HAND SURGERY PRACTICE
Survival Strategies in a Changing Practice Environment Bruce M. Leslie, MD, Michael L. Blau, JD
A number of forces disrupt normal referral patterns to physicians, driving hospital consolidation, and changing the way medicine is practiced in the United States. Strategies have been implemented to keep services in-network and stem “leakage”—all in the name of population health management, reducing unit costs, and spreading financial risk among the insurers, hospitals, and physicians. To survive in the changing medical environment, independent unintegrated physicians need to consider different practice models. These models include accountable care organizations (ACOs), super groups, specialty networks, co-management agreements, professional service agreements (PSAs), and partnering with local hospitals. Each physician and physician group need to decide what works best for them and their geographical area. Physicians and physician groups may find that one or more of these models will improve their chance of economic survival. (J Hand Surg Am. 2014;39(5):1012e1016. Copyright Ó 2014 by the American Society for Surgery of the Hand. All rights reserved.) Key words ACO, super group, specialty network, co-management, PSA.
C
HANGES IN REIMBURSEMENT,
employment trends, and technological requirements have made it difficult for independent unintegrated private practice groups to maintain their clinical and financial independence.1 Nimble groups that capitalize on these changes should be able to survive, but those who hew to old practice models may find themselves isolated with little hope for the future. For those who desire to remain in private practice, this paper outlines strategies. Because each situation is different, advantages and disadvantages are highlighted (Table 1). From the Department of Orthopaedic Surgery, Newton-Wellesley Hospital, Newton; and Foley & Lardner, LLP, Boston, MA. Received for publication January 12, 2014; accepted in revised form January 31, 2014. M.L.B. is a partner in the law firm of Foley & Lardner LLP, where he specializes in Health Law and is Chair of the firm’s Industry Teams, which includes the Health Care Industry Team. He advises healthcare clients on corporate and regulatory matters, including mergers, acquisitions, and affiliations; financing transactions; contracting; and forming provider groups, networks, alliances, and joint ventures. B.M.L. is involved in a co-management agreement with Newton-Wellesley Hospital in Newton, MA. Corresponding author: Bruce M. Leslie, MD, Suite 343, 2000 Washington St., Newton, MA 02462; e-mail: [email protected]. 0363-5023/14/3905-0034$36.00/0 http://dx.doi.org/10.1016/j.jhsa.2014.01.042
1012
r
Ó 2014 ASSH
r
Published by Elsevier, Inc. All rights reserved.
ACCOUNTABLE CARE ORGANIZATIONS Accountable care organizations (ACOs) have been proposed as a way to deliver high-quality care at controlled, reduced cost. In an ACO model, health plans would no longer reimburse providers on a feefor-service basis. Instead, health plans would set a cost benchmark or provide a fixed amount of money to manage either episodes of care or total health care. The concept behind an ACO is that better coordination of care and improved communication among health care providers will avoid unnecessary treatments and allow for better proactive care. Clinical integration with an electronic medical record, common quality reporting standards, and cost/utilization management systems are crucial to the efficacy of an ACO. Medicare demonstrated this concept with mixed results.2 In 2012, 32 pioneer ACOs reported 0.3% growth in ACO costs versus 0.8% for other Medicare Fee for Service beneficiaries during the same period. Although all 32 ACOs met their quality standards, only 13 produced shared savings ($87.6 million with $52 million returned to providers and $33 million returned to Medicare). Nineteen ACOs produced no shared savings, 2 shared losses of $4.0 million, and 9
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SURVIVAL STRATEGIES
TABLE 1.
Potential Survival Strategies Advantages
Disadvantages
ACO
1. 2. 3. 4.
Appears to be a national trend Part of a larger organization that can assume risk Potentially large patient stream Can create a specialty-based carve-in for a primary care-based ACO 5. Academic center may lower costs by partnering with community physicians
1. 2. 3. 4.
