McDermott University: Physician Affiliation/Alignment Models Christopher Jedrey Daniel Melvin Partner, McDermott Will & Emery LLP Partner, McDermott Will & Emery LLP +1 617 535 4405 +1 312 984 6935 cjedrey@mwe.com dmelvin@mwe.com www.mwe.com Boston Brussels Chicago Düsseldorf Houston London Los Angeles Miami Milan Munich New York Orange County Rome San Diego Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) 2014 McDermott Will & Emery LLP. McDermott operates its practice through separate legal entities in each of the countries where it has offices. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery/Stanbrook LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, MWE Steuerberatungsgesellschaft mbh, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered advertising under the rules regulating the legal profession.
Hospital-Physician Alignment Before Health Care Reform Characterized by: Shared interest in increasing volume of profitable acute inpatient interventions Shared interest in increasing volume of profitable ambulatory/ outpatient services paid on a fee-for-service ( FFS ) basis, e.g., ambulatory surgery, leading to Competition Joint ventures Limited incentives for collaboration in reducing costs and improving quality www.mwe.com 2
Hospital-Physician Alignment After Health Care Reform Increasingly focused on: Acquiring or otherwise gaining control of physician practices and other ambulatory/outpatient services, e.g., Ambulatory Surgery Centers ( ASCs ) Employing physicians Leasing physicians Incentive compensation arrangements with physicians to comply with, and benefit from, commercial and governmental payor value-based purchasing initiatives Creation of Accountable Care Organizations ( ACOs ) and other coordinated care organizational initiatives designed to benefit from new payment models www.mwe.com 3
Affiliation Models Employment Model Direct Employment: The physician is an employee of either the Hospital or a group practice owned or controlled by the Hospital. Division: A sub-group of employed physicians within the group practice operates with meaningful autonomy and accountability. Joint Venture Model: The group practice that employs the physicians is operated as a JV between the Hospital and the physicians. www.mwe.com 4
Affiliation Models (cont d) Foundation Model A non-profit affiliate (the Affiliate ) of the Hospital purchases and/or leases an independent group s assets, other than physician employment agreements, and operates the physician practice. The Affiliate does not employ the physicians who staff the practice. Instead, a separate physician-owned entity either the group practice entity or a new entity employs the physicians and provides their services to the Affiliate under a professional services agreement (or a leased physician agreement) between the Affiliate and the physician entity. The Affiliate compensates the physician entity for physician services at FMV in the aggregate, and the physician entity determines the individual compensation for its physicians. www.mwe.com 5
Affiliation Model Contractual Affiliation/Alignment Pay for Quality Gainsharing Co-Management Medicare ACO www.mwe.com 6
Physician Relationship Models Independence Financial Security for System MDs (Generally Speaking)/Degree of Integration Employee Joint Venture Group Foundation Model Contractual Models Source: Navigant Consulting www.mwe.com 7
Direct Employment: Hospital Employment SYSTEM PARENT HOSPITAL 501(C)(3) ACO Payors MEDICAL DIVISION (Dept. of Hospital) www.mwe.com 8
Direct Employment: Controlled Affiliated Practice SYSTEM PARENT HOSPITAL 501(C)(3) ACO PRACTICE GROUP 501(C)(3) Payors www.mwe.com 9
Joint-Venture Group Practice Model SYSTEM PARENT PAYORS ACO HOSPITAL 501(c)(3) PHYSICIANS GROUP PRACTICE (For Profit) www.mwe.com 10
Contractual Model: Foundation Model SYSTEM PARENT HOSPITAL 501(C)(3) ACO FOUNDATION 501(C)(3) Payors GROUP PRACTICE (For Profit) www.mwe.com 11
System-Integrated ACO System Parent Accountable Care Organization (ACO) Other Affiliates ACO Membership System Physician Organization Hospital Independent IPA Private Group Other System Physicians Foundation Model Controlled Group Practice Division Structure www.mwe.com 12
Independent/JV ACO Accountable Care Organization (ACO) System Parent ACO Membership System Physician Organization Hospital Other Affiliates ACO Membership Independent IPA Private Group Other System Physicians Foundation Model Controlled Group Practice Division Structure www.mwe.com 13
FOUNDATION MODEL www.mwe.com 14
Foundation Model: Purpose To create a consolidation vehicle for Hospitals and physicians seeking closer financial and clinical alignment. The Foundation Model described in the following slides is significantly more integrated than IPA and PHO alternatives. The Foundation Model is less integrated than a full-time employment model, but allows physicians to retain more autonomy by contracting with a Hospital-Affiliated Group Practice ( HAPG ) through their existing Professional Corporations ( PCs ). www.mwe.com 15
