2014 April Affiliate Practice

Affiliated Practice

APRIL 2014

Surviving the Financial Pitfalls of Practicing Medicine in Today’s Healthcare Arena

Medical Practice Super Groups, Are They For You

New Business Models for Hospitals Buying Medical Practices

An Interview with Anthony Slonim, MD, PhD, Executive Vice President and Chief Medical Officer of Barnabas Health

P U B L I S H E R ’ S

Affiliated Practice

L E T T E R

Please allow me to introduce you to AFFILIATED PRACTICE. Healthcare is rapidly changing. The goal of practicing good medicine without consideration of cost has evolved into a search for efficiencies that may only be found by large groups.

Reimbursements, purchasing, operating expenses, staffing, billing and technology have become a distraction to many smaller practices. Physicians have become aware of the need to hire professionals to take on the non-medical practice responsibilities.

Whether it be a single specialty group of 40 urologists joining together to open a tomography/surgical center, a large multispecialty group of 200 physicians located on a campus, a corporation without walls, selling a practice to a hospital group or an Accountable Care Organization, the previous business model of one to five physicians is being questioned by approximately 50 percent of the practitioners in the United States.

Published by Montdor Medical Media, LLC

Co-Publishers and Managing Editors Iris and Michael Goldberg

Contributing Writers Iris Goldberg Michael Goldberg Richard Maglin Beth Fitzgerald Susanne Madden Russ Banham Andis Robeznieks Beth Kutscher

The mission of AFFILIATED PRACTICE is to present our readers with all sides of these issues and have them addressed by top experts in their fields. In our first issue, meet Richard Maglin, CPA who specializes in a healthcare exclusive practice. He has helped create many of the business models we have become familiar with, and will write regularly for us on the issues facing large group practices. We have also interviewed Anthony Slonim, MD, PhD, Executive Vice President and Chief Medical Officer for Barnabas Health. Dr. Slonim oversees all initiatives supporting the delivery of exceptional patient care and has responsibility for the formation of two ACOs and other practice groups under the Barnabas Health umbrella. He candidly shares his views on the future of healthcare with our readers.

Gina Perrone

Please help us. Let us know how we are doing, what others in your communities are doing, who we should be talking with, what is working for your group or what isn’t, and share our publication with your associates. We are your voice. No other publication has taken this initiative. If any would like to receive a cost-free subscription, just send me an email and we will gladly include them.

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C O N T E N T S 4

Surviving the Financial Pitfalls of Practicing Medicine in Today’s Helathcare Arena

5

An Interview with Anthony Slonim, MD, PhD

9

Small group practices may become thing of past because of Obamacare

10

Medical Practice Super Groups, Are They For You?

12

Reforecast: New business models for hospitals buying medical practices

14

Employed physicians like security but miss autonomy

14

Making physicians pay off

18

Physicians - Independent Contractors or Employees?

20

Experience vs. expectation

23

Firings, whistle-blower suits surface as employed docs speak out about problems on the job

25

Physicians flocking to ACO models

26

Clinical Transformation: New Business Models for a New Era in Healthcare

27

Providers net uneven results from ACO experiment

28

Many Medicare ACOs slow spending - but few earn bonuses

29

New care organizations save $380 million in first year

30

Nine rural providers test out ACO initiative

31

Big-data collaborative Optum Labs adds seven partners

33

Reform Update: Beaumont moves into pay-for-performance with new Blues contract

35

HBCBS, JFK Medical Center form collaborative ACO

36

Aetna, Atlantic ACO announce new agreement

2 AFFILIATED PRACTICE

Affiliated Practice

Surviving the Financial Pitfalls of Practicing Medicine in Today’s Healthcare Arena

By Richard Maglin, CPA Lower reimbursements, poor cash flow, especially at the start of the year (due to the high deductible of out and in-network policies as a result of a new product design by the carriers), higher medical practice costs, such as staff salaries, medical insurance premiums and supplies, even inclement weather as we’ve had to endure this harsh winter – are just some of the constant concerns of our medical practice clients. These - in addition to the complaints about the implementation of EHR, which is distracting them from their focus on the patient and forcing them to capture medical data, slowing their number of patient encounters and negatively impacting cash flow - are challenges faced by the vast majority of medical practitioners today.

Our clients ask, “How can we handle all of these operational issues, including dealing with the co-regulatory issues that are becoming more and more complex?” Physicians must understand the rules and regulations dealing with billing issues, e.g., the Stark Law, the Codey Law, HIPAA, ICD 10, Meaningful Use, Phase II and a myriad of other compliance requirements.

Yes, the business of medicine calls for physicians not only to understand and perform at their highest efficiency and practice quality and cost effective medicine. They must also be innovative to inspire and motivate patients to be engaged in their own healthcare. In fact, the Affordable Care Act calls for patients to participate in their health decisions. Additionally, physicians must be aware of the latest technology along with the most advanced research within their specialty, in order to practice evidencebased medicine.

With so much of their time spent practicing and keeping current with new protocols and modalities in their fields, many have not established their personal or medical practice goals and objectives. They have not taken the time to develop a vision or strategy for the future. Sometimes, I hear, after the fact, that they have joined a mega group because their colleagues have done so. This even though they have not performed their own due diligence, which includes asking what happens if they are dissatisfied with the “new” corporate culture and finding out how they can unwind.

Yes, there are many options our medical clients have, such as join an existing single specialty group, join an existing multispecialty group, become a retainer or concierge practice, start a new single specialty group (presently, we are involved with practices in three specialties that are combining to form large single-specialty groups), sell to a national or public company (what many Anesthesia, Pain and Ambulatory Surgery Centers groups are doing in New Jersey) or become part of a hospital - physician alignment. Our firm has been involved in more than 25 alignments with New Jersey hospitals ranging from employment to Professional Service Models. We have educated and coached our clients based upon real life experiences, which has given physicians a greater insight and understanding of the complexity of hospital - physician alignments. By providing this knowledge and insight and also by working in collaboration with our clients’ healthcare attorneys, we have currently been able to create many successful alignments.

Presently, some of our clients are still unsure about how they want to proceed but they now have the tools and understanding to make an informed decision. This brings clarity, less anxiety and the ability to truly develop a strategy and business plan for the future. Many recognize that in order to be successful and stay independent, they have to meet the challenge headon. Working with all of the stakeholders including partners, office administrators and their experienced healthcare advisors, physicians can develop a well-planned strategy. Many of our physician clients who want to remain independent have set these strategy meetings in motion.

We recommend that during these meetings physicians should develop a strategic plan: • Outline your goals and objectives • Develop a vision as well as a mission statement • Develop an action plan with a timeline • Invest in your staff • Develop an organizational chart • Invest in informational technology (Data! Data! Data!)

4 AFFILIATED PRACTICE

Watchful Waiting is not an Option is our mantra to our physician clients.

Additionally, if you are a specialty practice, part of your overall strategy should be to become recognized by the National Committee for Quality Assurance (NCQA) as a patient- centered specialty practice (PCSP), under its new innovative program for improving specialty care which maintains a set of standards that describe clear and specific criteria.

We believe the carriers recognize an efficient, cost effective, quality practice. Thus using your resources to become recognized by the NCQA program will lead to improved quality, the elimination of waste, improved coordination and patient outcomes and an excellent patient experience, which should result in an improved financial report card for your medial practice.

These are challenging times with little visibility. However, this is your opportunity. Do not fear it. Plan, strategize, investigate and execute!

APRIL 2014

5

An Interview with

Anthony Slonim, MD, PhD

As the Executive Vice President and Chief Medical Officer for Barnabas Health and the President of the Barnabas Health Medical Group, Dr. Slonim oversees all initiatives supporting the delivery of exceptional patient care. He brings more than a decade of diverse healthcare experience as a practicing physician, professor, author and fellow. Additionally, Dr. Slonim is a Fellow and Member of the Board of Directors of the American College of Physician Executives and the College of Critical Medicine. He completed his Medical Doctorate (MD) at New York Medical College and his Master’s and Doctorate in Administrative Medicine and Health Policy at the George Washington University School of Public Health’s Center for Health Policy Studies.

Affiliated Practice: Barnabas Health has made numerous changes in its business model in the last couple of years - ACOs, leasing and purchasing practices, a new insurance initiative that’s been talked about, other hospital affiliations, etc. Can you tell us something about this in terms of the new business models that the healthcare industry seems to be heading towards.

Anthony Slonim, MD: Everyone understands that healthcare is changing. The focus is now on not only making sure that every patient who encounters the organization gets the best care they can from a quality perspective and a service perspective, but also that services are administered to them as efficiently as possible. Also, when the patient leaves your premises that interaction is not over. You still have ongoing responsibility to help assure that the patient maintains and improves his or health. I think now is the opportunity to find out what those business models are that will help us deliver on that vision of care. For one example, the accountable care organizations, and we have two of them here at Barnabas Health, are precisely geared toward that model of care -improved quality of service and reduced expense. And it’s a partnership method of engaging not only with other providers but with payers, and with doctors and with patients themselves because patients have to have a role in this as well. We want them to partner in living healthier lives as they go forward with their own care. I think that’s consistent with the model. We certainly have, as was announced last year, another hospital in our organization. Jersey City Medical Center has joined us and that’s in part because in order to provide effective care to populations, you want to have a reach into the population and make sure that you are overlapping areas in order to be certain that the entire population is being served.

AP: Where do you see the small practices evolving to at this point? It seems as if Barnabas Health has been quite active in either leasing, purchasing or forming some kind of affiliation with many practices that have been with them before.

We are also seeing corporations that are forming either for more efficient management of practices or in some cases, just purchasing outright, single specialty type of situations. Where does Barnabas Health fit into that business model?

AS: We certainly have practices that we’ve purchased. I think that the bigger conversation is around integration. What are the ways in which physicians are further integrating with hospitals and health systems - a different group of providers, to advance care for populations. That’s the conversation. It doesn’t much matter what the business arrangement is.

6 AFFILIATED PRACTICE

The conversation is around integration. There’s a variety of three letter acronyms out there, a variety of these types of relationships but it is all about driving a relationship to where you are partnering with people that share the same vision that you do in terms of the way you provide care.

AP: It seems as if the new models actually allow the physicians to be practicing medicine without the distraction of running a business as well.

AS: Exactly. And what we find is that many doctors are particularly interested in that because the business side of medicine has become quite cumbersome over the years. It’s not easy, essentially being a small entrepreneur and managing your small business. We’re finding to some extent at least and as the literature suggests, that there may be some generational issues here as well, where younger physicians are opting for a better work/life balance than some older generations and I include myself, might have previously opted for.

AP: We know of some older physicians who have retired because technology became overwhelming for them. One example is the prospect of having to go back and re-learn. For instance, many surgical specialties can now take advantage of computer and robotic-assisted techniques that offer a superior result to traditional methods.

