Paying Physicians for Leadership and Quality at the Hospital/System

1. Paying Physicians for Leadership and Quality at the Hospital/System HFMA Georgia Chapter Fall Institute – November 11, 2011 Darcy Devine, AVA, AIBA ddevine@gatesmoore.com Emma Miller, AM, AVA emiller@gatesmoore.com

2. Relationships in healthcare are changing.

3. Physicians are adapting

4. The government uses the “Honor System” when paying for healthcare.

5. Payments to the wrong person, of the wrong amount, or for the wrong reason cost Americans an estimated $98 billion in 2009, with $54 billion coming from Medicare and Medicaid. The Obama Administration has pledged a crackdown on healthcare fraud.

6. Hospital-Physician Integration Independence Employment Services Agreements Co-Management Joint Venture *

7. Stark Law Prohibits a physician from making a referral to an entity with which she or her immediate family has a financial relationship if the referral is for the furnishing of designated health services, unless the financial relationship fits into an exception set forth in the statute or impending regulations. Anti-Kickback Law Provides for criminal penalties for certain acts impacting Medicare and state health care (e.g., Medicaid) reimbursable services. Of primary concern is the section of the statute which prohibits the offer or receipt of certain remuneration in return for referrals for or recommending purchase of supplies and services reimbursable under government health care programs.

8. Employment Safe Harbors Stark exception to the referral prohibition related to compensation arrangements for bona fide employment relationships with physicians (or an immediate family member of the physician) • The employment is for identifiable services. • The employment is a bona fide employment relationship with the employer. • The amount of the remuneration under the employment is: • consistent with the fair market value of the services; and • is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician. This does not prohibit payment of remuneration in the form of a productivity bonus based on services performed personally by the physician (or immediate family member of the physician. • The remuneration is provided under an agreement that would be commercially reasonable even if no referrals were made to the employer. Anti-Kickback Safe Harbor for employment relationships

9. 45% of Physicians Expect Higher Salaries with Physician Employment PWC, From Courtship to Marriage, April 2011 http://www.pwc.com/us/en/health-industries/publications/from-courtship-to-marriage-series.jhtml *

10. Employment

11. When money is exchanged between a hospital and a physician – the payment should reflect the fair market value of the goods or service received.

12. Fair Market Value in Healthcare The value in arm’s-length transactions, consistent with the general market value. “General market value” means the price than an asset would bring as a result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated referrals. 42 CFR 411.351

13. Fair market value requires an arm’s length transaction.

14. Fair market value buyers and sellers are interested … but not desperate.

15. FMV in healthcare does not consider the value of “down-stream referrals”.

16. Commercial Reasonableness in Healthcare STARK LAW: • we are interpreting “commercially reasonable” to mean that an arrangement appears to be a sensible, prudent business agreement from the perspective of the particular parties involved, even in the absence of any potential referrals. (Federal Register / Vol. 63, No. 6 / Friday, January 9, 1998 / Proposed Rules) • with respect to determining what is “commercially reasonable,” any reasonable method of valuation is acceptable, and the determination should be based upon the specific business in which the parties are involved, not business in general.(Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Rules and Regulations) • in the absence of referrals, an arrangement will be considered “commercially reasonable” if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS referrals. (Federal Register / Vol. 69, No. 59 / Friday, March 26, 2004 / Rules and Regulations)

17. How Does Physician Pay Increase Post Transaction? • Do more of the same work • See more patients • Get paid more per unit for the same work • Better contracts ( pay) • Improve efficiency ( cost) • Do different and/or more valuable work • Quality • Leadership

18. Quality Compensation

19. “Quality” Compensation 1. What is the physician’s scope of influence? • Medical Practice • Service Line • Hospital • System • How Do We Measure and Track Quality? • Internal systems • Government reporting • Outsource 2. How Do We Define Quality? • Data collection • Patient satisfaction • Guideline adherence • Safety • Timeliness • Outcomes • Prevention • Efficiency 4. How Do We Evaluate Performance? • Develop a baseline • Define the benchmark • Benchmark level and/or improvement against baseline

20. 5. How Much Do We Pay for Quality? • Look at how payors compensate physicians under P4P plans • Medicare PQRS – has paid up to a 2% premium on reimbursement to physicians reporting data • Med-Vantage survey of 45 health plans, physician P4P incentives were just over 7% of total physician reimbursement. • Look at how physician employers pay • 5-10% and up to 20% of physician salary • Look outside of the healthcare industry • For example, AICPA survey showed CFO bonuses at 15% of salary; non-financial targets were more than half of bonus http://www.imshealth.com/deployedfiles/ims/Global/Content/Solutions/Healthcare%20Analytics%20and%20Services/Payer%20Solutions/Survey_Exec_Sum.pdf http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/Resources/OperationalFinanceAccounting/HumanResourcesandRelatedIssues/DownloadableDocuments/2011_CFO_Comp_Survey.pdf *

