2014 July Affiliate Practice by NJPhysician Magazine

Affiliated Practice

JULY 2014

An Interview With Steven J. Puchik, COO of Gastroenterology Associates of New Jersey

Healthcare Fraud Investigations

Commentary: In ACO Era, Physicians Will Still Play A Leading-But Changing-Role

Hereâ&#x20AC;&#x2122;s How to Bridge the Doc, Hospital Exec Communications Gap

Affiliated Practice Published by Montdor Medical Media, LLC

Montdor Medical Media, LLC

Co-Publishers and Managing Editors Iris and Michael Goldberg Contributing Writers Iris Goldberg Michael Goldberg Peter B. Bennett David Dranove Rachel Landen Melanie Evans Andis Robeznieks Virgil Dickson Ken Carlson Darius Tahir Beth FItzgerald Bob Herman Layout and Design - Nick Justus On The Cover - Rinsing Hands by Joe Wilder. Affiliated Practice is published monthly by Montdor Medical Media, LLC., PO Box 257 Livingston NJ 07039

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An Interview with Steven J. Puchik, COO, GANJ Healthcare Fraud Investigations In ACO Era, Physicians Will Still Play a Leading-But Changing-Role Here’s How To Bridge the Doc-Hospital Exec Communications Gap Doctors Play Major Role in ACOs, But Surgeons Largely Left Out Doctor’s Employment Contracts Due for Renewal-and Revamp States Test Medicaid ACOs to Cut Costs Preferred Referrals Gain Favor with ACOs Venture Capital is Pouring Into Digital Health Doctors Say Tenet Contract Plan Could Hurt Quality of Care Former ONC Chief Mostashari Heads Up ACO Startup Aetna, Lourdes Team Up for Accountable Care Organization United Healthcare Teams Up With Accountable Care Organization

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Washington Health Systems Contract Directly with Boeing

Surgery Partners To buy Symbion in $792M Deal

Massachusetts Provider Coalition Protests Partners’ Expansion

EmCare Acquires Fla. Physician Company for $170M

Banner Health to Acquire Arizona’s Academic Health System

First Choice Emergency Room’s Parent Goes Public

Fresenius Medical Care Takes $600M Stake in Sound Physcians

Anthem Blue Cross Forms ACO in San Francisco Area

2 AFFILIATED PRACTICE

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Gastroenterology Associates of New Jersey An Interview with Steven J. Puchik, Chief Operating Officer There are many new business models available to smaller practices seeking to avail themselves of the benefits of professional management, large group cost savings and negotiating strength. Many of these models are based on hospital or corporate ownership or leasing of the practice. Integrated Group Practice, (IGP) is another way to gain the power of numbers while maintaining independence. This month we met with Steven J. Puchik, COO of Gastroenterology Associates of New Jersey (GANJ) and a pioneer of the IGP option. Affiliated Practice: Steven, tell us about how IGP works, and how it is different from the more common business models. Steven Puchik: The income of single or small group practices has and will continue to decline, and operating expenses will continue to increase. There are significant advantages for practices to join together. Forming an IGP or joining together with a group such as GANJ will immediately reduce operating expense through resource sharing. Greater purchasing power and lower operating costs are realized. Increased efficiency of administrative services is obtained through the operation of a Central Business Office. There are reduced administrative burdens on the member physicians. We offer significantly greater access to capital and an opportunity for members to develop and offer ancillary services which creates ancillary income. AP: What opportunities are there for ancillary income? SP: For example, we have two surgery centers with on staff anesthesia and shares in three other centers. Under the GANJ umbrella it is legal for members to gain a percentage of professional collections realized from these centers. AP: Just what is the ‘GANJ Umbrella” and how does it work? SP: All multiple practices join together and form one practice under one tax ID , however no practice loses its autonomy or individuality. The basic structure of an IGP consists of a Central Billing Office which performs all administrative functions that will no longer be performed at the individual practices such as: • Accounts Payable • Payroll • Billing • Prior Authorizations • Accounting • Human Resource Management • Benefits Management • Employee Handbook Implementation • Pension Administration (one pension plan) • Reimbursement negotiation • Medical Malpractice negotiation AP: How does this business model work under Stark regulations? SP: Stark law requires that an IGP has 2 minimum features. It must have centralized decision making with effective control over all of the IGP assets and liabilities and it must have consolidated billing, accounting and financial reporting. In addition, the IGP must create a methodology for the allocation of income and expenses in advance of providing the services that give rise to the overhead expenses or produce the income. AP: What is required for a practice to join GANJ? SP: There is no buy in or buy out. An administrative fee to cover legal and administrative expenses of $2500 is initially charged and the total charge is $5000. Each practice is responsible for practice expenses. For example, if a group wants to add a physician or a nurse, that expense is charged to their account. We use a “Care Center” model to calculate profit and loss. A Care Center is made up of all of the individual practices that are now under the IGP tax ID. All revenue that comes in is applied to the practice cost center. There are basically three types of expense in this model. 1-Individual (unique to your practice) rent, office supplies, payroll, Malpractice, etc. 2-Variable (calculated by your percentage of the total monthly collections to pay billing expense, etc.. 3-Shared (cost to operate CBO divided by the number of care centers)

