1

Using Co-Management to Improve Quality and Keep Physicians Financially Engaged

Curtis Bernstein, CPA/ABV, ASA, CVA, MBA

Craig Anderson, DHG

Chris Masone, DHG

2

Agenda

How does Healthcare Reform support Clinical Co-Management?

What is the Federal Government advising us about pay for quality, outcomes, and satisfaction?– Value Based Purchasing Incentives– Gainsharing Demonstration Projects and OIG Opinions

What is a Clinical Co-Management Agreement?– Structure– Development– Compensation Example– Fair Market Value Compensation Calculation

3

Healthcare Reform Mandate

More Care (32M uninsured, Baby Boomers, Chronic Disease)

Higher Quality (P4P, Shared Savings, Core Measures)

Less Money ($240B Cuts, $90B Penalties)

“Bottom line, if you attempt to use the same care delivery model moving forward, faced with the magnitude of reductions in forecasted revenue, you will go out of business.” Michael Sachs, Sg2

The Reform Mandate

4

5

PPACA

• Physician Alignment• Provider Integration• New Model Adoption• Electronic Health Records

• Adopt New Models of Care Delivery• Shift Accountability and Risk to Providers• Redirect and Shrink the Dollars• Provide Coverage for the Uninsured

• Improve Quality• Increase Access• Reduce Costs

PREREQUISTES

OBJECTIVES

GOAL

Increase Healthcare “Value”

Source: HFMA | DHG

Objectives of Healthcare Reform

Payment Reform is Shifting Risk

6

7

Value-Based Purchasing Incentives

8

Hospital Value Based Purchasing Program

Hospitals are given points for Achievement and Improvement for each measure or dimension, with the greater set of points used

Points are added across all measures to reach the Clinical Process of Care domain score

70% of Total Performance Score based on Clinical Process of Care measures

30% of Total Performance Score based on Patient Experience of Care dimensions

9

12 Clinical Process of Care Measures:1.AMI-7a Fibrinolytic Received Within 30 Minutes of Hospital Arrival2.AMI-8 Primary PCI Received Within 90 Minutes of Hospital Arrival3.HF-1 Discharge Instructions4.PN-3b Blood Cultures Performed in the ED Prior to Initial Antibiotic Received in Hospital5.PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient6.SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision7.SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients8.SCIP-Inf-3 Prophylactic Antibiotics Discontinued within 24 Hours After Surgery9.SCIP-Inf-4 Cardiac Surgery Patients With Controlled 6AM Postoperative Serum Glucose10.SCIP-Card-2 Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period11.SCIP-VTE-1 Surgery Patients with Recommended Venous Thromboembolism Prophylacxis Ordered12.SCIP-VTE-2 Surgery Patient Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours

8 Patient Experience of Care Dimensions:

1.Nurse Communication

2.Doctor Communication

3.Hospital Staff Responsiveness

4.Pain Management

5.Medicine Communication

6.Hospital Cleanliness & Quietness

7.Discharge Information

8.Overall Hospital Rating

Medicare Measures

10

Point System

How are Achievement Points awarded?– Hospital rank at or above the Benchmark: 10 Achievable Points– Hospital rank less than the Achievement Threshold: 0

Achievement Points– If the rank is equal to or greater than the Achievement Threshold

and less than the Benchmark: 1-9 Achievement Points

How are Improvement Points awarded?– Hospital rank at or above the Benchmark: 10 Improvement

Points– Hospital rank less that or equal to Baseline Period Rate: 0

Improvement Points– If the hospital’s rank is between the Baseline Period Rate and

the Benchmark: 0-9 Improvement Points

11

Sample Calculation - Performance

55% 60% 65% 70% 75% 80% 85% 90% 100%95%

Threshold Benchmark

0 1 2 3 4 5 6 7 8 9 10

9 x (Hospital’s Performance Period Score1 – Achievement Threshold

Benchmark – Achievement Threshold ) + 0.5

1 As used in these formula, the “score” refers to the hospital’s performance rate.

12

Relationship of Score to Compensation

Value BasedIncentivePaymentPercentage

Total Performance Score 1000

The exact slope of the linear exchange function will be determined after the performance period and will depend on the hospital’ Total Performance Scores and the total DRG amount withheld

13

Gainsharing Models and Demonstrations

14

Demonstration Projects

Initially performed by Medicare in the early 1990s under a Coronary Artery Bypass Graft Demonstration project.