AS: Yes, it’s really interesting. Not only has the business side become more difficult but the actual delivery of care with the technology has become more difficult. And I think what we’re going to find as we move forward, if we take that to the next evolution, and this is where I’m taking some time, is thinking and focusing in our work at Barnabas, particularly on how we can advance the quality of care, like with computer assisted surgery. This is one of my major responsibilities. We have to realize that in this arena the doctor has to be freed up from some of the more common decision making that could be done by other members of the team. Perhaps there are nurses or pharmacists that could liberate the physician from the burden of each individual independent decision. And we can use the doctor for the critical thinking skills when it becomes necessary. Otherwise we will continue, per the example of technology to overwhelm our physicians and we’ll never have sufficient resources on the doctors’ side to be able to provide the types of care at the population level that we’re talking about. It’s a matter of understanding what other disciplines can do for the patient and how we can partner together as healthcare workers to advance that model of care.

AP: Absolutely, where do you see this evolving in five years? There is some talk that the ACO is a temporary situation that will evolve more into something more in line with having corporations and hospitals run the healthcare industry. Do you see that as the direction in which things are going?

AS: I was recently asked by a graduating student at NYU who had received his MBA who said to me, “Dr Slonim, I am sure that my career is going to focus on ACOs.” And I said to him, “Then that it will be a really short career. I hope for your sake that you’re getting behind the proposition which is - that regardless of what you call it, ACO or other - the value proposition is here to stay. Improved quality and reduced expense. That’s the name of the game. And it’s about how we can do that for more patients than we’ve been doing it for previously.

APRIL 2014

7

Small group practices may become thing of past because of Obamacare

By Beth Fitzgerald Changes in modern society did away with the individual family doctor who made house calls more than a generation ago.

Changes in modern health care services now are threatening to do the same thing for doctors in small medical practices.

Experts say the demise of small practices — or their absorption by larger groups and hospitals — is an unintended consequence of the Affordable Care Act. Whether this ultimately is good for health care is up for debate.

Attorney John Fanburg, chair of the health law practice at Brach Eichler in Roseland, is living the trend. He has helped negotiate the acquisition of about a dozen physician practices by hospitals around the state.

"For the one-, two- or three-physician group, it's really hard given the increased overhead and the relatively flat level of reimbursement (from insurance companies, the government, other payers)," he said. "Doctors are talking to everybody all the time."

They feel they have to.

The new health care reform landscape is leading many doctors to either go to work for a hospital (in the community) or merge into larger practices so they can afford the costly switch to electronic medical records and embrace new care models such as "population health management," a concept where clinicians engage patients to control chronic diseases.

Hospitals, which previously were happy just to give doctors privileges, are now pushing to have them on staff.

Atlantic Health, which oversees four hospitals — including heavyweights Morristown and Overlook Medical Centers — has been increasingly hiring physicians as employees. It now employs roughly 500 doctors.

And more than a year ago, Atlantic Health launched a new physician-owned primary care practice, Primary Care Partners, which is affiliated with Atlantic but is independent of the hospital system.

Primary Care Partners now has 52 physicians, but Atlantic Vice President Dr. David Shulkin said he sees that growing to 100 in the next year.

"Doctors want different things," Shulkin said. "(Primary Care Partners is for doctors) who want to be part of a larger organization so they can share electronic medical records and share resources but still control their own destiny."

Shulkin said when he came to New Jersey from New York four years ago, he was struck by two alarming trends: the aging and retirement of primary care doctors and the rise of "concierge medicine," where doctors exit the high-stress, time-starved primary care practice and instead devote more time to a smaller set of patients.

"If you don't make primary care sustainable and you don't make it economically viable, you won't have the foundation to deliver proper health care in the community," Shulkin said.

The Primary Care Partners physicians remain in the community and are more likely to bring on new doctors as their business expenses are spread over a larger practice, Shulkin said. They buy malpractice insurance at group rates and can afford to bring in consultants to train the entire group to keep up with changes in the profession.

Primary Care Partners also contracts with Continuum Health Alliance for business services such as billing and electronic records.

Founded by pediatrician Dr. John Tedeschi, Continuum provides practice management for a number of groups, including Marltonbased Advocare, a group practice founded by Tedeschi that now has more than 500 physicians.

Tedeschi said he founded Continuum 16 years ago "to make doctors happy being doctors again, and take away the things that are bothering them so they can get back to their patients and be as successful as they can possibly be."

The Valley Hospital in Ridgewood has a 200-physician practice with more than 30 medical and surgical specialties. Marc Goldstein, president of Valley Medical Group (VMG), said the group continues to grow and is currently in discussions with more than 50 medical practices.

"Our acquisition of community-based primary and specialty physician practices will ensure that patients residing in communities served by Valley Health System continue to have future access to quality primary and specialty care," Goldstein said.

APRIL 2014

9

Goldstein said doctors join VMG for several reasons, with managing the new health care rules and regulations near the top of the list.

"Managing a private practice is becoming more and more difficult," he said. "Joining VMG offers support for the practices, the ability to practice as part of a large, multispecialty group, and financial security."

Larry Downs, chief executive of the Medical Society of New Jersey, said a key motivation for doctors to go to work for hospitals or merge into larger practices is the rise of new payment models that reward doctors for hitting certain quality and efficiency targets.

"Some of these new payment models require a bigger investment in health information technology to track quality and follow patients more closely," Downs said. "And some of the technology is almost unsustainable for a small practice."

Downs said doctors have felt a downward pressure on reimbursements for years.

"Going forward, the promise of health care reform is that if physicians provide the right care at the right time to the right patients, the system will save a whole bunch of money and reward those efforts by sharing those savings with doctors," he said.

It's often a good thing.

"We've seen hospital-based doctors who are enjoying it and providing quality care," he said.

Of course, it doesn't always work out. Some doctors find they don't like the hospital they are at and work to move to another.

Others don't like it period.

It's the other trend Fanburg sees.

When he's not working to bring hospitals and doctors together — something that has brought him plenty of work the past two years — he's working to undo some deals.

Fanburg said he's currently advising two physician practices looking to terminate mergers with hospitals.

"Physicians who've been in private practice for many years (can't always adapt to working for hospitals)," Fanburg said.

How many ultimately will be forced to do so remains to be seen.

Medical Practice Super Groups, Are They for You?

By Susanne Madden Practices today are facing challenges such as lower earnings, more complex regulations, higher costs, obligations to create higherquality care and produce better outcomes, all while they see other colleagues merge or become acquired by local hospitals or healthcare systems. So at least once a week I get an inquiry from a physician asking, "Should I sell my practice?"

There is no single answer to that question. It depends on many factors, including whether or not the practice is in good financial shape and if it is well managed. I do consider those to be two of the strongest indicators for successfully remaining independent.

However, the options shouldn't be limited to either selling or remaining independent.

Practice-without-walls models As an alternative, some practices are now coming together to form "practice-without-wall" groups or "super groups." Some of these are single specialty and band together in order to achieve efficiencies of scale, to reduce costs, and to create collective competitive advantages. Others operate more like independent physician associations (IPAs) due to the fact that they are multispecialty and may bill under multiple tax identification numbers.

I'm a big proponent of single-specialty super groups because this model allows for practices to come together under one unified business structure that can focus very effectively on building a quality single-specialty organization. That is, single-specialty super groups understand the challenges inherent in their particular specialty, and therefore are best equipped to tackle them and provide the most appropriate solutions.

So what does a super group actually do?

If built well, a super group offers individual practices the opportunity to retain some autonomy while reaping the benefits inherent in being part of a larger organization. The primary purpose of a super group is to centralize services and gain efficiencies of scale. Centralized services include billing, human resources, and accounts payable. Most contract and bill under a single tax identification number, and depending upon the size and quality of the group, will probably be able to negotiate better rates with insurance companies.

By centralizing things like payroll, billing, accounts payable, and claims management, you reduce the overhead that each practice

10 A F F I L I A T E D P R A C T I C E

has to lay out independently. But more than that, a larger-scale operation reaps the benefit of lower collective costs for things like malpractice insurance, medical supplies and vaccines, and health information technology, and provides the business resources best qualified to manage them.

What about practice autonomy?

You may be thinking that this sounds a lot like selling to a hospital. So what is the difference? To start, you won't be just another employee. Super groups consist of shareholders. Certainly there will be collective rules that need to be adhered to, the same as there would be if you sold to a hospital, but most practices that join super groups get to keep their own staff, their patients continue to see the same providers, at the same locations, and arrangements between partners can remain the same depending upon the governance structure chosen.

What will change is usually the technology you use — super groups work best when all practices are on the same EHR, for example — and more and more frequently, the standard of "quality" to which you must perform.

Specifically, in order to achieve better insurance contracts, super groups need to demonstrate quality clinical outcomes and show that their members can achieve certain metrics and clinical targets. Payers are no longer interested in just size — even a small super group has negotiating power, provided it can demonstrate a compelling "value proposition" to the payer. That is, if the super group can provide superior services by managing care more effectively and successfully than its peers, then it can benefit from shared cost savings with a payer.

How to start a practice without walls Are you friendly with associates in another practice? Do you share similar philosophies and clinical practices? Then it may be time to talk to one another. Seek out others who have formed super groups in other regions or in other specialties and ask them how they did it.

Forming a super group requires setting up a legal structure and working through development of an operating structure that all members can be happy about. With the proper support from lawyers, accountants, and consultants who have put together other super groups, you will be in good hands.

So before you sell, consider joining or starting a super group. It really is a great option!

APRIL 2014

11

Reforecast: New business models for hospitals buying medical practices Russ Banham, Successful integration between the hospital and the practice requires tough discussions pre-acquisition In the present reimbursement environment, the acquisition of physician practices by hospitals is requiring sellers to play by the hospital’s rules, sharing the same economics they do.

These expectations are a far cry from the buyer-seller relationship that existed during the early 1990s. Back then physicians enjoyed the upper hand, selling their practices for as much as 10 times what a practice it was actually worth, in some cases. The outlay was based to a large extent on goodwill value—the reputation the practice enjoyed with patients. This intangible asset seemed to promise hospitals a steady income for the foreseeable future.

Unfortunately, the economics didn’t pan out as hoped, and acquisition prices swooned. “The first go-round went bust, and most of those doctors were spun off and went away,” recalls David J. Cooke, former CFO at Park Nicollet Health Services, a healthcare delivery system comprised of two hospitals and a 650-group medical practice in Minneapolis, with annual revenues of approximately $1 billion. “Now there are different dynamics at play. Hospitals want to buy only hard assets now, not accounts receivables or goodwill.”

Cooke, who recently left Park Nicollet to become CFO at New Orleans-based LSU Medical Center, explains that hospitals are no longer snapping up physician practices for their intangible assets. “This is not about increasing (the number of patients), as much as decreasing patient admissions and length of stay, avoiding re-admits, and finding other means than surgery to care for them,” he says. “In the old days, it was all about the physician doing things to maximize the returns in his or her practice, which was in alignment with what the hospital wanted then. Now, the economics have changed.”

