Society for Healthcare Strategy & Market Development Engaging Physicians to Share Bundled Payments

Society for Healthcare Strategy & Market Development Engaging Physicians to Share Bundled Payments September 13, 2010

Agenda I. The Big Picture II. Value-Based Payment Methodologies III. CMS Acute Care Episode Demonstration IV. Other Bundled Payment Initiatives V. Preparing for Payment Reform VI. Timing 1

I. The Big Picture The Problem With Fee-for-Service Payments Fee-for-Service (FFS) Characteristic The more services you provide, the more you are paid. The more intense the services are, the more you are paid. Readmissions and sicker patients result in additional payments. Compensation is provided for narrow units of services by a single provider. Global fees are paid to individual providers (e.g., IPPS for hospitals, global surgical fee for surgeons). Incentive for Healthcare Providers Encourages high volume over high value and causes over-utilization. Encourages use of high-cost services. Penalizes effective care and preventive care. Promotes silos and transactions rather than relationships with patients. Improves a provider s efficiency but not the aggregate volume of services provided. 2

I. The Big Picture MA Special Commission on Payment Reform Current FFS Payment System Patient-Centered Global Payment System The Problem Care is fragmented instead of coordinated. Each provider is paid for doing work in isolation, and no one is responsible for coordinating care. Quality can suffer, costs rise, and there is little accountability for either. $ $ $ The Solution Global payments are made to a group of providers for all care. Providers are not rewarded for delivering more care, but for delivering the right care to meet patients needs. $ $ Primary Care Hospital Specialist Hospital Specialist Primary Care Home Health Home Health 3

I. The Big Picture Goals of Healthcare Reform Reform Reform is is aimed aimed at at redesigning redesigning the the U.S. U.S. healthcare healthcare system system to to improve improve access access and and quality quality while while reducing reducing cost cost inefficiencies. inefficiencies. Access Cost Quality Improve health insurance access through government regulation. Expand federal insurance programs. Reduce inappropriate utilization. Invest in electronic health information technology systems. Increase competition in insurance and drug industries. Develop and disseminate best practices. Promote quality-based reimbursement. Increase transparency. 4

I. The Big Picture Healthcare Reform Healthcare Healthcare reform reform will will place place more more emphasis emphasis on on improving improving outcomes outcomes and and reducing reducing costs, costs, creating creating a need need for for more more innovative innovative approaches approaches to to align align hospitals hospitals and and physicians. physicians. Expanding Coverage Promoting Efficiency Reducing Demand Stimulus IT Incentives Comparative Effectiveness Medical Home Capitation Disease Management Impact on Provider Business Bundled Payments Outcome-Based Penalties Episode-Based Payments Level of Integration Employer Mandate Reduced DSH Payments Individual Mandate Public Plan At-Risk Quality Bonuses Time 5

I. The Big Picture Step 1 Healthcare Reform, Step 2? Healthcare Healthcare reform reform legislation legislation initiated initiated the the process process of of change, change, but but the the path path for for successfully successfully realizing realizing the the broader broader vision vision remains remains largely largely unclear. unclear. Healthcare reform legislation set things moving. The next steps are less clear Then a miracle occurs. 6

I. The Big Picture Near-Term Impact of Reform Reimbursement increases. Focus on preventing an increase in demand. Restructuring of PCP care models managers of care teams. Join larger groups or organizations/networks to spread IT costs. Unaffiliated centers are likely targets of more cuts. Hospitals are seeking to partner with or bail out physician owners. $ Claims Primary Care $ Referrals Safety Net Hospitals Significant decrease in revenue. Compete or be acquired. Claims $ Outpatient Facility Referrals $ Referrals Slight increase in demand. Join larger groups or organizations/ networks. Increase coordination and communication with primary care. Decreased or flat professional fees. Potential loss of ancillary income. Referrals Specialists Claims 7 $ $ Referrals NOTE: The separation of the healthcare system found in the graphic above is meant to identify the impact of health reform on its component parts and ultimately supports a more integrated delivery model that includes multispecialty medical practice(s) partnered with strong inpatient and outpatient services. Communication $ Hospital Claims Acute Care Hospitals Focus on operations. Some expansion. Increase in competition for high margin and payor mix. Increase in transparency regarding quality and cost. Competition to provide best value. Investment in IT. Increase in the number of mergers and acquisitions. Physician integration is vital. $

