Successful Models for Hospital-Oncologist Alignment

2. Successful Models for Hospital-Oncologist Alignment Presented by: • Michael L. BlauFoley & Lardner LLPmblau@foley.com617-342-4040 • Leonard A. Kalman, M.D.Miami Cancer InstituteLeonardK@BaptistHealth.net786-527-8016 • Erich MounceUT West Cancer Centeremounce@westclinic.com901-683-0055 x1119 • Kelley D. SimpsonOncology Solutionsksimpson@oncologysolutions.com404-836-2000

3. Road Map to Presentation Structural Models And Options Recent Legal Developments PSA/Co-Mgmt Arrangement Michael L. Blau, Esq. Foley & Lardner, LLP Kelley Simpson, Senior Partner Oncology Solutions, LLC “Oncology Group” Employment ‘Future State’ Strategic Opportunities Erich Mounce, CEO The West Clinic-Methodist Le Bonheur Hospital Leonard A. Kalman, MD Deputy Director Miami Cancer Institute

4. Structural Models and Options Kelley D. Simson, Senior Partner Oncology Solutions, LLC

5. Principal Structural Options • Employment/Practice Acquisition • Professional Service Agreement • Clinical Co-Management Agreement • Bundled Payment/Episode of Care Programs • Accountable Care Organizations • Technical Services Joint Venture (RT and imaging) • Asset LLC (equipment or building)

6. Practice Acquisition and Employment Model • Fairly straight-forward transaction • Asset purchase agreements for FF&E • FMV purchase of ongoing businesses within an oncology practice for retail pharmacy, imaging, radiation therapy, research, etc. • A/R is typically not acquired and practice is generally responsible for outstanding A/R collection • Generally 3-5 year employment agreements are offered • Compensation can vary by guaranteed salary, salary + incentive or 100% wRVU based • Compensation metrics re-indexed quarterly or annually based on productivity and market changes • Signing or retention bonuses are occasionally paid as part of initial consideration • Non-compete provisions are prevalent DirectEmployment DivisionEmployment Subsidiary Employment MSO/Foundation Hospital Hospital System Hospital System Hospital Oncologist Physician Corporation Foundation or Prof Corporation PhysicianDivision • Physician and staff employed by hospital • Payer contracts with hospital Oncologist Oncologist Oncologist • Physician and staff employed by subsidiary • Payer contracts with subsidiary • Physician employed by foundation or PC • Staff employed by division • Payer contracts with foundation or PC • Physician and staff employed by hospital • Payer contracts with division

7. Professional Services Agreement Model ONCOLOGY PRACTICE HOSPITAL PAYERS • Oncologist professional services • Clinical staff and administrative staff lease or employment • Management services • Contracts with payers • Bills for all infusion, pharmacy, lab and retail pharmacy services • Receives payer reimbursement for services • Collects patient co-pays and OOP fees • FMV value payment: • Clinical compensation • Billing and management fees • Medical leadership hours • FFE lease or asset purchase Practice maintains autonomy; Independent contractor relationship with hospital Lease or purchase assets from oncology practice at FMV Oncology practice retains cash and A/R Oncology practice provides physicians and advanced practice providers (NPs/PAs); non-clinical staff; clinical staff ; billing and management services; and, medical leadership services Hospital provides license and provider-based status; 340B pricing (in some situations); space/equipment via lease or purchase; and, clinical services

