Sandy Johnson, Partner, Garvey Schubert Barer Law
“BRAVE NEW WORLD” Options for Physician Survival Sandra T. Johnson, Member Garvey Schubert Barer © 2015 Garvey Schubert Barer WHAT IS DRIVING ALL THE CHANGE? • Health care in the U.S. is too expensive: – Almost 18% of GDP since 2009 – $2.9 TRILLION in 2013, or more than $9,000 per person – Quality scores are variable through the system • Compared to other, similarly developed naQons: – Canada 10.9% – France 11.7% – Japan 10.1% – Norway 9.0% – Sweden 9.6% – United Kingdom 9.4% • Listed countries show higher quality scores than the U.S. © 2015 Garvey Schubert Barer 2 GOV’T RESPONSE: CUT REIMBURSEMENT! • Currently four converging sets of reimbursement reducQons for physicians: – SequestraQon – Meaningful Use (MU) – Value-‐based Modifier Program (VBM) – Physician Quality ReporQng System (PQRS) • Standards are not coordinated or consistent from system to system • Together, require mulQple reports of informaQon either to obtain incenQves or avoid penalQes • AdministraQve burden of compliance is significant © 2015 Garvey Schubert Barer 3 Summary of Current Status • Constantly increasing costs for care • Mandate from the government to change care delivery • Incentives: more money if you achieve the “Triple Aim” 1. Increased Patient Satisfaction 2. Increased Access to Services 3. Decreased Cost • Direction from the government to increase care delivery in an outpatient setting • One option: Hospitals are aggressively pursuing outpatient service providers à Provides stability and increased resources, BUT à Significantly diminishes physicians’ ability to control their practices and the care they provide © 2015 Garvey Schubert Barer 4 Landscape is Changing Rapidly Percentage of “Active” Physicians Employed by Hospital 40% 31% External Factors • Economy • Demographics • Healthcare Reform 24% 22% 18% 5% 15% 8% 2000 2004 Specialists 2008 2012E PCPs Source: MGMA 49% of physicians hired out of residency or fellowship are placed in hospital-owned practices © 2015 Garvey Schubert Barer 5 Cost Not Improving Angiogram Colonoscopy Hip Replacement Lipitor (Rx) MRI Scan Avg. U.S. Price $914 Avg. U.S. Price $1,185 Avg. U.S. Price $40,364 Avg. U.S. Price $124 Avg. U.S. Price $1,121 Canada $35 Switzerland $655 Spain $7,731 New Zealand $6 Netherlands $319 Source: New York T imes / 2012 Comparitive Price Report by International Federation of Health Plans Average Cost of Total Hip Replacement (USD 000s) $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Argentina © India 2015 Garvey Schubert Barer France Germany Spain Chile Canada Switzerland Australia USA USA 95th %ile 6 Cost Impact of Hospital Consolidation $60,000 é 31% $50,000 $40,000 $30,000 é 46% é 49% Total Knee Total Hip é 29% $20,000 $10,000 $0 Competitive Lumbar Spine Fusion Cervical Spine Fusion Consolidated Robinson, J. (2011). Hospital market concentration, pricing, and profitability in orthopedic surgery and interventional cardiology. American Journal of Managed Care, 17(6): 241-248. © 2015 Garvey Schubert Barer 7 OTHER OPTIONS? PHYSICIAN LEADERSHIP PHYSICIAN COLLABORATION © 2015 Garvey Schubert Barer 8 Impact of Physician Led Care Medicare Advantage HMO vs. Traditional Medicare1 0% -5% -10% -15% -20% -25% -30% -35% ED Visits Inpatient Days IP/OP Surgery Outpatient Visits 1. Health Affairs December 2012: Analysis Of Medicare Advantage HMOs Compared With Traditional Medicare Shows Lower Use Of Many Services During 2003–09 © 2015 Garvey Schubert Barer 9 Options for Physician Organizations Tight Loose Network Group Clinical Integration/ACO Full Asset Merged Practice § Separate and autonomous provider entities (physicians ASCs, hospitals) with separate tax IDs and financials § Single legal entity (traditional group practice model) § Network aligned around delivering coordinated care (clinical/ financial outcomes, standard care processes) § Fully combined ownership, governance, assets and practice management/operations § Granted single signing authority on contracts in exchange for improved outcomes and lower cost § Granted single signing authority on contracts because the entity is fully integrated at all levels § Single or multiple specialties Must integrate a) clinical decision making, or b) financial risk Has a high threshold for physicians who wish to join