Foundation Model: Benefits for Hospital and PC Hospital Facilitates integration of the Hospital with community-based group practices for P4P/risk contracting and coordination of care purposes Permits EMR and other capital investment by the Hospital in its HAPG through which the community-based physicians practice Creates an opportunity for generating additional technical revenue by turning the HAPG practice sites into Hospital satellite clinics PC Allows the PC to retain pre-psa accounts receivable and to sell or lease tangible assets to the Hospital Provides additional revenues and potentially other benefits to the PC physicians Permits the PC to continue to control salary, benefits and scheduling for its physicians and clinical support staff Easier to unwind than employment model Insulates the Hospital from any existing or future PC liabilities Does not require the Hospital to provide higher-cost benefits to PC staff www.mwe.com 16
Foundation Model: Organization/Tax Status The Hospital would create, and obtain tax-exempt status for, a non-stock corporation (i.e., the HAPG), of which the Hospital (or the Hospital s parent) is the sole member with the usual reserved powers. If the Hospital has an existing tax-exempt subsidiary or affiliate that employs physicians, that subsidiary or affiliate could also function as the HAPG. www.mwe.com 17
Foundation Model: PC Liabilities, Assets, Accounts Receivable Neither the Hospital nor the HAPG would be liable for existing or future PC liabilities. The PC would retain its accounts receivable for the period prior to the effective date of the transaction. The PC could sell its tangible assets (e.g., office space, furniture, fixtures and equipment) to the HAPG on FMV terms. If the PC wishes to retain (or if the HAPG did not wish to purchase) the PC s tangible assets, the PC could lease such assets to the HAPG on FMV terms. The HAPG would assume the PC s leases associated with the practice (e.g., office space, equipment). www.mwe.com 18
Foundation Model: Professional Services Agreement The HAPG would enter into a long-term, exclusive management and professional services agreement (the PSA ) with one or more PCs. Under the PSA, the PC would provide professional, and specified other, services to HAPG, including: Physician services Non-physician clinical services Under a Management Agreement, if desired, the PC would provide specified non-clinical services to HAPG, including: other administrative services (including, if the parties so agree, billing and collection www.mwe.com 19
Foundation Model: PC Salary and Benefits The PC would continue to determine salary and benefits for its physicians and any retained staff. The PC s benefits would not have to be consistent with the Hospital s benefits, which, in general, are likely to be more expensive than the PC s benefits. However, if the Hospital and the PC agreed to do so, the PC could purchase certain benefits from the Hospital, which might be cost-effective for larger PCs. www.mwe.com 20
Foundation Model: Patients and Medical Records After the effective date of the PSA, patients seen by PC physicians would be HAPG (or hospital) patients, and the HAPG would own, and be obligated to maintain, their medical records. The PC could sell (or transfer custody of) the pre-psa medical records to the HAPG, which would then be obligated to maintain such records in accordance with legal requirements. www.mwe.com 21
Foundation Model: PSA Base Fees Under the PSA, the HAPG would pay the PC a negotiated FMV fee for all clinical services, plus a FMV fee for medicoadministrative services. www.mwe.com 22
Foundation Model: PSA Contingent Fees Subject to regulatory requirements, the PSA fee arrangements could also include some upside potential (e.g., bonus payments for clinical productivity and/or for achieving specified-in-advance and objective quality, safety and clinical integration goals, which goals should be distinct from any P4P goals under the HAPG s payor contracts) and downside protection (e.g., limited protection against downward movement in rates, but not against risks generally within the PC s control, e.g. productivity and efficiency). www.mwe.com 23
Foundation Model: Other Potential Benefits for PC Physicians Depending upon the terms and conditions of applicable contracts, the Foundation Model may offer: higher rates for physician services under non-governmental payor contracts; lower costs and/or higher coverage limits for malpractice insurance through Hospital s captive insurance company; and/or lower cost and/or better fringe benefits, if applicable. www.mwe.com 24
Foundation Model: PC Retention of Operating Autonomy The PC would remain an independent professional corporation, responsible for setting, and providing, salary and benefits to its physicians and any retained support staff. Subject to PSA requirements (and provider-based organization requirements, if the split-billing alternative is adopted), the PC s physicians would continue to hire, fire, schedule and supervise the PC s employees. The HAPG/PC arrangements could be unwound by termination of the PSA and any leases (and the repurchase of any tangible assets sold by the PC), and resumption of provider status by the PC. www.mwe.com 25