8. Clinical Co-Management Agreement ONCOLOGY PRACTICE HOSPITAL CouncilRepresentation CouncilRepresentation Clinical Expertise & Professional Oversight Service Line ClinicalOversight/Management CO-MANAGEMENTLEADERSHIP COUNCIL Fixed and Incentive Management Services Payments • Leadership Council is the decision-making body for the service line that ensures oncology practice delivers/performs management services to the hospital via physician champion(s), designated sub-committees and administrative personnel • Council membership to include representation of hospital representatives; oncology service line director; oncology service line medical director; and, physician representatives from oncology practice • Sub-committees are a way of involving multidisciplinary interaction with a broader physician and clinical staff contingent • Oncology service line executive and medical directors report to hospital and the Leadership Council to support the work oncology practice delivers • Scope of services may include: • Participation in service line operations (IP and OP) and planning sessions • Leadership services to develop and monitor quality/performance metrics, e.g., evidence-based clinical protocols, defining metrics with national comparatives, etc. • Identification and implementation of service line clinical and programmatic initiatives that benefit patients, payers, participating physicians and the hospital • Budget development and guidance related to staffing and supply utilization

9. Bundled Payment/Episode of Care Model • There are a number of active bundled payment/ episode of care models such as: • Comprehensive ESRD Care Model • Chronic Care Management Program • Transforming Clinical Practices Initiative • Transitional Care Management Program • ACO/Medicare Shared Savings Program • Medicare Care Choice Model • Bundled Payment for Care Initiative • Most notably launching in 2016 is the CMS Oncology Care Model (OCM) • Medicare FFS program applies to physician practices and PSA arrangements for provider-based services; does not apply to PPS exempt cancer hospitals • Medicare pays $160 per beneficiary per month (PBPM) for a six month EOC ($960 per EOC), plus a retrospective performance based payment • Starts with initial chemo admin claim or initial Part D claim for chemo drug for cancer treatment (other than topical formulations), including hormonal Tx. If treatment ceases in less than 6 mos, PBPM payment continues. If treatment extends beyond 6 mos, can re-initiate a new 6 mo EOC. • Participants must meet 6 “practice requirements,” similar to oncology medical home standards • Deliver 24/7 patient access to clinician who has real-time access to practice’s EMR • Attestation and use of ONC-certified EMR • Utilization of data for continuous quality improvement • Provide core functions of patient navigation • Document care plan in accordance with IOM standards • Chemo treatment consistent with nationally recognized clinical guidelines Converging market factors launched a ‘new day’ in cancer care payer relations Oncology Medical Home National Case Rate Payment with Humana

10. Accountable Care Models ACO CHARACTERISTICS • Patient-centric • Focuses on care coordination • Identifies and implements methods for improving outcomes (QI/performance driven) • Continuously educates across the care continuum • Relies heavily on IT infrastructure • Engages a range of employed and independent providers • Strives to deliver on the Triple Aim Source: The Coker Group, “Developing an Effective Clinically Integrated Network”, April 2013

11. Oncology Model Level of Adoption CIN/ACO/PHO Bundled Payment/Episode of Care Programs Clinical Co-Management PSA includingManagement Services “Group” or “Divisional” Employment Level of Complexity Practice Acquisition & Employment Level of Adoption

12. Recent Legal Developments Michael L. Blau, Esq., Foley & Lardner LLP

13. Key Future Success Factors • Critical mass/Position in local market • Sufficient in-network referral sources • Access to capital for infrastructure to scale/grow • New value proposition • Care ready • Risk ready • Deal ready • Right timing of care redesign changes in relation to payers

14. Key Deal Maker/Breaker Issues • Governance • Financial Terms • Performance standards • IT Integration • Addition of New Physicians • Buy-In/Buy-Out Rights (if applicable) • Term and Termination • Restrictive Covenants • Unwind Rights • Arbitration/Dispute Resolution

15. Recent Legal Developments • MACRA (2015)—amends Civil Monetary Penalty Law to permit payments from hospitals to oncologists to reduce or limit medically unnecessary services • Opens door to shared savings features for co-management arrangements and performance improvement programs • IRS Notice 2014-67—increases to 5 years the permitted duration of contracts with fixed price performance awards based on meeting quality performance standards or data reporting requirements (e.g., CMAs) • Amends Rev. Proc. 97-13 which sets durational limits for agreements that involve oncology group use of tax-exempt bond-financed space (e.g., PSAs, CMAs) • Otherwise: • 5 years with 3 year w/o cause out – if more than 50% of payments are fixed fee payments • 3 years with 2 year w/o cause out – if incentive bonus constitutes 50+% of payments