Alignment in the New Era Today, finance has a different objective when it comes to acquiring a private practice. William McCauley, MD, president and CEO of Susquehanna Health Medical Group, points out that in the past Susquehanna required financial and productivity records, tax

12 A F F I L I A T E D P R A C T I C E

and income statements, and volume statistics as the premier analytical tools when evaluating private practices for employment acquisition. Today, the focus is not nearly as sharp on these factors.

“The old business model mirrored how a typical small business would run, with a profit/loss statement at the end of the day to show their value,” Dr. McCauley explains. “Nowadays, the business information about a practice is just one small piece of the puzzle and does not reflect the new definition of `value’ at all.”

Rather, to be successful as a healthcare organization, a hospital must acquire physician practices able to work in a world that is essentially foreign to what they are used to. “The `new normal’ is based on value, outcomes and patient satisfaction,” Dr. McCauley says. “Gone are the days where the financial bottom line tells the story. Instead, our new healthcare environment requires consistent, positive outcomes with well managed expectations throughout the continuum of care. … Our job is to be the vehicle carrying the support resources to ensure the practitioners can be successful in this new world.”

When conferring with a practice on the block, Susquehanna Health emphasizes its culture, stewardship and care teams supporting patients. It points out that from a compensation standpoint, physicians are valued on patient satisfaction scores and how well they manage diseases in the outpatient setting, rather than how many inpatient hospital admissions are credited to their name.

“We’ve changed our compensation model to reward physicians’ leadership and participation in a culture that fosters positive outcomes and healthcare management for our population,” says Melissa Davis, Susquehanna Health vice president and Chief Operating Officer. “If our patients are satisfied, receive good care, and require less significant medical intervention, the payers will reward them with high quality scores and accolades for being efficient and effective.”

This, in turn, guides greater compensation, as opposed to the old model of rewarding physicians for volume alone. “Our practitioners actually welcome the new model, as they prefer to be graded on value and good, clinical outcomes, rather than production line numbers that don’t have a face or a name,” she says.

Cooke confirms this model, noting that it is not unusual to see physician compensation tied to RVU production after a one or two-year guarantee. An RVU or Relative Value Unit is a metric assigned to a CPT (Current Procedural Terminology) code describing medical, surgical and diagnostic services. Medicare pays physicians for services based on the CPT code. “It is more common today to see bonuses for achieving certain quality outcomes or patient satisfaction measures,” he says. “The new rules are productivity related to patient outcomes and quality care.”

New Rules Obviously, these changes have import for physicians selling their practices. “Successful integration between the hospital and the practice requires tough discussions pre-acquisition,” says Cooke. “For instance, the practice owner will be told he or she must now refer their patients to a specific set of specialists, which likely won’t be the specialists they referred their patients to in past.

They will need to participate in the hospital’s readmission avoidance programs, and expand their hours to accommodate same day appointments.”

This is the price of acquisition for many hospitals and not just Park Nicollet, he notes.

This helps explain why so few hospitals are interested in partial practice ownership, given the focus on patient care and related physician productivity. MD Anderson Center at the University of Texas in Houston, for instance, favors a total physician practice ownership model, rather than partial alignment with practice owners. “We have our own physician practices (set aside) as a separate entity, where we can watch their income statements, in terms of the practice’s plans and the financials behind them,” says Juan C. Castro, associated vice president, financial planning and analysis.

Not that this silo treatment is without challenge. “We need to make sure the doctors generate the revenue we expect from them to hit the bottom line,” Castro explains. “If they say they will be 60 percent clinical and 40 percent research-oriented (MD Anderson is an academic medical center), and then those percentages are switched, it doesn’t help us do what we need to do, economically.”

By managing the practices together through the separate entity, greater accountability can be applied. “If a doctor’s practice is plastic surgery and he or she says they’re 60-40, clinical versus research, we need good operating metrics behind that 60 percent,” Castro says. “We need to see how many surgery cases the practice has, how many patients, and the RVUs.” While every hospital’s billing system is tied to the CPT codes, the problem is the definition behind the 60 percent clinical work, “what constitutes it,” Castro says. “It needs to be documented and benchmarked, which is difficult. And when it is discerned that the physician is not hitting the numbers, management must step in and hold them accountable.” This might lead to disciplinary actions like termination or probation, he adds.

Obviously, they heyday of physician practices striking gold is long gone. Selling the practice to a hospital or achieving some form of partial alignment are fraught with difficulties. For physicians at the threshold of their vocations, employment by a hospital, as Cooke pointed out, is increasingly the more viable career path.

“The private practice in most markets is numbered, although there are some pockets where this is not true,” he says. “In small to medium-size communities, the independent practice has pretty much disappeared.”

And with this change, another slice of American enters the history books.

APRIL 2014

13

Employed physicians like security but miss autonomy

By Andis Robeznieks While some disparage the move toward physician employment, employed physicians are generally satisfied with their income and work-life balance, according to a new Medscape survey of 4,600 doctors.

Approximately 56% of employed physicians surveyed said their work-life balance had improved with employment; 29% said it stayed the same and 15% said it worsened, Medscape reported. However, only 19% of physicians said they chose employment chiefly for better working hours or work-life balance. The most common reasons for choosing employment were financial security and less financial risk, cited by 38% of respondents, while 29% said having fewer administrative responsibilities most motivated their decision.

On the finance side, almost half (49%) of employed physicians said they were satisfied with their income, while 30% were neutral and 22% were dissatisfied.

However, limited income potential was the second-largest reason (44%) for employed physicians' dissatisfaction. Their biggest gripe was having a limited influence on decision-making, cited by 45% of respondents. Dealing with too many rules came in third, cited by 34% of employed clinicians.

While talk of physician burnout is common, a majority of all physicians surveyed were happy with their lives. Seventy-four percent of self-employed docs expressed overall satisfaction, as did 73% of employed physicians. Twenty percent of both groups were neutral, while 8% of employed doctors and 7% of those who were self-employed said they were dissatisfied with their situation.

However, more doctors who went from employment to self-employment said they were happier compared to physicians who did the reverse: 70% of newly self-employed physicians were happier after they made the switch, while only 49% of newly employed doctors were happier than they had been when they were self-employed.

The survey included responses from 3,554 employed and 1,010 self-employed physicians who completed an online survey between Sept. 20 and Oct. 21, 2013.

Making physicians pay off Hospitals struggle to balance current costs with future benefits of employing docs

By Beth Kutscher Like many hospital systems, Bon Secours Health System has been on a physician buying spree.

As of last May, the 13-hospital system employed 708 physicians and midlevel providers, representing a nearly 30% increase since fiscal 2011 and an 86% jump since fiscal 2009, according to its most recent financial filing. And it continues to acquire physician practices. Employing doctors is just one prong of Bon Secours' physician integration strategy aimed at preparing the system for greater care coordination. “We think that to do population health, especially in chronic disease, you have to have an integrated system,� said Dr. Marlon Priest, executive vice president and chief medical officer of the Marriottsville, Md.-based system.

But Bon Secours' acquisition of physician practices hasn't been without bumps. In its fiscal 2013, ended Aug. 31, the not-forprofit system took $158 million in losses as a result of its physician employment strategy, according to Moody's Investors Service.

Employing more physicians has meant a 5.2% increase in salary and benefit expenses, as well as added costs related to renting and staffing office space. The system has been working with a consulting firm since fiscal 2012 on a cost-reduction plan, focusing on better integrating its employed doctors, according to its financial report.

Systems across the country have been rapidly buying physician groups to expand their referral networks and prepare for a nottoo-distant future where they will have to manage the health of their patient populations and be held financially accountable for meeting cost and outcomes goals. The hope is that stronger physician alignment will leave systems better positioned to meet the demands of payers, particularly as more health plans move to narrow networks. In addition, some systems are launching their own managed-care plans and are using employed physicians to offer a broader and more attractive network.

The systems also hope that during the current transition from fee-for-service to outcomes-based payment, employed physicians will essentially serve as loss leaders. Hospitals and systems on a physician practice acquisition binge are gambling that by acquiring practices, especially in specialties that drive hospital admissions, hospital beds will remain full during the transition.

But that bet hasn't paid off in the short run. For every physician practice that a hospital or system absorbs, it must upgrade information technology, pay comprehensive benefit packages and assume the costs of maintaining office space, equipment and

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staff. Meanwhile, hospital utilization rates across the country are dropping. Systems have become trapped between the current fee-for-service imperative of using physician affiliations to boost hospital volumes and the coming goal of coordinating care to reduce unnecessary utilization and improve quality.

The median loss for employing a physician in 2012 was $176,463, according to a 2013 report from the Medical Group Management Association, its latest on the subject. As a result, some analysts are predicting a pullback on physician practice acquisitions this year as costs have increased faster than revenue.

Moody's 2014 outlook report, which offered an overall negative outlook on the not-for-profit hospital sector, called physician employment “a principal driver of hospitals' margin pressure.” But it saw no signs of a slowdown.

“Hospitals historically have not done a good job of managing physician practices,” said Dr. Mike Schatzlein, CEO of St. Thomas Health, a Nashville-based system under the Ascension Health umbrella that has shied away from buying practices.

Not deterred But many other hospital leaders say they plan to continue their physician buying binge. They argue that the balance sheet numbers fail to take into account downstream revenue opportunities from having physicians under their integrated umbrella.

“You have to bring them in—and then you have to bring them in as efficiently as you can,” said Dr. Alan Kaplan, president and CEO of UnityPoint Clinic, the physician arm of UnityPoint Health, a 12-hospital system based in West Des Moines, Iowa. “It's really a strategic asset that requires investment.”

Some observers think the financial results associated with employing doctors will improve with time. “I think it's a little early to be measuring a return,” said Jeff Swearingen, a managing director at investment bank Edgemont Capital Partners who predicts that health systems will continue buying physician practices this year.

UnityPoint Health employs 640 physicians, with another 400 in line to join the group. The physician acquisitions are defensive, Kaplan said. Fewer primary-care providers want to be in private practice, and if UnityPoint doesn't offer them employment, its competitors will. UnityPoint's average loss per physician is about half the MGMA average because it focuses on maximizing physician productivity, he said.

Back in the 1990s, hospitals also rushed into employing doctors, and they racked up big losses, making many hospital leaders leery about trying it again. But some experts say this round is different, at least partly because systems are using more sophisticated, productivity-based compensation models. They also are trying hard to avoid paying inflated prices. “That was a mistake that was not repeated,” said Dr. Brett Spencer, a partner at Boston Consulting Group.

Another difference is that the Patient Protection and Affordable Care Act presents opportunities for health systems with integrated physicians to participate in potentially lucrative alternatives to fee-for-service payment, such as accountable care and bundled payment programs. Having a strong physician network makes such alternative payment and delivery models more viable, experts say.