4 AFFILIATED PRACTICE

Total revenues minus all expense is what’s left each month as a profit in your care center and you always have the option of a “True-Up”. In other words, your percentage of revenue in the IGP is applied to the costs of billing and operations. AP: Where do you see GANJ, going forward? SP: We are currently adding three doctors just coming out of fellowship. We are setting up new offices for them and providing patients. They start out as salaried employees and they are on a two year track to become partners. This increases the numbers in the group thereby reducing the operating expenses for the current members. Additionally, we envision adding GI surgery to the group as well so we don’t have to refer outside the group. AP: Steven, is there any additional information you’d like to add regarding membership in the group? SP: We strongly believe in transparency. Every member receives a complete monthly report, with collectables and expenses. Our reports are not only on the individual practice but include all members of the group. Everyone gets to see what everyone is billing and what operating expenses are being charged. Nothing is hidden from anyone. AP: Thank you for taking the time to show us how there can be a balanced option for those physicians wanting to enjoy the benefits of a group without giving up their independence. JULY 2014

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HEALTHCARE FRAUD INVESTIGATIONS “I am a physician in a practice employing more than a dozen Health Care Professionals. Without notice, a few minutes ago, two FBI agents arrived at my office demanding to talk to me about a grand jury subpoena for our practice’s records. I don’t know what this is about. As far as I know, I’ve done nothing wrong but I am concerned about talking to them. I am also concerned about what they will think if I refuse to talk to them. They said they just have a few questions and I have nothing to worry about. Is the investigation focused on me or my practice? What should I do? Specialists in white collar criminal defense routinely receive inquiries of this nature. The appearance of government agents at one’s door can be a daunting experience. What is the appropriate response for a Health Care Professional (HCP) in this situation? In order to frame a response, it is useful to understand the process behind service of a grand jury subpoena and the roles of those involved in a grand jury investigation. Grand Jury Investigations Over the last decade, there has been an explosion of federal and state health care fraud investigations and prosecutions. Since forming a stand-alone health care fraud task force in 2010, the United States Attorneys Office in New Jersey has recovered more than $550M in health care fraud fines, restitution, forfeiture and settlements on behalf of the federal government. Scores of individual HCPs have been convicted of health care fraud and most were sentenced to serve prison terms without possibility of parole. In addition to serving prison terms, they paid fines and restitution, forfeited assets, lost licenses and/or were excluded from billing Medicare or Medicaid. New Jersey has maintained pace with the federal government in aggressively pursuing health care fraud. Just last month, the N.J. Attorney General and the Office of Insurance Fraud Prosecutor announced the arrest of 13 HCPs who were accused of paying hundreds of thousands of dollars in kickbacks to physicians in exchange for patient referrals. Currently, an unspecified number of additional physicians and their practices are the subject of the State’s on-going kickback investigations. At any moment in time, there may be multiple simultaneous state and federal health care fraud grand jury investigations under way in New Jersey. In addition to the U.S. Attorney and N.J. Attorney General, there are numerous state and federal agencies and departments with jurisdiction to conduct health care fraud investigations in our state, including: a nationwide Federal Task Force under the direction of the U.S. Department of Justice, the U.S. Health and Human Services Administration, the Federal Bureau of Investigation, the U.S. Postal Inspection Service, the Office of Inspector General (HHS), and the Criminal Investigations Division of the IRS, to name a few. Grand Jury Secrecy A grand jury investigation is one of the ways that the government prosecutors collect evidence of suspected unlawful activity within its jurisdiction. The grand jury proceedings are protected by strict rules of secrecy. A grand jury investigation is routinely commenced when a prosecutor, state or federal, issues a subpoena(s) and authorizes an agent to serve it. Most subpoenas issued require the production of documents, electronically-stored data, and other physical evidence as opposed to testimony. The grand jury is uninvolved in this aspect of the process and, in most fraud investigations, it will never see the vast majority of subpoenaed documents or data. Instead, the prosecutor will present summaries of documents and data through the testimony of agents. Agents may also testify about the other aspects of their field work, including interview of witnesses, subjects and targets. Ultimately, the grand jury may be asked to determine if there is sufficient evidence to warrant the return of an indictment charging individuals with criminal violations. Generally speaking, the first time any member of the public becomes aware of a grand jury investigation is as a result of receiving a grand jury subpoena. During this investigatory phase, prosecutors have no obligation to give notice to “subjects” or “targets” of their investigation. A subject is broadly defined as anyone whose conduct is within the scope of the investigation. A “target” is someone who, in the opinion of the prosecutor, will be indicted. A grand jury subpoena does not identify subject or targets. It does not disclose whether the subpoena recipient is under scrutiny. Grand jury subpoenas do not directly reveal the purpose or scope of an investigation. In most cases, grand jury subpoenas will require the production of categories of records relating to a specified period of time. In most instances, the subpoena “requests” production of records to an agent or agency in lieu of having to appear before the grand jury. Of course, if you fail to comply with this “request,” you will have to endure the expense and time commitment of appearing before the grand jury to produce the records under oath. It might seem an attractive option to simply comply with a subpoena and produce the requested records to the agency specified in the subpoena. Most defense attorneys would advise against this. A grand jury subpoena presents an opportunity to determine your status and whether you or your practice may be a subject or a target of the investigation. Since prosecutors and government agents are in investigatory mode, subpoenas tend to be over-inclusive, describing broad categories of documents over a lengthy period of time. Literal compliance can be burdensome, time-consuming and expensive to the recipient. By the same token, prosecutors want to avoid being overwhelmed with volumes of irrelevant documents when a more limited number would suffice. Limiting the subpoena to more specific categories of records and timeframes reduces the government’s workload. This presents an opportunity to initiate conversation with a prosecutor to limit the scope of the subpoena, set a schedule for JULY 2014