I. The Big Picture Long-Term Impact of Reform Reimbursement Reimbursement will will shift shift from from payments payments based based on on FFS FFS (volume) (volume) to to a more more value-based value-based (patient (patient outcome outcome relative relative to to cost) cost) system. system. P4P PCMH ACOs Bundled Payments Focus Quality/outcomes. Chronic care. Quality. Cost savings. Coordinated care. Cost savings. Standardization. Cost savings. Performance metrics. Inpatient episodes of care. Implantable procedures. Cost savings. Payment Incentive payment for meeting or exceeding quality benchmark standards. FFS. PMPM or management fee. Quality incentive. Based on calculated savings compared to established benchmarks. One payment. Patient incentive. Gainsharing. Cost-savings incentive. Outcomes Ten physician groups awarded $16.7 million in incentive payments in 2008. Sacred Heart: received $400,000 in June 2008. Group Health: 29% decrease in ED visits, 11% in hospital admissions, and 6% in office visits. NC: $200 million in total cost savings over 3 years for diabetic and asthmatic patients. Identifying demonstration project participants. Hillcrest: 4.4% savings for heart transplant and joint replacement surgeries. Acute Care Episode (ACE) demonstration project. 8

II. Value-Based Payment Methodologies Four Payment Models Model Advantages Disadvantages P4P Simplicity and clarity. PCMH/Guided Care Models Focused approach produces results on select measures. Focused management of high-risk populations. Patient satisfaction. ACOs Aligned incentives. Bundled Payments Value-based Value-based payment payment methodologies methodologies are are under under careful careful study study at at the the national national and and local local levels levels by by government government and and commercial commercial payors. payors. Major upside opportunity. Comprehensive outcomes-based approach. Limited dollars tied to outcomes. Focused approach limits comprehensive overhaul. Major infrastructure investments. Requires cross-practice coordination and cultural transformation. Complicates physician compensation in the multispecialty group setting. Complexity. Infrastructure requirements. Care management sophistication and focus. Major downside risk. Complexity. Organizational structure requirements between physicians and hospitals limits participation. 9

II. Value-Based Payment Methodologies Pay for Performance In In a 2009 2009 survey survey conducted conducted by by ECG ECG Management Management Consultants, Consultants, Inc., Inc., of of faculty faculty practice practice plans, plans, 59% 59% of of respondents respondents were were participating participating in in a P4P P4P program. program. Pay for Performance (P4P) is intended to promote an adherence to evidence-based medicine and eliminate the incentives to perform unnecessary services. Measures vary from program to program. Most use a combination that includes:» Clinical quality and effectiveness.» Utilization and cost management.» Patient satisfaction.» Administrative involvement.» Patient safety. Of these survey participants, 89% stated that less than 5% of reimbursement was tied to the program. 10

II. Value-Based Payment Methodologies Professional Limited Liability Corporation The The new new physician-owned physician-owned professional professional limited limited liability liability corporation corporation (PLLC) (PLLC) model model allows allows hospitals hospitals to to pay pay select select physicians physicians for for attaining attaining hospital hospital quality quality targets. targets. Key Elements of OIG Advisory Opinion No. 08-16 The PLLC must open participation to a broad group of medical staff members. Participating physicians must be members of the medical staff for at least 1 year. Participating physicians must equally capitalize the new entity, although costs should be minimal. The hospital pays the PLLC to meet predetermined quality targets. Payments are capped at 50% of base-year P4P dollars (with inflation adjuster). Quality targets and payments are renegotiated annually. Monitoring must be in place to protect against inappropriate service reduction. Physicians who change referral patterns to meet targets may be terminated from the program. The program must maintain records of performance. Patients must be informed of the program in writing. The PLLC must set physician participation criteria that does not induce referrals or incentivize more volume at the hospital. 11

II. Value-Based Payment Methodologies PLLC Benefits and Concerns Benefits Aligns physicians with hospital quality performance targets. Allows for limited hospital financial support of physicians. Integrates physician and hospital clinical practice to meet safety/quality goals. Reduces cost and may include gainsharing arrangements. Creates a financial win/win for physicians and hospitals, but keeps physicians and hospitals focused on their respective core business. Concerns Requires extensive legal review to ensure compliance. Limits the amount of financial support that the hospital may provide to negotiated P4P dollars. Directs financial support to individual physicians based on overall performance and individual physician ownership, not on individual physician performance. Limits changes in physician referral patterns. Restricts the potential payout. 12