Super Group
1. Work with like-minded physicians 2. Improved market position 3. Better negotiating capability with insurers, hospitals, and ACOs 4. Greater chance to invest in ancillaries 5. Lower malpractice costs 6. Greater access to capital and management
1. Some loss of independence 2. Because fully integrated, surrender individual tax ID for a group tax ID 3. May need to work with less desirable partners 4. Need to supervise partners and work together
Specialty Network
1. Easy way to affiliate with other physicians 2. Maintain individual tax ID 3. Insurers prefer to work with a network rather than individual practices
1. No loss of independence 2. Fewer ancillary income opportunities 3. Cannot offset decreased surgical fees with increased ancillary income 4. Because not fully integrated, members communicate via messenger model
Co-Management Agreement
1. Potentially get paid for something you already do 2. Improve patient care/safety 3. Shared savings
1. Significant time commitment 2. Appraisal may be less than expected 3. Not a passive source of income
PSA
1. Increased reimbursement under hospital rates 2. Decreased practice expense
1. May no longer be viable when service differentials disappear
Partner With Hospital
1. No loss of independence 2. Political benefits of partnering 3. Increased income if it brings in a new patient stream
1. May receive discounted fee on new patients 2. Decreased income if utilizes present patient stream
Real Estate Venture
1. Associate with quality community-accessible facility 2. Potential to share in profits
1. Another hospital or health plan may consider the venture “leakage” 2. Political ramifications when take patients to another facility
exited the program. No pioneer ACO produced shared savings that exceeded the initial infrastructure investment.3 A Medicare ACO program is a primary care-based system. Surgical specialists can join a Medicare ACO only as participating providers or form a commercial insurance specialty-based ACO. A specialty-based ACO could be a “carve-in” participating provider for a primary care-based ACO, but it would need to provide the entire range of specialty services on a quality basis at a reasonable cost. A specialty-based ACO would need to integrate with the primary care-based ACO’s information and reporting systems and would need to negotiate with the parent ACO to share both risk and reward. J Hand Surg Am.
Much less independence May not be financially sustainable May be at risk for overage Can only create a specialty-based ACO for commercial insurance 5. Re-basing of costs and payments may lead to reduced compensation 6. Additional cost to integrate computer systems with ACO
If the parent ACO is sponsored by a hospital or hospital system, an independent, hospital-based specialty group is an ideal group to create a specialty-based ACO. A hospital-based specialty department already has personal and clinical relationships with the primary care doctors who formed the basis of the hospital’s ACO. The hospital-based specialty department has the advantage of being integrated into the hospital’s delivery of health care. The hospital-based specialty department is presumably already using the same electronic medical record as the hospital and its employed primary care providers (PCPs). In many cases, the hospital-based specialty department may already share other common systems, which makes payment negotiations and allocations easier. r
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SURVIVAL STRATEGIES
Typically, the cost of providing nontertiary care in an urban academic center is much higher than in adjacent communities. If the goal is to provide high-quality care at a lower cost, the academic center should move patients and care to lower-cost community settings. This creates an opportunity for independent private groups. Partnering with established community groups would save the academic center from a speculative, competitive investment while maintaining an income stream to the community physicians. A specialty-based commercial ACO could negotiate with payers to provide specialty care on a standalone basis. This would be an obvious route for specialists who provide a unique service, such as pediatric or microsurgeons. Such a subspecialty ACO could negotiate for a bundled payment that would cover a specific episode of care. The bundled payment could represent full or shared risk, with full risk offering the subspecialty ACO a potentially greater profit margin. One problem with a specialty-based ACO is that it may not be financially sustainable. Financial success in an ACO depends on providing care at reduced cost; if those costs continue to rise for reasons beyond the control of the ACO, then someone has to make up the difference. If the ACO has not negotiated such increases with the health plan, or accepts full financial risk, then these additional costs will ultimately mean lower compensation for the health care providers. Even if the ACO has negotiated well, cost benchmarks and payment rates may be “re-based” in later years to reflect cost savings achieved in prior years, inevitably leading to reduced compensation.
other similar physicians. Sometimes, it also requires finding common ground with former competitors. If the differences can be brooked, then a super group can be formed and market position improved. It takes leadership to drive physicians toward a super group, but once a core group reaches the point of coming together, a number of key issues need to be resolved. Do you take all comers, or should you be selective? Remember your goal is to assimilate as many physicians in your geographical area while creating a business and professional culture that will succeed. Not everyone will prosper in the new environment, but you do not want to prevent a group from joining the super group simply because of one or two undesirable partners. Nor do you want to exclude a solo practitioner if that practitioner will enhance the success of the super group. Sometimes, the less desirable (future) partners are close to retirement and their addition will not be a lasting burden. Other less desirable partners may have to be mentored while others will have to simply understand that they have given up a certain amount of independence to join the super group. Problem or disruptive physicians can be terminated, but it is always easier to exclude someone on the front end than to remove them later. Antitrust laws prevent competitors from colluding to fix prices, so it is important to have legal guidance early in the process. Lawyers will guide the conversation and set up rules of governance and compensation. Governance is important. It is not just about who is in charge, but it creates a framework that gives every partner a voice in the organization. You want to do this right the first time because changes tend to disrupt the direction of the group. A super group has advantages that are generally unavailable to a small group practice:
SUPER GROUP A super group is a way for physicians in a single specialty or subspecialty to collaborate for improved market position and future success under a single Federal tax ID number. A super group can enhance bargaining power when negotiating with third-party payers, vendors, and hospitals and provide improved access to capital for technology and growth. It also allows for economies of scale. Super groups have access to strategic and business resources that are typically not available to smaller groups. Their increased capacity allows the group to take on more risk while managing cost and utilization. It may improve the ability to develop and support ancillary revenue enhancements such as imaging, therapy services, and clinical trials. Creating a super group requires that independent strong-willed physicians find a way to work with
J Hand Surg Am.
