goals and Strategies (Cont.) How governed? All owners versus a single Managing Partner or Executive Committee How are decisions made? o Physician Managers o Non-physician Administrators o Majority/Supermajority of owners Page 63 32

33 Documenting Goals and Strategies (Cont.) Description of Duties and Expectations On-call arrangements Time in office Administrative duties Strategic/Marketing Duties Page 64 Documenting Goals and Strategies (Cont.) Compensation Arrangement Determining fair revenue and overhead allocations Allocation of ancillary revenue Compensation for physician management time Sharing of revenue with internal referral sources Page 65 33

34 Stark - Physician Compensation Stark limits how practice physicians can be compensated for Designated Health Services performed/billed by practice Generally compensation cannot be directly related to any DHS referrals (no direct credit for DHS) Exception: In-Office Ancillary rules (application of group practice exception) Page 66 Succession Planning How do physicians slow down? How do physicians retire? Notice periods/age requirements Length of service Replacement of mature physicians Importance adjustments to compensation Impact on related investments? Page 67 34

35 Buy-In Options for a Practice If difficulty recruiting, may have a small or no buy-in Buy-ins can include accounts receivable; assets; assumption of liability Cannot pay for patients (goodwill) but could pay for some intangibles like proprietary property, name recognition, ancillary revenue stream Page 68 Buy-In Options for a Practice (Cont.) Length of time: 1-2 years or more Phased buy-in to account for buy-in of ancillary revenue Use of vesting for buy-in Consider option to buy-in of related investments / entities (e.g., real estate, management company) Page 69 35

36 Buy-Out of Physician Impact on cash flow of practice Must give adequate notice to practice to replace physicians Consider adjustment provisions in order to reduce the rush to the door Tie medical practice departure to mandatory redemption of other related investments Page 70 Buy-Out of Physician (Cont.) Formula can be: Same as buy-in Value of assets (equipment) Accounts Receivable Other assets (building/land, joint ventures) Need for a formal valuation? Page 71 36

37 Buy-Out of Physician (Cont.) How will overhead be covered if physician leaves? Transition issues Patients Medical records Staff Page 72 Use of Restrictive Covenants to Protect the Practice Non-solicitation language of patients; employees Consider addition of liquidated damages provision Define solicitation Non-competition vary from State to State Used to maintain market share Used to stop hospital from employing Seek injunctive relief Consider liquidated damages Careful use of sunsets or carve-outs applicable to only a few physicians Page 73 37

38 Dispute Resolution Attempt to avoid lengthy, public legal process/fees Use of process to settle disputes e.g., Valuation of assets to be determined in sole discretion of company s usual and customary CPA e.g., Use of a defined escalation process in order to get the parties to the table Define use of mediation Consider arbitration define specific application Page 74 Dispute Resolution (Cont.) Define terms of arbitration Type of arbitration/forum Number of arbitrators Discovery/costs Written Opinion Page 75 38

39 Conclusion Maintaining independence is not easy Careful planning and documentation is key Some solo practices will survive but most will align with other providers Strategic thinkers will gain in the end One size does not fit all Physician, know thyself! Page 76 R. Michael Barry, JD, MBA Arnall Golden Gregory, LLP th Street NW, Suite 2100 Atlanta, GA Phone: (404) Barbara J. Grant, CPA, CVA Pershing Yoakley & Associates 3424 Peachtree Rd., Ste. 700 Atlanta, GA Phone: (404) Page 77 39