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Considerations of Three KeyConsiderations of Three Key
Hospital/Physician RelationshipsHospital/Physician Relationships
d Fi K I i E l td Fi K I i E l tand Five Key Issues in Employment and Five Key Issues in Employment AgreementsAgreements
Georgia Academy of Family Physicians' MeetingGeorgia Academy of Family Physicians' MeetingGeorgia Academy of Family Physicians MeetingGeorgia Academy of Family Physicians MeetingThe Westin The Westin BuckheadBuckhead AtlantaAtlanta
November 14, 2014November 14, 2014
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Jennifer Malinovsky 404Jennifer Malinovsky 404--322322--61366136jennifer.malinovsky@[email protected] Malinovsky 404Jennifer Malinovsky 404--322322--61366136jennifer.malinovsky@[email protected]
Ross Burris 404Ross Burris [email protected]@nelsonmullins.com
ABOUT NELSON MULLINSABOUT NELSON MULLINS Full-Service Law Firm – 100+ years Full-Service Law Firm – 100+ years
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Approximately 100 attorneys practicing in healthcare; approximately 50 exclusively
H it l/ h i i t ti b th b d ll id Hospital/physician transactions – both buy and sell side across all specialties
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FORCES DRIVING INTEGRATIONFORCES DRIVING INTEGRATION Insurers dominant in market can dictate rates Insurers dominant in market can dictate rates
Decreasing Medicare reimbursement
Medical students graduating with large debt prefer hospitalMedical students graduating with large debt prefer hospital relationships
Increasing malpractice premiumsg p p
Pressures to adopt expensive EHRs
Healthcare Reform Initiatives
Pay for Performance
Bundled Payments Bundled Payments
ACOs3
POTENTIAL INTEGRATION EFFICIENCIESPOTENTIAL INTEGRATION EFFICIENCIES Physician/hospital coordinated care leads to lower costs Physician/hospital coordinated care leads to lower costs,
higher quality
Physicians concentrating on volumes and service can improve quality
Better information sharing among providers and patients
Reduced contracting costs
Increased bargaining power with insurers
Economies of scale
Eliminate duplicative services
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Physician/Hospital Integration ContinuumIndependent Physician and Independent Medical Staff Privileges
Cooperation through ProfessionalServices Contract
Direct Employment
Employment through
Purchase Physician Practice and Employment of Physicians
Joint Venture
Ambulatory Surgery Center
CIN
PHO
ACOPrivileges Contract through Affiliates
of Physicians Center
Imaging Modality
O
ACO
PHO
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Three Common Types of Three Common Types of ypypHospital/Physician RelationshipsHospital/Physician Relationships
Service Line Co-Management Arrangement - Hospital and physician group enter into a Service Line Co-Management Arrangement for physician group (alone or in conjunction with other physician practices and/or the hospital) to manage a hospital-based service line
Acquisition/PSA H it l i t / t i l f h i i Acquisition/PSA - Hospital acquires assets/certain employees of physician group, flips practice locations to provider-based status, physician group maintains itself as a separate legal entity and contracts with the hospital under a PSA to provide professional medical services (and potentially management, billing and medical di t i )director services)
Acquisition/Employment - Hospital acquires assets of physician group and employs physicians
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Service Line CoService Line Co--ManagementManagementKey Points:
Hospital contracts with physician group to manage a particular hospital-based service line for a FMV payment pursuant to a Service Line Co-Management AgreementLine Co Management Agreement Delineates direct physician participation in all aspects of the service
line including: (i) design and oversight of capital and operating budgets; (ii) development of clinical strategies and business plans, (iii) efficient(ii) development of clinical strategies and business plans, (iii) efficient delivery of clinical and staff services, (iv) periodic assessment of quality of patient care, (v) measurement of patient satisfaction, and (vi) development of clinical outreach.
Physician group continues to exist and provide services consistent with historical practice
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Service Line CoService Line Co--ManagementManagement Opportunities for Group: Opportunities for Group:
"Baby Steps" at integration with hospital
Work with hospital (and potentially other physician groups) to manage service line; Greater participation in hospital processes – collaborative arrangement with hospital designed to improve operational efficiencies and patient outcomes
Additional revenue source – typically 2 components in the range of 3-6% of service line revenues: (i) base fee consistent with FMV of the time and efforts spent participating in the arrangement; and (ii) Bonus fee based on predetermined payment amounts contingent on achievementbased on predetermined payment amounts contingent on achievement of specified, mutually agreed, objectively measureable, program development, quality improvement and efficiency goals.