1. It can hire a marketing executive to find business opportunities with insurance companies, local hospitals, and area businesses. 2. Because it can negotiate ancillary expenses and surgical fees as one package, a reduction in one can offset the other. 3. It can measure and address patient satisfaction issues in house. 4. It can do in-house risk management and receive larger discounts on medical malpractice insurance. 5. A large super group can potentially self-insure. 6. It can negotiate affiliation and management contracts with local hospitals. 7. It can negotiate for specialty carve-ins with ACOs and other intermediaries.
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Vol. 39, May 2014
SURVIVAL STRATEGIES
CO-MANAGEMENT AGREEMENT A co-management agreement allows one or more independent medical groups or physicians to be paid for managing a hospital’s service line that falls within the individual’s or group’s expertise. A hand and upper extremity service line could include out-patient and inpatient care including emergency room, operating room, occupational therapy, and diagnostic imaging services. The hospital can pay fair value for management expertise if it helps improve quality, safety, efficiency, and/or patient care. To ensure health regulatory compliance, the value of the co-management services first needs to be assessed by a professional health care appraiser. The value of a co-management agreement can be anywhere from thousands of dollars for a small partial service line to millions of dollars for the entirety of a large service line. A co-management agreement is not a passive source of income like an investment in a property. It requires the active participation of the individual or group to meet certain agreed-upon metrics. These metrics may be quality standards, satisfaction surveys, efficiency measurements, or in some instances, standardized purchasing of less expensive, but clinically equivalent, implants. Accessing, analyzing, and acting on the data require regular and frequent meetings among all the affected parties. The parties to a co-management agreement should create a management team that is responsible for the agreement. The management team need to document what they have done to meet the agreed-upon metrics. This documentation may take the form of time records, meeting notes, newsletters, and/or the creation of project improvement teams. Typically, the hospital already collects and measures the data that form the basis of the agreed-upon metric. It is up to the physician co-manager to use those data to improve the measured metric. Typical examples of measured metrics are on-time commencement in the operating room, prompt follow-up care at discharge, and the appropriate use of antibiotics. Improvements in the metric usually translate into better, safer, and more cost-effective care that ultimately saves or makes the hospital money. A co-management agreement may also allow physicians to share in any anticipated cost savings.
A super group is an attractive practice option for physicians who want to maintain private practice medicine. It may be challenging for those used to years of solitary complete independence, but for younger physicians who know mainly the new health care environment, a super group can be an easier way to maintain a viable community practice. The only real potential competitor to a super group would be another super group or a large academic group. SPECIALTY NETWORK A specialty network involves similar specialists coming together to provide services while keeping their own individual Federal tax ID numbers. A specialty network is an independent practice association (IPA) in which physicians become participating providers. A specialty network is easier to establish than a super group. Physicians and physician groups can maintain their separate organizations and identities. Consequently, there need be no change to either their existing governance structure or their compensation model. The advantage of a specialty network is that the groups continue to run just as they did before the creation of the network. Salary structures and payment rates do not need to be disclosed because there is no complete financial integration. Because groups in a specialty network are not fully integrated, they are unable to discuss payment rates and costs among themselves with respect to insurance programs in which they do not share substantial financial risk. The specialty network will need to rely on a “messenger model” to facilitate nonrisk contracting for its members. Under the messenger model, the network must allow each member to independently and unilaterally determine the contract rates they will accept and avoid collusive pricing. This puts the specialty network at somewhat of a negotiating disadvantage because it may not know how many of its members it can deliver at any given price until each physician and physician group has been polled. Still, many insurers would prefer to work with a network for ease of contracting and contract administration. Specialty networks can also use a modified messenger model approach where the members unilaterally and independently specify in advance the rates they will accept. A modified model can potentially give its members access to patients and markets that they could not access alone. Unfortunately, a nonintegrated specialty network cannot take advantage of the same ancillary income opportunities or economies of scale available to an integrated super group. J Hand Surg Am.