Finally, systems are diversifying away from acute care. Outpatient care is an increasingly important contributor to both the top and bottom lines, and will continue to be central under both current and future payment models.

“That's not what happened in the '90s,” said Dr. Mitch Morris, who leads the national provider practice at Deloitte Consulting.

For now, some systems are using physician acquisitions to drive referrals, since fee-for-service rewards volume. UnityPoint is realizing downstream revenue opportunities such as revenue booked from ancillary testing and outpatient procedures, Kaplan said.

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Systems can bill for those outpatient services at higher hospital rates, though there are proposals in Washington to limit or eliminate that. “That's new revenue for the hospital,” Spencer said.

The prices that systems are paying for physician practices vary by market and are highly dependent on the specialty involved. But those amounts, which generally are not publicly disclosed, can be significant. The larger the physician group, the more attractive it is for buyers, Swearingen said.

MH Takeaways Given a median loss of $176,463 for employing a doctor, some analysts are predicting a pullback on physician buys this year.

For example, Northwestern Memorial HealthCare in Chicago recently committed $230.5 million—plus annual payments of $118.5 million through 2016—to acquire the 900-physician Northwestern Medical Faculty Foundation, in what is believed to be one of the largest sums for a medical practice in the U.S. The deal closed in September.

Health system leaders hope that employed physicians will increase efficiency by coordinating care for patients, helping to avoid the costs associated with unnecessary or avoidable procedures. That model might work for value-based contracts, but hospital revenue is still largely generated from performing procedures, not preventing them.

“Most systems have a certain book of business that's fee for service,” said Daniel Steingart, an analyst at Moody's. “That type of care coordination actually reduces revenue. There's a transition period (when) you're managing two different models.”

Losses from physician employment were a common theme in Moody's reports last quarter on not-for-profit hospitals.

One system facing a financial struggle in integrating physicians is Baptist Health, Louisville, Ky. In fiscal 2013, Baptist added 60 physicians in five physician practices to prepare for managing a patient population and accepting financial risk for outcomes and costs. The acquisitions were one factor that dragged down its credit rating last quarter, when Fitch Ratings downgraded three series of bonds to A+ from AA-. The agency cited Baptist's losses of $89 million in 2013, which are expected to increase to $109 million this year.

Carl Herde, Baptist's chief financial officer, acknowledged at the time of the bond downgrades that losses were higher than expected. But he described physician employment as the “inner step” in moving from being an acute-care provider to an overall manager of patient health. “We need to go out and support our larger integration strategy,” he said. “This is the cost associated with employing physicians in this market.”

Some not convinced Other systems—including some involved in accountable care models and managing population health—remain unconvinced of the benefits of employing physicians. “We're not aggressive employers of physicians,” St. Thomas' Schatzlein said.

St. Thomas, which employs only 150 physicians, has taken a different approach for integrating physicians into its delivery system.

It launched the MissionPoint Health Partners accountable care organization in 2011. The ACO offers independent, communitybased doctors who participate in its provider network access to malpractice insurance, billing and collection services, electronic health records and group purchasing.

Physician practices “do better on their own, by and large,” Schatzlein said. “We actually see MissionPoint as one of our strategies for keeping doctors independent.”

James LeBuhn, an analyst at Fitch Ratings, predicts that more health systems will move to similar types of physician partnership and alignment strategies instead of outright employment. On a client call to discuss industry trends, he said that the costs of employing physicians are going up and systems aren't seeing the expected boost in volume.

Deloitte's Morris, however, said there is an advantage to forming tighter alliances for value-based delivery and payment models.

Studies of early ACOs show that one key factor for success is stronger ties with physicians, he argued. Systems are looking at all types of alignment strategies, he said, but “of those, the contractual alliances are the weakest because there are ways to end the contract.”

Moody's Steingart said health systems that have stuck with their physician integration strategy since the 1990s have been successful. “It's the ones that have gotten into it in the last couple of years that are unprofitable,” he said.

Spencer of Boston Consulting Group advised systems to establish a clear plan for creating value from their physician buys, including working with payers to set expectations for the shift to value-based payment models. He cautions against employing certain types of specialty physicians, who will be in less demand under accountable care and capitated payment models.

Health systems will begin to see a return on their investment in physician practices when a critical mass of payers finally shift to new payment models aligning financial incentives with patient outcomes, Priest said. But to get ready for that moment, Bon Secours already has reduced its readmission rates, improved palliative care for terminally ill patients, and brought down bloodsugar levels for its diabetes patients.

Employed physicians are “part of the overall effort to provide a service to the community,” Priest said. “I don't think you can do that if you don't have an integrated model of care.”

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PHYSICIANS – INDEPENDENT CONTRACTORS OR EMPLOYEES? Written By: Gina Perrone, MST, CPA · SaxBST LLP · GPerrone@SaxBST.com Worker classification has always had a high place on the IRS radar. Scrutiny is expected to intensify in 2015, when the temptation to classify an employee as an independent contractor increases due to the administrative burden and excessive cost of the employer mandate of the Patient Protection and Affordable Care Act. Effective in 2015, businesses with 100 or more employees will be required to provide a reasonable level of health insurance to at least 70% of full-time workers or face penalties of up to $3,000 per employee. Added to the already costly assessment of past employment taxes and penalties and interest, the cost of misclassification of employees as independent contractors can become a substantial burden on employers.

This article focuses on the factors used in determining the proper worker classification of physicians and other health care professionals (referred to as providers for the remaining part of this article). First, the 20-common law factors are discussed, followed by an examination of rules and guidelines released by the IRS to help determine worker classification of health care providers. The factors used by the Court are then discussed. The article concludes with suggestions (best practices) on minimizing the risk of reclassification by the IRS. The term “practice” used in this article refers to hospitals/health systems, medical centers, ambulatory surgery centers and physician practices. Please note, this article only discusses the Federal rules of worker classification. State rules may differ.

Determining Worker Classification of Health Care Providers – Factors Used by the IRS The IRS has the power and authority to reclassify independent contractors as employees. There is no bright-line test to determine the proper classification of workers; rather the determination is made from an analysis of the relevant facts and circumstances of each specific relationship or situation. The analysis is based on the concept of control – who has the “right to exercise dominion and control over the activities of the [service provider], not only as to the results but also as to the means and methods used to accomplish the result”.

Generally, an employer-employee relationship exists when the person whom the services are performed has the right to control the detail and means of the worker (i.e. what shall be done and how it shall be done). The IRS developed a list of 20 factors (known as the 20-common law factors test) that businesses should consider in determining the existence of an employer-employee relationship. The test is based on recent cases and rulings and includes such factors as whether a business has the right to control the worker; if the worker has a significant investment in facilities used in performing the work; and whether the worker makes his services available to the general public. The 20 factors in the test are meant to highlight whether the degree of control is sufficient enough to establish an employer-employee relationship.

The 20 factor test has been criticized as being too subjective and broad. Applying the factors to every type of worker could lead to inconsistent interpretations and incorrect assertions of employee status by the IRS. For providers, putting such a heavy weight on the degree of control is problematic, since their degree of control is often limited by professional ethics, contractual relationships and other ethical and legal barriers.

Generally providers offering services to the public are independent contractors and not employees. However, if there is a sufficient degree of control and supervision over the services provided by the physician, an employer-employee relationship exists. In this regard, it is not necessary that the employer actually control or direct the manner in which the services are performed; rather it is the employer’s right to do so that is indicative of an employer-employee relationship.

The IRS set forth the following four factors or criterion to determine whether this requisite of control and supervision exists to classify a physician as an employee – • The degree which the physician has become integrated into the operating organization of the practice which the services are performed; • The substantial nexus, regularity, and continuity of the provider’s work for the practice; • The authority vested in or reserved by the practice to require compliance with its general policies; and • The degree to which the physician has been accorded rights and privileges that the practice has created or established for its employees.

The first criterion refers to the manner which the provider’s services are integrated into the particular operation. Examples include the manner of payment (i.e. whether the physician provider is paid a percentage, salary or guaranteed minimum); whether the provider can hire associates or substitutes, and if so, who is responsible for paying the substitutes; and whether the provider is permitted to engage in private practice.

The second criterion is present if a schedule of definite and fixed hours is agreed to between the provider and the practice and such schedule is followed without substantial deviation.

When the provider is subject to the direction and control of the practice (via chief of staff, medical director or other authority figure) to require compliance with the practice’s general policies, the third criterion is met.

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Regarding the forth criterion, the relationship more closely resembles and employment relationship when the provider is given substantially similar rights and privileges as employees of the firm, such as fringe benefits, vacation and holiday pay and malpractice insurance.

In 1992, the IRS published additional guidelines addressing classification of health care providers. The guidelines identify eight factors that indicate a health care provider is most likely an employee. This is true even if the contract between the provider and the practice describes the position as an independent contractor – • The provider does not have a private practice.

• The provider is paid a straight wage by the practice.

• The practice provides supplies and professional support staff.

• The practice bills for the health care provider’s services.

• There is a percentage division of provider fees with the practice or vice versa.

• Practice regulation of, or right to control the health care provider, is present.

• The provider is on-duty at the practice during specified hours.

• The provider’s uniform bears the practice’s name or insignia.

Later, the IRS identified five misleading factors that are conventional to nearly all health care provider-practice relationships and therefore should be excluded when applying the 20-common law factors – (1) compliance with practice policies; (2) required completion of the practice credentialing process; (3) use of facilities by the provider; (4) the practice’s right to terminate the provider’s privileges for cause; and (5) a requirement that the work be performed on the practice’s premises.

Determining Worker Classification of Health Care Providers – Factors Used by the Courts The courts are not bound by the IRS tests or guidelines. The following are recent court cases setting forth factors deemed relevant by the courts in making worker classification determinations. A great deal can be learned from reviewing the factors that influenced the courts’ decisions.

In 2009, the United States Tax Court deemed the following factors as relevant in evaluating whether a health care provider is an employee or an independent contractor: • Degree of control the practice exercised – Did the practice require the provider to work a specified number of days or control his hours worked? Did the provider render medical services under the supervision of the practice members? Such factors indicate an employee relationship.

• Which party invests in work facilities used by the provider – Absent of a private practice, any investment by the provider is most likely offset by the practice’s investment in office locations and equipment. This factor supports employee status.

• The provider’s opportunity for profit or loss – Health care providers engaged in a private practice and performing services outside of the relationship with the practice for a fee presents an opportunity for profit and is vital for independent contractor status.

• Whether the practice can discharge the health care provider – The manner which the provider can be terminated is important (i.e. by one or both parties, at any time, with or without notice). The right to discharge a worker and the worker’s right to quit at any time indicate employee status (i.e. at-will employment). Independent contractors are usually bound by a written agreement requiring notice of termination.

• Whether the work is part of the principal’s regular business – A provider integrally involved in the business operations of the practice usually indicates employee status.

