Finance Considerations with Rural Hospital and Physician Relationships

1. Finance Considerations with Rural Hospital and Physician Relationships Randy Biernat, CPA/ABV Mark Blessing, CPA/FHFMA

2. The role of physicians in healthcare reform strategy

3. What we thought we were getting: Market share Clinical integration Revenue cycle expertise Enhanced efficiencies in care delivery Common IT platform, real-time information sharing ACO/bundled payment readiness Stable physician employees Here’s what we have ended up with instead: Something we already had A new business segment Compliance issues More seats at the decision-making table Expensive systems that doesn't fit everyone’s needs A proposed system that hasn’t produced winners Cumulative losses and expiring contracts Market Recap – Physician Acquisition

4. Health Care Reform Infrastructure Employed Physicians Independent Physicians Independent Physicians

5. Physician Integration & Alignment • Physician Strategy Norms • Current: Ad-hoc, largely employment focused • Future: Systematic, with greater emphasis on non-traditional partnering opportunities • Focus on key strategic service lines (answer to Site of Service?) • Enhanced consideration of affiliation arrangements • Extended service arrangements (local and tertiary service efficiency) • Ancillary joint ventures • Provider-sharing arrangements • Nontraditional payer arrangements (answer to Site of Service?) • Development and use of Succession Plan as key strategic tool • Integration of service line strategy into Succession Plan • Development of physician leadership will enhance responsiveness in this area

6. Physician Integration & Alignment • Physician Leadership Norms • Current: Participation optional/informal • Future: “Physician Co-Leadership” • Identification and training of leadership physicians • Development of key physician leadership functions, including authority and responsibilities coordinated with other physician and system leadership • Care pathways/value improvement (development of care management capabilities) • Quality/patient satisfaction (reporting and improvement) • Physician profitability/efficiency • Physician recruitment/success planning

7. Physician Integration & Alignment • Physician Compensation Norms • Current: Productivity based and/or salary • Future: Aligned with “Triple Aim” goals, strategic initiatives, and/or prevailing reimbursement model • Use of Compensation Plan as key strategic tool– iterate over time • Concept of aligning financial incentives between parties as key alignment tool • Include direct financial performance factors • Include overall physician financial performance factors • Significant reimbursement method changes in future will necessitate significant compensation plan changes to keep incentives aligned • Include performance on quality measures • Include performance on patient satisfaction measures • Include performance on care management measures • Continuing current fee-for-service reimbursement/CAH status requires measured approach– concept of incremental changes to get used to the process • Development of physician leadership will enhance responsiveness in this area

8. Seven Key metrics for managing physician net income • Physician Work RVUs per Physician FTE • Physician Work RVUs per Physician Encounter • Net Patient Revenue per Work RVU • Patient Encounters per Physician FTE • Physician Compensation per Physician FTE • Staff Expenses as a % of Net Revenue • Overhead Expenses as a % of Net Revenue

9. Big Picture Financial Analysis: impact of physician employment

10. Evaluating a Service Line/Departmental ANALYSIS • Summary of Analysis: This type of analysis utilizes charges generated for patients defined in various service lines to allocate both revenue and expenses based generally on Medicare cost report allocation methodologies. • Purpose: By holistically focusing on all areas of operation from a physician standpoint, this analysis can provide clarity around what types of alignment arrangements might be appropriate financial investments.

11. Sample Net Profitability – by broad service type

12. Sample Net Profitability by Service Line

13. Sample Profitability by Department

14. Service line analysis - inpatient

15. Service line analysis - outpatient

16. Evaluating integrated physician performance

17. Physician Alignment Strategy – Goals

18. Thank you FOR MORE INFORMATION// For a complete list of our offices and subsidiaries, visit bkd.com or contact: Randy Biernat, CPA/ABV | Director rbiernat@bkd.com// 317.383.4271 Mark Blessing, CPA/FHFMA | Partner mblessing@bkd.com// 260.460.4063