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PROFESSIONAL SERVICE AGREEMENT The professional service agreement (PSA) model converts the medical group’s existing practice site(s) to either a hospital-licensed facility or a specialty r
Vol. 39, May 2014
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SURVIVAL STRATEGIES
division of a hospital-affiliated group practice, or it may lead to the development of a new facility. PSAs are staffed by the medical group. Conversion to hospital-licensed service allows for billing under the hospital’s provider numbers. Hospital outpatient rates may be as much as 30% to 200% higher than payments under the physician’s fee schedule. Services billed by the hospital at outpatient rates may include both the facility and the professional component including examination, management, consultation, and interpretation services. It may also include associated imaging and/or ambulatory surgery center services. The higher hospital outpatient rates for some or all of these services provide the economic foundation for a PSA arrangement that can be a financial winwin for both the participating group and the hospital. Under a PSA (and ancillary agreements) a medical group can receive:
number of specialty physicians available and work with a cost-efficient hospital facility. An easy and potentially inexpensive way to accomplish both tasks is to partner with a community hospital that serves the anticipated area of expansion. The community hospital may want to handle the inpatient and ancillary services but will need the assistance of established specialty groups. Large groups with foresight can partner with the hospital to guarantee that the new patients will be seen promptly and efficiently. The associated primary care network or ACO will probably expect a discounted fee, but the increased volume may make the partnership worthwhile. Real estate ventures may hold benefits for both hospitals and doctors. The hospital will benefit because of the potential for market growth and capture. The community physicians benefit by association with a quality, community-accessible facility with efficient patient throughput. If structured properly, a real estate venture allows a physician to share in profits from rentals and property management as well as any accretion in real estate values. Distributions cannot be based on referrals or surgical volume, because that would be a blatant health regulatory violation, but can be based on non-referral criteria such as the amount invested. The investing physician cannot be required to refer any or all his or her patients to the hospital facility, but could be required to be a tenant.
1. Set physician compensation for a defined period generally based on a fair market RVU (relative value unit). 2. Fair market employee lease and management fees for the administrative services of nonphysician staff. 3. Acquisition of practice or ancillary assets at fair market value and the assumption of leases and other costs. 4. Fair market medical director or co-management fees for directing or co-managing the hospital’s service line and meeting mutually agreed quality, efficiency, and operational improvement targets.
DISCUSSION The government and insurance companies are looking at ways to deliver high-quality care at lower costs to patients. Insurance companies will no longer reimburse physicians simply by the number of procedures they perform. Instead, physicians will be asked to participate in shared savings, bundled care, and risk sharing. These changes will create financial opportunities for individuals and groups. Individuals and groups that anticipate these changes and work in the new medical paradigm have the opportunity to both succeed and maintain some degree of independence.
PSAs are useful when a changing practice environment makes a previously successful service or ancillary much less viable. Although the economics may not be as lucrative, a PSA ensures compensation for a defined period of time. PSAs that are intended to convert services from physician office rates to hospital outpatient rates are probably transitional opportunities, because it is unlikely that the government and commercial carriers will allow such service differentials to continue. For the moment, PSA conversions allow hospitals to accumulate money for future investments in projects such as population health management. Assets with potential site of service differentials may include ambulatory surgery centers, imaging centers, therapy centers, or comprehensive hand centers.
REFERENCES 1. Harris G. More doctors giving up private practice. The New York Times. November 25, 2010:B1. Available at: http://www.nytimes.com/2010/ 03/26/health/policy/26docs.html?pagewanted¼all. Accessed January 10, 2014. 2. Haywood TT, Kosel KC. The ACO model—a three-year financial loss? N Engl J Med. 2011;364(14):e27. Available at: http://www.nejm. org/doi/full/10.1056/NEJMp1100950. Accessed January 10, 2014. 3. CMS News Release. Pioneer Accountable Care Organizations succeed in improving care, lowering costs. July 16, 2013. Available at: http:// www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013Press-Releases-Items/2013-07-16.html. Accessed January 10, 2014.