II. Value-Based Payment Methodologies Patient-Centered Medical Home PCMH PCMH is is a model model of of care care in in which which each each patient patient has has an an ongoing ongoing relationship relationship with with a personal personal physician physician who who leads leads a team team that that takes takes collective collective responsibility responsibility for for patient patient care. care. 1 1 Current Model PCMH Care is episodic and based on illness and patient complaints. Care is coordinated and focused on a long-term healing relationship. Providers operate in silos with limited communication. The patient is a passive participant with limited say in treatment. Practice patterns vary widely according to physician preference. Payment is procedure-based, and volume is rewarded. A physician-led care team takes responsibility for all patient care needs, arranging for referrals as appropriate. Communication among providers and the patient (and family) is continuous. Patients actively participate in decision making, and patient feedback is sought to ensure that expectations are being met. Evidence-based medicine and clinical support tools guide consistent decision making. Payment recognizes the value of care management and communication with the patient outside of face-to-face visits. Measurable and continuous quality improvements are rewarded. 1 Source: The National Committee for Quality Assurance (NCQA). 13

II. Value-Based Payment Methodologies Accountable Care Organizations ACO Definition The The accountable accountable care care organization organization (ACO) (ACO) aims aims to to reward reward clinical clinical integration integration and and care care coordination coordination among among multiple multiple providers. providers. A local entity and a related set of providers that can be held accountable for the cost and quality of care delivered to a defined [set]... of beneficiaries. Physicians Provided by Hospitals/Health Systems Inpatient, outpatient, and post-acute services. Hospital/ SNF ACO Outpatient Clinics/ Centers Physician network (typically employed). System management expertise. Provided by Physicians Clinical expertise. Home Health Rehab Behavioral Medicine Pharmacy Professional inpatient and outpatient services. Other potential assets (e.g., ASCs, managed care lives). Ability to affect quality and outcomes. Peer review. Group management expertise (if partnered with independent practice). Source: Based on K. Devers and R. Berenson, Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandaries? Robert Wood Johnson Foundation, Princeton, October 2009. ACOs are designed to encourage providers to think of themselves as a group with a defined patient population, care delivery goals, and performance metrics. 14

II. Value-Based Payment Methodologies ACOs Legislative Criteria Despite Despite a lack lack of of clarity clarity regarding regarding the the specific specific composition composition of of ACOs, ACOs, current current legislation legislation requires requires them them to to meet meet the the following following minimum minimum criteria: criteria: Legislative Criteria 1. Agree to become accountable for the overall care of a designated set of Medicare beneficiaries. 2. Agree to a minimum 3-year participation period. 3. Establish formal management and legal structures that would allow the ACO to provide health services efficiently across the continuum of care. 4. Include PCPs, specialists, and others to be determined by the U.S. Department of Health & Human Services (HHS). 5. Define processes to promote evidence-based medicine, report on quality and cost measures, and coordinate care. 6. Demonstrate that the ACO meets patient-centered criteria as determined by HHS. These standards require a degree of integration that few healthcare delivery systems currently achieve. 15

II. Value-Based Payment Methodologies ACOs Essential Features The The legal, legal, financial, financial, and and organizational organizational relationship relationship among among participants participants in in an an ACO ACO is is ultimately ultimately designed designed to to provide provide a framework framework within within which which it it can can legally legally establish establish the the common common infrastructure, infrastructure, financial financial arrangements, arrangements, and and contracts contracts to to support support clinical clinical integration. integration. Common Electronic Medical Record (EMR) and Related Systems Investment in Common Infrastructure Common Practice Standards and Protocols Clinically Integrated Network Legal, Financial, and Organizational Structure That Supports Clinical Integration Incentives That Support Common Objectives Measureable Outcomes That Demonstrate Efficiencies Essential Characteristics of Alignment Model Network of sufficient size and distribution to support effective management of care across all settings and specialties. Legal framework and capabilities that will allow for the participants to collectively enter into contracts. Well-defined governance and decision-making structure. Alignment of financial incentives among participants toward common objectives. Single signature authority for contracts with commercial and government payors. Capable of accepting common financial risk for performance and of internally distributing revenues and allocating expenses. Sufficient size to support comprehensive performance measurement and reporting. 16

