HCM-401 Kemal Erkan, FACHE

1. Operations Management in Healthcare Organizations HCM-401 Kemal Erkan, FACHE Changing the Behavior for Efficient Population Health Management

2. HCM-401 Week V • Group Project • Progress So Far • Budget & Organizational Structure • Pay for Performance Challenge • Breakeven Analysis • Financial Challenge • Week IV Topic Presentation by Kyle Bain • Physician Compensation • Week V Class Presentation by Kemal Erkan • Non Profit & For Profit • Improved Healthcare Delivery Model • CCHS 2010 Annual Financial Report • Case Studies • Pay for Performance Analysis • Physician Extender Analysis Changing the Behavior

3. Changing The Behavior of Responsible Parties x Changing the Behavior

4. Physician Payment Presented by Kyle Bain For Kemal Erkan HCM-401 Course Changing the Behavior for Efficient Population Health Management

5. Presentation Outline • Provider Salary • Education and Liability • Obligations • Comparisons • Free Market Value v. Salary Caps • Potential Issues Changing the Behavior

6. Provider Salary • Based on: Demand , Supply, & Quality • Not all services are equal • Music • Professional Artist versus Cover Band • Same song, much different Quality • Lawn Care • Licensed Company Versus Neighborhood Kid • Same job, Quality is completely different. • There needs to be incentives for better quality Changing the Behavior

7. Education & Liability Education Liabilities Malpractice and Risk of losing license. Permanently out of practice Responsible for your LIFE and WELLBEING. • Roughly 10 Years of College • $40,000 *10 Years = $400,000 • Room and Board + Misc Expenses • ~$ ½ Million by graduating • Not Guaranteed $ by graduation • Residency Programs • Top of their class Changing the Behavior

8. Obligations • Service versus Human Principles – Healing • Obligation to the society • Law – “Duty of Rescue” • “A Party can be liable for failing to come to the rescue of another party in peril” • Human Nature to help others in need. • If we are capable, we should all help those in need. Changing the Behavior

9. Comparison • Salaries range for different Specialties and Countries • Family Practice versus Industry’s Top Specialist • Comparison of different professions • Lawyer, CPA, County Executive, senator… • How much Dr. Mehmet Oz makes… Changing the Behavior

10. Comparison 20% Changing the Behavior

11. Free Market V. Salary Caps • Free market: • Supply and Demand determine price of goods and services. CUSTOMERS/PATIENTS determine physicians value. Creates a “Fair Market Value” • Low Demand, physicians must lower their prices • Low Supply (# of Physicians) – They should charge a premium. • With Caps: • Low Demand or Low Supply– Same Quality with no incentive to provide anything other than minimal Quality. Changing the Behavior

12. Potential Issues with Caps • Competition Drives Innovation and Improved Quality. • With Caps, there is NO Competition. Without Competition: • No incentives to provide better quality product/service • No incentive to improve technology or improve customers experience • Providers are going to receive the same benefit whether they work extremely hard or just meet minimal requirements. • Small window of incentives between Normal Salary and Industry Cap. No incentive for Top Quality Changing the Behavior

13. Example • Ex. Students and College • Let’s say every College is equally beneficial. (Reputation, Education, Networking, Job Prospecting) (Not cost, effort, or prestige) • Everyone would go to easiest college possible. • No incentive to go to more expensive school. (Harvard V. Community College) • No incentive to get 4.0 or 2.o GPA. • No incentive to do extra research, ex curricular activities, etc. • Only produce minimal effort. Changing the Behavior

14. Conclusion • Roughly 10 years of Schooling • Huge Debt after graduating • Extreme Liability • Free Market • Competition drives innovation and improved patient care • Patients are determining their Value/Salary Changing the Behavior

15. Provider Salary Questions? Changing the Behavior

16. New Entity “SEC” • 15 different surgeons • 8 different groups • Change of approach for the call responsibility • From “On Call” to “On Site” • Challenges from the “non-profit” insurance company on credentialing • Angie started the process • Rejected • Hazel requested a meeting • No response from the credentialing manager • Rejected by the Medical director • KE requested a meeting • Rejected • KE broke the chain of command • Went to the CEO • KE got a phone call in 7 min of the email after his email to the CEO • The meeting is setup for Nov-15-2011 Changing the Behavior

