issues & cautions associated with medical practice affiliations with hospitals &...
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Issues & Cautions Associated with Medical Practice Affiliations with Hospitals &
Alternatives
New Jersey Medical Group Management Association
Practice Management ConferenceApril 18, 2013
Taj Mahal Hotel and Casino, Atlantic City, New Jersey
Michael F. Schaff, Esq.Wilentz, Goldman & Spitzer90 Woodbridge Center Drive
Woodbridge, New Jersey 07095(732) 855-6047
mschaff@wilentz.com
Peter Greenbaum, Esq.Wilentz, Goldman & Spitzer90 Woodbridge Center Drive
Woodbridge, New Jersey 07095
(732) 855-6426pgreenbaum@wilentz.com
2
Overview of Presentation
General Trends• Continued Erosion of “Traditional”
Medical Staff-Hospital Dynamics• Mega Trends
Overview of Affiliation Models• Direct Employment• Physician Subsidy• Physician Enterprise Model• Professional Services Agreement
Model
3
Overview of Presentation
Discussion of Issues and Cautions of Professional Service Model
• Group Considerations• Integration Considerations• Sale or Lease of Assets• wRVU• Budget• Term and Termination• Unwinding• Restrictive Covenant• Information Technology Issues• Operational Considerations
Questions and Answers
4
Continued Erosion of “Traditional” Medical Staff—Hospital Dynamics
CEO & Executive Leadership
Team
Hospital Board
SL Admin./Mgr. PT Med.
Directors Other S.L./Dept. Admin./Manage
rsAll Other Support
Members/Units
Elected Officers & Committees President Vice President Secretary/Treasurer Dept. Chairs & Section Chiefs Other Elected MS Reps. Medical Staff Committees
The Medical Staff
Individual Members of the Medical
Staff
Patients/Payers
Medical Staff/HospitalInteraction & Support
for Shared Mission & Vision
Overview of Traditional Medical Staff Structures & Relationships
Approval of MS Bylaws & Regulations
Pressures to
Integrate
Pressures to
Integrate
4
5
1. Increasing, Shared Economic Pressures from “Eroding” Payer Mix
• Declining income• Accountable Care• Pressures/insecurity resulting from “reform”
driven by CMS for cost control, efficiency and “quality”
• Continuing pressures from payers for P4P, “full networks” and clinical efficiencies
Mega Trends Affecting Physician-Hospital Relationships
6
Mega Trends Affecting Physician-Hospital Relationships
1. Increasing, Shared Economic Pressures from “Eroding” Payer Mix (continued):• Increasing needs/demands from
physicians/practices for income support (e.g., joint ventures regarding ancillary services, requests/demands for “call coverage” payments, Medical Directorship stipends, etc.)
• Competition between physicians and hospitals for ancillary revenue streams
• Misalignment of physician and hospital reimbursement methodologies, e.g., physician fee-for-service versus hospital-per-case
7
Mega Trends Affecting Physician-Hospital Relationships
2. Increasing Operational / Infrastructure Expenses further eroding “bottom line” margins
• High capital costs• Shared disappointments regarding initial
EMR and related IT integration initiatives• Reimbursement reductions for failure to
implement EHR in hospitals
8
3. The Changing Profile of “New” Physicians & Allied Health Providers • Aging medical staffs• Risk-adverse residents/fellows and new
practitioners• Increasing competition for physician talent –
particularly for hospital-based specialties• Economics and lifestyle issues• Erosion of medical staff allegiance - particularly
among PCPs• Limitations of compensation plans to drive
desired behaviors• Emergence of the physician generation gap• Existing and impending physician shortages
Mega Trends Affecting Physician-Hospital Relationships
9
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9
Traditional Physician Recruitment
Medical Directors & Personal Service
Agreements
Management Service
Organization Center of Excellence
J oint Payer Contracting
J oint Ventures
Co-Management Agreement
Physician Employment
Projected Utilization Next 24-36
Months
No Growth Slight Growth
No Growth Decrease Slight Increase
Decrease Steady Growth
Steady Growth
High Growth
Additional Comments &
Rationale
Increasing recognition of
need to rebuild physician relations programs
Limited per Stark and other
regulations
Slight decrease in number of physicians,
increase in pay, and
accountability
Practices will continue to evaluate
whether to seek practice support due to financial
pressures
Typically focused upon
favored margin services
Dependent upon extent of
clinical integration
Continues to increase despite initial resistance from hospitals and systems
Continued increase due to focus on quality and efficiency
Increasing physician
employment integration in multiple forms
Range of Affiliation
Models
Integration and Complexity Increases
Prediction: Increasing Utilization, Sophistication & Complexity of Affiliation Models/Relationships
9
Hospitals/Systems Continue to Re-assess the Necessity of Utilizing a Broad Range of
Affiliation Options with Physicians to Advance Their Shared Missions/Visions
Affiliation Models
10
Model 9A: Direct Employment
System/Hospital
Independent Physician Group
Independent Physician Group
Payers
Employment Agreement
Employment Agreement
11
Model 9A: Direct Employment
Key Provisions:
• Physicians employed directly through the Hospital via a formal individual employment agreement.