Messenger Model MSO or IPA Collaborative Entity: MSO or IPA § Separate and autonomous physician practices and practices with separate tax IDs and financials § Single legal entity with relatively autonomous subsidiary physician practices § Network of providers formed to pursue certain managed care contracts § Integrated governance and in certain functions; flexibility of integration beyond minimum requirements § No level of real financial, clinical or operational integration § Further integration can occur as entities determine is appropriate Little ability to drive the different results/outcomes; generally illegal if used simply to extract pricing leverage Practices choose to delegate certain activities to the collaborative in order to control destiny and remain generally autonomous 1. Arizona v. Maricopa County Medical Society (1982); North Texas Specialty Physicians v. FTC (2008): Agreements between competing physicians on acceptable contract rates (typical ‘messenger mode’ IPA) amounts to ‘horizontal price fixing’ and is illegal per se. © 2015 Garvey Schubert Barer 10 Requirements for the New World Cost Drivers Bend the Cost Curve § Price reductions § Less utilization § Lower cost utilization § Bed days § ER visits § Surgery cases Change the decision. § Medications Hospital-Centric Health System Model Underlying presumptions are… § Ownership of all elements = coordinated care for patients § Unified operating systems = operating efficiency and lower cost § Scale = ability to invest in future and take financial risks However: § The high fixed overhead and facility cost often means high prices Improve Outcomes § Measure/prove quality § Process improvement § Evidence-based medicine To do this, need: § Defined provider network § An inpatient ‘bed days’ mindset has a motivation that runs counter to new healthcare requirements § Employment of physicians does not necessarily equate to coordinated care across providers or facilities § Central decision making § Clinical/financial data to drive decision making § Aligned incentives Manage Population Health § Proactive intervention § Coordinated care § Financial risk § Operating platform that facilitates care coordination The Opportunity for Independent Physicians § Ability to change the decisions at the point of care (physician and patient decisions) § Lower overhead allows for lower pricing § No inpatient facility obligation to cloud decision making § Cost of true integration coming down © 2015 Garvey Schubert Barer 11 Working Together: Develop a Physician Collaboration Objectives § Autonomous: Operating agreement/model consolidates only the minimum decision making and functions necessary, leaving as much autonomy in the practices as possible. § Scale and Leverage: Structure and business processes that enable the collaboration that can become large enough to garner the needed leverage in the market with payers, have the patient volume needed to support revenue streams and create a model attractive to health systems. § Flexibility: Operating agreement/model with enough flexibility to accommodate the needs of Professional practices of different sizes and different clinical specialties. OPTIONS: loose group OR tight network Choice of model depends on goals of the physicians, e.g.: • The tight network option requires either financial or clinical integration. § Requires additional disciplines and functions necessary to manage capitation payments. § Clinical integration requires the development of legitimate care coordination processes § Either approach presents tangible benefits when compared to non-collaborative options. © 2015 Garvey Schubert Barer 12 Benefits of Collaboration Through the scale and leverage of collaborative, there are multiple ways physicians can benefit. Direct Financial Benefits POTENTIAL SCENARIO: FFS Contracting Only § Purchasing Leverage: The larger group can experience more favorable purchase pricing on items such as group health insurance and other operating expenses. § Investing Scale: The size of entity allows capital investments in things such as management talent, information technology, and marketing to be spread over a larger number of physicians, thus lowering the level of investment for each individual. § Retirement Savings: There are certain options that create more advantageous