17. Pay for Performance Changing the Behavior

18. Maitland Family PhysiciansPay For Performance • Maitland Family Physicians • Pay For Performance • Maitland Family Physicians is a medical group practice organized in 1996 as an equal share partnership. The group consists of four family practice physicians and a medical support staff consisting of a practice manager, two receptionists, four nurses, two medical assistants, two billing clerks, and one laboratory technician. In addition the practice uses a local CPA to deal with financial matters. • At the present time the physicians receive equal compensation with a salary of $12,500 per month and an equal share of the profits at the end of the year. Last year each partner received $30,000 bonus. • A recent survey by the Medical Group Management Association indicated that the majority of practices are compensated on productivity and that less than 10% of practices currently operate on a straight salary basis. • The partners have agreed that compensation should consist of base salary plus some form of pay for performance. The partners have all agreed that the proposed system should have the following characteristics: • Both the data and administration of the system must be trusted. • The system must be simple enough to be clearly understood. • The system must be perceived to be equitable. • The incentives offered must be large enough to encourage change • Implementation and administration of the system must be affordable. Changing the Behavior

19. Maitland Family PhysiciansPay For Performance • After researching several other practices the accountant proposed several potential measures: • Productivity Measures: • Number of patient visits -regardless of time per visit or type of visit. • Work RVU’s (Relative Value Units) • Physician work • Practice expense • Malpractice expense • Professional Procedures-count number of procedure codes regardless of time per procedure. • Financial Measures: • Gross charges-total gross charges (ignoring discounts, allowances and costs) • Net collection-total collected revenue (gross charged minus discounts and allowances but ignoring costs. • Net income-total net income (before physician compensation). With allocation of practice costs to individual physicians. • Quality Measures: • Average Patient Satisfaction • Blood Pressure Control-Potential for quality payments if performance targets are met. • Breast cancer screening Changing the Behavior

20. Maitland Family PhysiciansPay For Performance • Positive Considerations: • Increased physician productivity increases billable visits by 10-15% and the average physician reimbursement by 5-10%. • Seeing the most patients is the easiest to calculate. More visits means more billable work. • The most procedures produce the highest revenue. Historically practices that do a lot of procedures do well financially. • Performance based on quality will maintain the patient base. • Net income calculation holds the physician responsible for both revenues and cost. • The pay for quality approach that CMS is supporting for Medicare patients will improve physician experience and generate quality payments. • Negative Considerations: • Elderly and Chronically ill patients take more time per visit than younger patients. • Rewarding procedures rewards a narrow part of clinical practice. • Gross charges do not reflect reimbursement amounts and charges generated at high cost do not help the group financially. • It is difficult to calculate the cost allocation required to the calculation of net income. • Rewarding physicians for practicing good medicine is unacceptable. Physicians should not be paid to do what is right. Changing the Behavior

21. Maitland Family PhysiciansPay For Performance • Problem: • Using Exhibits 11.1, 11.2 and 11.3: • Determine if the physicians should adopt a pay for performance model and if so follow the following guidelines: • Use the historical allocation between base salary and performance pay as a starting point. • Assess the sensitivity of physician pay to the various performance measures. • Recommend the system you think is best for this group. • Should pay for performance be based on productivity, financial performance, and/or quality or any combination? • What total dollar amount should be allocated to performance pay versus base salary? • What amount of net income (after physician compensation) should the group target? Changing the Behavior

22. Pay for Performance Changing the Behavior

23. Changing the Behavior

24. Physician Extender Analysis Changing the Behavior

25. University Faculty Practice • Physician Extender Analysis • University Faculty Practice is a not-for-profit corporation that controls the clinical operations of the medical faculty at Shasta University. At present, the University Faculty Practice controls 6 hospitals, several outpatient clinics and a Long Term Care Facility. • The question posed is the financial impact of possibly utilizing physician extenders (ARNP’s, NP’s, or PA’s) in 3 different types of clinics: • 1. An out patient surgery pre-op and post-op clinic • 2. An internal medicine (Family Practice) clinic • 3. An eldercare clinic. • Currently in medical practices using physician extenders, they perform more than 80% of the primary care patient duties such as taking histories, performing the physical exam, diagnosing and treating illnesses, ordering and interpreting lab tests and in most cases prescribing medicines. This allows the physician to treat more and higher acuity patients, which expedites the flow and increases revenue. • Positive Considerations: • Physician Extenders spend more time with patients and increase patient satisfaction • Patient Extenders are paid $60,000 –80,000 per year while physicians are paid $137,000-$194,000 per year. Cost per patient visit can be lowered. • Increased physician productivity increases billable visits by 10-15% and the average physician reimbursement by 5-10%. • If the Physician Extender and the Physician both see the patient on the same visit, Medicare reimbursement is at 100% of the physician rate. • Physician Extenders can be reimbursed at 100% of services “incident to” a previous service provided by a physician in an office or a clinic. • Negative Considerations: • Some private practice physicians view Physician Extenders as a threat to their gatekeeper position within the healthcare system. Since the 1997 Balanced Budget Act, Physician Extenders can operate without the immediate availability of a physician. • Physician Extenders see 10-20% fewer patients than the physician. • If the patient is seen by both the extender and the physician the billable credit goes to the physician. • NP’s and PA’s operate under a different philosophy of care. NP’s follow a nursing model of care (patient health, education and welfare) and PA’s follow a medical model of care (diagnosis and treatment). • NP’s function under their own license and can operate independently of a physician and may prescribe medication independent of physician supervision. • PA’s are attached to a physician’s license. Changing the Behavior