– Five year project– Saved Medicare $42 million on patients treated in demonstration

hospitals» 10% from expected spending

15

New Jersey Demonstration Project #1

Application submitted in 2001

Eight hospitals covering all of the All Patient Refined (APR) DRGs– Maximum pools of Part A hospital savings for each APR-DRG

treated in the hospital to be shared with the medical staff– Limited to 25% of total Part B payments received by the

physician– Pools converted to a per-discharge cost for each APR-DRG,

based on average cost of the lowest 90% of cases.– Responsible physicians identified for each hospitalization and

they became eligible for bonuses if the average cost of their cases did not exceed the mean cost of the 90 percent baseline group of cases

Terminated in its early implementation period

16

New Jersey Demonstration #2

CMS approved 12 New Jersey hospitals and their participating physicians to test gainsharing– Three year program– Offers physicians financial incentive to work with hospitals to

lower costs» Includes stringent quality controls to protect patient

– Designed around three cost areas: efficiency strategies, quality standards, and financial incentives

In second year of program

17

Medicare Demonstration Project

Began October 1, 2008

Two sites: Beth Israel Medical Center in New York City and Charleston Area Medical Center in Charleston, West Virginia– BIMC continued participation through September 30, 2011 and

CAMC elected to end participation as of December 31, 2009

CAMC demonstration was limited to cardiac DRGs

18

March 28, 2011 Report to Congress

Demonstration project is Secretary’s response to requirements under Section 5007(e)(3) of the Deficit Reduction Act of 2005 as amended by Section 3027 of the Affordable Care Act

– Began October 1, 2008– Test and evaluate methods and arrangements between hospitals

and physicians designed to govern the utilization of inpatient hospital resources and physician work to improve the quality and efficiency of care provided to Medicare beneficiaries and to develop improved operational and financial performance with sharing of remuneration

19

Beth Israel Medical Center

BIMC included most medical and surgical DRGs in their demonstration. Enrollment was voluntary for physicians. A pool of bonus funds was prospectively estimated from hospital savings on

the basis of the following factors:– Total available incentive is a percentage of the best practice variance for

each APRDRG.– Best practice variance = (actual spending - best practice cost)– Best practice cost = spending of the lowest-cost 25th percentile

If no hospital savings were realized, no bonuses are allocated to participating physicians. The total available incentive was defined as:– total available incentive = X% x (actual spending - 25th percentile

spending)– where X% = the percentage of spending (X%) to allot to the incentive

pool An incentive pool calculation was made for every APR-DRG and then

summed across all APR-DRGs.

20

BIMC Demonstration Project

Each patient is assigned to one practitioner who takes financial responsibility for the care of the patient– For medical patients, the responsible physician is the attending

physician– For surgical patients, the responsible physician is the surgeon

Bonus is calculated as a percentage of the maximum performance incentive, based on performance

Gainsharing payment is capped at 25% of the physician’s affiliated Part B reimbursement

Standards to be eligible for bonus:– Overall admission rates within seven days must not increase– Adverse events and malpractice experience must not increase– Physicians must attain standards set for selected quality

measures and administrative requirements– Increased post-acute care use by participating physicians will be

reviewed for appropriateness

21

BIMC Results Through Report

Staff estimates savings as a result of reduction in length of stay resulting from:

– Use of electronic health records– More efficient use of consults– Improved communication and management of imaging choices– Streamlining evidence based care through implementation of

protocols– Implementation of interdisciplinary rounds– More efficient operating room management– More appropriate use of intensive care unit beds

22

Quality Assurances

BIMC proposed a range of physician quality standards, which, if not met by individual physicians, would make them ineligible for the gainsharing bonus. These overall standards are as follows:

– Overall readmission rate within 7 days must not increase.– Adverse events and malpractice experience must not increase.– Physicians must comply with available quality measures.

Complete evaluation results will be available through a report to Congress that is due in March 2013 and a final report to CMS that is due in December 2014.