• The Hospital, as employer, is responsible for the physician’s practice requirements including operations, finances and governance.
• A standard employment agreement exists establishing compensation, benefits and services to be provided by the physician.
12
Model 9A: Direct Employment
Key Provisions (continued):
• Physician salary must be based on Fair Market Value (FMV) compensation, often calculated on a productivity basis such as work RVU, percentage of collections or net revenue basis.
• The physician assigns his or her professional fees to the Hospital.
Level of Integration
13
Model 9B: Physician Subsidiary with Parent
Independent Physician Group
Independent Physician Group
Payers Employment Agreement
Employment Agreement
Tax-exempt Parent
Hospital
Hospital Physician
Board of Directors
Physician Services
14
Model 9B: Physician Subsidiary with Parent
Key Provisions:
• Hospital Parent entity controls both Hospital and Physician Services Organization.
• Physicians employed through a subsidiary of the Hospital Parent via a formal individual employment agreement.
• Physicians share governance responsibilities with Hospital in the Physician Services Organization.
• The Hospital, as the owner, is responsible for the physician’s practice requirements including operations, finances and governance.
15
Model 9B: Physician Subsidiary with Parent
Key Provisions (continued): • A standard employment agreement exists
establishing compensation, benefits and services to be provided by the physician.
• Physician salary must be based on Fair Market Value (FMV) compensation, typically based on a wRVU basis.
• The physician assigns his or her professional fees to the Physician Services entity.
Level of Integration
16
Model 9C: Physician Enterprise
Model (PEM)
Physician Practice
Physician Practice
Physicians asPractice Owners
Pod Pod
Physician Practice
Pod
Physicians as Employees
Practice Support Agreement
Payer $
Hospital
Payers
Board of Directors
Physician Services Hospital
Physicians
17
Model 9C: Physician EnterpriseModel (PEM)
Key Provisions: • The Physician Enterprise is separate from, but
owned by, Hospital.• Physicians are employees of the Physician
Enterprise, but retain ownership of their practice.
• Physicians continue to manage their practice through the Physician Enterprise.
• The incentive to maintain effective physician practice management is preserved.
18
Model 9C: Physician EnterpriseModel (PEM)
Key Provisions (continued): • The Practice Entity provides a turn-key
package of services, i.e., non-physician support staff, facilities, equipment, and access to records for the Physician Enterprise through an MSO agreement.
Level of Integration
19
Model 9D: Professional Services Agreement Model (PSA)
Hospital Formal Professional Services Agreement and Management
Services Agreement
Independent Physician Group
Asset Purchase Agreement/Lease Agreement
20
Model 9D: Professional Services Agreement Model
Key Provisions: • Physicians retain their Group as a
Professional Corporation (PC), which employs, compensates and governs the physicians.