production, arrange for an acceptable format (almost all production is electronic) and, most importantly, obtain insight on the scope of the investigation which is otherwise secret. To expedite the process, prosecutors will often provide guidance, if asked, on whether the entity under subpoena, including its principals and employees, are subjects of the investigation. While these representations are not binding, since subsequent developments in evidence may change these prosecutorial evaluations, they are important in determining how proactive you need to be in tracking the investigation and preparing possible defenses. Regardless of your status in the grand jury investigation, the subpoena requires a response. Essentially, you have three options: you produce the records specified in the subpoena, begin to work out an agreement with the prosecution to limit the production, or file a motion to quash or modify the subpoena. In my experience, the vast majority of cases involve successful negotiations and agreement with the prosecutor. In most instances, the production will be made to the specified agency, rather than the grand jury.

Responding to Interview Requests Prior to serving the subpoena, the serving agent may attempt to gather information by interviewing the subpoenaed recipient. Most attorneys will advise you to decline the invitation and refer the agent to your attorney. There is no benefit to agreeing to be interviewed or volunteering information at this point and there is significant potential downside. Many people feel emotionally compelled to answer questions fearing their refusal looks suspicious. Agents are trained to exploit this reaction. Regardless of anything the agent may say or imply, right now he or she is not your friend. It is the agent’s job to acquire as much information from you as possible and make a report of your statement. Even honest mistakes and innocent omissions may be viewed as purposely misleading by the prosecutor and the grand jury. The agent may tell you that you are not a subject and providing information will only help you. Agents, unlike prosecutors, lack authority to make representations with respect to your status in the investigation. Should you choose to do so, you can offer to make a statement after the subpoena compliance issues have been resolved. Routinely, these statements are made directly to the prosecutor, in the presence of your counsel, when you have a better understanding of the scope of the investigation and your status. Unlike an interview by the agent, these statements are subject to a written agreement called a “proffer,” which prohibits the government from using your statements against you. It is important to keep in mind that the service of the subpoena is only the beginning of the investigatory process. As the investigation proceeds, prosecutorial judgments frequently change. While subjects can become targets facing the probability of an indictment, they can also become government witnesses or drop off the prosecutor’s radar entirely, while the prosecutor pursues higher value subjects. Conclusion Receiving a grand jury subpoena for your practice’s records is a sobering event. To place it in perspective, however, it is not an indictment, arrest or search warrant and it does not necessarily portend an indictment. Indeed, not every subpoena recipient is a subject of an investigation, which might be readily established in discussions with the prosecutor. With a deliberate and thoughtful response, there are a number of options which can be explored to maximize the possibility of a resolution without criminal consequences. Peter B. Bennett, Esq. Chair, Government Investigations/White Crime Law Department (Former Federal Prosecutor) Giordano, Halleran & Ciesla, P.C. 125 Half Mile Road, Suite 300 Red Bank, New Jersey 07701 (732) 741-3900 Pbennett@ghclaw.com

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Commentary: In ACO era, physicians will still play a leading—but changing—role By David Dranove More than 8 million Americans have signed up for health insurance thanks to the Patient Protection and Affordable Care Act. Significantly increasing access to care, the 4-year-old healthcare reform law also creates incentives for providers to reorganize the delivery of healthcare. The ACA has promoted the growth of accountable care organizations. Where successful, ACOs have the potential to bend the cost curve and improve quality. They are taking many forms, with some led by large multispecialty group practices and others by vertically integrated hospital systems with cadres of employed physicians. Physicians will always remain central to patient care. Yet the ACA challenges the traditionally, if not fiercely, independent practice of medicine. The 21st-century physician is increasingly employed by a large provider organization with accountability to management, subject to standardized treatment protocols and required to interact with complex electronic health records. Just how physicians will transform medical care in this new environment engenders much conversation, as was recently demonstrated at a healthcare management symposium held last month at Northwestern University's Kellogg School of Management on “The Future of the Physician.” Health industry leaders offered their perspectives on the ACA's impact on the business of healthcare. Among the distinguished speakers, presidential adviser Dr. Ezekiel Emanuel provided several provocative predictions, ranging from the end of employersponsored health insurance to the closure of 1,000 hospitals. Dr. Ardis Dee Hoven, then-president of the American Medical Association, shared strategies physician groups are using to reduce the economic and social burden of chronic diseases. Interested in submitting a Guest Expert op-ed? View guidelines and send drafts to Assistant Managing Editor David May Here is my take on some conference highlights: Insurance companies still serve a purpose. Integrated health systems have entered the insurance marketplace, leading some to speculate the end of the Blues, Aetna and UnitedHealthcare. However, early attempts to provide insurance and provider services in one organization have shown only limited success. Insurers continue to have the risk prediction know-how and data capacity to identify best practices to steer patients toward cost-effective providers. They aren't going anywhere for now. ACOs can and do listen to doctors. It's a myth that ACOs are physician control freaks, compromising patient care to dollars and cents. ACOs do offer contractual relationships between various parties to control costs and improve quality. Ideally, they encourage physician participation in governance and work closely with them to develop protocols. ACOs may be a modernday version of HMOs, but this time around, they may afford better access and fewer administrative snafus. If they can provide coordinated quality care and save money in the process—the jury is still out with regard to these goals—it will be a win for everyone involved. Digital medicine will drive the cost/quality equation. Physicians complain that user “unfriendly” EHRs take time away from the patient-physician interaction—a major reason cited for their increasing job dissatisfaction. Agreed. EHRs are frustrating. We are currently in the Wild West here with multiple record systems sold by a variety of vendors whose products remain largely incompatible. Yet as a country, we spend close to $3 trillion annually on healthcare without much to show in the way of quality. Electronic documentation offers a solution: it provides the data required to begin linking the quality of care to the cost of care. EHR systems are evolving. We all need to be patient. We'll get there because we must. Only cost-conscious physicians need apply. In the 1970s, television character Marcus Welby, M.D., epitomized the family doctor who did everything that was medically possible for his patients, sometimes stepping outside of standard practice if he felt it necessary. Dr. House, an opiate addict with a borderline personality disorder, replaced the beloved Dr. Welby, only to show even less concern for costs and standard practice. This model is no longer sustainable. Physicians must own up to the economic consequences of their decisions, whether through employment or contractual models. Physicians must also come to accept treatment protocols, however rigid they may appear. We have tolerated widespread practice variations for too long. And medical schools must seriously consider a curriculum overhaul that teaches physicians how to manage the care-delivery process. The future of physicians remains secure. With the newly insured accessing care, physicians—primary-care specialists in particular— are in high demand. The ones who can adapt to a post-ACA world and participate in the coordinated delivery of care will likely thrive. They may even find greater job satisfaction, if healthcare reform provisions truly result in saving lives and money. JULY 2014