23

Charleston Area Medical Center

Focused on cardiac DRGs.

CAMC anticipated that internal savings would be generated by the following initiatives:– examination of practice differences,– utilization of laboratory resources as needed,– evaluation of product usage,– increase in patient flow, and – negotiation of lower prices for medical devices and supplies

The CAMC proposal did not propose Medicare savings and expects costs savings to be internal to the hospital.

CAMC proposed to measure physician care provided on several factors to ensure that quality of patient care remained the same. Worse performance on any of the following standards for an individual physician would make him or her ineligible to receive the gainsharing bonus:– Readmission rates– Repeat procedures– Patient outcomes– Major events during procedures– Antithrombotic usage

24

CAMC Results Through Report

Estimated savings are:

– Surgical costs reductions made via negotiated rates on devices and implants

– Reduced physician variation in practice patterns– Reduction in infections, complications, and readmissions for

cardiac and orthopedic procedures

25

IHA Bundled Episode Payment and Gainsharing Demonstration

Test the feasibility of bundling payments to hospitals, surgeons, consulting physicians and ancillary providers for selected inpatient surgical procedures – Limited to California– Funded by the Agency for Healthcare Research and Quality– Expands the current pilot that has focused on commercial PPO

patients receiving total hip and total knee replacement in Los Angeles and Orange counties

In 2011, Integrated Healthcare Association (IHA) added additional procedures including diagnostic cardiac catheterization, cardiac angioplasty with stents, and knee arthroscopy with meniscectomy

Clinical Co-Management Agreement

26

• Committee Involvement• Day-to-Day Mgmt• Strategic Plan Dev• Clinical Care Mgmt• Quality Improvement• Staff Oversight• Budget Development

• Clinical Outcomes

• Patient Safety

• Satisfaction

• Operational Processes

• Financial Performance

Physician LLC

Physician LLCHospital XYZ

FMV Compensation

Management Services

Management Fee Distributions

Investment

Performance Metrics

Fixed Duties

Physicians

Co-Management Overview

Source: DHG

Governance Committee

27

28

Co-Management Models

Component

What is it?

Challenges

Benefits

Management

Manage day-to-day operations of entity

Must delineate duties performed while maintaining provider based

status

Joint effort in cost reduction through management of

staff and supplies

Quality

Share reduction of expenses resulting

from improved quality

Compensating appropriate amount

associate with individual metrics

Improved quality of care should reduce cost of care through lower lengths of stay

and readmissions

Co-Management Overview

Hospital

Physicians

Source: Sg2; Genesys Health System Case Study

30

Co-Management Agreement: Structure

Shareholders:– Hospital – Class A interest– Physicians – Class B interest– Purpose: apply limitations on ownership (e.g., only physicians licensed in

state in a certain specialty can own Class B interest)

Committees– Board of Directors – oversees all other committees

» Include both hospital and physician representatives– Quality Committee– Financial Committee– Operations Committee

31

Co-Management Agreement: Structure

Compensation– Base compensation

» Fixed monthly amount; or» Variable amount based on actual hours worked

– Incentive compensation» Fixed amount» Varies based on achievement of different levels of goals

– Compensation distributed based on hours worked and / or ownership percentage

32

Co-Management Agreement: Development

Rally the troops –physicians may already be involved in a venture together (e.g., specialty hospital, ASC, or physician practice)

Require buy-in to co-management company– Legal restrictions on offering of ownership interests– Only those with an ownership interest can participate in profit

distributions

Owners must actively participate in the management of hospital or hospital department

Co-Management – Valuation Overview

Scope Departments

Inpatient

Outpatient

Neurology

Neuro Surgery

Revenue of Selected Services (EXAMPLE): $1M

Range

Base Range (% of NR)

Service Adjustment

*

Second Range

Revenue Adjustmen

t**

FMV Range

(% of NR)

Market Approa

ch

Low 5.00% 50.00% 2.50% 0.00% 2.50% $25,000

High 7.00% 50.00% 3.50% 0.00% 3.50% $35,000

*Service adjustment is associated with depth and breadth of fixed duties written into the agreement (100% would be fully comprehensive list of duties)**Revenue adjustment is associated with magnitude of net revenue of the service line. There are economies of scale associated with management of larger service lines, therefore the % of net revenue range is lowered for these larger service lines