• The Hospital either directly, or through wholly-owned subsidiary, purchases or leases the PC assets, which must be based on Fair Market Value (FMV) analyses, and converts to a hospital based facility.
• The Hospital purchases physician professional services from the Group through a Professional Services Agreement (PSA) and pays based on wRVUs.
21
Model 9D: Professional Services Agreement Model
Key Provisions: • The Group typically continues to employ and
compensate all non-physician/provider support staff and administrative staff, who are leased to the hospital.
• The Hospital reimburses the Group for all operating expenses via an agreed upon annual budget structure.
• Typically, the hospital negotiates all payer contracts and bills/collects for all services.
• Both parties execute a multi-year Professional Services Agreement (PSA) and Management Services Agreement (MSA) summarizing the key terms/conditions of the relationship to ensure continuous service delivery by individual practice specialties.
Level of Integration
22
Discussion of Ten Issues and Cautionsof Professional Service Model
1. Group Considerations2. Integration Considerations3. Sale or Lease of Assets4. wRVU5. Budget6. Term and Termination7. Unwinding8. Restrictive Covenant9. Information Technology Issues10. Operational Considerations
23
1. Group Considerations
Pros
• More consistent cash flow• Access to Hospital resources
24
1. Group Considerations
Cons• Loss of autonomy
• Financial autonomy• Compliance with Hospital billing policies• Budgetary oversight
• Operational autonomy• Long lead time to go-live date
• Pre-contract and contract negotiations• Post-execution activities including
credentialing and IT• Go live
• Start-up costs• Affects retirement
25
2. Integration Considerations
• Pre-affiliation training of staff• Information Technology integration
• Hospital and Group IT systems to be linked• How will pre-affiliation accounts receivable be
collected• Staff will have been assigned/leased to
Hospital• Computer/billing system will have been
leased or sold• Request use of staff to assist and use of
computers/billing system
26
2. Integration Considerations
• Leases • Identify leases including office lease
and equipment leases• Will be assigned to Hospital
• Space construction/renovations
27
3. Sale or Lease of Assets
• Will Group Sell or Lease the hard assets and medical records• Must be Fair Market Value• Sale
• Immediate cash flow to practice• Must “reacquire” (and pay) for assets on
unwinding• Hospital bankruptcy considerations• Capital gains taxes
• Lease• No “large” up front payment• Monthly cash flow to practice• Easier on unwinding, as no assets to “reacquire”
28
3. Sale or Lease of Assets
• Components of Lease• Identify assets including Hard assets and
Medial records• Identify lease payment• Maintenance costs should tie back to budget
• Components of Sale• Identify assets to be sold• Identify purchase price• Does bulk sale apply
• Are any assets leased or subject to a lien (e.g., equipment lease or line of credit)
29
4. Financial ConsiderationswRVU Component
Establishment of wRVU conversion factor• Must be Fair Market Value• Often comprised of
• Base amount• Benefit amount• Quality Incentive Amount
• Credit given for• Physician-owner production• Physician-associate production• Physician Assistant and Nurse Practitioner
production• “incident to” billing
30
4. Financial ConsiderationswRVU Component
Establishment of wRVU conversion factor• Is the wRVU amount fixed or subject to adjustment
• Hospital will often request that it can review wRVU conversion factor to confirm it is in the XXth percentile/Fair Market Value
• If it is subject to adjustment, Group must consider• Review only after specified period• Collars on the downward adjustment• Termination if wRVU conversion factor is
adjusted (without restrictive covenant)
31
4. Financial ConsiderationswRVU Component
Establishment of wRVU conversion factor• Group should consider CPI adjustment• wRVU benchmark tied to Centers for Medicare &
Medicaid Services published rates• Is the rate schedule tied/fixed to schedule in effect
on commencement or to each newly published rate schedule
32
4. Financial ConsiderationswRVU Component
When is the wRVU consideration paid• In arrears
• Creates cash flow issues for Group• Estimated monthly payments with
quarterly/annual/periodic true-ups• Gives Group consistent cash flow• If the true-up period is not frequent,
again creates cash flow issues for Group