Here’s How To Bridge the DocHospital Exec Communications Gap By Rachel Landen Hospitals buying physician practices may find they're not speaking the same business language initially. So hospital executives need to adapt to different needs and approaches to achieve cross-functional goals in such unions, experts cautioned during a Tuesday afternoon session at the Healthcare Financial Management Association's 2014 Annual National Institute in Las Vegas. That's because doctors and business people are trained in different ways of thinking, said Dr. Paul Weygandt, vice president of physician services at Nuance Communication. It's the result of neurolinguistic programming, he explained. Physicians are accustomed to making instant decisions, but businesspeople often spend more time gathering relevant information and analyzing it systematically over a longer period of time, Weygandt said. He should know. In addition to his medical degree, the orthopedic surgeon has an MBA, a law degree and a master of public health. Weygandt, along with Money Atwal, chief financial officer and chief information officer for the East Hawaii region of the Hawaii Health Systems Corp., shared best practices for bridging the communication gap and properly engaging physicians as partners in achieving financial, clinical and operational goals. Among their key points:

• Communication: Collaborate with physicians on a regular basis, but tailor communication to the audience's needs. “You can't throw up a balance sheet or a profit and loss statement,” Atwal said. Instead, he suggested taking data and drawing correlations that are relevant to physicians, an approach also recommended by Weygandt. “I am at core a physician,” Weygandt said. “I hate spreadsheets at a meeting. Physicians want conclusions.” • Involvement: Physicians should participate in both the selection and implementation of technologies. “Our patient portal was a hotly contested topic,” Atwal recalled. But after discussions among HCSC's Hilo Medical Center's medical informatics subcommittee—which includes physician representatives across specialties—the technology was adopted, allowing patients to securely access their medical records via the Internet. • Education: It is also important to inform the broader medical staff of the clinical benefits of implementing new technologies and process improvements. Once physicians get on board, they can actually help fill this role. “In my experience, there was a general surgeon who was the most resistant to clinical documentation improvement,” Weygandt said. “But when he was convinced that it made him look good, he endorsed the process and became the most vocal advocate.” • Lean processes: Apply strategies and techniques from Six Sigma, which is designed to improve quality and efficiency by removing defects and variability. Leverage the tools, but don't specifically talk about the principles, Atwal said. “I try not to use labels because it turns the physicians off,” he said. • Focus: When considering changes to processes and technologies, focus on how those might affect physicians' activities and systems. To first identify needs and then to understand the potential impact of new initiatives, have executives shadow physicians, Atwal said. “One of the most painful lessons comes if you implement and don't consider physician workflow,” Weygandt said.