PARTNER WITH HOSPITAL Physicians and physician groups can partner with hospitals in professional and real estate ventures. Large PCP-based networks that want to expand into new geographical areas will need to increase the J Hand Surg Am.
r
Vol. 39, May 2014
Survival Strategies in a Changing Practice Environment Bruce M. Leslie, MD, Michael L. Blau, JD
A number of forces disrupt normal referral patterns to physicians, driving hospital consolidation, and changing the way medicine is practiced in the United States. Strategies have been implemented to keep services in-network and stem “leakage”—all in the name of population health management, reducing unit costs, and spreading financial risk among the insurers, hospitals, and physicians. To survive in the changing medical environment, independent unintegrated physicians need to consider different practice models. These models include accountable care organizations (ACOs), super groups, specialty networks, co-management agreements, professional service agreements (PSAs), and partnering with local hospitals. Each physician and physician group need to decide what works best for them and their geographical area. Physicians and physician groups may find that one or more of these models will improve their chance of economic survival. (J Hand Surg Am. 2014;39(5):1012e1016. Copyright Ó 2014 by the American Society for Surgery of the Hand. All rights reserved.) Key words ACO, super group, specialty network, co-management, PSA.
C
HANGES IN REIMBURSEMENT,
employment trends, and technological requirements have made it difficult for independent unintegrated private practice groups to maintain their clinical and financial independence.1 Nimble groups that capitalize on these changes should be able to survive, but those who hew to old practice models may find themselves isolated with little hope for the future. For those who desire to remain in private practice, this paper outlines strategies. Because each situation is different, advantages and disadvantages are highlighted (Table 1). From the Department of Orthopaedic Surgery, Newton-Wellesley Hospital, Newton; and Foley & Lardner, LLP, Boston, MA. Received for publication January 12, 2014; accepted in revised form January 31, 2014. M.L.B. is a partner in the law firm of Foley & Lardner LLP, where he specializes in Health Law and is Chair of the firm’s Industry Teams, which includes the Health Care Industry Team. He advises healthcare clients on corporate and regulatory matters, including mergers, acquisitions, and affiliations; financing transactions; contracting; and forming provider groups, networks, alliances, and joint ventures. B.M.L. is involved in a co-management agreement with Newton-Wellesley Hospital in Newton, MA. Corresponding author: Bruce M. Leslie, MD, Suite 343, 2000 Washington St., Newton, MA 02462; e-mail: [email protected]. 0363-5023/14/3905-0034$36.00/0 http://dx.doi.org/10.1016/j.jhsa.2014.01.042
1012
r
Ó 2014 ASSH
r
Published by Elsevier, Inc. All rights reserved.
ACCOUNTABLE CARE ORGANIZATIONS Accountable care organizations (ACOs) have been proposed as a way to deliver high-quality care at controlled, reduced cost. In an ACO model, health plans would no longer reimburse providers on a feefor-service basis. Instead, health plans would set a cost benchmark or provide a fixed amount of money to manage either episodes of care or total health care. The concept behind an ACO is that better coordination of care and improved communication among health care providers will avoid unnecessary treatments and allow for better proactive care. Clinical integration with an electronic medical record, common quality reporting standards, and cost/utilization management systems are crucial to the efficacy of an ACO. Medicare demonstrated this concept with mixed results.2 In 2012, 32 pioneer ACOs reported 0.3% growth in ACO costs versus 0.8% for other Medicare Fee for Service beneficiaries during the same period. Although all 32 ACOs met their quality standards, only 13 produced shared savings ($87.6 million with $52 million returned to providers and $33 million returned to Medicare). Nineteen ACOs produced no shared savings, 2 shared losses of $4.0 million, and 9
1013
SURVIVAL STRATEGIES
TABLE 1.
Potential Survival Strategies Advantages
Disadvantages
ACO
1. 2. 3. 4.
Appears to be a national trend Part of a larger organization that can assume risk Potentially large patient stream Can create a specialty-based carve-in for a primary care-based ACO 5. Academic center may lower costs by partnering with community physicians
1. 2. 3. 4.