33
4. Financial ConsiderationswRVU Component
• On Review/Off Review• Some systems will initially pay on a monthly
estimate (percentage of historical wRVUs) • Done until “off review”• Once “off review”, then reconciliation done• Logistical concerns
• Hospital determines whether “off review” criteria has been satisfied
• Some physicians on review while others off
• Some services on review while others off
34
4. Financial ConsiderationswRVU Component
• Additional financial considerations
• Group is responsible for determining the compensation, benefits, vacation, sick, and personal leave of Physicians
• Group is responsible for withholdings, payment of unemployment and other payroll taxes
• Must make sure these additional financial elements are factored into the wRVU amount
35
4. Financial ConsiderationswRVU Component
• How is aggregate consideration allocated internally among Group physicians• Based on relative productivity (wRVU or other)• Other allocation as determined by Group
• Group should receive monthly reports showing each professional’s gross billings, net collections, productivity and wRVU amounts
• If agreements are with a Hospital subsidiary, consider requesting a corporate guaranty from Hospital
36
5. Financial ConsiderationsBudget Component
• Overhead of Group is reimbursed by Hospital• Make sure all expenditures are accounted for
• Personnel Salaries• Office Manager, Receptionists, Admin, Techs• Billing Personnel
• Must determine if positions will be eliminated and/or moved to Hospital payroll
• Associates, Physician Assistants and Nurse Practitioners• If wRVU credit is given, will the costs be reimbursed
• Fringe Benefits• Health insurance, 401k, continuing education,
subscriptions, etc.• Payroll taxes
37
5. Financial ConsiderationsBudget Component
• Expenditures (continued)• Equipment Costs
• Leases• Service contracts• Repairs and maintenance
• Supplies (medical and non-medical)• Medical waste disposal• Rent• Utilities• Professional fees (legal, accounting and payroll)• Other
• Make sure accountant’s input is obtained
38
5. Financial ConsiderationsBudget Component
• All leased items will be subject to a mutually agreed annual budget
• Initial budget typically set forth in documents, and subsequent budgets are to be agreed on annually
• Have detailed line item initial budget so annual budgets thereafter have template to use
39
5. Financial ConsiderationsBudget Component
• Need default if subsequent budget is not agreed to• Use of budget for the prior year, with possible
adjustments:• Delete one-time capital expenditures during previous
year • Add expected capital expenditures for upcoming year• Include items which are readily determinable (e.g.,
expenses subject to written agreements, etc.)• Adjustments to take into account increases or
decreases to compensation and benefits for all non-physician personnel
• Other expense items to be increased by fixed percent or CPI
40
5. Financial ConsiderationsBudget Component
• When is it paid• Prior to month (e.g., in advance)• In arrears (will create cash flow issues)
• When is it reconciled• Monthly, quarterly or annually (the longer the
reconciliation period, the more cash flow issues to Group)
• How strict is the budget process• If Group exceeds line item, is Group responsible
for excess • Consider pre-approved variance
41
5. Financial ConsiderationsBudget Component
• Management Fee• Must be commercially reasonable and FMV• When is it paid
• If agreements are with a Hospital subsidiary, consider requesting a corporate guaranty from the Hospital
42
6. Term and Termination
Term• Term is typically three to five years
• What is the renewal process• Evergreen or automatic termination• Should have specified period prior to
expiration to discuss renewal
43
6. Term and Termination
Termination• Typical Hospital-side triggers include:
• Group default (notice and cure period)• Loss of physician’s license, exclusion from
payors, failure to qualify for malpractice• Should be a reasonable number of
physicians before termination• Group bankruptcy
44
6. Term and Termination
Termination• Typical Group-side triggers include:
• Hospital default• Loss of Hospital’s license and exclusion
from payors• Hospital bankruptcy• Change in wRVU factor
• If agreements are with a Hospital subsidiary, triggers must extend to Hospital
45
6. Term and Termination
Termination• Without Cause
• Is this acceptable to Group• Consider prohibition in early years• Consider termination payment