16. Recent Legal Developments • Section 603 of BiBA (2015)/”Site Neutrality”—eliminates Medicare hospital outpatient payment rates for new off-campus provider-based sites, beginning 1/1/17 • “Grandfathering” of existing sites (as of 11/2/15)—un-level playing field persists with some physician offices and creates new disparity among some hospitals • Will impact the economics of converting oncology practices from physician-office based to hospital-based arrangements, including for cancer hospitals • Will the Act kill deals in pipeline and adversely impact the ability of hospitals to develop and integrate lower cost ambulatory facilities to increase access and reduce cost? • Medicare payment differentials are modest; the question is whether, when and the extent to which commercial insurers will follow suit • Depends on duration of existing commercial contracts and relative bargaining power of the parties • N.B. Hospitals and insurers usually negotiate on a global and not service line basis

17. Recent Stark Enforcement Actions 2014: • Halifax Hospital Medical Center—$85 million settlement (oncology, pharmacy and ancillary bonus arrangement) • All Children’s Health System—$7 million settlement (includes oncology salaries) • Infirmary Health Systems— $24.5 million settlement 2015: • Columbus Regional Health System—$35 Million settlement (includes payments to oncology medical director) • Broward Hospital District— $69.5 million settlement • Adventist Health System— $118.7 million settlement • Tuomey Healthcare System— $237 million jury verdict/$74 million settlement

18. Key Takeaways from Recent Stark Cases • Heightened Stark Law risk for physician compensation arrangements, including under PSA, co-management, medical director and employment agreements • Potential for the application of Stark to Medicaid claims • Government HEAT initiative—more likely to also pursue individual physicians • Payments should not vary with DHS referrals (all hospital services are DHS) • Need for proper compensation valuation—method can’t take into account historic or anticipated referrals • Mitigate risk by structuring co-management company or other intermediate entity to fall outside of Stark Law

19. Recent Legal Developments • 340B Program—Proposed Program Guidance by HRSA (RIN 0906-AB08) issued 8/28/15 • Controversial: Pharma and independent oncology groups v. Hospitals • Hospital must bill for the professional component of the service as a hospital outpatient service; does not appear that a hospital-owned or affiliated group could bill for the service • Prohibited by CPOM constraints in some states • Infusion visit only drugs not covered • Discharge drugs not covered • Drugs in Medicaid bundle not covered • Uncertain timeline for final Guidance

20. Recent Legal Developments • 340B Program—MedPac recommendation to reduce Medicare drug payments to 340B eligible entities by 10% of ASP • Redistribute to hospitals with the largest share of uncompensated care based on S-10 cost report data (budget neutral) • 3 year phase in • Requires legislation—controversial, opposed by AHA, and unlikely until at least after elections

21. Recent Legal Developments • Increased federal and state antitrust scrutiny of health care combinations, including practice acquisitions and exclusive contracts • In Dec. 2015, the FTC and State AG sued to block Boise, Idaho-based St. Luke's Health System from acquiring Saltzer Medical Group, a 40-physician multi-specialty practice that would have increased St. Luke's share of the local primary care patient market to 80 percent • 2014 FTC investigation leads to abandonment of proposed acquisition of two cardiology practices by Providence Health Care in Spokane, Washington that would have given Providence control over approximately 60% or more of the cardiologists in the area • State of Maine v. MaineHealth, Maine Medical Center, Maine Cardiology Associates, P.A. and Cardiovascular consultants of Maine, P.A. (Maine Sup. Ct. 2011) resulted in a consent decree relating to the acquisition of the two major cardiology practices in the Portland, Maine area by Mercy Hospital • Merger or acquisition that results in a Herfindahl Hirschman Index (“HHI”) (the sum of the squares of the market shares of the merging parties and other market participants) in excess of 2500, with an increase of 100 or more, is “presumed” to create market power, and may be challenged