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Service Line CoService Line Co--ManagementManagement Challenges for Group: Challenges for Group:
Requires active participation and real time and effort for busy physicians
Allocating fees among participating physicians
Constant monitoring to adjust performance standards and targets
Can be costly – (i) independent appraisal; (ii) legal costs; (iii) time to Can be costly – (i) independent appraisal; (ii) legal costs; (iii) time to implement
FMV more difficult to be objectively determined; reliable valuation methodologies are limitedmethodologies are limited
Integration of arrangement with other existing hospital arrangements and hospital/physician arrangements
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Service Line CoService Line Co--ManagementManagement Limited relief for the business/financial risks associated with
maintaining own practice and reimbursement uncertainties
Can be challenging to implement
- “buy-in” on management authority (business and clinical)buy in on management authority (business and clinical)
- establishment of appropriate metrics
- measurements of performance
- participation from all players
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Acquisition/PSA ModelAcquisition/PSA ModelKey Points:
Hospital acquires assets of physician practice at FMV, including practice locations (some or all) pursuant to an Asset Acquisition AgreementAgreement
Opportunity to carve-out one or more practice locations and/or services from the arrangement
Hospital enters into PSA with physician group to provide professional medical services at each such location
Includes both physicians and midlevels Includes both physicians and midlevels
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Acquisition/PSA ModelAcquisition/PSA Model Hospital may enter into MSA and BSA with physician group for the Hospital may enter into MSA and BSA with physician group for the
physician group to provide designated management and billing services at such locations May also have agreements (i) to provide program director services and May also have agreements (i) to provide program director services, and
(ii) regarding quality initiatives/bonus opportunities
Physician group continues to exist and employs physicians, midlevel id d ti b i ffi lproviders and practice business office personnel
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Acquisition/PSA ModelAcquisition/PSA ModelOpportunities for Group:
Less business/reimbursement risk for group
Under the PSA, practice is paid for wRVUs performed, not necessarily bill d d ll t dbilled and collected
Greater certainty of compensation/other remuneration for services Clinical services – paid under the PSA based on a wRVU basis Clinical services paid under the PSA based on a wRVU basis
Potential additional sources of revenues through ancillary arrangements
MSA fl t f t t P ti f t l t d i- MSA – flat fee payment to Practice for management-related services
- BSA – flat fee payment to Practice for billing services
- Medical Director/Quality Metrics – flat fee hourly basis forMedical Director/Quality Metrics flat fee hourly basis for medical/program director services; pre-determined bonus pool for achievement of identified quality metrics
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Acquisition/PSA ModelAcquisition/PSA Model
Group maintains existence and presence in the community Essential for unwind
Group maintains control over certain aspects of its practice Hospital will retain "ultimate" control over aspects for "provider-based"
status purposes but flexibility for certain aspectsstatus purposes, but flexibility for certain aspects
Potential for bifurcated arrangement
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Acquisition/PSA ModelAcquisition/PSA ModelChallenges for Group:g p Educating patient community on changes
If "provider-based", why pay more for same services, same location same physician?
Loss of control over certain aspects of practice Hospital gets to make certain decisions Hospital gets to make certain decisions
Negotiate into arrangements most important factors for practice to control
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Acquisition/PSA ModelAcquisition/PSA Model Potential for Payor-pushback Potential for Payor-pushback
Arguably more limited potential financial upside (than in independent practice) "Locked in" to compensation model for period of time
More limited ability to explore relationships with other systems
Un ind aspects are critical Unwind aspects are critical Typically one of the first agreements negotiated
When? Under what conditions?
Buy-back Assets
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Acquisition/PSA ModelAcquisition/PSA Model Can be time consuming to negotiate/implement Can be time consuming to negotiate/implement
Valuations
Documentation negotiation
Relationships with vendors, landlords, managed care companies
Operation integration
E l l d i h i h i b fi Employment-related issues, such as reporting chain, benefits, etc.
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Acquisition/PSA ModelAcquisition/PSA ModelNumerous Regulatory IssuesNumerous Regulatory Issues
Structuring of arrangements – fraud and abuse/anti-trust
Provider-based arrangements
Physician/provider credentialing
Licensure/CLIA
C O CHOW documentation
GPO purchasing/340B pricing
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Due Diligence Purpose: obtain information about what is material to the Seller’s
b i d id tif it th t d dditi l tt ti dbusiness and identify items that may need additional attention and analysis.