Super Group
1. Work with like-minded physicians 2. Improved market position 3. Better negotiating capability with insurers, hospitals, and ACOs 4. Greater chance to invest in ancillaries 5. Lower malpractice costs 6. Greater access to capital and management
1. Some loss of independence 2. Because fully integrated, surrender individual tax ID for a group tax ID 3. May need to work with less desirable partners 4. Need to supervise partners and work together
Specialty Network
1. Easy way to affiliate with other physicians 2. Maintain individual tax ID 3. Insurers prefer to work with a network rather than individual practices
1. No loss of independence 2. Fewer ancillary income opportunities 3. Cannot offset decreased surgical fees with increased ancillary income 4. Because not fully integrated, members communicate via messenger model
Co-Management Agreement
1. Potentially get paid for something you already do 2. Improve patient care/safety 3. Shared savings
1. Significant time commitment 2. Appraisal may be less than expected 3. Not a passive source of income
PSA
1. Increased reimbursement under hospital rates 2. Decreased practice expense
1. May no longer be viable when service differentials disappear
Partner With Hospital
1. No loss of independence 2. Political benefits of partnering 3. Increased income if it brings in a new patient stream
1. May receive discounted fee on new patients 2. Decreased income if utilizes present patient stream
Real Estate Venture
1. Associate with quality community-accessible facility 2. Potential to share in profits
1. Another hospital or health plan may consider the venture “leakage” 2. Political ramifications when take patients to another facility
exited the program. No pioneer ACO produced shared savings that exceeded the initial infrastructure investment.3 A Medicare ACO program is a primary care-based system. Surgical specialists can join a Medicare ACO only as participating providers or form a commercial insurance specialty-based ACO. A specialty-based ACO could be a “carve-in” participating provider for a primary care-based ACO, but it would need to provide the entire range of specialty services on a quality basis at a reasonable cost. A specialty-based ACO would need to integrate with the primary care-based ACO’s information and reporting systems and would need to negotiate with the parent ACO to share both risk and reward. J Hand Surg Am.
Much less independence May not be financially sustainable May be at risk for overage Can only create a specialty-based ACO for commercial insurance 5. Re-basing of costs and payments may lead to reduced compensation 6. Additional cost to integrate computer systems with ACO
If the parent ACO is sponsored by a hospital or hospital system, an independent, hospital-based specialty group is an ideal group to create a specialty-based ACO. A hospital-based specialty department already has personal and clinical relationships with the primary care doctors who formed the basis of the hospital’s ACO. The hospital-based specialty department has the advantage of being integrated into the hospital’s delivery of health care. The hospital-based specialty department is presumably already using the same electronic medical record as the hospital and its employed primary care providers (PCPs). In many cases, the hospital-based specialty department may already share other common systems, which makes payment negotiations and allocations easier. r
Vol. 39, May 2014
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SURVIVAL STRATEGIES
Typically, the cost of providing nontertiary care in an urban academic center is much higher than in adjacent communities. If the goal is to provide high-quality care at a lower cost, the academic center should move patients and care to lower-cost community settings. This creates an opportunity for independent private groups. Partnering with established community groups would save the academic center from a speculative, competitive investment while maintaining an income stream to the community physicians. A specialty-based commercial ACO could negotiate with payers to provide specialty care on a standalone basis. This would be an obvious route for specialists who provide a unique service, such as pediatric or microsurgeons. Such a subspecialty ACO could negotiate for a bundled payment that would cover a specific episode of care. The bundled payment could represent full or shared risk, with full risk offering the subspecialty ACO a potentially greater profit margin. One problem with a specialty-based ACO is that it may not be financially sustainable. Financial success in an ACO depends on providing care at reduced cost; if those costs continue to rise for reasons beyond the control of the ACO, then someone has to make up the difference. If the ACO has not negotiated such increases with the health plan, or accepts full financial risk, then these additional costs will ultimately mean lower compensation for the health care providers. Even if the ACO has negotiated well, cost benchmarks and payment rates may be “re-based” in later years to reflect cost savings achieved in prior years, inevitably leading to reduced compensation.
other similar physicians. Sometimes, it also requires finding common ground with former competitors. If the differences can be brooked, then a super group can be formed and market position improved. It takes leadership to drive physicians toward a super group, but once a core group reaches the point of coming together, a number of key issues need to be resolved. Do you take all comers, or should you be selective? Remember your goal is to assimilate as many physicians in your geographical area while creating a business and professional culture that will succeed. Not everyone will prosper in the new environment, but you do not want to prevent a group from joining the super group simply because of one or two undesirable partners. Nor do you want to exclude a solo practitioner if that practitioner will enhance the success of the super group. Sometimes, the less desirable (future) partners are close to retirement and their addition will not be a lasting burden. Other less desirable partners may have to be mentored while others will have to simply understand that they have given up a certain amount of independence to join the super group. Problem or disruptive physicians can be terminated, but it is always easier to exclude someone on the front end than to remove them later. Antitrust laws prevent competitors from colluding to fix prices, so it is important to have legal guidance early in the process. Lawyers will guide the conversation and set up rules of governance and compensation. Governance is important. It is not just about who is in charge, but it creates a framework that gives every partner a voice in the organization. You want to do this right the first time because changes tend to disrupt the direction of the group. A super group has advantages that are generally unavailable to a small group practice:
SUPER GROUP A super group is a way for physicians in a single specialty or subspecialty to collaborate for improved market position and future success under a single Federal tax ID number. A super group can enhance bargaining power when negotiating with third-party payers, vendors, and hospitals and provide improved access to capital for technology and growth. It also allows for economies of scale. Super groups have access to strategic and business resources that are typically not available to smaller groups. Their increased capacity allows the group to take on more risk while managing cost and utilization. It may improve the ability to develop and support ancillary revenue enhancements such as imaging, therapy services, and clinical trials. Creating a super group requires that independent strong-willed physicians find a way to work with
J Hand Surg Am.