• The permanency of the relationship – An ongoing relationship indicates an employee relationship. A relationship that is transitory and that establishes a specified objective indicates an independent contractor relationship; and • The relationship the parties believed they created – Is the intended relationship – employee or independent contractor – expressed in a written agreement or contract between the parties? Did the practice withhold payroll taxes and report the provider’s compensation on Form W-2 (employee)? Did the practice provide the provider with employment benefits, including medical and malpractice insurance, participation in a retirement plan and continuing education reimbursement? Such factors support an employer-employee relationship.

There are multiple court cases from 2001 and 2002 that uphold the classification of providers as independent contractors. The key factors viewed by the courts as sufficient to support such classification and rule against IRS allegations of employee status include – • Documentation – Practices had documentation supporting the fact that the providers were independent contractors, based on the 20 common-law factors.

• Intent of parties – Contracts entered into by the providers and the practices clearly state the providers were independent contractors.

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• Degree of control – Practices did not control the day-to-day activities of the health care providers, including the hours worked, and did not require the providers’ presence at any set time.

• Opportunity for profit or loss – The providers were engaged in private practice and did not provide services exclusively to the practice. Many functioned through their own medical corporations and were employees of these corporations. Further, the providers did not maintain an office at the practice.

Best Practices – • Treat workers consistently and document the factors supporting the workers’ classification. File all required information and other returns (i.e. Form 1099-MISC) consistently with that status.

• Before the provider performs any services for the practice, the parties should execute a written agreement between the provider and practice that incorporate the key factors used to support the intended worker classification of the provider such as the type employment relationship (employee or independent contractor), term of the contract, responsibilities and payment of provider, responsibilities of the practice, and contract renewal and termination. Some practices require providers to acknowledge in writing that the provider performs services to more than one practice.

• Document the factors used in the determination of worker status. Common documents that demonstrate an independent contractor relationship include a copy of the provider’s professional license, proof that the provider performs similar services outside of the practice for a fee, and verification that the provider supplies his own malpractice insurance.

• IRS Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholdings, lists questions that highlight factors the IRS consider important in making this determination. The form can be filed by businesses and workers to get help from the IRS in determining a worker’s status.

• Do not overly rely on industry practices. Every relationship is unique.

Conclusion – For years, the health care industry has been the target of many IRS audits involving reclassification of workers and assessment of substantial employment tax liabilities. When determining whether a worker is an employee or independent contractor, it is important that all factors are considered. Though some factors may indicate different treatments, the key is to look at the entire relationship and the degree or extent of the right to control the worker. Finally, it is important to document each factor used in coming up with the determination and to carefully prepare and execute written agreements between the physician and practice.

Remember – The key to substantiating independent contractor status for a provider is to demonstrate a lack of the right to control such professional.

Experience vs. expectation

By Melanie Evans Dr. Janet Chipman worked for more than a decade in a busy surgery practice she owned with three other physicians, treating patients and sharing the responsibility of running a multimillion-dollar business. She says she valued the autonomy of private practice, which was a common career path among her peers and one she sought when she finished her training.

But nearly three years ago, Chipman and her colleagues signed an employment contract with Baptist Health, a Kentucky hospital operator that has doubled its number of employed doctors to 485 in the past three years. They felt that joining a sizable health system would boost their negotiating leverage with health insurers and make it easier to recruit surgeons into the practice.

They'd also have more bargaining clout with vendors. And it would be more viable to participate in one of the new alternative payment and delivery models, such as an accountable care organization.

Even so, Chipman had plenty of doubts before signing the deal. “The decision was incredibly hard for me personally,” she said. “I came from the culture of having your own practice and your independence.”

Not so for Dr. Nicole Lee. The first-year fellow in maternal and fetal health at the University of Mississippi will enter the workforce in two years. She expects to go directly into hospital employment. That's because working for a large health system likely will mean less on-call duty, allowing her to balance work and personal life. “If I have a family, they will definitely be my priority,” Lee said. “Being on call every other week is not feasible to me.”

Physician recruiters increasingly face this gap in physicians' professional outlook as health systems continue their doctor hiring binge. But the chasm in experience and expectations also brings a potential source of workplace tension, as doctors accustomed to managing their own business and putting in very long hours work side-by-side with doctors who want to work eight- to 10hour days and have time for family, friends and other pursuits.

Doctors moving from independent practice to employment may be more autonomous, business-savvy and likely to prioritize work over other obligations. But they also may chafe under bosses and rules. “They're used to setting the rules,” said Dr. T. Clifford

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Deveny, Catholic Health Initiatives' senior vice president for physician services and clinical integration. “One of the things you give up is that complete independence.”

Younger doctors may have no experience with or desire to take on demanding call schedules or leadership roles. “They're looking for lifestyle,” said Danise Cooper, manager of physician recruiting specialists for Cejka Search and one of the recruiting agency's senior search consultants. “Lifestyle means less call.”

Thrown together, once-independent physicians and younger doctors may clash over how to share the workload and rotation duties. In addition, physicians may differ in how they respond to their employer's invitation to participate in quality improvement or strategic efforts. And since physicians may treat one another's patients, some doctors may worry about how their colleagues' work ethic and attitudes and accessibility to patients may reflect on them and influence their patients' satisfaction.

Cultural discord among doctors can lead to costly turnover. Culture conflict ranked in the top five reasons for turnover among doctors in the most recent retention survey by the American Medical Group Association and Cejka Search. Hospitals lose revenue when doctors depart and incur the cost of recruiting replacements. In 2012, physician turnover edged upward to 6.8% from 6.5% the prior year and 6.1% in 2010, the survey found.

“Turnover is terrible for everybody,” said Dr. Les Mathers, senior vice president for physician recruitment at Peoria, Ill.-based OSF HealthCare. The system operates eight hospitals across its home state and one in Michigan. Between September 2011 and the end of last year, the hospital hired 89 doctors to bring its total of employed physicians to 505.

Twenty percent of U.S. doctors worked for a hospital in 2012, according to the American Medical Association. That figure rises to 26% if you include doctors in a medical practice partly owned by a hospital. Six years earlier, 16% of doctors were hospital employees.

Hospital employment growth The hiring spree is taking place at large and small hospitals across the country. Catholic Health Initiatives, which operates 87 hospitals in 17 states, has doubled its number of employed physicians—to 2,000—since 2011. Excela Health, a Greensburg, Pa.-based system with three Pennsylvania hospitals, has hired 44 physicians in the past year to bring its total to 160 employed doctors.

The growth in direct hospital employment of physicians has accelerated for a variety of reasons, including new payment models offered by public and private insurers that bundle payments for hospitals and doctors for entire episodes of care or establish financial incentives for providers to coordinate care and achieve better outcomes and lower costs. These new models require closer collaboration between hospitals, physicians and other providers, and may be easier to achieve when physician practices are more closely integrated with health systems.

Hospitals' recent hiring spree has coincided with a demographic shift in the physician workforce. More women are entering medicine. Thirty years ago, women accounted for 1 of 5 U.S. doctors. Now, 1 in every 3 doctors is female, though that varies by state.

A cultural shift has followed the demographic one, researchers say. Women tend to stress work-life balance, reporting greater concern about having enough time away from work. Studies of physician career satisfaction find women more frequently worry about how relationships may suffer from too much time spent at work. Women doctors are more than twice as likely as men to work part-time, according to the latest American Medical Group Association and Cejka Search physician retention survey.

“When they're coming out of the gates now, they want to both work and play,” said Dr. David Richards, executive director of the APRIL 2014

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medical group at Excela Health, a three-hospital system based in Greensburg, Pa. “They don't want to build a practice.”

MH Takeaways As hospitals hire more physicians, they must set clear expectations for productivity, sharing the workload and participating in leadership.

Experts say hospital employers must recruit carefully, clearly articulate expectations and enlist the help of strong physician leaders to minimize turnover and conflict among physicians. Recruiting efforts should seek out doctors with skills and interests suitable to the job. Formerly independent doctors are strong candidates for openings where hospital employers hope to establish or expand a practice or specialty and need doctors to cultivate business and raise the practice's visibility. That's because those who come out of independent practice often are keenly entrepreneurial.

Tommy Bohannon, divisional vice president of Merritt Hawkins, a physician recruiting firm that's a subsidiary of AMN Healthcare, said many independent doctors think of themselves as small business owners whose business just happens to be helping people with their health.

Younger graduates often are better matched to jobs with fewer entrepreneurial demands and more team-based care. New graduates also are more comfortable with information technology, including electronic health records and social media tools, recruiters say.

To successfully match candidates and vacancies, recruiters and job-seekers must speak frankly about expectations, schedules and other job requirements. “What I think is most important is to try to make sure that expectations are clear on both sides,” Mathers said.

Doctors in leadership roles in health systems can play a significant part in communicating clearly with potential future colleagues. At Baptist Health, Janet Chipman and her colleagues speak frankly to newly recruited surgeons about the group's shared accountability and high expectations for each other, she said. Patient satisfaction and the group's reputation rest on the performance of all its physicians. “There has to be someone we trust to take care of our patients,” she said.

Strong leadership, team players Compensation models also are important in making sure doctors with different work attitudes are paid equitably and motivated to be productive. Excela relies on compensation incentives to drive productivity, Richards said. About 90% of the system's compensation incentives are tied to productivity, though that may change as insurers shift away from fee-for-service to paying for value and patient outcomes. About 37% of doctors who work for hospitals reported that some of their compensation was tied to productivity in 2012, American Medical Association data show. Nearly 8 out of 10 reported their compensation included a base salary.

Health system employers say they value both physicians with strong leadership skills and good team players who can work well with mid-level professionals to coordinate patient care. Formerly self-employed doctors often can find opportunities to participate in leadership and governance. Demand for doctors able and willing to lead will increase as new delivery and financing models such as ACOs and patient-centered medical homes proliferate, said Dr. Timothy Jahn, Baptist Health's chief clinical officer.

Those continuing opportunities for leadership-oriented doctors are a good thing, because the old model of private practice medicine is shrinking. “There are many factors that make it much more difficult to go out on your own and hang a shingle,” Jahn said.

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Firings, whistle-blower suits surface as employed docs speak out about problems on the job

By Andis Robeznieks Dr. Cloyd Gatrell was working as an emergency physician at the Carlisle (Pa.) Regional Medical Center when he began raising staffing-related patient-safety concerns. He accused the hospital of not hiring enough nurses, which led to ED waits of up to eight hours.

His allegations, made in 2009, led to unannounced inspections by the state Health Department and scrutiny from the Joint Commission. Those complaints were eventually dropped. Gatrell was later fired, and he filed a wrongful termination lawsuit against the hospital and EmCare, the staffing firm that was his direct employer.

EmCare, a Dallas-based provider of emergency, radiology and anesthesiology services, declined to comment on the litigation.