Foundation Model: Capital Investment Subject to Hospital funding and applicable legal requirements, the Hospital could provide an EMR to, and make other capital investments in, the HAPG and its practice sites to improve its ability to serve the needs of its patients and those of the Hospital. Under the PSA, the PC s physicians and support staff would have use of such assets, but the PC would not own the assets. www.mwe.com 26
Foundation Model: Split-Billing Alternative The Hospital could add all or some of the HAPG s practice sites to the Hospital s license as satellite clinics. PROs Substantial new stream of technical (i.e., clinic visit) revenue for the Hospital, some of which could be invested in the operation of the HAPG. Medicare payment guaranteed if provider based organization ( PBO ) rules are met. CONs Patients receive two bills (i.e., professional and technical), and have higher co-pays and deductibles. The HAPG s professional billings are reduced by a site of service adjustment. Non-governmental payors may resist paying Hospital rates for these new sites. Medicare PBO rules would require that the Hospital substantially control the practice sites (i.e., would reduce the PC s control under the PSA). www.mwe.com 27
Pay for Quality Model www.mwe.com 28
Pay for Quality Model Physicians create a legal entity to be owned by all physicians who have been on the active medical staff in relevant departments for at least one year ( PO ) Each physician makes an equal capital contribution to provide for the PO s working capital The physician investors commit to practice in compliance with certain protocols calculated to assist the Hospital in meeting quality-performance metrics www.mwe.com 29
Pay for Quality Model The PO contracts with the Hospital; agrees to: Cause its physicians to make the changes in clinical behavior calculated to assist the Hospital in achieving quality metrics Provide management services related to the quality initiative Hospital payment to the PO is based on percentage-of-pay for performance dollars earned by the Hospital (up to 50%) or other FMV benchmarks and then distributed to the physicians on an equal or per capita basis www.mwe.com 30
Pay for Quality Model Payor MDs Per Capita Distributions Hospital P4P Contract PO Up to 50% of P4P Dollars www.mwe.com 31
Sample Quality Metrics Physician Communication Scores Percutaneous Coronary Interventions (PCI) within 90 Minutes % of Inappropriate PCI Re-admission Rates AMI Mortality (Actual v. Expected) www.mwe.com 32
Pay for Quality Legal Issues Anti-Kickback Law means: PO investment should only be offered to physicians who have been on the medical staff for at least one year Hospital should have the ability to monitor case-mix severity of each physician and have ability to terminate participation by any physician for whom changes in the case-mix severity suggest patient cherry-picking Physician investment and distributions should be uniform; no disparate treatment based on value or volume of referrals Incentive pool should be capped based on historical patient admission volume Quality performance payments should be capped at 50% of incentive payment from payor www.mwe.com 33
Pay for Quality Legal Issues Stark Law means: Physician investment and distributions should be uniform; no disparate treatment based on volume or value of referrals Incentive pool should be capped based on historical patient admission volume www.mwe.com 34
Pay for Quality Legal Issues Civil Monetary Penalty ( CMP ) Law Prohibits a hospital from making payments, directly or indirectly, to a physician as an inducement to reduce or limit services to a Medicare or Medicaid patient Concern? Risk of underutilization; stinting on care Office of Inspector General ( OIG ) interprets broadly Not just payments to reduce lengths of stay or readmission rates Also payments to comply with clinical protocols that could place a limitation on the quantity of health care services furnished to a hospital patient www.mwe.com 35
Pay for Quality Legal Issues CMP Law means that the Hospital should: Not use clinical protocols or elements of clinical protocols that could reduce or limit the quantity of health services that a patient receives; Expressly grant physicians the freedom to depart from these protocols or the problematic elements of a protocol; or Seek an advisory opinion from the OIG. www.mwe.com 36
Gainsharing www.mwe.com 37
Gainsharing Hospital pays physicians a percentage of the savings realized by the Hospital from a reduction in costs attributable to changes in the physicians utilization of Hospital resources Important to margins of hospitals which are paid a flat, case rate regardless of the patient length of stay or costs incurred What about the CMP Law? In 1999, OIG said shared savings programs are illegal Rejected argument that law is limited to payments to reduce/limit the provision of medically necessary services Since 2001, OIG has issued favorable advisory opinions to at least 12 requestors www.mwe.com 38
Gainsharing OIG Advisory Opinions limited to surgical/procedural supply costs Cardiac surgery services Advisory Opinions 05-1, 05-3, 05-6, 06-22, and 07-21 Invasive cardiology Advisory Opinions 05-2, 05-4, 05-5, and 08-15 Invasive peripheral vascular Advisory Opinion 08-21 Spine fusions Advisory Opinion 08-9 Anesthesiology Advisory Opinion 07-22 Only 2 have been approved for a duration of more than one year www.mwe.com 39