II. Value-Based Payment Methodologies Bundled Payments Overview The The term term bundled bundled can can be be used used broadly broadly to to include include a a wide wide range range of of payment payment models. models. It It is is often often defined defined as as a payment payment that that encompasses encompasses more more than than discrete discrete patient patient encounters, encounters, including including global global and and packaged packaged payments. payments. Global Payment Hospital Physician Outpatient SNF Bundled Payment Packaged Payment NOTE: All covered services for a specific time period. Particular Conditions (e.g., diabetes) Particular Episodes of Treatment (e.g., cardiac surgery, including 90 days of follow-up) 17

II. Value-Based Payment Methodologies Bundled Payments MedPAC Bundling Bundling all all Medicare Medicare payments payments for for an an episode episode of of care care has has the the potential potential to to improve improve incentives incentives for for providers providers to to offer offer the the right right mix mix of of services services at at the the right right time. time. According to MedPAC, bundling payments would: Allow Medicare to pay a set fee per hospitalization episode instead of separate hospital (IPPS), physician (RBRVS), SNF (SNFPPS), and outpatient department (OPPS) payments. Have the potential to improve efficiency and quality, reduce Medicare costs, and better align the interests of hospitals and physicians, particularly in regard to requests for specialty consultations, discharge planning, and the utilization of ICUs and DME. Require changes in the way hospitals are reimbursed for readmissions and the revision of existing restrictions that inhibit hospitals from financially rewarding physicians. Have the potential to produce undesirable consequences, such as underutilization of services on the part of hospitals and the avoidance of certain low margin patients (those that require extensive hospital resource use) on the part of physicians. Source: MedPAC July 2008 Report to Congress. MedPAC is an independent agency established to advise the U.S. Congress on issues affecting the Medicare program. 18

II. Value-Based Payment Methodologies Bundled Payments CMS Pilots Currently, Currently, CMS CMS is is preparing preparing to to pilot pilot bundled bundled payments payments for for select select conditions conditions beginning beginning in in 2013. 2013. Any Any Medicare Medicare provider provider will will be be eligible eligible to to apply. apply. According to the Senate Finance Committee s proposal, the HHS Secretary would be required to select eight conditions for a bundled payment pilot program beginning in 2013. The bundled payment would be made to a Medicare provider to cover the costs of acute care inpatient and outpatient hospital services, physician services, post-acute care, and any rehospitalizations that occur during that time period. Any Medicare provider, including hospitals or physician groups, would be eligible to apply to participate in the pilot. Any entity assuming responsibility for bundled payment would be required to have an arrangement with an acute care hospital for initiation of bundled services. If the pilot is successful in reducing costs and increasing quality, the HHS Secretary would be required to submit an implementation plan in FY 2016 to become part of Medicare in FY 2018. Source: Douglas A. Hastings, Health Care Delivery System Reform Provisions in the Baucus Bill: A Substantive Set of Provisions, BNA s Health Law Reporter, 2009. 19

III. CMS ACE Demonstration Objectives Medicare s Medicare s ACE ACE demonstration demonstration is is encouraging encouraging collaboration collaboration and and quality quality using using bundled bundled payments. payments. Improve care coordination to improve quality of care. Align incentives between hospital and physicians through bundled payment and cost-saving incentives. Designate selected facilities as Value-Based Care Centers. Provide financial incentives for Medicare beneficiaries. Do financial incentives impact quality of care and consequently provider of choice and provider referrals? 20

III. CMS ACE Demonstration Participating Hospitals regon regon Idaho Idaho Montana Montana South Dakota South Dakota Wyoming Wyoming Nebraska Nebraska Exempla Saint Joseph Hospital, Denver Minnesota Minnesota Iowa Iowa Wisconsin Wisconsin Michiga Michiga Nev ada Utah Nev ada Utah Colorado Colorado Lovelace Health System, Albuquerque Kansas Kansas Missouri Missouri Hillcrest Medical Center, Tulsa Illinois Illinois Indiana Indiana Kentucky Kentucky California California Arizona Arizona New Mexico New Mexico Oklahoma Oklahoma Arkansas Arkansas Oklahoma Heart Hospital, Oklahoma City Tennessee Tennessee Texas Texas Louisiana Louisiana Baptist Health System, San Antonio Alabama Alabama Florida Florida 21