Publicly traded Health Management Associates, which owns Carlisle Regional and has been named in several physician whistleblower suits that the federal government has joined, declined to comment on the specifics of Gatrell's case but said, “We believe Gatrell's claims are false.” Kirk Ogrosky, an attorney for HMA, said, “HMA is fully committed to and promotes policies to assure that only doctors make healthcare decisions at HMA facilities.”

MH Takeaways The growth of doctor-contracting firms has increased tensions with employed physicians.

The conflict between the staffing firm and one of its employed doctors highlights a growing problem for hospitals and other healthcare institutions that have turned to outside vendors to supply critical physician services. While the outside firms bring greater efficiencies and standardized practices, their growth has ratcheted up tensions, especially among those physicians who used to belong to independent practices or who enjoyed greater professional autonomy as direct hospital employees.

Some of these newly employed doctors say they are being pressured to generate increased revenue or put up with conditions that impair quality or patient safety. There sometimes are similar issues between hospitals and doctors they directly employ.

Among those who feel most under the gun are hospital-based specialists such as emergency physicians, anesthesiologists and hospitalists. Many now work for contractors that may find it easier than hospitals to fire them if they speak up about professionally unacceptable conditions.

“Employed physicians can find themselves at risk because they don't have job security,” said Dr. William Durkin Jr., president of the American Academy of Emergency Medicine (AAEM). “They have no due-process rights and could get let go for causing problems.”

While the AAEM says large specialty contractors are problematic, some experts say these staffing firms are leading large-scale quality-improvement efforts that improve patient care. They “do a lot to improve quality,” said Dr. Jesse Pines, director of George Washington University's Office for Clinical Practice Innovation. Such groups increasingly are facilitating care coordination, and they bring economies of scale that increase efficiency and reduce costs. The result will be “bigger and bigger groups.”

This split perspective on outside physician contracting has long divided physicians, especially those who specialize in emergency medicine. Two decades ago, a group of ER docs split from the American College of Emergency Physicians to form the AAEM because of what they perceived as ACEP's silence about abuses by contracting companies. The group now has about 8,000 members.

The AAEM mission statement declared that the practice of emergency medicine is best conducted by an emergency medicine specialist in an environment that includes provisions for due process and “the absence of restrictive covenants.”

Durkin said contractors can hire and fire doctors at will, especially in large metropolitan markets where one contractor is dominant. “I was working for a single-contract dictator,” said Durkin, who is now a self-employed clinician and consultant. “Then I thought, why should I forfeit 20% to 25% of the money I'm bringing in to someone who is doing little more than drawing up a schedule?”

While acknowledging that “there are some well-run groups,” Durkin characterizes many contractors that hire physicians as “hired guns” with little connection to the communities where their doctors work. “We ought to not have fear for our jobs when we advocate on behalf of our patients and do what's right for them,” he said.

The tensions between physicians and outside staffing firms also are being felt by hospitals that increasingly are acquiring practices and hiring physicians. Surveys and anecdotal evidence from physician recruitment firms confirm the existence of widespread tension.

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Peter Cebulka III, director of recruiting development and training for Merritt Hawkins, a Dallas-based physician search firm, said certain specialists, even those in high demand, fear being labeled as troublemakers and thus keep their opinions to themselves.

“We do come across it quite a bit, and it's one reason why physicians are looking to relocate,” Cebulka said. Doctors want to fix problems, but they are also concerned that being outspoken “may reflect poorly on them down the line.”

The results of a survey released last week by Physicians Wellness Services, a behavioral health company, and St. Louis-based physician recruiter Cejka Search highlight the disconnect between physicians and the administrators for whom they work.

One of the 1,666 physicians participating in the survey wrote: “Many hospital administrators seem to think they can demand engagement.”

Physicians were asked what elements of engagement were important to them and to what degree those elements exist at the facilities where they worked. The biggest gaps were found in the statements like “feeling that my opinions and ideas are valued” and having “a voice in clinical operations and processes.”

The recruiters suggest that if physicians encounter problems after speaking out, it often arises from the less than ideal way they do it. They counsel physicians to hone their diplomacy skills and work through established staff processes to address ethical or quality concerns.

MH Strategies Dealing with conflicts, concerns on the job • Doctors and organizations employing them should use the AMA's Principles for Physician Employment and its model contract as guides.

• Doctors should try to include strong professional autonomy provisions in their contracts.

• Employed doctors should insist on adequate resources, staffing and support to provide excellent patient care.

• They should use established physician staff mechanisms and effective communications approaches to address concerns.

• Organizations should establish a credible, formal process for physicians to raise issues without fearing reprisal.

Cebulka also recommended that physicians insist on “professional autonomy” clauses in their contracts, which ensure they can't be ordered to provide care or engage in practices they think are not medically or ethically appropriate. They also should ask for clauses requiring employers to provide adequate resources and staffing to provide excellent care, he said.

The American Medical Association sought to address these issues with a statement of principles for physician employment that the AMA House of Delegates approved in November 2012. The principles address conflicts of interest, advocating for patients and professional standards, hospital medical staff relations, peer review and performance evaluation, and payment agreements.

AMA board member Dr. Joseph Annis, an anesthesiologist from Austin, Texas, said that while cases of physicians being “compromised” were not widespread, there were enough to catch the attention of the AMA. “These are principles both sides should go by,” Annis said. “Hopefully, we've put forth a mechanism in which a physician can speak up without fear of being penalized.”

Annis said formerly independent physicians may need some mentoring upon becoming employed by a hospital or contractor.

Doctors who “never played team sports” may lack the diplomacy skills needed to find solutions to problems they identify, he said.

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Even when there are processes in place to register complaints, “they want to go straight up, nose-to-nose.”

Annis said the AMA also has supported physicians by developing model physician employment agreements. Through its Litigation Center, the AMA has worked with state medical societies to support doctors' right to exercise professional judgment.

Most recently, it worked with the California Medical Association to write a friend-of-the-court brief on behalf of Dr. Mark Fahlen, who alleges his privileges were revoked at Sutter Central Valley Hospitals after raising concerns about patient care.

But Gatrell contends the AMA's protections do not go far enough. For instance, one principle states that “unless specified otherwise in the employment agreement,” termination of employment should not automatically mean the loss of hospital privileges. Gatrell argues that termination by a contractor should never lead to a loss of hospital privileges, at least partly because termination removes the doctor's due-process protections as a staff member. He said he told the AMA that its statement of principles was “meaningless” because doctors generally don't have the leverage to get their preferred terms into the contract.

Dr. T. Clifford Deveny, senior vice president for physician services for Catholic Health Initiatives, which employs about 2,000 physicians, said his system expects doctors to act in the best interest of their patients. CHI has put in place a system where physicians can register complaints and concerns, with the goal of having them craft constructive solutions. He said many conflicts are between physicians whose practice cultures may not mesh well. CHI has held meetings “to introduce people and break down barriers and misconceptions,” Deveny said.

But, Deveny added, conflicts can arise when upper management has to deal with “low performers” in an acquired practice or a surplus of specialists in a given area after an acquisition. “If you have a group of 20 cardiologists, what do you do when two are not meeting expectations?” he says. “Or what if you hired 20 but only need 15?”

Looking back at his experience at his former hospital, Gatrell's advice is for doctors to watch their backs and show professional unity. “It's risky to stick up for patients,” he said. “But it is the right thing to do, and doctors need to do it.”

Physicians flocking to ACO models

By Kathryn Mayer Though physicians haven’t been on board with all of President Obama’s solutions to health care, they are embracing at least one approach.

The number of physicians participating in the emerging medical care delivery system known as accountable care organizations has tripled in the past year, according to new research.

Nearly one in four doctors are in or planning to link with an accountable care organization within a year, a new Medscape study found. By comparison, only 8 percent of physicians in last year’s report said they were in or planning to join an ACO. Medscape’s report analyzed responses from nearly 22,000 U.S. physicians across 25 specialties.

“There’s a dramatic change in the number of physicians who are becoming involved in accountable care organizations,” the report said. “The focus on ACOs as a care-delivery and cost-containment method is making an impact.”

ACOs were created under the Patient Protection and Affordable Care Act with the intent of improving care while lowering costs.

Under the ACO model — which brings together groups of hospitals, doctors and other health providers to direct patient care — organizations are paid for caring for a pool of patients rather than for each procedure. Groups receive a percentage of the savings they generate for Medicare as an incentive for keeping costs low.

Since passage of PPACA, more than 250 ACOs have been established, according to the U.S. Department of Health and Human Services.

A report earlier this year by consulting firm Oliver Wyman gauged feelings on ACOs from a consumer-standpoint. The firm found that ACOs are gaining momentum among consumers and employers, and also said that more than half of Americans now live in an ACO area. Insurers, too, have also increasingly been linking with ACOs. The new Medscape report shows that doctors are finally starting to embrace ACOs. Previously, the health care industry suggested participation would grow rapidly — eventually.

“The expected growth of ACOs is quite staggering as both managed care organizations and physicians appear to be buying into the core concepts of ACOs and, in many ways, we’re just now seeing the tip of the iceberg for ACOs,” Roy Moore, a product manager for Decision Resources, a research and advisory firm for pharmaceutical and health care issues, said last year.

For physicians, the hope is that a strong accountable care organization network will trim spending and improve the bottom lines of clinics and hospitals.

According to Oliver Wyman, the total number of patients in organizations with ACO arrangements with at least one payer — both Medicare and non-Medicare — is now between 37 and 43 million, or roughly 14 percent of the population.

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Clinical Transformation: New Business Models for a New Era in Healthcare Accenture research shows that independent physicians continue to dwindle and that those remaining will turn to subscriptionbased models to sustain profits and improve care.

Increasingly, private practice doctors have sacrificed their independence to seek employment, according to Accenture, as independent physicians have dropped from 57 percent in 2000 to 39 percent in 2012. By the end of 2013, Accenture estimates the market will comprise of only 36 percent of independent physicians.

As the physician employment trend continues to accelerate, those who remain independent are beginning to test alternative business models. Of those who remain in independent practice, Accenture estimates one in three independent physicians will aim for higher yields by adopting subscription-based care models, and this trend will increase 100 percent annually for three years.1 The Accenture Physician Alignment Research reveals (See Physician Employment Trends chart) that business operations are one of the main reasons why 61 percent of physicians have decided to seek employment, with cost and expense of running a business indicated as the chief concern for 87 percent of those independent doctors surveyed. Physicians who wish to remain independent have to find ways to lower their cost structure or improve their revenue. Subscription-based practices have the potential to do both.

Doctors who convert to subscriptionbased models that shift the focus away from service volume will not only access greater financial rewards, but will also gain the flexibility to get back to the basics of patient care. Patients could also reap the rewards by gaining enhanced access to care at a service level they can afford.