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Doctors play major role in ACOs, but surgeons largely left out By Melanie Evans Doctors have a sizable role in the governance of the first private and public accountable care organizations, a study says. Surgeons, however, have been largely overlooked for executive committee memberships and in quality measures as Medicare ACOs develop early targets for quality measurement and savings. Two newly published surveys take a closer look at who is running the first crop of ACOs and what their early priorities have been. The research, published in the latest issue of the policy journal Health Affairs, offer a snapshot of ACOs in operation in 2012, the first year that Medicare joined a trickle of public sector accountable-care efforts. Accountable care is the name given to healthcare networks that seek to achieve quality and cost-control targets in exchange for earning bonuses (and in a few, avoid losses). The Patient Protection and Affordable Care Act called for Medicare to launch ACOs. The program expanded rapidly to total roughly 370 organizations as of January, with more to come. Medicaid, in some states, and commercial health plans also have entered accountable care contracts with doctors and hospitals. New incentives under accountable care could erode the inducement for providers to do multiple tests and procedures when insurance companies pay by the exam, clinic visits or laboratory test. Incentives for the earliest ACOs, however, are widely considered too small and weak. Rather, physicians who will use their clout to sway others to change practice patterns are considered important to ACOs' success, researchers wrote in Health Affairs. Doctors who use their influence to promote quality and efficiency efforts are important, the paper said, and adding physicians to governing boards is one avenue to build the necessary trust to win over physician leadership. Early ACOs have done just that. Doctors accounted for more than half the governing board among three quarters of the 173 public and private ACOs surveyed by Carrie Cola, Valeria Lewis and Elliott Fisher of Dartmouth University and Stephen Shortell of the University of California at Berkeley. Doctors owned 40% of the ACOs in operation as of August 2012. ACOs described as “physician-led” composed 51% of survey respondents and another 33% were led by doctors and hospitals. Separately, physician-led Medicare ACOs dominated the four case studies (three out of four) profiled in a second Health Affairs analysis http://content.healthaffairs.org/content/33/6/972.abstract of surgeons' roles in accountable care. The ACOs' top strategic priorities—fewer readmissions and emergency room visits, more coordination for the chronically ill—did not include surgical care. And surgeons were absent from the executive committee of two of the four ACOs. The researchers also surveyed early Medicare ACOs and 14 of 28 respondents said no surgeons sat on their executive committee. One reason for ACOs lack of interest in surgeons? “Notably, none of CMS' 33 ACO quality measures directly addresses surgery or surgical care,” wrote authors James Dupree, formerly of the American College of Surgeons; Kavita Patel of the Brookings Institution; Mallory West, formerly of Brookings; and Sara Singer, Rui Wang, Michael Zinner and Joel Weissman of Harvard University. Quality measures must be met under Medicare's accountable care program before ACOs can earn financial bonuses. Surgeons also lack a strong incentive to join ACOs, the researchers wrote. The relatively minor ACO incentives are believed to be too inconsequential to change surgeons' behavior on quality or cost targets, case study ACO officials said. (Referral patterns may give ACOs more clout in negotiations, which officials said they plan to explore.) Surgery failed to rank among the high-priority targets for ACOs, the paper said, and 88% of surveyed ACOs did not know what role surgery played in total spending. That may prove to be a costly oversight. “Nationally, surgery represents approximately 50% of hospital expenditures and accounts for an estimated 30% of total healthcare costs,” the authors wrote. “Thus, even if ACOs are able to achieve their goals in chronic disease management, overlooking the role and cost of surgical care may negate those savings.” JULY 2014

Doctors’ employment contracts due for renewal —and revamp By Andis Robeznieks Physician employment contracts with hospitals that were signed in the early days of healthcare reform are coming up for renewal. Experts say the expectation of payment reform requires that these new deals include the flexibility to adapt to expected and unforseeable changes. “We're seeing a fair amount of handwringing in terms of these deals,” said Max Reiboldt, president and CEO of the Coker Group, an Alpharetta, Ga.-based healthcare consultant. “We are changing the paradigm of how doctors are being paid. It's not 100% (relative value unit) productivity anymore.” That said, the predominant payment system has not changed yet and probably won't before contracts expire. So Reiboldt said many new employment contracts are including automatic renegotiation triggers if, for example, 20% of a hospital system's reimbursement starts to involve pay-for-value metrics. “Most hospitals have not yet experienced the change themselves but they anticipate it,” Reiboldt said. Future value-based payments will be similar to capitation models of the past, he said. But he noted that capitation typically involved individual doctors negotiating their own deals. But with pay-for-value, “all providers are in this Related Articles In contract renewals, Reiboldt said “money is always the biggest issue.” But with reimbursements down and future revenues uncertain, one way to mitigate economic concerns is to work doctors into an organization's governance structure. They don't necessarily have to be business partners, but physicians need to have a role as “functional decision makers,” he said. “You have to treat your doctors like partners. Most hospitals get it, some don't. You still have a few old-school CEOs who think that doctors are indentured servants and not partners.” The other key issue affecting contract renewals is clinical integration. Having doctors involved in governance and decisionmaking can make the process smoother while also helping to identify areas where integration and reimbursement issues intersect. Once they become employed, doctors never again have the leverage they had during negotiations to sell their practice, said Bob Collins, managing partner of the Medicus Firm, a Dallas-based physician recruitment firm. But they're finding ways to make up for it. “The biggest change is that physicians are becoming much wiser in the use of data for their own benefit,” he said. “They can come to the table showing they made this metric or that metric while showing how much direct and indirect revenue they generated.” One sticking point that may arise in renewing an employment contract is that hospitals may decide they no longer need every physician who was part of a group practice they acquired. A hospital system may decide they only need 12 of the 15 physicians they hired when acquiring a 15-physician specialty group. “If it's a good deal for 12 and a bad deal for three, (the doctors) are going to wish those three well,” Collins said. “The smaller the group, the greater the loyalty and the tendency to say 'All of us or none of us.' But the larger the group, the easier it is to say majority rules.” Collins added that the most frequent disconnect in negotiations between doctors and hospitals is over the value of the physician practice. Doctors may want to include intangibles such as community goodwill in the value of the practice while hospitals only want to include the cold bottom line. He advised doctors, “Don't take it personally.” It often takes them some time to “get over the sticker shock.” Contracts for newly hired physicians are also in a state of flux. Travis Singleton, senior vice president at Irving, Texas-based physician recruiter Merritt Hawkins & Associates, said organizations struggle to find the “Goldilocks Zone” where they offer physicians the right mix of a base salary and quality incentive payments. This struggle is reflected in his company's recent review of its physician searches, which found that fewer clients now are offering quality incentives to new recruits. Between April 2013 and April 2014, Singleton said the number of Merritt Hawkins clients offering quality incentives to new doctors fell from 39% to 24%. “Clients are putting the brakes on this until they figure out how to do it,” he said. But those that still offer quality incentives are basing a growing percentage of compensation on those quality metrics. In 2011, organizations that used quality incentives kept the level at around 5% of their compensation packages. That figure has increased to nearly 15%.