Gainsharing Congress and Centers for Medicare and Medicaid Services ( CMS ) are exploring, and seemingly recognize potential value of, shared savings programs Two shared savings demonstration projects launched in mid-00 s Accountable Care Act extends one of the shared savings demonstration projects (report to Congress not due until 2012) Participants in the demonstration projects exempted from the CMP Law, Kickback Law and Stark Law CMS proposed Stark exception for shared savings/incentive payment programs in 2008, but still not finalized excludes any payment for reduced lengths of stay www.mwe.com 40
Co-Management www.mwe.com 41
Co-Management Organizational Structuring Co-Management Agreement Fee Structuring and Valuation www.mwe.com 42
Co-Management: Organizational Structure Management Committee and Subcommittees Management Committee composed of an equal number of Hospital managers and physicians (6 or 8 total Committee members) Purpose: Platform for joint hospital-physician deliberation and decisionmaking regarding: Strategic plans Budgets and capital expenditure planning Clinical and operational performance assessment and improvement Marketing and outreach Physician and non-physician clinical staff development Products and technology (supply-line management) Research and education May be marketed as a Center of Excellence or Institute Ultimately consultative and advisory in nature www.mwe.com 43
Co-Management: Organizational Structure Co-Management Company Co-Management Company is a limited liability company formed and capitalized by the participating, eligible physicians (only) Co-Management Company designed organizationally to promote and assure physician inclusion, cooperation between the Hospital and the physicians, and physician succession planning; not designed for equity growth, i.e., Physicians buying into an income stream One investment unit per physician Newly recruited physician buy-in at same price as existing physician-owners Retiring/departing physician buy-out at price of buy-in Physician participation standards and admission decisions negotiated or determined jointly by Hospital and physicians www.mwe.com 44
Co-Management: Agreement Services, duties and deliverables Performance standards and accountability Term Length www.mwe.com 45
Co-Management: Agreement Services, Duties and Deliverables Sets forth the specific responsibilities of the Co-Management Company Appoint physicians to the Management Committee and subcommittees, e.g. Quality Committee Operations Committee Products & Technology Committee Marketing and Outreach Committee Research and Education Committee Congestive Heart Failure Program Task Force Prepare for and participate in meetings www.mwe.com 46
Co-Management: Agreement Services, Duties and Deliverables (Cont d) Actively assist in the implementation of programs and initiatives developed by the Management Committee Comply with the decisions and directives of the Management Committee Actively assist in improving the quality and operational efficiency of the service line Furnish medico-administrative services for the service line www.mwe.com 47
Co-Management: Agreement Performance Standards and Accountability Hospital performs baseline assessment of service line performance relative to recognized quality and efficiency metrics Performance targets must represent marked improvement on baseline performance Deliverables (if any) described with specificity and with target dates (e.g., stages of development of a congestive heart failure program are described with specificity, target dates set, and achievement or failure at each target date is documented) Time-based management services documented by either a Hospital attendee at the meeting or by the physicians, individually (certifying to accuracy) (regardless of whether compensation is structured as an hourly rate) www.mwe.com 48
Co-Management: Agreement Term Length Ranges from: 1-year, renewable for successive 1-year terms unless either party nonrenews, to 5-year terms, terminable by the Hospital with or without cause, after 3 years Factors driving term length: Parties business risk judgments Annual assessments of value and benefits www.mwe.com 49
Co-Management: Fee Structure Two Prevalent Methodologies Method #1 Hourly rate paid to Co-Management Company for service on committees and task forces, and medico-administrative services, plus Incentive compensation pool divided among quality and efficiency targets, and sub-pools paid out based on partial or full achievement of the specific performance target, e.g., floor, reach and stretch targets Method #2 Flat, periodic fee, e.g., $X per month, paid to Co-Management Company for service on committees and task forces, 50% of which is at risk for achievement of the performance targets Note: Flat fee includes compensation for medico-administrative services Annual renewal subject to assessment by valuation firm that Management Company met the terms of the Co-Management Agreement www.mwe.com 50