The pluses for patients and physicians There is a wide range of subscriptionbased models. The associated costs range, too. According to Accenture’s research, the most common include high-end concierge medicine and direct pay models. Subscription-based practices charge anywhere from $60 to $30,000 per year, with costs varying according to the population served.2 Concierge practices Concierge services are often offered in a premium setting and have a large markup. For patients, concierge medicine offers primary care—often with 24/7 access. Concierge practices promote the fact that the physician personally attends to coordinating care needs and helping their patient navigate the healthcare system, thus improving the quality of care. Patients can also sometimes access a spectrum of ancillary services that include nutritional guidance, medical spa, fitness, wellness and advanced diagnostics.

For doctors, concierge care offers the potential to significantly boost revenue while decreasing patient panels by up to 90 percent.3 However, this model would require physicians to increase capital expenditures in acquiring sophisticated equipment.

These practices also require physicians to emphasize the communication and service aspects of their practice. This transition is not always a natural one. Physicians might also increase operating expenses to onboard a larger staff to meet the needs of their clientele. Furthermore, the market for serving highnet- worth individuals is narrow.

Concierge practices, such as Virginiabased Guardian 24/7, offer “unprecedented medical protection to a demanding audience.”

Founded by former White House physicians, the group offers access to its care by invitation only.

1 American Academy of Private Physicians (AAPP) 2 Wharton – Health Economics Direct pay subscription models Such models offer many of the same services as concierge practices, but at a lower price. Patients at One Medical in San Francisco pay an annual membership fee to receive care. One Medical offers sameday appointments, online prescriptions and email access to doctors—all for approximately $150 to $200 a year. At the Multnomah Family Care Center, a Patient/ Physician Cooperative in Portland, Oregon, patients pay a one-time enrollment fee to join, and then pay monthly membership and primary care provider fees, which combined average less than $60 a month.4 Medical cooperatives such as GroupHealth, are consumer-governed systems that coordinate care and coverage. Founded in 1947 originally as a staff-model health maintenance organization that employed physicians, GroupHealth has evolved into a mixed-model network health plan that contracts with a large multispecialty medical group and with independent physicians in private practice.

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Such mixed models allow patients to keep their existing health insurance for acute conditions or emergencies, but supplement with direct pay care that allows patients to access services in ways that work for their lifestyle. For example, allowing patients to access medical information or book appointments via their smartphone. Such convenient access to care may encourage patients to keep up with primary or preventative care, thus improving overall wellness.

Doctors in these models are encouraged to focus on primary care and prevention as well. They have a steady stream of income, without the pressure to meet numbers. Doctors at One Medical keep an average of 800 to 1,000 patients on their roster— onethird fewer patients than at most mainstream clinics today.

Physicians at California-based MedLion experience: • Less administrative time spent managing insurance.

• Patient loads cut by 50 percent, demonstrating greater quality and prevention.

• Potentially lower malpractice costs as more time is spent with fewer patients.

Subscription-based models may expand and evolve over time as many physicians continue to look for ways to differentiate their practice in order to remain independent and self-employed. To the extent that they offer services that patients value, are not covered by traditional health insurance and are priced appropriately, patient demand for these service may grow as well.

Providers net uneven results from ACO experiment

By Melanie Evans The first results for Medicare's biggest accountable care experiment under the Patient Protection and Affordable Care Act underscore the uneven progress so far by hospitals and doctors trying to curb healthcare costs by coordinating treatment and reducing unnecessary care.

Slightly more than half of the 114 organizations to join one of two Medicare accountable care efforts in 2012 did not reduce health spending below targets during their first 12 months trying to do so, newly released CMS data show.

Of the remaining organizations, 29 reduced spending enough to keep some of what they saved during the first 12 months. The rest slowed health spending, but marginally.

Accountable care awards hospitals and doctors a share of money they save only when providers achieve quality and health spending targets. The healthcare reform law called for Medicare to test the largely untried payment model as one of a few policies that seek to reform healthcare financing and, potentially, slow health spending growth.

New CMS innovation chief aims to move the national needle on quality, costs The inconsistent preliminary results are similar to the mixed performances in Medicare's smaller test of accountable care. The CMS Innovation Center's Pioneer ACO model, also launched in 2012, saw nine of 32 organizations exit the program after its first year. Nine of the remaining 23 organizations saved money, according to an independent audit.

Medicare officials say they are not rattled by the numbers.

Jonathan Blum, principal deputy administrator for the CMS, praised the performance so far, which he said has increased officials' confidence in accountable care's ability to lower Medicare spending and improve the quality of care. The first year was largely expected to be one that required investment and reorganization among ACOs to save money in later years, he said. “We have built the ACO program for long-term savings.”

Medicare will keep $128 million from the first year of the shared-savings program, according to the preliminary data (the CMS plans to publish final results this year). Successful ACOs will share another $126 million.

But industry experts wonder what hindered so many ACOs from getting better results.

“It's good news that there's savings. Period,” said Dr. Kavita Patel, managing director of the Brookings Institution's Engleberg Center for Healthcare Reform. But perhaps more important is how and why ACOs did not save money. “We can learn more from what's happening in the remainder of the organizations.”

Hackensack (N.J.) Alliance ACO was among the winners. The organization expects to receive a bonus payment of $10 million to $15 million based on its performance in the first 12 months. “I am surprised because I would have expected there to be similar savings that we obtained,” said Dr. Morey Menacker, its president and CEO. Newly hired nurse navigators under the accountable care effort were critical to reducing hospital stays, readmissions and emergency room visits that helped to produce the savings he said.

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Coastal Carolina Health Care, meanwhile, did not reduce spending enough during its first year in the program to keep some of the savings. Stephen Nuckolls, Coastal Carolina's CEO, said that might be attributed to how the CMS calculates savings, which is measured against a national benchmark despite regional variation in how quickly healthcare costs accelerate. The system received an advance of $2.5 million from the CMS to launch the ACO and hopes to be able to pay it back with savings.

Participants in the program must meet quality performance targets to share in any savings they produce. ACOs were required to report quality data the first year, but did not have to meet quality performance targets.

Five ACOs failed to report quality data. Two of them won't get bonus payments as a result, even though they otherwise qualified to share in the savings they achieved.

Four of the 114 ACOs agreed to assume downside risk—meaning they have to return money to Medicare if they exceed spending targets—in return for a larger share of savings. Two of them did not slow spending and may owe the CMS. Despite the mixed results, the effort has since expanded to more than 340 accountable care organizations, including 123 that entered the program this month.

Also Thursday, the CMS announced that 232 acute-care hospitals, skilled-nursing homes, physician group practices, long-term care hospitals and home health agencies have entered into agreements with the Innovation Center's Bundled Payments for Care Improvement initiative.

The program is composed of four models of payment and episodic-care structures that link payments for a variety of services that Medicare beneficiaries receive during an entire episode of care.

Many Medicare ACOs slow spending—but few earn bonuses

By Melanie Evans Nearly half of the organizations in the CMS' largest test of accountable care slowed Medicare spending, but just 29 of 114 ACOs saved enough to receive bonus payments, the agency said.

Medicare launched its shared-savings program, one of two Medicare accountable care initiatives, in April 2012 with 27 organizations that agreed to try to save money and improve quality in exchange for the chance to keep some of the savings they produced. Three months later, the program added another 87 organizations.

Medicare spending was lower than projected among 54 of the ACOs during the first 12 months of the effort, the agency's interim data show. Twenty-nine ACOs reduced Medicare spending enough to keep a share of the savings. The ACOs produced shared savings of $126 million, and Medicare will see $128 million in savings, the CMS announced.

The shared savings program, one test of new healthcare financing models under the Patient Protection and Affordable Care Act, has expanded to more than 340 ACOs, including 123 that entered the program this month.

Today's results are the first for what is one of the largest and earliest public or private efforts to vet the success accountable care. Policy makers and the industry consider the fledgling payment model as one that could help to reduce health spending.

Favorable results could encourage growth of ACOs in Medicare, as well as Medicaid and the commercial insurance market, where trials are also underway. But poor performance could dissuade the skeptical from adoption or prompt some to drop the effort.

Some contend the upfront investment and financials risks for accountable care adoption are too great for an uncertain payoff.

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New care organizations save $380 million in first year Groups were created as part of the health care law to save money in Medicare The section of the Affordable Care Act aimed at changing the treatment of Medicare beneficiaries saved the program more than $380 million in its first year of operation, a top Medicare official said Thursday.

Accountable Care Organizations were created as part of the 2010 health care law and started in a series of pilot programs around the country. Instead of paying health care providers for each service they perform, ACOs focus on keeping patients out of the hospital.

The organizations are reporting even lower costs than Medicare as a whole, which has had record low spending increases in recent years, said Jonathan Blum, the principal deputy administrator for the Center for Medicare Services. "We are even more pleased that the quality scores are improving."

ACOs also use data to reduce treatment errors, coordinate care to ensure that patients don't have duplicate tests or bad drug interactions and work with community organizations to make sure patients have proper housing or food. The goal is to have a team approach to the care of each patient, which will help reduce costs.

To make sure hospitals, physicians' groups, long-term-care facilities and home health care organizations don't save money by pinching on care, the government uses quality measures to make sure patients both have good outcomes and report high satisfaction levels.

If organizations meet certain benchmarks, Blum said, "they earn money."

The first wave of ACOs, which have been active the longest, saved $147 million, Blum said. Of 23 of those ACOs, nine had "significantly lower" spending growth compared to Medicare organizations that use the traditional fee-for-service payment system.

"On 15 out of 15 quality measures, they did better than national benchmarks, as well as on four out of four patient satisfaction benchmarks," said Patrick Conway, the chief medical officer for Medicare.

About half of the Medicare Accountable Care Organization Initiatives, or 54 out of 114, had lower expenditures than they projected in their first year of operation, for a savings of $128 million.

Not all of the organizations saved money, Blum and Conway said. They emphasized that the organizations had just started and that ACOs are a "long-term" measure to achieve savings in Medicare.

"This is a significant transformation," Blum said.

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Nine rural providers test out ACO initiative

By Beth Kutscher A new model that could allow smaller providers to participate in the Medicare Shared Savings Program without the usual massive upfront costs or large patient base is being tried as nine rural health providers kick off their participation in the 2014 initiative.

The group is participating in the National Rural ACO, an initiative designed to help rural providers that don't have the deep pockets, size or scale to participate in the CMS program on their own.

Many rural health providers have been shut out of accountable care and other value-based payment initiatives because they lack the capital and infrastructure to make the necessary investments in personnel, information technology and data analytics expertise.

The National Rural ACO, which launched four years ago in California, will provide the centralized services such as building a data warehouse for participants, according to Lynn Barr, strategic adviser for the group. Hospitals participating in the CMS program will be eligible for shared savings, but will not take on any financial risk.

CMS ACOs are required to have at least 5,000 Medicare beneficiaries, which can be a barrier to smaller rural providers. In addition, the CMS estimates that average start-up costs and first year operating expenses can total $1.7 million, more than many rural health providers have to invest.