III. CMS ACE Demonstration Participant Profiles Exempla Saint Joseph Hospital Denver, Colorado Only not-for-profit and only teaching hospital in demonstration. At present, does not employ cardiac specialists. High percentage of Medicare managed care/kaiser patients in population. Baptist Health System San Antonio, Texas Five hospitals operating under common provider number. Member of for-profit Vanguard Health Systems of Nashville, Tennessee. At present, does not employ cardiac or orthopedic specialists. Medicare market share leader in very close market includes a MedCath Heart Hospital. Hillcrest Medical Center Tulsa, Oklahoma Single-location medical center. Employs both cardiac surgeons and cardiologists. Member of for-profit Ardent Health Services of Nashville, Tennessee. Third place in market share for both cardiac and orthopedic services. 22

III. CMS ACE Demonstration Participant Profiles (continued) Lovelace Health System Albuquerque, New Mexico Three-hospital system operating under different provider numbers. Does not employ orthopedic surgeons. High degree of Medicare managed care patients in population. Trails Presbyterian Hospital in orthopedic market share. Oklahoma Heart Hospital Oklahoma City, Oklahoma Joint venture for-profit, stand-alone heart hospital. 51% owned by not-for-profit Mercy Hospital; 49% owned by Oklahoma Cardiovascular Associates (multispecialty cardiovascular group). Market share leader in Oklahoma City. 23

III. CMS ACE Demonstration Scope and Duration Demonstration included 28 cardiovascular and 9 Orthopedic DRGs. Demonstration length: 3 years. Inclusion criteria: Medicare FFS beneficiaries. Cardiac DRGs 216 to 221 Valves. 226 to 227 Defibrillators. 231 to 236 CABGs. 242 to 244 Pacemakers. 246 to 251 Stents. 258 to 262 Pacer Revisions. 24

III. CMS ACE Demonstration Lessons Learned From Hillcrest Hillcrest Hillcrest has has identified identified four four areas areas of of lessons lessons that that other other hospitals hospitals can can apply apply to to future future bundled bundled payment payment demonstrations demonstrations and and pilots. pilots. Outreach and marketing. Incentives. Case management. Materials management. Source: Hund C. and Joshi M., Early Learnings from the Bundled Payment Acute Care Episode Demonstration Project, Health Research & Educational Trust, Chicago, July 2010. 25

IV. Other Bundled Payment Initiatives Geisinger and Prometheus Geisinger ProvenCare Warranty covers any follow-up care needed for avoidable complications within 90 days at no additional charge. The model was initially for coronary artery bypass graft surgery. It is expanding to hip replacement, cataract surgery, angioplasty, and so forth. The provider defines the care process standards to be followed. Prometheus Payment Covers the full episode of care and all providers. Deals with both integrated and nonintegrated providers by offering a default scheme for allocating payment. Estimates the appropriate payment amount based on historical costs and any guidelines for evidence-based medicine. Pilot sites in Rockford, Illinois; Minneapolis, Minnesota; and Philadelphia, Pennsylvania. 26

IV. Other Bundled Payment Initiatives Minnesota s Baskets of Care Minnesota Health Reform Baskets of Care The purpose is to uniformly define a scope and set of care components for a given condition, procedure, or episode of care. Initial areas of focus:» Asthma (children) Management of asthma as a chronic disease.» Diabetes Without comorbidities, does include hypertension and hyperlipidemia.» Lower Back Pain Management of acute episode of lower back pain.» Obstetric Care Prenatal, uncomplicated vaginal delivery, cesarean section delivery.» Preventive Care Adults and children.» Total knee replacement. Baskets of care relies on state-run programs and interested insurance or medical provider organizations. 27

