Healthcare today is challenging for both hospitals and physicians. Together, they are committed to providing quality care, but are faced with having to provide best-practice care to increasing numbers of patients, but with fewer resources, a shrinking pool of specialists, and declining reimbursements. The uncertainty of healthcare reform, declining reimbursement, and an eroding practice income has cardiology groups seeking ways to stay financially whole. For instance, non-invasive testing procedures (nuclear stress tests, EKGs, etc.) are not as financially lucrative as they once were due to a continued ratcheting down of professional fees coupled with changes to the Sustainable Growth Rate formula. Further, these specialists are concerned about additional CMS projected reimbursement cuts scheduled for 2011. Due to these turbulent and uncertain financial times, along with changing a new generation of physicians with different expectations related to work and personal life balance, cardiologists nationwide are approaching hospital administrators regarding hospital/physician alignment. In fact, many have entered discussions with multiple hospitals in order to explore options and determine their “best deal” for employment that offers a steady income, work/life balance, and the opportunity for growth and success. Based on Corazon experience and according to various industry resources*, physician-hospital relations is the #2 issue on CEOs’ minds as well. The topic comes second only to financial challenges, and these two can in some cases be linked. Also consider:
1. Ninety-one percent of Administrators believe hospitals will enter into a joint venture (JV) with physicians. 2. Eighty-seven percent of Administrators believe hospitals will pay physicians for on-call services. 3. Eighty-three percent of Administrators believe hospitals will pay physicians for participating in administrative services (committees, task forces, etc.) 4. In the next ten years, it is projected that up to 80 percent of physicians will be employed.(* The American Heart Association, American Stroke association, MGMA reports, Modern Healthcare and HFMA reports, Cardiovascular Business News, The Jacksonville Business Journal.)
Key Drivers of ChangeDr. Charles Kinder (Electrophysiologist and Medical Advisor for Corazon) projects many EP specialists will move toward employment because of the changes in reimbursement. Implant insertion, lead revision and replacements, and complex ablation procedures require significant physician time. Professional fee payment and the associated relative value unit (RVU) assigned often do not capture the full complexity and time commitment of the physician. This is matched with the hospital payment that may, in fact, have slim margins for the Medicare population. For instance, an atrial fibrillation ablation case can often cost a hospital nearly $9,000 with the CMS reimbursement rate at $10,000. And that’s for a case with no complications or co-morbidities. Although private payor reimbursement is often greater, hospitals will need to manage the inpatient stay and physician resources effectively in order to make a positive margin and continue to offer the needed EP service. The cardiology alignment strategy topic has indeed become even more complex when discussing alignment options in the context of the declining reimbursement and other related issues. Hospitals that are committed to building a program and increasing market share capture must have fully engaged physicians. Program leadership must include a physician complement who are clinically skilled and possess the leadership skills and ability to build consensus and drive change with peers and staff. Physicians typically have not been paid in the past for administrative or “good citizenship” functions like peer review and quality committee participation. The expectation of the modern physician that has many demands on his/her time is to be fairly compensated for their clinical and administrative contributions. Hospital administrators have concerns as well, mostly due to physician shortages. In some markets, hospitals could be at risk to lose their complement of cardiologists that provide on-call services as competition for this important clinical care component increases and as specialists, particularly interventional cardiologists and electrophysiologists, are in high demand and very short supply. Issues related to assuring necessary call coverage, payment for participation in administrative functions, and achievement of clinical standards consensus when there are large numbers of cardiologists or cardiology practices are motivating hospitals to seek out employment arrangements from physicians. Hospitals can use employment, or even other partnering vehicles such as Management Service Agreements, co-management models, or elements of a variety of models, in order to facilitate sustainable solutions. When physician needs are ignored and not addressed by administration, we have witnessed physician migration to competitors, resulting in cardiovascular market share shifts to other facilities. Overall, market dynamics are changing; hospitals that are not proactive in partnering with their physicians will not control their own destiny … and Corazon believes that the future holds even greater challenges to physician relationships. Indeed, cardiologists are going to do something with someone (perhaps a competitor); it’s just a question of when! In any given market, there could be multiple hospitals competing for cardiologist coverage. Those willing to consider various partnership, alignment, or employment models as a means to recruit and retain specialists already in short supply will emerge as market leaders. As an organization, you are either building bridges or putting up walls. Which will you choose for your cardiology service?