And that cost estimate might be on the low end. Start-up costs for 2012 and 2013 participants in a Medicare ACO program have averaged $2 million, according to a survey from the National Association for ACOs. That figure doesn't include feasibility studies or application and legal fees Spending on information technology has totaled about $850,000 for the average ACO, the survey found.

Moreover, because of the two-year cycle for CMS results, ACOs will have to commit $3.5 million before they see any return from possible savings, the association said in a release. About one-third of ACOs have financed that cost with debt, the group added.

Yet for the nine rural participants, the investment required is only $120,000, Barr said. The participating communities have set up care coordination and narrow referral networks, and are using a data analytics tool from Lightbeam Health Solutions to track real-time utilization trends.

“We see instant change,” Barr said. “The impact is immediate.”

The founding group includes Margaret Mary Community Hospital, Batesville, Ind.; Memorial Hospital, Logansport, Ind.; Alcona Health Centers, Lincoln, Mich.; McKenzie Health System, Sandusky, Mich.; Mammoth Hospital, Mammoth Lakes, Calif.; Northern Inyo Hospital, Bishop, Calif.; Southern Inyo Healthcare District, Lone Pine, Calif.; Ridgecrest (Calif.) Regional Hospital; and John C. Fremont Healthcare District, Mariposa, Calif.

The National Rural ACO is also recruiting a cohort for 2015. Letters of intent are due April 1, and the group will apply to participate in the Shared Savings Program during the summer.

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Big-data collaborative Optum Labs adds seven partners

By Rachel Landen Optum Labs, a Cambridge, Mass.-based research and innovation center established by UnitedHealth Group's Optum unit and the Mayo Clinic, is expanding with the addition of seven health organization partners.

“We're bringing together healthcare partners from across the healthcare ecosystem,” Optum Labs CEO Dr. Paul Bleicher said.

“They are organizations that typically are engaged in research and innovation around healthcare and others who aren't typically engaged in research.”

But the common thread, Bleicher said, is that all are passionately interested in outcomes and translating research into improved patient care.

Mayo using big data, digitized know-how to improve care and extend its reach.

The latest partners are the American Medical Group Association, Alexandria, Va.; Boston University School of Public Health; Lehigh Valley Health Network, Allentown, Pa.; Pfizer, New York; Rensselaer Polytechnic Institute, Troy, N.Y.; Tufts Medical Center, Boston; and the University of Minnesota School of Nursing, Minneapolis. These seven join the AARP, which recently became a founding consumer advocate organization in the Optum Labs space.

The collaborative is envisioned as a community of partners sharing information and knowledge, technologies and tools, and their own scientific expertise on a variety of research that can affect healthcare delivery and patient outcomes.

The lab provides support in the form of Optum Labs' economists, actuaries, researchers and a large database of de-identified clinical and claims data. A major part of Optum's mission is analyzing so-called big data in hopes of finding what works in healthcare.

“The partners are coming in with research ideas and interacting with each other to find new ways of looking at difficult problems,” Bleicher said.

Two areas currently receiving particular attention are longevity and wellness. More than 20 research initiatives covering a vast spectrum—including medical-device effectiveness, geographic variation in care and employee productivity—are currently in progress.

Bleicher expects more organizations to sign on, but he says the work is not just about benefitting those currently involved or those who may participate in the future.

“We're trying to create something that's going to help the healthcare system as a whole,” he said.

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Reform Update: Beaumont moves into pay-for-performance with new Blues contract

By Melanie Evans One of Michigan's largest health systems has entered its first insurance contract to pay hospitals based on performance, not volume, a move that underscores the industry's halting progress toward the financing reform that is widely cited as essential to more affordable healthcare.

Beaumont Health System, based in Royal Oak, joins a growing number of hospital operators with contracts that tie bonuses to performance on quality or health spending growth or both, though others have pursued such risk-based contracts earlier and more aggressively. A few entered into risk-based contracts before the 2010 Patient Protection and Affordable Care Act, which included policies to promote financing reform. Adoption has accelerated since, but unevenly, and results have so far been mixed.

Some contracts offer larger potential bonuses but also include penalties if performance falls short. The risk of failure has sidelined some hospitals, as executives wait and see how others fare.

Beaumont Health took a “relatively slow” approach, said Dr. David Wood, the system's chief medical officer. The new contract comes after strategic preparation for new reimbursement models, such as the 2013 agreement to clinically integrate with a large independent physician group.

Executives did not doubt that health reform and the marketplace would shift hospital payment toward more risk-based contracts, he said. But with no experience and potential financial risk, Beaumont Health executives decided to first work toward better coordination with physicians, which would potentially achieve the quality and savings targets that risk contracts require. “We wanted to get some experience,” he said.

Last year, Beaumont Health entered into an agreement with local physicians to work more closely on quality and efficiency to prepare for new payment models.

The new risk-based contract with Blue Cross and Blue Shield of Michigan, one of several the insurer announced this week, is Beaumont's entry into payment models that will become far more common in coming years, he said. “It's a start down that road.”

Indeed, Beaumont Health will meet later this week with a nearby Medicare accountable care organization about a potential partnership.

The risk contract will edge Beaumont Health away from the dominant payment model that rewards providers based on the volume of costly diagnostic tests and procedures they perform. Policymakers cite pay-for-volume as one culprit behind the rapid escalation in health spending prior to the recession that ended in 2009.

“We have a perverted system,” said Stephen Anderson, vice president of provider contracting and network administration for the Michigan Blues carrier. “We don't pay providers do to the right things.” The bonus offered to systems that slow health spending is an incentive to use care coordination that promotes health and prevents hospital visits, he said.

Under the contract, hospitals that hold down per member, per month costs will receive some of what they save the insurer.

Blue Cross and Blue Shield of Michigan has rapidly expanded its use of risk-based contracts from five hospitals in 2012 to 24 hospitals that account for 43% of what the insurer spends on hospital care each year, Anderson said. The Blues will monitor quality performance separately through a performance-based contract for physicians already in place.

The Michigan Blues announced the Beaumont contract this week, as well as contracts other contracts in the state with Ascension Health's Michigan operations; MidMichigan Health, Midland; Oakwood Healthcare, Dearborn; and Botsford Hospital, Farmington Hills.

Readmissions, post-acute edition Between 5.8% to 18.8% of post-acute rehabilitation facilities patients returned to acute-care hospitals within 30 days of leaving, researchers report in the Journal of the American Medical Association. The study looked at Medicare patients who were treated for the most common conditions: stroke, lower extremity fractures, lower extremity joint replacement, debility, neurologic disorders and brain dysfunction. The study examined 2006-11 records for more than 736,000 Medicare fee-for-service patients. Authors said more research was needed to understand why patients returned to the hospital so quickly and stressed the importance of the work. The CMS will now track repeat post-acute hospital visits as a quality indicator and new bundled payment incentives would benefit from the research, they wrote. “Understanding the ramifications of bundling requires accurate information regarding readmission rates for patients receiving post-acute services,” they said.

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HBCBS, JFK Medical Center form collaborative ACO

By Beth Fitzgerald Horizon Blue Cross Blue Shield of New Jersey and Edison-based JFK Medical Center announced Monday the launch of a collaborative Accountable Care Organization aimed at improving medical care for over 5,000 Horizon BCBSNJ members.

Horizon will make care coordination payments to the JFK-affiliated physician practices to cover the cost of improved monitoring and coordination of population health. If certain clinical, patient satisfaction and cost goals are met, the practices will have the opportunity to share in the financial savings with Horizon.

This is the latest in a series of innovative medical care delivery programs that Horizon has launched through the state, which now cover about 500,000 of Horizon's 3.7 million members.

For the JFK ACO, more than 140 doctors practicing at approximately 50 practice locations in Central Jersey are participating, and the ACO is set to begin on April 1.

"This collaborative agreement with JFK is another important step in transforming the health care system in New Jersey with an eye toward delivering better patient care while containing costs," said Jim Albano, vice president of Network Management and Horizon Healthcare Innovations at Horizon.

"Our physician-led board of directors chose Horizon because it was evident they excelled in the qualities needed for the ACO to be truly successful," said William F. Oser, vice president, medical affairs and director of ACOs at JFK. ACOs are centered on primary care. Participating physician groups strive to create a healthier patient population through a coordinated approach to care among providers within the ACO. The ACOs are designed to achieve measured patient quality outcomes and decrease unnecessary and duplicate medical tests and treatments.

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Aetna, Atlantic ACO announce new agreement The agreement will cover more than 28,000 Aetna members in six N.J. counties

By Beth Fitzgerald The health insurer Aetna and the Atlantic Accountable Care Organization, a partner of the Atlantic Health System, announced Tuesday a new ACO agreement that will cover more than 28,000 Aetna members in six New Jersey counties served by Atlantic ACO physicians.

The goal of the new ACO is to improve the coordination and delivery of care to those Aetna members. Atlantic ACO, a group of health care providers who coordinate care and are accountable for cost, quality and patient satisfaction for the health care they provide, includes more than 1,700 primary care physicians and specialists.

The Atlantic ACO has already partnered with Medicare to improve care and lower costs in the federal health care program for the elderly. The Aetna program marks a further expansion of the ACO into the commercial insurance market, something a number of health insurers have been doing across the state.

According to Aetna and Atlantic ACO, Aetna members will experience more coordinated care, particularly those patients with chronic or complex conditions. They also will have enhanced access to appropriate care and will benefit from the improved flow of information to treating physicians in the Atlantic ACO. "Simply stated, when hospitals and health plans work together, health care improves for the people we serve," John Lawrence, president of Aetna – New Jersey, said.

"Aetna will work closely with the ACO physicians to identify specific areas where we can either develop or improve on the sharing of specific, useful health information. In turn, the physicians will use this information to improve care for patients, close gaps in care and reduce waste. We are creating a continuous loop of improved information to drive better care. By working together, we can bring better health, better care and better cost to thousands of Aetna members beginning this spring," Lawrence said.

"We are very excited to partner with Aetna, and together, offer patients well-coordinated care to live healthier, more productive lives," said Dr. David Shulkin, who is president of the Atlantic ACO and Morristown Medical Center and vice president of the Atlantic Health System. His hospitals also include Overlook Medical Center in Summit, Newton Medical Center in Newton and Chilton Medical Center in Pompton Plains. "We look forward to working with Aetna to deliver superior results for our patients."

Aetna members who've been treated by Atlantic ACO affiliated physicians over the last 24 months will become part of the ACO program. Their Aetna health plan benefits will not change, but they will receive highly coordinated, personalized care. Atlantic ACO employs a staff of care coordinators who will complement Aetna's care management programs to reduce hospitalizations and improve members' health outcomes.

The agreement includes a shared savings model that rewards Atlantic ACO physicians for meeting certain quality and efficiency measures such as: • The percentage of Aetna members who receive recommended preventive care and screenings; • Better management of patients with chronic conditions such as diabetes and heart failure; • Reductions in avoidable hospital readmission rates; and • Reductions in unnecessary emergency room visits.

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