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States test Medicaid ACOs to cut costs By Virgil Dickson

Looking to control Medicaid costs, several states are launching accountable care initiatives that mirror experiments underway with Medicare and private insurers but vary significantly in their approaches. The Medicaid programs are contracting with networks of doctors, clinics and hospitals that agree to provide more integrated care of beneficiaries while reining in costs. In most versions, participating providers are eligible to receive shared-savings payments if the ACO meets quality benchmarks. Despite generally low Medicaid reimbursement rates—60% of Medicare rates on average—interest among hospitals and providers is high. That's not only because of the potential to earn bonus payments, but also because hospitals hope their efforts will reduce unnecessary ER visits. Various incarnations of Medicaid ACO programs are underway or are about to launch in Alabama, Colorado, Maine, Massachusetts, Minnesota, Oregon, Texas, Utah and Vermont. The models differ significantly from state to state. Only some allow Medicaid managed-care plans to participate, for example. And some lock patients into getting care through an ACO while others allow patients to opt out, said Jennifer Flynn, senior director of state affairs at Premier, a company that provides performance-improvement and group-purchasing services to hospitals. In New Jersey, applications are due July 7 for providers to join a three-year Medicaid ACO demonstration project. The applicants must assume responsibility for coordinating the care of residents within specific geographic areas. The alliances must include all of the acute-care hospitals in that area, as well as 75% of the primary-care providers and four behavioral health providers. Two community residents must serve on the organization's board. “If we can keep them healthy and out of the hospital, you can significantly decrease expenses associated with admissions,” said Dr. John Brennan, president and CEO of Newark Beth Israel Medical Center and chairman of the Greater Newark Healthcare Coalition, which is planning to participate in New Jersey's ACO program. New Jersey officials turned to ACOs as a way to bring down program costs after managed Medicaid plans failed to achieve the goal, said Derek DeLia, associate research professor at Rutgers Center for State Health Policy. “This is the next step,” DeLia said. “Medicaid expenditures continue to grow and quality outcomes are not where we would like them to be.” Medicaid expenditures increased an average of 4% a year from 2007-2012, even though 98% of the Medicaid population was in managed-care programs, according to a 2012 report from New Jersey's State Budget Crisis Task Force. New Jersey health officials say the ACO experiment could save as much as $284 million in inpatient costs by the end of the pilot, according to a report by Rutgers Center for State Health Policy. One advantage Medicaid ACOs may have over Medicaid managed care plans is community outreach. While most plans offer a care manager to make sure patients' medical and social needs are being addressed, most of the outreach tends to be telephone based, according to Dr. Ruth Perry, executive director of the Trenton Health Team, an alliance that includes the City of Trenton, all three of its hospitals and the Henry J. Austin Health Center, a federally qualified health center. Medicaid ACOs will have the ability to send providers into neighborhoods and apartment complexes to reach patients directly, Perry said. The challenges of implementing an ACO for Medicaid are many, providers say, especially because of the low health literacy levels and more serious chronic conditions. It will take an intense outreach effort to inform beneficiaries of the endeavor, according to Michael Randall, vice president of clinical innovation at Advocate Health Care in Illinois. Creating a successful Medicaid ACO in Illinois is complicated by the low penetration of managed care in the state. Under a 2011 Medicaid reform law passed in the state, 50% of beneficiaries must be enrolled in risk-based coordinated-care programs by January 1, 2015. That has required Advocate Health Care, which hopes to launch its Medicaid ACO in August, to invest in new staff members to help beneficiaries navigate the system, as well as a new IT system to better track patient treatment, Randall said. Rural uninsured disproportionately affected Rural residents who don't have medical insurance are disproportionately affected by state decisions not to expand Medicaid under the Affordable Care Act, reports the Kaiser Family Foundation. About two-thirds of the nation's uninsured rural residents live in states that have not raised Medicaid eligibility under the healthcare law. That compares with 52% of the overall population of uninsured Americans who live in those states. JULY 2014

Preferred referrals gain favor with ACOs By Melanie Evans Each month, doctors at one Arizona accountable care organization get a rundown of referral patterns, including the percentage of patients who followed referrals to specialists the ACO deems preferred. Doctors get on that list thanks to strong quality scores, efficient operations and laudable customer service. But when performance falters or patients leave dissatisfied, they're dropped. “If the patient is disappointed, we may lose them,” said Nathan Anspach, chief executive officer of the Phoenix-based John C. Lincoln accountable care organization in explaining why patient satisfaction figures into who stays and who goes on the preferred list. The tactic of using a preferred referral list is one being tested by accountable care organizations eager to better manage patients who frequently shuttle from doctor to hospital to clinic to nursing home to specialist and back. That movement has long been recognized as a source of avoidable cost. Accountable care organizations stand to profit if they can successfully control the cost and quality of medical care, something greatly influenced by where and how often patients receive treatment.