21. 5. How Much Do We Pay for Quality? • Paying for quality is paying for a result • Higher level of pay for clinical work performed • Some payors/employers moving away from bonuses and towards a higher per unit rate

22. CMP Restrictions • The federal Civil Money Penalties statute (the “CMP”) generally prohibits compensation to physicians to induce them to reduce or limit services to Medicare or Medicaid beneficiaries. 42 U.S.C. §1320a-7a • In Advisory Opinion 08-16, the OIG did not impose administrative sanctions for the bonus program under the CMP because: • quality targets based on credible medical evidence • quality targets reasonably related to practice and patient population of hospital • performance measures underlying compensation to physicians clearly and separately identified • written disclosure to patients • transparency

23. Summary of Proposed Stark Exception • Allows for incentive payments and shared savings programs by hospitals to a physician on the hospital’s medical staff or to a qualified physician organization • The program must be designed to achieve: • improvement in quality through changes in physician clinical or administrative practices; or actual cost savings for the hospital resulting from the reduction of waste or changes in physician clinical or administrative practices, without an adverse effect on or diminution in the quality of hospital patient care services • Program methodology must be: • Objective • Verifiable • Supported by credible medical evidence • Individually tracked • Reasonably related to the hospital’s patient population • Patient care quality measures must be: • Listed in CMS’ Specification Manual for National Hospital Quality Measures • Monitored to protect against inappropriate reductions or limitations in patient care services. • The incentive payment or shared savings program must establish: • Baseline levels for performance measures using the hospital’s historical and clinical data; and • Target levels for the performance measures that are developed by comparing historical data for the hospital’s practices and patient population to national or regional data for comparable hospitals’ practices and patient populations; and • Thresholds above or below which no payments will accrue to physicians.

24. Quality Bonus: Example • The maximum Total Bonus Opportunity (TBO) available is equal to 10% of the Physician's annual base salary. Bonus amounts will be paid based on the physician’s achievement relative to two main quality metrics. Each metric includes multiple tiers, providing for increased incentive pay for higher scores. • The first metric is patient satisfaction. The Patient Satisfaction Opportunity (PSO) comprises 33% of the TBO. The PSO considers both the Hospital and the Physician's scores as reported in the Press Ganey Inpatient Patient Satisfaction Survey for the most recent 12-month period. • The second metric relates to quality of care, or more specifically, compliance with interventional cardiology treatment guidelines. The Quality Metrics Opportunity (QMO) comprises 67% of the TBO. The QMO is based on the Hospital's compliance relative to national compliance with selected American College of Cardiology/American Heart Association treatment guidelines, as reported in The ACTION Registry - GWTG, the leading national coronary artery disease database.

25. Quality Bonus: Example

26. Quality Bonus: Example

27. Quality Bonus: Example

28. Leadership Compensation

29. ACPE – Identified Leadership Roles • Chair/Member, Board of Directors • Chief Executive Officer/ President • Chief Information Officer/Chief Medical Information Officer • Chief Medical Officer • Chief Quality and Patient Safety Officer • C-Suite, Other • Consultant, Full-time • Department Chair / Division Chief • Medical Affairs, Executive (EVPMA) ; Senior Vice President (SVPMA); Medical Affairs, Vice President (VPMA) • Medical Director • Medical Director, Assistant • Medical Director, Service Line • Other Functional Areas, Vice President/ Senior VP / Executive VP • President of the Medical Staff • Professor • Professor, Associate/Assistant • Residency / Fellowship Program Director 92 medical director titles in IHS Medical Director Survey Source: ACPE, 2011 Physician Executive Compensation Survey, Positions

30. Leadership Compensation – FMV Considerations • The fair market value of administrative services may differ from the fair market value of clinical services. Stark III Preamble • Generally speaking… Reliance on the Experience, Training, and Credentials of Physician = FMV • American Medical Group Association 2011 Medical Group Compensation and Financial Survey • Non-physician CEOs: $330,200 - median; $593,306 - 90th percentile. • Physician CEO: $465,890 - median; $923,724 - 90th percentile.

31. Leadership Compensation • Scope: Practice, Service Line, Hospital/System • Complexity: Manager versus Leader • Reliance on experience/training and specialty • Commercial Reasonableness • Necessity • Aggregate FTEs • Compensation Structure • How is it paid • Base / Hourly / Stipend • What is the benchmark? • Impact on production incentive • Reduce production thresholds to account for administrative FTE

32. Leadership Compensation • Sources for Leadership Compensation Benchmarks • Medical group associations: MGMA, AMGA • Professional associations: ACPE, society publications • Consulting firms: Sullivan Cotter, IHS, Towers Watson • Public information: government data, Guidestar • Proprietary studies

33. When There is An Asset Purchase • FMV compensation limitations • Post transaction compensation is tied to historical income / cash flow production of practice • “System” dollars vs. “Practice” dollars • Commercial reasonableness of the overall arrangement