IV. Other Bundled Payment Initiatives California s Bundled Episode-of-Care Pilot Integrated Healthcare Association Objectives.» Encourage financial alignment to support process reengineering and improve quality and efficiency.» Allow for shared savings from efficiency improvements.» Develop and test solutions to implementation issues. Coalition of the Willing Health Plans Aetna, Inc. Blue Shield of California Health Net Hospitals Cedars-Sinai Medical Center Hoag Memorial Hospital Presbyterian Providence Health & Services Tenet California UCLA Medical Center 28

California s Bundled Episode-of-Care Pilot Hospital Hospital or Physician Organization acts as administrator for payment If hospital working with multiple groups, need either financial or clinical integration or implement messenger model Identify entity to negotiate payment disputes with payor Contract describes episode parameters (condition & time frame) and delegates payment responsibility to hospital or physician organization Contracts for non-mds could be directly with hospital instead PPO Physician Organization / Foundation Clinically Integrated Other MDs and AHPs; HHAs; lab, etc. IPA 29

California s Bundled Episode-of-Care Pilot (con t) Hospital Allocation of Bundled Payment Allocation of hospital/physician percentage of total payment based on hospital LOS Fixed fee + Incentive Bonus (shared savings/p4p) [John- have you seen other mechanisms?] Physician Organization / Foundation Clinically Integrated PPO 30

V. Preparing for Payment Reform Don t Be Skeptical 31

V. Preparing for Payment Reform Goals of Payment Models [John I think we should delete this one] P4P Increasing integration and care coordination among providers. Bundled Payments Paying for quality instead of volume. ACOs Lower costs by eliminating the incentives to provide unnecessary care and reducing administrative costs. PCMH 32

V. Preparing for Payment Reform Core Competencies Unique Unique skills skills will will be be required required to to address address the the challenges challenges of of payment payment reform. reform. Integration Integration Quality/Value Quality/Value Payment Payment Reform Reform Core Core Competencies Competencies Risk Risk Management Management Pricing Pricing Source: Adapted from HFMA, Healthcare Payment Reform: Accelerating Success, March 2010. 33

V. Preparing for Payment Reform Enhancing Integration Capabilities Shared Shared Technology/Data Technology/Data Market Market Awareness Awareness Aligned Aligned Provider Provider Incentives Incentives Enhanced Integration Capabilities Shared Shared Goals Goals Supportive Medical Supportive Medical Structure Leadership Structure Leadership and and Culture Culture Source: Adapted from HFMA, Integration in a Reform Environment: Strategies for Success, June 2010. 34

V. Preparing for Payment Reform Market Awareness Understanding Understanding the the net net market market opportunity opportunity available available to to an an organization organization will will provide provide a valuable valuable foundation foundation for for evaluating evaluating potential potential strategies. strategies. Population Market Opportunity Growth Rates Payor Mix Community Need Market Data Market Data Market Analysis Deliverable: Current Market Share Discharges by Service Line Visits/Encounters by Service Line Stakeholder Stakeholder Interviews Interviews Community Community Need Need Assessment Assessment Market Analysis Market Assessment Report = Secondary Market Share Net Market Opportunity Quaternary Care Lack of Community Need Outside of Scope/Mission Discharges/Visits by Service Line Contribution Margin ($) Change in Market Share (%) 35

V. Preparing for Payment Reform Shared Goals Realistic Realistic goals goals that that are are based based on on the the organization s organization s capabilities capabilities and and market market position position must must be be backed backed by by specific specific actions actions and and performance performance metrics. metrics. Establish common vision among administration and physicians. Agree to clearly defined action steps and performance metrics. "The task of the leader is to get his people from where they are to where they have not been." Henry Kissinger Goal setting should be a unifying process that aligns all parties toward achievement of improved clinical outcomes. 36

V. Preparing for Payment Reform Supportive Structure and Culture The The preferred preferred structure structure for for the the integrated integrated organization organization should should be be driven driven by by local local market market conditions. conditions. There There is is no no one-size-fits-all one-size-fits-all strategy. strategy. Continuum of Payment Bundling Global Payment Per Enrollee Global DRG Case Rate, Hospital, and Post-Acute Care Global DRG Case Rate, Hospital Only Global Fee for Primary Care Blended FFS/ Medical Home Fee Less Feasible More Feasible FFS Independent Physician Practices and Hospitals Primary Care Group Practices Continuum of Organization 37 Hospital Systems Integrated Delivery Systems Source: Adapted from Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, February 2009.