26. Problem: • Using Exhibit 25.1: • Using anecdotal evidence (speculation) of future demand. • The best estimate is that the patient volume at the surgery pre-op and post-op clinic is increasing at 15% annually. • At the internal medicine clinic there is a several month backlog in current scheduling. • The volume at the eldercare clinic is sporadic and growing slowly. • Estimate the financial impact of using one physician extender at each clinic. • How many additional visits might be generated at each clinic if one extender is employed? • Is it possible for an extender to reduce the number of physician FTE’s rather than increase volume? • What is the impact on cost and revenue? • Recommend the type of extender appropriate for each setting. • Cases in Healthcare Finance, 4th Ed. (Chapter 25) Changing the Behavior

27. Changing the Behavior

28. Not-For- Profit Hospitals: • Not-for-profit hospital corporations are given substantial tax advantages of not paying income, property or sales taxes, recognizing that their services would otherwise be required of government. Most not-for-profits are now in small single community systems. The median size of systems is about $500 million expenses per year, or 4,000 employees. Changing the Behavior

29. Not-For- Profit Hospitals • Not-For-Profit hospitals are exempt from federal income tax under section 501 C (3) of the Internal Revenue Code. To qualify for this exemption a hospital must file form 990H requiring proof of “community benefit ” Maintaining a Not-For-Profit status amounts to big money, with subsidies accounting for $93.5 billion a year in tax breaks. Changing the Behavior

30. Not-For- Profit Hospitals: • Definition of Community Benefit • Programs or services that provide treatment and/or promote health and healing in response to identified community needs. A community benefit is a planned, managed, organized and measured approach to a health care organization’s participation in meeting identified community health needs. It implies collaboration with a special needs groups such as people living in poverty; the uninsured; racial, cultural, or ethnic minorities; frail elderly; persons with disabilities; persons with chronic mental illness; and persons with AIDS. • Community benefit programs generate low or negative margins and supply services or programs that would likely be discontinued if the decision were made on a purely financial basis. Their activities should be intended to address community needs and priorities primarily through disease prevention and improvement of health status including. They are not provided for marketing and/or business development purposes. Changing the Behavior

31. Community Benefit Programs should provide: • • Subsidized health services for those who cannot afford to pay. However, there is not a set minimum level as to what portion of revenues must go toward charitable activities. • • Health services to vulnerable or underserved populations with programs designed to reduce morbidity or mortality rates caused by or related to poverty. • • Programs located in areas that attract most participants from a site identified as poor or medically underserved. • • Financial or in-kind support of public health programs • • Donations of funds, property, or resources to those in need • • Health care cost containment activities • • Health education, screening, and prevention services • • Clinical and community health research • • Health profession education • • Reasonable but not excessive compensation to officers, directors, and trustees. Changing the Behavior

32. Community Benefit Determination • To determine if a program or cost is a community benefit as opposed to a routine service or a marketing initiative the provider should attempt to answer the following questions: • • Does the activity address an identified community need? • • Does the activity support the organizations community-based mission? • • Is the activity designed to improve health? • • Does the activity produce a measurable community benefit? • • Can the activity be credibly described as a community benefit? • • Does the activity require subsidization after any revenue generated? Changing the Behavior

33. For Profit Hospitals • In the 1970’s for profit hospitals reached about 10% and have increased sporadically thereafter. National companies dominate for-profit hospitals and have acquired large market shares in nursing home care, dialysis and pharmacies. There are four large for profit systems a number of small for profits. • In recent years public for-profit has suffered from legal difficulties, pricicipally fraudulent billing. The largest for profit companies have all settled major Medicare claims. • For-Profit hospitals pay income, property and sales taxes. They may compensate officers, directors, trustees and other employees at the discretion of their board of directors and pay dividends to shareholders. • Many For-profit hospitals operate as “specialty” hospitals and serve only the insured, treating and diseases that generate higher reimbursement rates. They do not have to provide an all-purpose E. R, to service the community, nor do they have to maintain unprofitable services such as general medicine and psychiatry. For-profit hospitals maintain that specialization improves patient outcomes. Changing the Behavior