All Compensation is paid at Fair Market Value

33

Physician LLC

Physician LLCHospital XYZ

FMV Compensation

Management Services

Management Fee Distributions

Investment

Performance Metrics* 60%$15k Total,

$5k per MD

Fixed Duties40%

$10k Total

Physician #2

Co-Management Model – Flow of Funds ($1M Service Line)

Source: DHG

Physician #1

Physician #3$2.5K - $5K Per MD

Governance Committee

Investor (2 Physicians)

Approx. $2k per MD

Leader (1 Physician)Approx. $6k

**Maximum payment assuming full attainment of performance metrics

* All Compensation is paid at Fair Market Value

34

35

Co-Management Example: Management Component

TaskHours per

YearHourly

RateTotal

CompensationStaff Management 600 250$ 150,000$ Peer and Hospital Education 100 250 25,000 Financial and Operational Oversight 250 250 62,500 Market and Strategy Development 100 250 25,000 Billing and Coding Review 175 250 43,750 Total Compensation 306,250$

36

Co-Management Example: Quality Component

Total Quality Pool 1,000,000$

MeasurePercent of Total

PoolPercent

AchievedTotal

CompensationAMI-8 Primary PCI Received Within 90 Minutes of Hospital Arrival 10% 85.0% 85,000 PN-3b Blood Cultures Performed in the ED Prior to Initial Antibiotic Received in Hospital 10% 90.0% 90,000 SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision 10% 95.0% 95,000 SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients 10% 85.0% 85,000 SCIP-Inf-3 Prophylactic Antibiotics Discontinued within 24 Hours After Surgery 10% 90.0% 90,000 SCIP-Card-2 Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period 10% 95.0% 95,000 Patient Satisfaction Levels 10% 85.0% 85,000 Coding Accuracy 10% 90.0% 90,000 Surgery On Time Starts 10% 95.0% 95,000 Electronic Medical Record Usage 10% 85.0% 85,000 Total Pool 100% 895,000$

37

Management Services

Scope of Responsibilities

Level of Responsibilities

Duties within Hospital Based Management Agreements Full Partial N/A

Financial Management Services

Operational Management Services

Other Management Services

Staffing Management Services

38

Management Services

Calculations Under Market Approach

Market Value of ServicesLow High

Overall Percentage of Typical Services Provided 75.0% 80.0%

Full Service Mgmt Fee 5.0% 6.0%Adjusted Management Fee (Based on Level of Services) 3.8% 4.8%Additional Discount for Service Line Size 20.0% 20.0%Adjusted Management Fee (Based on Level of Services and Size of Service Line) 3.0% 3.8%

Revenue of Service Line $6,320,000 $6,320,000

Results of Market Approach - Comparable Agreements $189,600 $242,688 Results of Market Approach - Physician Compensation $233,420 $258,502

Results of Market Approach (Equal Weighting) $211,510 $250,595

39

Benchmark Facilities

Comparable Hospitals

Hospital Gross Patient Revenues

(in Millions) Total BedsCase Mix Index

Regional Medical Center $1,283 265 1.6863Medical Center $767 204 1.4803Regional Medical Center $692 256 1.4537East $614 302 1.6324Regional Medical Center $685 243 1.5678Medical Center $1,277 290 1.6695Hospital $918 404 1.6919Hospital $1,299 268 1.7777Regional Medical Center $775 210 1.8117

40

Quality Incentive

Cost per Case Extended

APC n 25th Median 75th 25th Median0006 5 $75 $97 $141 $375 $485

0007 9 489 489 489 633 764

0013 7 26 59 124 179 410

All Others XXXXXXX XXXXXXX

Subtotal $1,592,048 $2,038,759

Variance in Range $446,711

Shared Savings Percent 50%

Shared Savings Amount $223,355

41

Contact Information:

Curtis Bernstein ■ curtis.bernstein@sinaiko.com ■ 720-240-4440

Craig Anderson, Jr. ■ craig.andersonjr@dhgllp.com ■ 330-650-1752

Chris Mason ■ chris.masone@dhgllp.com ■ 330-650-1752