options for physicians to increase their retirement savings. Strategic Benefits § Physician Led Care Coordination: The changes in how care is delivered are driven by physicians with the patient in mind, not large entities farther removed from the patient relationship and point of decision. § Payer and Health System Relationships: The unified collaborative is able to develop more equitable relationships with payers and health systems. § Role in New Reimbursement Schemes: As payment models move away from traditional fee-for-service and toward some form of risk-based payment, the large group provides the platform for participation in those models as independent providers. © 2015 Garvey Schubert Barer Example Physician: FFS Contracting Only Baseline Charges Current GPWW Change Collaborative Change Commercial Insurance 625,000 625,000 - Medicare/Medicaid 350,000 350,000 - Other Payers 190,000 190,000 - 1,165,000 1,165,000 - Commercial Insurance 290,000 333,500 43,500 Medicare/Medicaid 160,000 160,000 - 85,000 85,000 - 535,000 578,500 43,500 45.9% 49.7% 3.7% Operating Expenses 200,000 210,000 10,000 < 5% Physician Compensation 335,000 368,500 33,500 < 10% Total Charges Payments Other Payers Total Payments Payments as % Charges < 15% 13 Navigating Antitrust Concerns Supreme Court: Physicians are capable of price-fixing. Integration Pluses § Board with control over strategic planning, capital spending, and significant decisions § Defined method for adding or removing practices or member physicians § Some level of shared revenue (DHS) and expenses (common shared services) § Shared management A single entity is incapable of conspiring with itself. § Joint naming, branding and marketing § Common or integrated information systems § Active clinical quality management processes (outcome measurement, protocols) § Risk-based payer contracts § Difficulty of practices and ASCs electing to exit the corporation The collaborative must be sufficiently integrated to be considered a ‘single actor.’ Integration Minuses § Total ‘eat what you kill’ compensation model with no shared expenses § No visibility of new corporation to the outside world § No shared Practice business and ASC operations There is no definitive ‘single actor’ test, but a series of pluses and minuses that contribute to the evaluation of whether the GPWW is a single actor. © 2015 Garvey Schubert Barer Market Power Consideration Additionally, if the new corporation comprises too high a portion of the physicians in a given specialty for its geographic market it may be considered anti-competitive. There are many factors that go into this evaluation, but as a general rule if the new corporation remains below 25-30% of the physicians in a given specialty, the market power issue is not triggered. 14 QUESTIONS? Sandy Johnson is a Member of the Healthcare Practice Group at Garvey Schubert Barer. Sandy focuses exclusively on healthcare law as applied in corporate transactions, operations, compliance, and other matters. Sandy brings a unique perspective to her health law practice, having served as the CEO of a hospital system, including physician practices, acute care hospital, assisted living centers, and skilled nursing facilities. As a member of Garvey Schubert’s healthcare practice, Sandy counsels physician practices, ASCs, hospitals and hospital systems, long-term care providers, and other healthcare organizations on a broad range of health care issues in the context of transactions and operational compliance. Sandy’s expertise includes formation of collaborative entities such as MSOs, IPAs, and co-management arrangements; federal and state regulatory compliance matters, including compliance with The Joint Commission accreditation standards; federal laws such as HIPAA, EMTALA, the Stark law and the Anti-Kickback Statute; and Medicare/Medicaid and other public and private payor reimbursement issues. © 2015 Garvey Schubert Barer Seattle 1191 2nd Ave. 18th Floor Seattle, WA 98101 For more information, please contact any of the following Garvey Schubert Barer attorneys: Sandra T. Johnson, Member [email protected] 206.816.1349 Barbra Z. Nault, Member [email protected] 907.258.2400 Stephen Rose, Member Healthcare Group Chair [email protected] 206.816.1375 15
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