Physician Integration: Current Trends in Compensation Plans and Employment Transactions

1. Physician Integration: Current Trends in Compensation Plans and Employment Transactions Matthew Scott Allen Foster

2. Introductions Note: We are not attorneys (applause) – you should consult with your legal counsel regarding anything involving regulatory compliance or contracting

3. Context – History of Physician Employment

4. State of the CommonwealthExample: Virginia Hospitals • UVA (1,000 physicians – not all full-time clinical) • Carilion– (600 physicians) • MCV (600 physicians) • Bon Secours (425 physicians) • Sentara – Sentara Medical Group (400 physicians) • Riverside (300 physicians) • Centra (150 physicians) • Inova – Inova Medical Group (150 physicians) • HCA - • Lewis Gale (140 physicians) • Other facilities • Augusta Health (70 physicians) • Valley Health (50 physicians) • Mary Washington Healthcare (35 physicians) • LifePoint • Wythe County Community Hospital • 8 Employed Physicians • Fauquier • 15 Employed Physicians • Twin County Regional Healthcare • Memorial Hospital of Martinsburg • Danville Regional Medical Center

5. Private Practice Anecdotes • “I don’t trust the hospital – I know that administration there is really out to maintain their bottom line.” – Virginia Spine Surgeon • “It just seems like the only way to maintain my quality of life is to build on the systems provided by the hospital.” – Virginia Primary Care Physician

6. Hospitals – Incentives and Drivers • Readmissions – other quality incentives • Continuum of care • “Population Health Management” • Competitor actions • Service Line Support

7. Other Sponsors • Privia (www.priviahealth.com) • Medical Faculty Associates (750 Physicians) (www.gwdocs.com) • Adventist Medical Group (43 Physicians) • SS&G Healthcare (www.ssandghc.com) • Contract Management – no equity position • Mednax (www.mednax.com) • Large Group Employment Model • Davita/Healthcare Partners (www.davitahealthcarepartners.com) • Ownership/Management Services/Networks • Roll-ups (example: www.cfaortho.com) • Larger groups (“franchise” model)

8. Top Line/Bottom Line • Distribution to Physicians/Owners • Reimbursement from Payors Reimbursement for expenses

9. JV/Contract Management Management Services

10. Roll-ups Roll-up sponsor charges management fee (no ownership) “Gastro-Alliance” Roll-up contracts with Payors and employs all staff

11. Large Group Franchise Larger group offices retain branding and existing physicians benefit from economies of scale Joining groups re-brand to existing larger group – incoming physicians take ownership interest

12. Acquisition Terms • Goodwill • Buying A/R / Corporate Entity • Buying Charts • Fixed Assets • Existing Practice Staff • Office leases/ownership • Preference Items • Compensation Model / Compliance • Commencement Bonus • Compensation Guarantee Period

13. Acquisition Terms • Goodwillis the excess of purchase consideration (money paid to purchase an asset or business) over the total value of assets and liabilities.

14. Acquisition Terms • Buying charts • Need to classify activity • Define “active chart” • Need to identify services to be offered • Show that the purchaser has an ongoing interest in serving those patients.

15. Acquisition Terms • Fixed Assets • Lease Model • Fair Market Value • IRS Depreciation Schedule • Book Depreciation

16. Acquisition Terms • Practice Staff • Position Continuation • Impact on long-term physician relationships • Pay scales • Responsibilities • Pre-employment requirements • Drug Testing • Criminal Background Checks • Degree/Certification/Licensure Requirements

17. Acquisiton Terms • Preference Items • Favored staff • Existing EMR • Favored equipment (ie ultrasound) • Location/office • Would the hospital prefer a different location • Expensive supplies

18. Acquisition Terms • Fraud/abuse Due Diligence • Current documentation procedural review • May need to include practice staff • Chart audit • Documentation training • Coding review • Coding training

19. Acquisition Terms • Tax considerations • Self-employment tax • Purchase of fixed assets for more than book value • Wind down of accounts receivable

20. Acquisition Terms • Compensation Model/Plan • NFP Compliance Considerations • Salary caps • FMV analysis • Guarantee period • Deficit at end of period • Eligibility for performance incentives • Self-employment tax

21. Clinical Integration • EMR Adoption/Transition • Access period to prior system • Carry-forward terms • Documents included • Format

22. Comp Model • Specialist/Primary Care Deviations • Physician Leadership Scope • Primary Care • Panel Size • Population Health Influence • Homogenous Services • Low RVU Variability • Specialists • Quality Measures • Protocol Compliance • Diverse Services • High RVU Variability

23. Comp Model • Productivity (wRVUs, etc.) • Measurement advantage • Reporting • Current reimbursement alignment • Quality • Mission alignment • Long-term stability • Future reimbursement alignment?

24. Comp Model Regulatory Requirements • Engage Legal Advice • Stark Regulations • Anti-Kickback Statutes • 501(c)(3) IRS practices

25. Comp Model • FMV/Base Salary Benchmarks/Calculations • National Surveys: • Medical Group Management Association • Sullivan Cotter • American Medical Group Association • Merritt Hawkins • Mercer Consulting • Medscape (WebMD)

26. Comp Model • Engagement/Performance Improvement • Committee participation • Quality improvement initiatives • Peer Coaching • Chart Review • Mid-level mentoring

27. Comp Model • Group-level incentives • Incentives based on group performance • Including those based on a sub-unit (practice, pod, site, etc.) • Customer Service • Productivity • Population Management

28. Comp Model • Academic / other considerations • Faculty appointments • CARTS Methodology • Clinical, Admin, Research, Teaching, Strategic / Citizenship • Community Service Requirements • Free Clinics • Community Board Representation • Professional Society Participation • MSV, RAM

29. Comp Model http://www.merritthawkins.com/uploadedFiles/MerrittHawkins/Pdf/mha2012incentivesurveyPDF.pdf

30. Comp Model http://www.merritthawkins.com/uploadedFiles/MerrittHawkins/Pdf/mha2012incentivesurveyPDF.pdf

31. Comp Model

32. Comp Model • Negative Risk Features • Compliance Performance • Fines or Claw Backs • Deductions based on performance • Clinical • Financial • Note – many risk issues are addressed by the physician employment agreements… but increasingly becoming part of compensation “incentives”.

33. Comp Model Summary: • Physician compensation models are increasingly seen as physician “alignment” mechanisms. • As reimbursement is increasingly subject to performance basis, it follows that compensation will be linked to metrics. • Targets must be achievable and realistic. • Evidence based (Data credibility) • Regulatory Concerns, Stark, Anti-Kickback, etc. • Workforce dynamics (supply & demand) dictate “Fair Market” • Health Systems vs. Independent Models • Primary Care vs. Specialists