So, ACOs are seeking to control—or at least influence—that traffic. While some seek to nudge patients with lower co-pays and deductibles to hospitals and doctors inside the ACO, others work with commercial insurers that limit the network to ACO doctors and hospitals. That is the case with Dignity Health, San Francisco, which has touted $95 million in savings over four years for the California Public Employees Retirement System in a narrow network ACO with Hill Physicians Medical Group. But Medicare ACOs, of which there are more than 350, are not allowed to restrict patients' choice of providers. So, the John C. Lincoln ACO sought to influence physicians instead. Early evidence from the John C. Lincoln network suggests some benefits for the ACO and preferred doctors. Subspecialists on the preferred list are less likely to repeat expensive screening or diagnostics, for example. Meanwhile, directing patient referrals has boosted preferred specialists' share of referrals out of the ACO, which includes 12,000 Medicare patients. That's notable considering that patients are not required to follow a referral. But significant challenges remain. One referral may lead to another, as specialists further refer patients to additional physicians, something over which the ACO has no control, Anspach said. The Arizona system also sees an annual exodus of elderly patients each summer, as they flee 100-plus degree temperatures for more moderate climes. As a result, 20 percent of the ACOs' specialty costs occur outside its region where it has no control over costs or referrals.

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ACOs may not fully recognize the potential role referrals play in healthcare quality and spending, Harvard University researchers argued in JAMA this month. “In general, people recognize that they are important for the quality of care we provide, the quantity of care we provide and that they're also important for prices,” said Dr. Zirui Song, the paper's lead author. But referrals are poorly understood and understudied, he said. Research has highlighted wide variation in referral rates. One 2003 study found higher volumes of referrals correlated with spending variation across the U.S. Patients saw inpatient specialists 2.4 times as often where spending was highest. Referrals to high-priced providers also drive up spending, he said. Poorly managed referrals can create lapses in care. “We don't have an accurate understanding of how frequently referrals occur, we know even less about who refers to whom and for what conditions, and we know even less than that about the value of care that a referral leads to,” Song said. He called for greater study by providers of referral patterns. Even within narrow network ACOs, organizations can identify potential variation among specialists. That was the case for Dignity Health, which examined the length of stay as a measure of efficiency and quality among four hospitals in its ACO and found wide variation, said Stephen Foerster, the system's vice president of managed care. Finalists picked for innovation awards HHS announced it has selected finalists for federal healthcare innovation awards. Awards vary in size, but could be as large as $24 million. Recipients will examine new models for emergency care, pediatrics, heart disease prevention and management, rural health, telehealth, the elderly and those living with HIV/AIDS. Finalists will learn their fate in coming months. Big data gets little use Big data may be big news for accountable care organizations, but its use is so far limited, write authors in the latest edition of Health Affairs. David Bates of Brigham and Women's Hospital and co-authors suggest six potential targets for application of data aggregation and analytics. Big data's potential predictive power would be useful to identify high-cost patients; patients with multiple-organ disease and those at risk for readmission, complication, deteriorating conditions or adverse risks.

JULY 2014

Venture Capital is Pouring Into Digital Health A midyear report from prominent healthcare startup accelerator Rock Health provides numbers to confirm the anecdotal impression: Digital health is the perhaps the hottest category to fund for venture capitalists. So far, the sector has raised $2.3 billion this year—which already exceeds the $1.5 billion raised in all of 2013. And this isn't a matter of digital health simply being pulled along by the tide pouring into all startups: While first-quarter funding is up 57% yearover-year for all sectors, it's up 85% for digital health. (More traditional healthcare categories are not benefitting from the boom with only 22% year-over-year gain for biotech, and 5% for medical devices.) Particularly strong subcategories in the digital sector are payer administration ($211 million), digital medical devices ($206 million), and analytics and big data ($196 million). Some worrying signs are evident, however. The report notes that IPOs featuring digital health companies have been received rather poorly after the first day of trading. The accelerator's digital health index has retreated about 10% so far this year— underperforming drastically public markets as a whole, which have gained 10% in the same time frame.

Doctors say Tenet contract plan could hurt quality of care By Ken Carlson The corporation that owns Doctors Medical Center of Modesto is considering a contract with a national management company that would replace contracts with physicians who save lives in the emergency room, care for patients in hospital beds and put patients to sleep before surgery. A hospital spokeswoman confirmed it’s a topic of early discussion to see if a contract with a “single-source” provider makes sense for the Florida Avenue hospital. Physicians opposed to the proposal said it could lead to departures from the medical staff and undermine the quality of care in affected departments at the hospital. Dallas-based Tenet Healthcare, which operates 78 hospitals in the nation, is exploring whether to bring emergency physician, hospitalist and anesthesia services under a single management group at its 11 hospitals in California. Tenet owns Doctors of Modesto and Doctors Hospital of Manteca and is working to complete the purchase of Turlock’s Emanuel Medical Center, which would become Tenet’s 12th hospital in the state. Physicians at Doctors of Modesto said they were told at a meeting last week that changes to physician contracts were being considered. They are expected to discuss the matter during a medical staff meeting next week. “The physicians have been involved with that process here,” said Carin Sarkis, director of business development for Doctors. “The hospital is always looking for ways to enhance efficiencies and enhance the services we offer to our patients.” Sarkis said she was not aware of any timeline for a decision. “We certainly value the services and all the dedication that our medical staff has provided us for years,” she said. “Even if we did make a change, our goal would be to keep the physicians on our staff in their current positions.” The same proposal sparked a recent outcry from physicians at two hospitals owned by Tenet in San Luis Obispo County. The Tribune in San Luis Obispo reported last week that a proposal to bring emergency medical, hospitalist and anesthesia services under a single management contract had been dropped for those two hospitals after pushback from physicians. But changes to physician contracts still are being explored at other Tenet facilities. Tenet is expected to entertain bids from management companies such as ApolloMed of Southern California and Dallas-based EmCare, a subsidiary of investor-owned Envision Healthcare, which also owns the nation’s largest ambulance company, American Medical Response. An agreement with a national company would replace local contracts with doctors and other providers who have cared for patients at Doctors of Modesto for years, physicians said. “I am sure some accountant in Dallas told the company they could save a lot of money if they do this,” said Dr. Robert Barandica, chief of the medical staff and emergency department at Doctors of Modesto. “On paper, it may sound like a good idea, but they are not realizing what the impact is on the local level.” The hospital’s emergency department is staffed by 32 physicians and midlevel practitioners who are part of a physician-owned