22. Top 5 Reasons to Redouble Your Regulatory Compliance Efforts 5. If it makes sense in any other industry, it is probably illegal in healthcare 4. If you are sure you have it legally right,you have probably overlooked something 3. As soon as you truly have it right, the law can and will change 2. Just because everyone else is doing it doesn’t mean you won’t get caught 1. I can assure you that you do not want to do time cleaning toilets with Bernie Madoff at San Quentin

23. The West Clinic--Methodist Le Bonheur Hospital Case Study Erich Mounce, CEO, The West Clinic

24. West Clinic / West Cancer CenterPSA / Co Management • Why • Dramatic Changes in Delivery of Care in Memphis • Exclusivity payer market • Needed partner to build better care model • Radiation Oncology • Research / Teaching / Academics • Access to capital to make delivery changes

25. West Clinic / West Cancer CenterPSA / Co management model • How • PSA Agreement • Terms : FMV, legal structure, definitions • JOC ; Who !!!! • Site and Asset determination • Co Management Agreement • Care Model • Inpatient and Outpatient care management • Surgical and Radiation Oncology • Pharmacy • Payer Strategies • Clinical training and protocols • Unwind Agreement • Continued awareness of both sides needs and requirements • Affiliation Agreement • University process • Faculty Process • Research collaboration and integration

26. West Clinic / West Cancer CenterPSA / Co management model • Outcome • Moving from Medical Oncology Clinic to Comprehensive Cancer Center • Now patients are seen in a fully integrating caner center • Access to capital has yielded • New 125,000 sq. ft Comprehensive Cancer Center • Commitment to research • Phase One • SWOG • Translational • Care Support Team • Focus on Reimbursement Models • Bundles • OCM • New EMR • Focus on Clinical Care • Adoption of uniform and consistent care plans and power plans • 22 consistent tumor conferences • Dedicated MDC space and physicians in coordination with tumor conferences • Molecular tumor board • Oncology Hospitalist program • Site and Asset determination

27. West Clinic / West Cancer CenterPSA / Co management model • Outcome: • Dramatic Change in service to the under and uninsured • 1222 patients in 2015 receive care that would not have received it • 822 new mammograms • Leading to 135 diagnostics , leading to 3 cancer diagnosis • MDC Care Support team focused on disparity in breast cancer and working to focus on lung and prostate • We are a 340 B provider • All margin is redirected back to cancer program • Transparent use of all funds

28. Miami Cancer Institute Case Study Leonard A. Kalman, M.D., Deputy Director

29. “Oncology Group “ Employment – The Players • Advanced Medical Specialties (AMS) • 47 (30) physician diversified oncology group (Miami) • part of the USON Network • dominant market share at Baptist Health South Florida (BHSF), but no alternative systems • long term “love”/”hate” relationship with BHSF • lots of managed care pushback • geographically isolated • limited business maneuverability • 2 “camps” of physicians • declining/stabilizing but reduced compensation

30. “Oncology Group” Employment- The Players • BHSF • hugely financially successful system (6 hospitals +) • the “quality” provider • market dominance/managed care leverage • in it for the “long term” • willing to play “hardball” • Physics Agreement • Breast Center • decision to build “hybrid cancer institute” • for the “right” reasons • invitation to “join” as the “legacy” physicians

31. ”Oncology Group” Employment- The “Why” • Why did we join? • weighed our financial position (short and long term) • weighed our leverage • managed care • BHSF • appetite for the “fight” • short term “financial” benefit • be part of something “better” (cost of re-engineering) • be part of something “bigger” (“clinical academic center”) • DECISION MADE!