Valuations and Other Business ConsiderationsThe first step in understanding the potential for a new relationship can start with a practice valuation. All parties must be working from a base line that helps them to understand the value of the assets that both parties bring to the table. In Corazon’s experience, many large cardiology groups across the country are obtaining their own practice valuation to help them understand their worth and to assist in making informed decisions about their practice’s future. They are often seeking to determine their value prior to negotiating with hospital administrators in order to assure they are armed with the information necessary to obtain the best offer available, especially in highly competitive markets. Hospitals must be prepared to perform their own valuation of the practice or to validate an existing practice valuation to be sure that any “deal” — whether that be full employment or other affiliation agreement — is based on a fair market value assessment. In their negotiation with hospital administration, some cardiologists are leveraging the practice value by believing the “sum of the parts is greater than the whole”. They often are approaching the hospital to buy out the non-invasive testing within the practice and convert it to a hospital-based outpatient testing center as a separate component of their alignment strategy. In order for the purchased non-invasive service to qualify for CMS hospital-based provider status, there are multiple conditions that must be met. (See call out box.) Part of a hospital’s business analysis should be whether the non-invasive center can qualify for hospital provider status in its current physician office location or whether the non-invasive services must move back to the hospital setting. Corazon cautions clients to understand how the local Fiscal Intermediary (FI) and other third party payors will apply the hospital provider conditions. Clearly, the involvement of legal council in the creation of the deal will be essential.
Decisions…Decisions…DecisionsMore and more we are finding that many cardiology practices want to be employed; however, they are concerned about many issues, including how the practice will be managed after being employed, the logistics of professional billing, how their employees will be absorbed and paid, practice locations, and so on. Many of these issues are common across all such negotiations and discussions. In the case of EP practices, physicians may have expectations about their use of extenders to support their practice and productivity. In some instances, we have witnessed much angst as physician assistants or nurse practitioners who were providing support for a single sub-specialty/ist like an EP physician are asked to provide support for a broader group of cardiologists as part of a cardiology group employment model. Although there is no right answer, there is bound to be change that can be stressful in the move to any new model as business and clinical decisions are made within the new delivery context. In many situations, there is lack of trust on behalf of both administrators and cardiologists due to current and/or historical issues. Creating forums for open dialogue and effective communication can be the basis for building new trust-based relationships. The new relationship must be able to withstand tough questions and foster an ability to achieve consensus. Therefore, many hospital CEOs are seeking help from consultants, valuation firms, and/or attorneys to help address concerns and create the optimal alignment strategy. Seasoned outside facilitators will get to the key issues and help everyone identify the “Dealmakers and Deal Breakers,” which also allows administration to have an arm’s length relationship during the process. Further, outside, unbiased facilitators are able to get the key stakeholders to the table to start the process with educational sessions that address the most important factors for both parties. There are several approaches to hospital-physician alignment, with employment among them. Hospitals are wise to consider the full range of options when approaching individual cardiologists or a group; however, choosing the best model may not be easy, as employment may not always be the optimal scenario. Management service agreements have traditionally been used as a foundation for more robust alignment strategies, and some organizations have developed either management service or co-management models in the initial stages to start the journey to a fuller integration (employment). In a management service agreement, a physician or physicians receive compensation for the provision of a predetermined set of administrative services such as quality oversight, medical directorships and operations improvement. The co-management model has historically helped hospitals and health systems develop collaboration with their physicians, and when communicated and structured appropriately, it will establish trust and buy-in from all parties. This more integrated