1. It can hire a marketing executive to find business opportunities with insurance companies, local hospitals, and area businesses. 2. Because it can negotiate ancillary expenses and surgical fees as one package, a reduction in one can offset the other. 3. It can measure and address patient satisfaction issues in house. 4. It can do in-house risk management and receive larger discounts on medical malpractice insurance. 5. A large super group can potentially self-insure. 6. It can negotiate affiliation and management contracts with local hospitals. 7. It can negotiate for specialty carve-ins with ACOs and other intermediaries.
r
Vol. 39, May 2014
SURVIVAL STRATEGIES
CO-MANAGEMENT AGREEMENT A co-management agreement allows one or more independent medical groups or physicians to be paid for managing a hospital’s service line that falls within the individual’s or group’s expertise. A hand and upper extremity service line could include out-patient and inpatient care including emergency room, operating room, occupational therapy, and diagnostic imaging services. The hospital can pay fair value for management expertise if it helps improve quality, safety, efficiency, and/or patient care. To ensure health regulatory compliance, the value of the co-management services first needs to be assessed by a professional health care appraiser. The value of a co-management agreement can be anywhere from thousands of dollars for a small partial service line to millions of dollars for the entirety of a large service line. A co-management agreement is not a passive source of income like an investment in a property. It requires the active participation of the individual or group to meet certain agreed-upon metrics. These metrics may be quality standards, satisfaction surveys, efficiency measurements, or in some instances, standardized purchasing of less expensive, but clinically equivalent, implants. Accessing, analyzing, and acting on the data require regular and frequent meetings among all the affected parties. The parties to a co-management agreement should create a management team that is responsible for the agreement. The management team need to document what they have done to meet the agreed-upon metrics. This documentation may take the form of time records, meeting notes, newsletters, and/or the creation of project improvement teams. Typically, the hospital already collects and measures the data that form the basis of the agreed-upon metric. It is up to the physician co-manager to use those data to improve the measured metric. Typical examples of measured metrics are on-time commencement in the operating room, prompt follow-up care at discharge, and the appropriate use of antibiotics. Improvements in the metric usually translate into better, safer, and more cost-effective care that ultimately saves or makes the hospital money. A co-management agreement may also allow physicians to share in any anticipated cost savings.
A super group is an attractive practice option for physicians who want to maintain private practice medicine. It may be challenging for those used to years of solitary complete independence, but for younger physicians who know mainly the new health care environment, a super group can be an easier way to maintain a viable community practice. The only real potential competitor to a super group would be another super group or a large academic group. SPECIALTY NETWORK A specialty network involves similar specialists coming together to provide services while keeping their own individual Federal tax ID numbers. A specialty network is an independent practice association (IPA) in which physicians become participating providers. A specialty network is easier to establish than a super group. Physicians and physician groups can maintain their separate organizations and identities. Consequently, there need be no change to either their existing governance structure or their compensation model. The advantage of a specialty network is that the groups continue to run just as they did before the creation of the network. Salary structures and payment rates do not need to be disclosed because there is no complete financial integration. Because groups in a specialty network are not fully integrated, they are unable to discuss payment rates and costs among themselves with respect to insurance programs in which they do not share substantial financial risk. The specialty network will need to rely on a “messenger model” to facilitate nonrisk contracting for its members. Under the messenger model, the network must allow each member to independently and unilaterally determine the contract rates they will accept and avoid collusive pricing. This puts the specialty network at somewhat of a negotiating disadvantage because it may not know how many of its members it can deliver at any given price until each physician and physician group has been polled. Still, many insurers would prefer to work with a network for ease of contracting and contract administration. Specialty networks can also use a modified messenger model approach where the members unilaterally and independently specify in advance the rates they will accept. A modified model can potentially give its members access to patients and markets that they could not access alone. Unfortunately, a nonintegrated specialty network cannot take advantage of the same ancillary income opportunities or economies of scale available to an integrated super group. J Hand Surg Am.