V. Preparing for Payment Reform Comanagement of Service Lines Partnering Partnering with with physicians physicians beyond beyond traditional traditional medical medical staff staff relationships relationships helps helps a hospital hospital program program to to achieve achieve targeted targeted clinical clinical outcomes. outcomes. Hospital Hospital Governing Governing Board Board Management Company Reports to Hospital Board Orthopedic Orthopedic Surgeon Surgeon Investors Investors Hospital Hospital Appropriate Equity Split Appropriate Physician/Hospital Governance Split Management Management Company, Company, LLC LLC Orthopedic Orthopedic Service Service Line Line Agreement to Manage Orthopedic Services Management Fee 50% Fixed, 50% Based on Performance Incentives 38

V. Preparing for Payment Reform Medical Leadership Successful Successful healthcare healthcare organizations organizations will will integrate integrate physician physician leadership leadership into into the the hospital hospital management management structure structure at at every every level. level. CEO COO CMO Other Direct Reports CNO CNO Other Direct Reports VP, VP, Hospital Operations Hospital Hospital Medicine Medicine Medical Director VP, VP, Surgical Services Surgical Surgical Services Services Medical Director VP, VP, Medical Specialties Medical Medical Subspecialties Subspecialties Heart Heart and and Vascular Vascular Center Center Medical Director Medical Director VP, VP, Diagnostic Services Diagnostic Diagnostic Services Services Medical Director VP, VP, Primary Care Care and and Regional Services PCPs PCPs and and Regional Regional Health Health Medical Director 39

V. Preparing for Payment Reform Medical Leadership Dyad Model Dyad Dyad models models pair pair physician physician leaders leaders and and administrative administrative leaders leaders to to comanage comanage service service areas, areas, departments, departments, or or service service lines. lines. Administrative VP VP Medical Director Mature Physician Leadership Planning and Physician/Hospital Integration Finance Operations General Oversight Physician Hiring/ Termination Care Coordination/ Quality Emerging Physician Leadership Each physician/executive team maintains bidirectional feedback from employees and manages services within a service area. 40

V. Preparing for Payment Reform Medical Leadership Meeting Integration Needs Greater Greater hospital/physician hospital/physician collaboration collaboration on on decisions decisions is is crucial crucial as as clinics clinics and and hospitals hospitals integrate integrate operations operations to to enhance enhance patient patient care care delivery. delivery. Physician Needs Formal alignment with a designated administrator who is empowered to make decisions. Time and education to understand the big picture. Better understanding of organizational financial drivers. A reliable forum for physicians views to be heard. More colleagues on the inside in terms of understanding administrative decisions. A sense of joint decision making with administrative leadership. More clarity regarding leadership roles. Medical Director/ Administrative VP Dyad Management Needs More time to build trusting relationships with physician leaders. More time with physician leaders well versed in healthcare finance, business, and legal concepts. More advocates who will speak publicly on decisions that hospital leaders and physicians agree with in private. Better understanding of the issues the physicians face from a business perspective. A forum where physician issues from one arena can be vetted against those from other arenas for administrative support and financial backing. 41

V. Preparing for Payment Reform Aligned Provider Incentives [What about deleting this too?] Physician Physician compensation compensation should should be be based based not not only only on on productivity, productivity, but but also also performance performance metrics metrics that that reflect reflect strategic strategic priorities priorities of of the the organization. organization. Reasons to Move to Performance-Based Medical Directorships 42

V. Preparing for Payment Reform Shared Technology/Data Your Your EHR EHR must must be be accompanied accompanied by by clinical clinical and and financial financial decision decision support support tools tools to to generate generate information information to to guide guide quality quality and and efficiency efficiency decisions. decisions. Trying to improve something when you don t have a means of measurement and performance standards is like setting out on a crosscountry trip in a car without a fuel gauge. You can make calculated guesses and assumptions based on experience and observations, but without hard data, conclusions are based on insufficient evidence. Mikel J. Harry, Ph.D., Principal Architect of Six Sigma Not everything that can be counted counts, and not everything that counts can be counted. Albert Einstein, Super-Smart Scientist 43

VI. Timing 44

Mr. John N. Fink Ms. Jill H. Gordon jfink@ecgmc.com 858-436-3220 45 jillgordon@dwt.com 213-633-6875