model places physicians and hospital administrators as “partners” in the management and oversite roles for the distinct grouping of services. Often compensation consists of base fees and bonuses based on achievement of measurable clinical outcomes, patient satisfaction and operational improvements. In terms of employment, there are a variety of models being utilized; the Equality / Equal Shares employment model uses the concept that after expenses, remaining revenues are allocated equally among the physician group. The pros to this model include that it discourages over-utilization and doesn’t require complex mathematical formulas; on the other hand, the model presumes all physicians are equally skilled, equally productive, and equally motivated to work in the group’s best financial interest. Such assumptions can cause issues for the practice administrators, because they will need to manage the expectations from both a work-ethic and a financial perspective for the physicians who work across a broad spectrum of productivity. What may happen in this model is that the “high producers” will have little long-term incentive and “low producers” may be allowed to ride on the financial coattails of the more productive physicians. Nonetheless, many single-specialty groups adopt this model on the premise that all services, even those for which reimbursements are lower, are valuable and necessary to a group seeking to operate a full-service practice. Many of the interventional cardiologists have communicated they feel burdened in this model, even though they agree they need the referrals from their non-invasive cardiology partner. The Production-Based Compensation model has the physicians paid a percentage of billings, collections, or RVUs assigned to procedures and visits. Overhead costs (both fixed and variable) are allocated among the physicians. This model encourages and rewards extra effort; however, it can create a competitive group environment and is difficult to manage. The other “Physician Bonus Structures” can include on-call pay, payment for medical directorship roles, and achievement of pre-determined metrics for improved clinical and quality improvements. Another model being increasingly used is the “Physician Enterprise Model”. The Physician Enterprise, slightly more robust than an employment arrangement, is made up of cardiologists in a group practice where the physicians are employed or leased by the hospital and the hospital leases the cardiology practice’s services (e.g., space, staff, and equipment). The hospital may never buy the group practice; instead, the physicians retain ownership of the practice. If the hospital employs the physicians through the Physician Enterprise, they are bona fide W-2 employees. The physicians can serve as the managers of the Enterprise and provide oversight for the turnkey package of services, such as non-physician support staff, facilities, equipment, access to records — essentially acting as an MSO (management services organization). The group practice and the Physician Enterprise enter into a safe-harbored management agreement for these services, which means that legally the arrangement has met the legal requirements of both Stark Laws and Anti-Trust statutes.
SummaryIn conclusion, the physician motivators for alignment are their increasing practice costs, which includes staff, insurance, equipment replacement, and supplies. The annual Medicare cuts to professional fees and office-based testing has reduced their compensation further, along with the added financial pressures caused by the near-elimination of consultation fees for hospitalists, and the associated decreased payment for hospital work. In addition, the cardiologists are concerned about these issues and how they are impacting their lifestyle. Further, the competitive forces from specialty crossover, hospital-sponsored specialists, and the aggressive marketing of programs in outlying areas have the cardiologist looking for alignment, with many opting for employment. Will your organization align or sit on the sidelines? Cardiologists are seeking employment or some alignment vehicle with either you or your competitor. Will you step up to the challenge and build new trusting relationships with your cardiologists during these changing times? Corazon believes that the successful programs will be ones who proactively approach their physicians about their concerns, plans and dreams. The new healthcare paradigm will demand a tighter hospital/physician relationship. Hospitals that want to survive and thrive in the era of healthcare reform must be prepared to drive change as it relates to physician relationships. Don’t be left behind… Susan is a Senior Vice President and Ron is a Vice President at Corazon, Inc., a national leader in consulting, recruitment, and interim management for the heart, vascular, and neuro specialties. Call 412-364-8200 or visit www.corazoninc.com to learn more. To reach Susan, email email@example.com, and to reach Ron, email firstname.lastname@example.org.