34. Questions for Consideration: • The average percentage of total revenues reported as spent on community benefit expenditures was 7% respectively with the lowest percentage spent for rural hospitals. According to the Center for Tax and Budget Accountability, 75% of the hospitals analyzed receive $327 million more in tax breaks than the charity care they provide. Does this percentage justify Not-For-Profit Status? Explain your position. • Should For Profit Hospitals be allowed to specialize in high paying procedures only and to accept only those with insurance? • According to the IRS, uncompensated care is the largest reported community benefit expenditure. However, there is a lack of consistency in classifying uncompensated care. How would you define it? Changing the Behavior

35. Questions for Consideration: • Some hospitals have been criticized for excessive and hostile collections practices such as placing leans and home foreclosures. What do you think is a reasonable mode of collection? Is there any difference in your opinion between Not-For-Profit and For Profit Collection. • Some Not-For-Profit hospitals have come under scrutiny for paying their CEO’s million dollar plus salaries and other perks at the same time states are making cuts in Medicaid programs. In 2009, the average CEO salary was $500,000 and uncompensated care was 7%. What do you think is an adequate CEO compensation and how much revenue should go to uncompensated/charity care? Changing the Behavior

36. Improved Health Delivery Model “Key Skill Help Put People in Place” Changing the Behavior

37. The Population Health Delivery Model • The goal of the Population Health Delivery Model is to provide a superior health care delivery system that will improve the health of a defined population by providing better care for individuals with more consistency at a lower cost through evidence based practice, and at the same time providing a better caregiver experience through a collaborative approach. Accomplishment of the model will require a new style of leadership and a significant shift in traditional thinking. Changing the Behavior

38. New Leadership Style: • Inspiring and Visionary • Motivated • Collaborative and open to the collective mission • Adaptable • Ability to obtain “buy-in” from physicians • Focus on population health over fragmented episodic treatment of illness. • Shift from internal operations to strategic development with physician and provider involvement. • May require reprioritization of management assignments and adding new talent and expense. Changing the Behavior

39. Pilot Programs • There are several different proposed pilot programs attempting this transition. • One model uses their own colleagues (employees). These organizations are often self-insured and assume full risk. This group provides a knowledgeable group of consumers whose health the organization cares for most • Another model uses populations for whom they share some risk or have incentives such as Medicare Advantage or Medicaid. This system is able to chart a persons journey through the healthcare system from enrollment, developing a patient centered medical home beginning with health risk assessment, biometric screening, primary care system selection, chronic condition identification, coaching and pharmaceutical compliance initiatives. • Whichever model there is specific expectations for the systems and the enrollee. A refund of a portion of the enrollee premium generally provides incentives to hospitals. Changing the Behavior

40. Three Different Pilot Approaches: • Bon Secours Virginia in Richmond, Va, reduced its overall cost per case by 15-20% and overall cost increases to below 5% (a reduction of 2-3%) per year, through: • Executive talent that understands reform and is results oriented. • Accelerated clinical transformation through managers working with medical staff leadership to redesign care at the bedside. • Franciscan Missionaries of Our Lady Health System, Baton Rouge, La., put in place a population health management program for the system’s own health program with the goal of more consistency through evidence based practice that understand both the populations needs and resources that implemented faster “buy-in” and changes among the employees through: • Appointment of a physician leader as CEO. • 2 nurse executives to senior leadership positions who are better able to identify gaps in care and communicate with benefits managers • Memorial Hermann Healthcare System, Houston, TX has placed a focus on population health rather than episodic treatment of illness in a fragmented manner through change in the reimbursement system from “fee for service” to: • Risk based management pre patient per year (capitation) • Bundled payments Changing the Behavior

41. Challenges: • Adding new talent to existing management may increase cost. • Reprioritizing managerial assignments may increase stress and “turf” wars. • Small to midsize organizations do not have the scale to accomplish the transition alone. The need to collaborate and integrate increases the complexity of the CEO job description. • Difficulty finding moderate leaders who can collaborate (avoid “pit bulls”) • Building relationships with payors that will drive collaboration among physicians, hospitals, payors and employees to share data to support population management. • Political issues of partnering with community, government, education and government initiatives. • Finding staff members who have knowledge of public health and epidemiology (not necessarily MBA or Health Management). Changing the Behavior

42. Challenges: • With Value Based Purchasing regulations the need to understand the regulations and efficiently alter programs. • When a group lacks needed skills, finding the best practice and bringing it in. • Building a skill-set infrastructure and adding to existing teams (cost?) • Re-education staff with coursed in public health and site visits to organizations in play (cost?) • Finding people with IT and actuarial ability to effectively manage data and be able to communicate and work effectively with physicians to rebase care delivery. • Building a strong IT platform that will work well with EHR systems and be useful for real time decision making, and patient education resulting in, better, more efficient care while driving down cost. • Transition will be time consuming and expensive requiring new models, processes and people talent. • Efficiency of scale does not fit all cases, it needs to be regularly assessed and monitored to all aspect of enterprise resource planning and clinical functions. Changing the Behavior