32. “Oncology Group” Employment- The “What” • AMS preferred PSA with co-management • BHSF insisted on “employment” (control issues) • AMS “settled” on “employment” that incorporated as many PSA elements as possible • all current and future employment agreements identical • 8 year term (3 year wRVU re-basing) • certain “unwind” circumstances allowed all “individuals” to re-form group • fairly favorable non-compete provisions • termination only “for cause”

33. “Oncology Group” Employment- The “What” • Further elements of “employment” • Individual compensation improved • “group” allowed to divide the “productivity incentive pool” at its discretion • “group” allowed to define the elements of the “quality” bonus (de facto “shared savings”) • a “group” pool of funds for “administrative” work • individuals allowed to carve out up to 25% of their time for “administrative” work • payment for participation in tumor boards, tumor site teams, etc. • favorable “long term” anti-dilution provisions

34. “Oncology Group” Employment- The “What” • Further elements of “employment” • no requirement to “cover” newly employed “academic” physicians • lots of operational input • former lead physician named Deputy Director and Chief Medical Officer • former lead administrator named VP for Business Operations • physician “operating” committee with lots of input into day to day operational matters

35. Oncology Care Model APPENDIX

36. OCM Program • Oncology Care Model is another CCMI payment initiative for participating oncologists/medical groups and payers to advance the Triple Aim • Comprehensive ESRD Care Model • Chronic Care Management Program • Transforming Clinical Practices Initiative • Transitional Care Management Program • ACO/Medicare Shared Savings Program • Medicare Care Choice Model • Bundled Payment for Care Initiative • 5 year episode of care (EOC) program applicable to high volume cancers (expected to cover 90% of cancer types)

37. OCM Program • Medicare FFS program as part of a multi-payer model—applies to physician practices and PSA arrangements for provider-based services; does not apply to PPS exempt cancer hospitals • Medicare pays $160 per beneficiary per month (PBPM) for a six month EOC ($960 per EOC), plus a retrospective performance based payment • In addition to Medicare FFS payment • Starts with initial chemo admin claim or initial Part D claim for chemo drug for cancer treatment (other than topical formulations), including hormonal Tx • If treatment ceases in less than 6 mos, PBPM payment continues • If treatment extends beyond 6 mos, can re-initiate a new 6 mo EOC

38. OCM Program • Performance based payments (semi-annual) • Based on meeting applicable quality measures (preliminary set specified) – “performance multiplier” determines % of performance-based payment • Based on reducing cost below a target price, with a 20% cap • Costs include all historic medical costs associated with the practice’s patients (Part A, B and certain Part D costs) • Can be “pooled” with other practice(s) for a combined benchmark/target • Risk adjusters have not been finalized • No downside risk for 2 years, with 4% discount/minimum savings rate • Option to elect downside risk starting PY3, with 2.75% discount/minimum savings rate • Financial responsibility for costs in excess of cost benchmark/20% cap • Can switch between Tracks semi-annually • No performance payment until savings exceed PBPM payments • OCM participation terminates if don’t qualify by end of PY3

39. OCM Program • Participant eligibility—all practitioners in group who prescribe chemotherapy must apply/participate • Cannot bill for CCM or TCPI program services for OCM beneficiaries; return of ACO/MSSP savings attributable to OCM • Participants must meet 6 other “practice requirements,” similar to oncology medical home standards

40. Practice Requirements - Evolving Issues

41. OCM Program • Participant selection/factors • At least 100 practices; 175,000 care episodes over 5 year model • Diversity of size, geographic distribution and population • Aligned with other payers that enter into MOU with CMMI to participate in OCM—to lever opportunity to transform care for onclogy patients across a broader population • Commercial payers, MA plans, Sate Medicaid agencies, other governmental payers (e.g., TRICARE, FEHBP, state employee health plans), self-funded plans, TPAs, ASOs • Common core quality measures, but may have additional quality metrics and different (aligned) payment methods • Implementation Plan • Financial Plan

42. OCM Program • Program evaluation • Quarterly reporting by practice • Independent evaluator to determine impact on health outcomes cost, quality of care and patient experience • Patient surveys • Practice staff surveys • Site visits • Learning system—sharing best practices