Physician Alignment

Operationalizing the Shared Savings Program Regulation Physician Alignment Achieving Strategic and Operational Value Accountable Care OrganizationTask Force Mid-Year Luncheon at theInstitute on Medicare and Medicaid Payment Issues March 31, 2011

Session Overview: Physician alignment • Many organizations are contemplating Accountable Care Organization (ACO) opportunities, Medical Homes, and various forms of clinical integration in response to Healthcare Reform and other industry trends driving an increased focus on quality patient satisfaction, and cost accountability. • Because of delays in publishing the ACO regulations, there are many unknowns around implementing a compliant ACO model. • Regardless of the care model and/or reimbursement mechanism your organization implements, it will require hospitals and physicians to re-examine their historical relationships and align around shared financial and patient care goals. • Hospital and physician alignment can be achieved in many ways. This session explores alignment strategies to consider that can balance: • the objectives of the hospital and its affiliated physicians; • the incentives of new care models and reimbursement mechanisms; • the local market landscape (payors, competitors); and • the regulatory environment.

Physician alignment: Why now? Healthcare reform initiatives and incentives provide the tipping point to accelerate the existing momentum for health system/physician alignment. Volume Focused Health Reform • Reimbursed per admission and/or units of work • Physicians seeking employment models for income security and lifestyle reasons • Limited incentives to prevent admissions or coordinate care • Continuum lacks integration • Declining reimbursement for hospitals and physicians • Significant uninsured and underinsured • “Pay-for-compliance” rather than true outcome-based reimbursement • Limited access to capital for technology investments required to meet HI-TECH • Regulatory issues that restrict integration e.g., Stark, Anti-Kickback, Private Inurement, etc • Value Focused • Competing on quality, patient safety, cost effectiveness, and coordination of care • Episodic/Bundled payments mechanisms • Shift of large groups of uninsured to capitated Medicaid population • HITECH dollars for technology use and integration • Improved documentation of care and information sharing through HIEs • ACOs/Medical Homes • Demonstration projects factor more and more into reimbursement and government payments • New focus on prevention and population health

Low Strength of Alignment High Physician alignment: What is it? Alignment occurs when patient care and financial goals are shared between a health system and its affiliated physicians. The strategy to achieving those goals must be developed together and take into consideration the success of each. Selected Characteristics Low High

Physician alignment: What are potential structures? There are multiple structures through which physician alignment can be achieved, each with its own set of clinical care, financial, and regulatory considerations. Single Entity Formed through Merger or Acquisition Shared accountability for health care utilization and improvement in health status Joint Venture Co-investors and aligned around clinical and financial performance Clinical Co-Management / Clinical Integration Aligned around care delivery model in specific service lines Likely ACO Models Scope of Services Influenced Gain Sharing Physicians share % of cost savings for targeted services / supplies Medical Directorships, Call, & Professional Service Arrangements Physicians linked as independent contractors – relationship may not be exclusive Strength of Alignment

Physician alignment: How do we get there? Co-“Ownership” A fully aligned organization requires a degree of trust in which physicians and administrators see each other as “co-owners” of a health system, working together to deliver the most effective care and experience to their patients. Achieving strategic and operational value will require physicians and hospitals to navigate across these five stages of trust regardless of the alignment structure. Co-Management Collaboration Cooperation Competition

Determining the right model for you

Physician alignment: What’s the right strategy for you? An appropriate physician alignment strategy will balance healthcare reform impacts, competitive market, and organizational objectives. Assess and design strategy Strategy development Scenario planning framework • Complete a full review of external factors related to physician alignment • Through interviews and data analysis assess the organization’s degree of alignment with physicians • Identify the desired position within the competitive and geographic market • Determine the desired degree of alignment and/or position across each alignment factor • Utilize a Scenario Planning Framework to identify strategic flexibility scenarios that consider all alignment factors, in addition to the impacts of reform and the desired competitive position • Select the scenario(s) and develop a strategic roadmap with executable action items Current state Future options Alignment factors Optional strategies Scenario A Scenario B Scenario C Scenario D Outputs • Physician alignment factor assessment • Strategic flexibility scenarios • Strategic roadmap • Executable action plans Execute strategy

Physician alignment framework: Internal dimensions To inform decision making around strategic direction, organizations will need to assess current and desired future state positioning around internal and external dimensions. External Alignment Dimensions Competitive Environment Internal Alignment Dimensions • Leadership • Culture • Change management • Decision making model • Organizational structure • Finance • Physician compensation • Physician recruitment • Reimbursement / contracting • Financial strength, capital access Physician Availability Local Payor Landscape Situational Analysis • Operations • Technology optimization • Revenue cycle • Cost management • Supply chain • Shared services • Patient experience • Clinical Services • Clinical organization • Coordination of care • Patient experience • Quality/safety • Medical staff model • Clinical care team model Regulatory and Reimbursement Issues

Physician alignment: Internal dimension 1 — Clinical services Degree of alignment Low High

Physician alignment: Internal dimension 2 — Operations Degree of alignment Low High

Physician alignment: Internal dimension 3 — Finance Degree of alignment Low High

Physician alignment: Internal dimension 4 — Leadership Degree of alignment Low High