Evaluate the risks of the transaction (search for “red flags”)
Typical requests include information regarding:
Corporate Documents Legal Issues and Govt. Investigationsp g g
Accounting and Financial Statements Licensure and Certifications
Assets and Liens Compliance Program and Training
M t i l C t t d P P i d S itMaterial Contracts and Payor Agreements
Privacy and Security
Real Property – Owned/Leased Employees / Independent Contractors
Intellectual Property Medical Staff
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Intellectual Property Medical Staff
Insurance Environmental
Employment ModelEmployment ModelKey Points:y
Hospital acquires the assets of the physician group practice for FMV pursuant to an Asset Acquisition Agreement FMV of assets should be similar under either employment or PSA model
Types of assets purchased should be similar: (i) employment model –wholesale acquisition of practice; (ii) PSA model – minimum of thoseassets necessary to operate locations as provider-based.
FMV d t d b i d d t thi d t FMV i f t ifi FMV conducted by independent third party. FMV is very fact-specificbased on variety of factors including: types of assets, locale of practice,specialty, competitive environment, size of practice, etc.
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Employment ModelEmployment Model Representative Assets to be Acquired Representative Assets to be Acquired
Permits/licenses/certification/government approvals
Rights under Contracts (vendors, suppliers, software, etc.)
All tangible and personal property (FFE)
Telephone numbers/fax numbers
I i f li h d d Inventories of supplies, purchased goods, etc.
Drug inventories
Clinical policies and procedures Clinical policies and procedures
Intellectual property
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Employment ModelEmployment Model Representative Assets to be Acquired (cont'd) Representative Assets to be Acquired (cont d)
Rights under Leases
Prepaids; security deposits
Patient records
EHR
P l Personnel
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Employment ModelEmployment ModelHospital employs each of the physicians directlyHospital employs each of the physicians directly
pursuant to an Employment Agreement Length of agreement typically 2-4 years
Minimum period of time that party cannot terminate "without cause"
Compensation includes minimum guaranteed base salary plus bonus based on productivitybased on productivity
Compensation terms typically consistent for all physicians, subject to existing practice metrics, if any, for subspecialties
Renegotiating leverage tied to individual performance
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Employment ModelEmployment ModelPhysician group entity winds-up and dissolves after aPhysician group entity winds-up and dissolves after a
period of time
Legal entity ceases to exist as a separate independent entity Legal entity ceases to exist as a separate, independent entity
Nothing left to "unwind" if want to terminate the arrangement
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Employment ModelEmployment ModelOpportunities for Group:pp p Less administrative work
Less business/reimbursement risk
C t i t i ti b d k f Certainty in compensation based on work performance
Fairly straightforward regulatory issues Fairly straightforward regulatory issues
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Employment ModelEmployment ModelChallenges for Group:Challenges for Group: Loss of control of practice/employees
Hospital hires/fires/recruits Hospital hires/fires/recruits
Hospital operates practices consistent with hospital policies and practices
P t ti l " l t " l f t Potential "complete" loss of autonomy
Less upside financial potential in marketplace Compensation at FMV for personally performed services Compensation at FMV for personally performed services
Potential for individual Medical Director agreements
Little to no opportunity for investment in other initiatives, including ill i h tancillary services, research, etc.
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5 Key Issues in Employment Agreements:5 Key Issues in Employment Agreements:1. Term/Termination1. Term/Termination
2. Compensation/Business Expenses
3. Scope of Services/MedicalDirection/Locations
4. Outside Activities
5. NonCompetes
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Term and TerminationTerm and TerminationIn conjunction with a practice acquisition, 3-5In conjunction with a practice acquisition, 3 5
years before termination without cause
Absent a practice acquisition 1 ½ 3 yearsAbsent a practice acquisition, 1 ½ - 3 years before termination
N f t i ti "f " li itNarrow scope of termination "for cause" – limit to "bad acts"
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Compensation/BenefitsCompensation/BenefitsFixed/Guaranteed base vs. Productivity baseFixed/Guaranteed base vs. Productivity base
- wRVUS (definition; historical determination)
- Revenues less expenses
Bonus based on performancep
Quality Metrics – measurable and achievable
Requirements for compensation under Stark and AKBS
Benefits29
Scope of Services/LocationsScope of Services/LocationsIdentify services that are included in baseIdentify services that are included in base
compensation separate and apart from those that may be additional (e.g. medical direction; administrative services)
Identify specific locations at which you will be y p ybased
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Outside ActivitiesOutside ActivitiesIdentify current outside activitiesIdentify current outside activities
Be aware of conflict of interest policy
Carve-out in advance specific issues
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NoncompeteNoncompete/Non/Non--solicitsolicitLimit applicationLimit application
Reasonable in terms of geographic scope, time period and services BLUE PENCIL RULEperiod and services – BLUE PENCIL RULE
Carve out private practice
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Questions?
Ross Burris 404Ross Burris [email protected]@nelsonmullins.com
Jennifer Malinovsky 404Jennifer Malinovsky 404--322322--61366136
[email protected]@nelsonmullins.com
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