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PROFESSIONAL SERVICE AGREEMENT The professional service agreement (PSA) model converts the medical group’s existing practice site(s) to either a hospital-licensed facility or a specialty r
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division of a hospital-affiliated group practice, or it may lead to the development of a new facility. PSAs are staffed by the medical group. Conversion to hospital-licensed service allows for billing under the hospital’s provider numbers. Hospital outpatient rates may be as much as 30% to 200% higher than payments under the physician’s fee schedule. Services billed by the hospital at outpatient rates may include both the facility and the professional component including examination, management, consultation, and interpretation services. It may also include associated imaging and/or ambulatory surgery center services. The higher hospital outpatient rates for some or all of these services provide the economic foundation for a PSA arrangement that can be a financial winwin for both the participating group and the hospital. Under a PSA (and ancillary agreements) a medical group can receive:
number of specialty physicians available and work with a cost-efficient hospital facility. An easy and potentially inexpensive way to accomplish both tasks is to partner with a community hospital that serves the anticipated area of expansion. The community hospital may want to handle the inpatient and ancillary services but will need the assistance of established specialty groups. Large groups with foresight can partner with the hospital to guarantee that the new patients will be seen promptly and efficiently. The associated primary care network or ACO will probably expect a discounted fee, but the increased volume may make the partnership worthwhile. Real estate ventures may hold benefits for both hospitals and doctors. The hospital will benefit because of the potential for market growth and capture. The community physicians benefit by association with a quality, community-accessible facility with efficient patient throughput. If structured properly, a real estate venture allows a physician to share in profits from rentals and property management as well as any accretion in real estate values. Distributions cannot be based on referrals or surgical volume, because that would be a blatant health regulatory violation, but can be based on non-referral criteria such as the amount invested. The investing physician cannot be required to refer any or all his or her patients to the hospital facility, but could be required to be a tenant.
1. Set physician compensation for a defined period generally based on a fair market RVU (relative value unit). 2. Fair market employee lease and management fees for the administrative services of nonphysician staff. 3. Acquisition of practice or ancillary assets at fair market value and the assumption of leases and other costs. 4. Fair market medical director or co-management fees for directing or co-managing the hospital’s service line and meeting mutually agreed quality, efficiency, and operational improvement targets.
DISCUSSION The government and insurance companies are looking at ways to deliver high-quality care at lower costs to patients. Insurance companies will no longer reimburse physicians simply by the number of procedures they perform. Instead, physicians will be asked to participate in shared savings, bundled care, and risk sharing. These changes will create financial opportunities for individuals and groups. Individuals and groups that anticipate these changes and work in the new medical paradigm have the opportunity to both succeed and maintain some degree of independence.
PSAs are useful when a changing practice environment makes a previously successful service or ancillary much less viable. Although the economics may not be as lucrative, a PSA ensures compensation for a defined period of time. PSAs that are intended to convert services from physician office rates to hospital outpatient rates are probably transitional opportunities, because it is unlikely that the government and commercial carriers will allow such service differentials to continue. For the moment, PSA conversions allow hospitals to accumulate money for future investments in projects such as population health management. Assets with potential site of service differentials may include ambulatory surgery centers, imaging centers, therapy centers, or comprehensive hand centers.
REFERENCES 1. Harris G. More doctors giving up private practice. The New York Times. November 25, 2010:B1. Available at: http://www.nytimes.com/2010/ 03/26/health/policy/26docs.html?pagewanted¼all. Accessed January 10, 2014. 2. Haywood TT, Kosel KC. The ACO model—a three-year financial loss? N Engl J Med. 2011;364(14):e27. Available at: http://www.nejm. org/doi/full/10.1056/NEJMp1100950. Accessed January 10, 2014. 3. CMS News Release. Pioneer Accountable Care Organizations succeed in improving care, lowering costs. July 16, 2013. Available at: http:// www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013Press-Releases-Items/2013-07-16.html. Accessed January 10, 2014.
PARTNER WITH HOSPITAL Physicians and physician groups can partner with hospitals in professional and real estate ventures. Large PCP-based networks that want to expand into new geographical areas will need to increase the J Hand Surg Am.
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