Physician alignment: Internal dimensions assessment A qualitative and quantitative assessment of the four internal dimensions will illustrate the current state of alignment along with the desired future state for both the physicians and the hospital / health system. No alignment Minimally aligned Somewhat aligned Moderately aligned Fully aligned Operations Leadership Clinical services Current State Desired Future State — Physicians Desired Future State — Executives Finance Overall

Physician alignment framework: External dimensions Conducting a review of specific external factors assists with understanding the market forces that are impacting the current environment and could potentially impact the future environment. These factors are market specific. Multi-entity systems will need to assess each market independently. External Alignment Dimensions Internal Alignment Dimensions • Competitive Environment • Market share/shifts • Your and Competitors’strengths/weaknesses • Innovation efforts • Public perception • Physician relations • Leadership • Finance Situational Analysis • Physician Availability • Physician shortages • Physician/ Hospital models • Physician market characteristics • Admission patterns • Referral patterns • Local Payor Landscape • Payor market characteristics • Payor mix vs. competitors • Hospital or provider-owned insurance companies • Operations • Clinical Services • Regulatory and Reimbursement Issues • Value Based Payment • Reimbursement trends • Federal mandates • State healthcare laws

Physician alignment: External dimension 1 — Competitive environnent

Physician alignment: External dimension 2 — Regulatory and reimbursement

Physician alignment: External dimension 3 — Regulatory and reimbursement

Physician alignment: External dimension 4 — Payor landscape

Outputs from the internal and external assessments informs alignment strategy development Desired level of alignment on internal dimensions Prioritization/Sequencing Strategic Roadmap Strategies And future options Guardrails set through external dimensions Executable Action Plans Implementation

Physician alignment advisory group

Outputs and key themes from our physician alignment advisory group Deloitte convened a group of industry executives and physician leaders in Washington, DC, at our Center for Health Solutions to discuss physician-hospital alignment in the context of reform. Through the discussion we identified the following themes as being key considerations in refining a physician-hospital alignment strategy: • Employment is not necessarily a pre-requisite for alignment, and employment should not be the only option. • Alignment does not always equal engagement; and integration does not always equal alignment. • Physicians need to be at the decision making table as “owners” in the process of improving healthcare. • The destination is unclear, but we know that cost, quality, and value are key tenants in the new value equation. • It’s not which reimbursement or delivery model that will drive future success. To “win” in the reform era requires: • The right physician leaders (need docs to educate docs before behaviors will change) • The right executives (need business acumen paired with physician leadership) • The right technology infrastructure (data required to model/manage under new reimbursement mechanisms) • The biggest gap in terms of future state success is physician leadership and organizations will need to make investments to close the gap.

Outputs and key themes from our physician alignment advisory group (cont.) • More burning platforms and disruptive innovations are needed to serve as catalysts for change. • We live in two worlds: • The immediate — with all of the day-to-day challenges around cost, access, and quality • The future — which we know will look very different than today. “We can do all the right things but go broke doing it without making the right future investments” “Where we are heading here is unknown. We know we’re heading west. Money is our core organizing principle. We know we have to create a more purposeful solution, more value, less fragmented.” — Source: Mark Werner, MD, President of Carilion Clinic Physicians and Executive Vice President and Chief Medical Officer for Carilion Clinic, June 29, 2010 “We live in two different worlds. It’s not going to be around docs, hospitals…it will be around health coaches and what people do for themselves.” — Source: Ken Abrams, Senior Vice-President, Clinical Operations/Chief Quality Officer and Associate Chief Medical Officer, North Shore-LIJ Health System June 29, 2010 “The focus cannot be on hospitals. The focus must be on a new structure where physicians and hospitals can cooperate, collaborate and coordinate care for communities. Trust is still a major issue.” — Source: Robert B. Williams, MD, MIS, National Medical Leader, Deloitte LSHC Consulting, June 29, 2010

Speaker Introductions Hector is a Managing Director in Deloitte Corporate Finance LLC’s corporate finance practice. He is a member of the firm’s Health Sciences & Government industry group, co-leads the national Health Care Strategic Advisory and the Financial Advisory Services Accountable Care Organization integration efforts. Hector has advised hospital systems in matters involving physician practice acquisitions, joint ventures, fairness opinions, FMV opinions, physician alignment and ACO strategies, sell-side and buy-side transactions, affiliation agreements, physician compensation agreements (including direct employment, call arrangements, directorships, and co-management agreements), debt restructurings, and hospital syndications. Hector ‘s healthcare sector experience includes acute care, long term care, home health, hospice, ambulatory surgery centers, physician and dental practices, IPAs, imaging, dialysis, catheterization laboratories, disease management, group purchasing organizations, healthcare products distribution and healthcare information technology, managed care, PBM’s, specialty pharma distribution, and life sciences. Hector G. Calzada, Jr.Managing Director Deloitte Corporate Finance LLC 191 Peachtree St NW Suite 2000 Atlanta, GA 30303 mobile: +1 678 779 3006 hcalzada@deloitte.com

Physician Alignment