The Power of the Physician Market April 19, 2012

1. The Power of the Physician MarketApril 19, 2012

2. Today’s Discussion Director Lisa Reichard,RN, will lead today’s presentation, featuring commentary from Atlanta-based Grady Health System President and CEO John Haupert. 2

3. Grady Health System • 953 Beds • 4,000+ FTEs • Staffed by doctors from Emory University and Morehouse schools of Medicine • 200+ affiliated physicians Serving Atlanta Since 1892 3

4. I. Migration of Physician Population and Effect on Decision-Making Power 4

5. To protect and grow their earning ability since the late ‘90s, physicians have hooked up with joint-ventured, free-standing outpatient centers, surgery centers and hospitals. • This puts physicians in a position of being able to control both the price and utilization of services. • The growth in medical expenditures (now more than 17% of the entire GDP) also shows a trend toward consolidation across healthcare providers. • Healthcare Reform is also firing up the shift to increased consolidation – enhancing physicians’ market power on medical spending and decision-making. Physician Market Power and Medical Care Expenditures, Abe Dunn and Adam Hale Shapiro, Sept. 14, 2011, Bureau of Economic Analysis, U.S. Dept. of Commerce 5

6. What has been the basis for the migration of physicians towards consolidation, joint ventures, and hospital alliances and how has this affected decision-making power? “The migration of physicians to physician owned or joint ventured free standing outpatient centers, surgery centers and hospitals has been occurring for the last 15 years. As reimbursement to physicians began to decline in the 1990s and early 2000s, physicians sought opportunities to protect and enhance their earning ability and found the answer in these types of business opportunities. “The motivation is primarily two-fold in the last two years: 1. To open up the technical portion of the fee structure to the physicians that have traditionally been the domain of the health systems and 2. To provide the physicians with much greater control over the operations of the entity and greatly enhances physician decision making power.” John Haupert, FACHE President and CEO of Grady Health System April 16, 2012 6

7. Percentages of U.S. Physician Practices Owned by Physicians versus Hospitals Physician Compensation and Production Survey, Medical Group Management Association, 2003–2009. Published by the New England Journal of Medicine on March 30, 2011, at NEJM.org 7

8. Percentages of Active U.S. Primary Care Physicians (PCPs) and Specialist Physicians Employed by Hospitals, 2000-2012 Physician Compensation and Production Survey, Medical Group Management Association, 2003–2009. Published by the New England Journal of Medicine on March 30, 2011, at NEJM.org 8

9. How much influence will Hospital-based Physicians have on Hospitals regarding the selection of software, hardware and medical equipment? “The traditional hospital based physician specialties of Radiology, Pathology, Anesthesiology and Emergency Medicine should and usually do have a great deal of influence on the selection of software, hardwareand medical equipment.  “The balance of decision making power is so often influenced by the culture of the institution so it is possible that there are health systems that do not afford the hospital based physicians a seat at the table when it comes to making these decisions.  “However, the entire system is better served if these decisions are balanced between the end-users and the technical experts.” John Haupert, FACHE President and CEO of Grady Health System April 16, 2012 9

10. II. Physician Selection of Affiliated Hospitals and Acquisition of Physician Practices by Health Systems 10

11. The “hospital of choice” for independent physicians will have the following characteristics: • Adequate capital for investment in human resources, technology, and facilities • A strong and sustainable market position and growthpotential based on affiliated primary care practices • The ability to engage physicians as business partners • The availability of performance management information Marc D. Halley President and CEO of the Halley Consulting Group 11

12. What in your experience is most important to Physicians as they consider ownership by a Hospital or Healthcare System? “Many physicians are drawn to the possibility of ownership by a health system. It allows them to focus more time on providing medical services and allows them to let go of: - office management - revenue cycle management - additional burdensome tasks of running a practice. “On the other hand, they now find themselves as employees having expectations made of them regarding productivity and quality that they may not have previously encountered.” John Haupert, FACHE President and CEO of Grady Health System April 16, 2012 12

13. Massachusetts General • 907 Beds* • 14,800+ FTEs • Original and Largest Teaching Hospital of Harvard Medical School • Close to 3,000 affiliated physicians * Bed count will expand to 1,052 after current renovation project is completed Serving Boston Since 1811 13

14. Trends in Hospital-Physician Alignment 14

15. How will Hospital-Affiliated Physicians be affected as Healthcare Systems begin to buy up Physician Groups and what impact will this have on Independent Medical Practices? “Many health systems across the country are in a race to acquire physician practices, both primary care as well as specialist groups. Health systems are finding themselves engaged in complex relationships with physicians who have experienced a great deal of independence throughout their careers now making the transition to an employed model. “This transition creates numerous complex issues for all parties. In addition, the health system must still preserve and value its relationship with the non-employed, independent medical staff members. This is a delicate balancing act that requires organizational savvy by both the leaders of the health system as well as leaders of the physician groups.” John Haupert, FACHE President and CEO of Grady Health System April 16, 2012 15

16. III. Keys to Tracking Financial Performance of Physician Practices (HFMA) 16

17. A new set of eight MAP keys was recently released by the HFMA, and when used correctly, is designed to aid hospitals, health systems and physician practices in tracking financial performance over time. 1.Practice operating margin.This key measures financial performance of a physician entity on an accrual basis. 2. Practice net days in accounts receivable.This key calculates the average number of days it takes to collect payment on services rendered and measures revenue cycle effectiveness and efficiency. 3.Practice cash collection percentage.The purpose of this key is to measure revenue cycle efficiency and support valuation of current accounts receivable. 4.Total physician compensation as a percentage of net revenue.This key demonstrates ability to afford physician compensation in relation to revenue of the physician enterprise. 2012 Healthcare Financial Management Association (HFMA); www.hfmap.org 17

18. 5.Professional services denial percentage.This key tracks payer denials and impact on cash flow. It also trends payment and process improvement opportunity. 6.Point-of-service collection rate. This key provides opportunity to decrease collection costs, accelerate cash flow and increase collections. 7.Total charge lag days. This key measures charge capture workflow efficiency and identifies delays in cash. 8.Percentage of patient schedule occupied.This key identifies opportunity to maximize slot utilization and improve practice productivity. 2012 Healthcare Financial Management Association (HFMA); www.hfmap.org 18

19. IV. Physician Group Practices – EHR 19

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21. Physicians & Meaningful Use EHR Incentive Program To Date: 39,539 MDs & DOs Paid $711,702,000 in Funds 21

22. Physicians in Wired Hospitals Physician + MU + Revenue Correlation Hospitals investing in IT initiatives appear equally invested in physician alignment 22

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24. Contact us. @billians@GradyHealth www.BilliansHealthDATA.com www.GradyHealth.org 24