• Mutual Triggers• Change of Hospital structure/control• Regulatory issues• Hospital tax-exempt issues
46
7. Unwinding
Group to “reacquire” the practice on unwinding
• Ability to purchase hard assets and patient charts• All or select assets and charts• Newly acquired assets which are used at office
• What is the price• Hard assets are typically at the Fair Market Value• Charts are typically at the initially agreed-upon
price
47
7. Unwinding
• Re-assignment of office lease and applicable equipment leases
• Transition of information technology systems (including billing, collecting and EMR systems) • Will an EMR license be necessary• Electronic data to be transferred to Group
• Development of transition plan so minimal disruption
48
7. Unwinding
• De Minimus Billing during affiliation• In a minimum amount necessary to remain
credentialed in each third party payor program
• Any amounts collected would be remitted to Hospital
• Allows Group to remain credentialed and thus immediately bill on unwinding
49
8. Restrictive Covenant
• Prohibits affiliation with another Hospital system
• Typically one to two years• Typically does not restrict re-engagement of
private practice• Should not apply on certain termination
triggers, including by Hospital without cause, by Group for cause, regulatory issues and Hospital tax-exempt issues
• Should not apply if Hospital does not give a fair renewal offer
• Carve out larger medical groups and specific systems, if applicable
50
8. Restrictive Covenant
• Mutual non-solicitation of employees
• Carve-out pre-affiliation employees that were moved to Hospital payroll
• Restrictive Covenant should only apply to Owners (not to associates and other clinical personnel)
51
9. Information Technology Issues
• Information Systems Integration• Does the Group continue using its own IT
or will it use Hospital IT• Pre-affiliation integration
• Hospital should pay costs of integration• If equipment is needed, Hospital
should pay
52
9. Information Technology Issues
• Meaningful Use• Who is entitled to EMR meaningful use
incentive payments• Meaningful use earned pre-affiliation• Meaningful use earned during
affiliation
53
10. Operational Considerations
• Physicians• Not able to add professionals without Hospital
approval• Consider replacement of professionals who
have left• Consider grandfathering slots/positions which
are actively being recruited at time of affiliation
• Location of Services• Hospital will want flexibility to require services
“at any location determined necessary”• Group should limit to existing office(s) and
specific hospital campus(es)
54
10. Operational Considerations
• Full or part time• Permitted outside activities
• Moonlighting • Medical director at other facilities• Teaching, charitable activities, expert
testimony, honoraria, lectures, paid interviews, publishing, surveys, etc.
• Participation on reading panels, including readings for stress tests, EKGs and echocardiograms
• Specify Group/professional retains all income
55
10. Operational Considerations
• Control over staff• Hospital will want the ability to remove
employees • Group should try to qualify and/or set
conditions• Endanger the health or safety of patients• Harm to Hospital’s reputation, etc.• Notice and cure period
• All staff decisions must be made within the framework of the approved budget
• Generally not able to add without Hospital approval
56
10. Operational Considerations
• Control over equipment• Hospital will want ability to determine
if/when/what equipment is needed• All equipment decisions must be made
within the framework of the approved budget
57
10. Operational Considerations
• Malpractice Insurance• Group must make sure this is a budgeted
item• Who determines carrier
• Group typically will want same policy as during pre-affiliation period
• If policy is to be changed, then need to consider tail policy
58
Questionsand
Answers
Issues & Cautions Associated with Medical Practice Affiliations with Hospitals &
Alternatives
New Jersey Medical Group Management Association
Practice Management ConferenceApril 18, 2013
Taj Mahal Hotel and Casino, Atlantic City, New Jersey
Michael F. Schaff, Esq.Wilentz, Goldman & Spitzer90 Woodbridge Center Drive
Woodbridge, New Jersey 07095(732) 855-6047
mschaff@wilentz.com
Peter Greenbaum, Esq.Wilentz, Goldman & Spitzer90 Woodbridge Center Drive
Woodbridge, New Jersey 07095
(732) 855-6426pgreenbaum@wilentz.com
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