Co-Management: Valuation Absolutely critical to regulatory risk management Recommend that valuator be independent of consultants working on the project Certain valuators do not believe that quality improvement can be valued; focus exclusively on traditional hospital service management functions and comparables Most valuators will not consider opportunity cost to the physicians when determining fair market value Recommend having valuator opine on whether it is commercially reasonable for the Hospital to enter into the arrangement www.mwe.com 51
ACOs www.mwe.com 52
Accountable Care Organization CMS Definition from FAQs: A: An Accountable Care Organization, also called an ACO for short, is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it. www.mwe.com 53
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Overarching Goals of the Shared Savings Program Better care for individuals Improve individual patient experiences of care along the IOM 6 domains of quality: safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity Better health for populations Encourage better health for entire populations by addressing underlying causes of poor health, such as physical inactivity, behavioral risk factors, lack of preventative care and poor nutrition Lower growth in expenditures Lower the total cost of care resulting in reduced expenditures www.mwe.com 55
Overview of Medicare Shared Savings Program ( MSSP ) ACO Medicare Shared Savings Program ( MSSP ) ACO is an organization of physicians and other health care providers which is accountable for the overall care of at least 5,000 Medicare beneficiaries who are assigned by CMS to that ACO ( 3022 of the PPACA) MSSP ACOs that meet minimum quality standards are to be financially incentivized by CMS to provide higher quality care and overall cost savings ( Shared Savings ) MSSP ACOs enter into a three-year agreement period with HHS effective January 1, 2012 Initial start dates for the MSSP begin on April 1 and July 1, 2012 27 contracts began on April 1 with a 3 year, 9 month term 88 contracts began on July 1 with a 3 year, 6 month term Annual start date on January 1, 2013 and in subsequent years www.mwe.com 56
MSSP ACO Medicare Beneficiary Assignment and Participating Providers Retrospective attribution of ACO Medicare beneficiaries based on claims review (allowed charges) of plurality of a Medicare beneficiary s primary care services provided by primary care physicians who are all exclusive to one ACO: General practice, Family practice, Internal medicine, and Geriatrics medicine. Other ACO participants (e.g., hospitals, specialists) may participate in multiple ACOs. www.mwe.com 57
MSSP ACOs: Two Alternative Payment Tracks One-Sided Model (Track 1): Upside payment only for the entire agreement period (major improvement over draft MSSP regulations that required ACO to assume year 3 downside risk) Intended to provide a less-risky opportunity for providers new to accountable care and/or performance-based risk arrangements Available only for a single agreement period Minimum savings rate (MSR) proposal is finalized First dollar savings CMS eliminates the 2% net savings requirement ACOs that meet/exceed the MSR may share in all savings generated by the Medicare ACO www.mwe.com 58
MSSP ACOs: Two Alternative Payment Tracks (cont d) Shared savings Shared savings rate of up to 50%, depending on quality of performance Total savings payment to Medicare ACO is capped at 10% of the applicable benchmark, up from 7.5% in the proposed rule 25% withhold is eliminated www.mwe.com 59
MSSP ACOs: Two Alternative Payment Tracks (cont d) Two-Sided Model (Track 2) Shared risk (upside and downside for the entire agreement) Shared savings 2% MSR for all Medicare ACOs (regardless of population size) Up to 60% shared savings rate for gross savings, if the Medicare ACO meets/exceeds the MSR Total savings payment to the Medicare ACO is capped at 15% of the applicable benchmark, up from 10% in the proposed rule 25% withhold eliminated www.mwe.com 60
MSSP ACOs: Two Alternative Payment Tracks (cont d) Track 2 Shared losses CMS and the ACO will share losses that exceed 2% of the applicable benchmark The ACO s shared loss rate is 1 minus (the sharing rate) The sharing rate will not exceed 60% Cap for amount of shared losses Cap of 5% of the benchmark for performance year 1 7.5% for performance year 2 10% for performance year 3 www.mwe.com 61
Quality Performance Measures ACOs that do not meet the Quality Performance Standard (reporting, accuracy and performance) will not be eligible for shared savings. For Year 1 of an ACO contract, an ACO will be considered to meet the ACO Quality Performance Standard if it has reported completely and accurately on all quality measures; there will be an audit process. For Years 2 and 3, an ACO will have to both completely and accurately report quality measures and achieve performance minimums. www.mwe.com 62
About the Measures 33 Measures across 4 domains 1) Patient/Caregiver Experience (7 measures) 2) Care Coordination (6 measures, including transitions of care and HIT) 4) Preventive Health (8 measures) 5) At-Risk Population/Frail Elderly Health (12 measures) www.mwe.com 63