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group that contracts with Doctors. If they are faced with joining another management company, Barandica said, many of those providers will work for other hospitals that contract with their group. That would reverse years of effort to build the medical team that staffs the Level II trauma center at Doctors, which provides lifesaving treatment to car crash victims and other patients delivered from a six-county region, Barandica said. In addition, the department staff worked hard to earn accreditation as centers for treating stroke and heart attack victims. “It was incredibly difficult to recruit them to this area,” Barandica said. “We built a core of people who live in the community and have relationships with subspecialists in the community. It would take a decade to rebuild that.” The ER staff members are part of a sizable group, CEP America, which has 2,300 providers at locations in nine states, and would lose profit-sharing if they became independent contractors or employees of another management firm, he said. On its website, EmCare says it provides “outsourced physician management services” for hospitals that are contending with staff shortages, regulatory changes and health care reform. The fast-growing company has contracts for services at more than 500 hospitals in the nation. EmCare did not respond to a request for comment Thursday. Physicians with local groups that provide hospitalist and anesthesia services at Doctors did not return messages. Sarkis said a contract with a management company would not jeopardize the status of the hospital’s trauma center or the emergency department’s accreditations as a stroke and chest pain center.

Former ONC chief Mostashari heads ACO startup By Darius Tahir Dr. Farzad Mostashari, former head of the Office of the National Coordinator for Health Information Technology, is starting a new firm, Aledade, to help independent primary-care physicians form accountable care organizations. The startup has $4.5 million in seed funding from venture capital firm Venrock. Independent practices looking to form ACOs have to expend money “to hire the people, to get the agreements, to get the licenses, to do the legal work, to hire the executive director, and a medical director, practice transformation, the analytics software, the data warehousing, the EHR interfaces,” he said. “All of that takes money,” often $1 million to $2 million. “And that's what we provide, upfront,” Mostashari said. “We get paid on the backend, if and when we generate savings.” Of those savings, Aledade will take 40%, with the providers retaining 60%. That funding and expertise is crucial. In Mostashari's observations of ACOs, he's noticed that “If you underinvest in the ACO and population health infrastructure—the people and the technology—you're not going to succeed.” Aledade, he says, will be “almost a turnkey solution.” The firm's initial partners are in a four specific areas—Arkansas, Delaware, Maryland and New York City. That's purposeful, Mostashari said. The goal is to experiment with a small area, see what the commonalities are—and what needs to be tweaked—and then expand. “We're going to be creating networks of providers who work together to deliver more coordinated care,” he said. “If we're able to generate the value for our patients, the health plans, payers, value for the doctors, then six years from now we should be the largest primary-care network in America.” Mostashari is confident that the trend of hospital systems buying up independent practices won't unduly effect his potential market, as he estimates half of primary care is provided by independent practices. Instead, what Mostashari sees as the primary risk facing the startup is his partners—finding and targeting the independent practices with the "will to change" and adapt to new times. Mostashari will be joined by Mat Kendall, a former leader with the regional extension center program at ONC, who will be executive vice president; and Edwin Miller, the “key product designer for three successful cloud-based electronic health-record programs,” a news release said. Miller will be CTO of the new firm. Venrock's Bob Kocher will sit on the board of directors.

JULY 2014

Aetna, Lourdes team up for accountable care organization Aetna announced Monday that the Lourdes Health System in Camden is its latest New Jersey accountable care organization partnership. Numerous such partnerships have been launched statewide by regional health care systems and doctors in recent years. They can give providers financial incentives to work collaboratively to improve patient care — and to get away from the traditional “fee-for-service” model that pays for medical care regardless of whether it improves patient health. The Aetna agreement with LHS Health Network, an affiliate of Lourdes Health System, begins July 1 and will cover 20,000 Aetna members in Camden, Burlington and Gloucester counties. In addition, Aetna and LHS Health Network will begin a new Medicare provider collaboration serving more than 2,000 Aetna Medicare members. ACOs are alliances of physicians, hospitals and other providers. They are known as “patient-centric” organizations where clinicians assume responsibility for improving the quality of patient care and lowering costs through better coordination and preventive care. John Lawrence, president, Aetna – New Jersey, said the company “will work closely with LHS Health Network to find opportunities to share specific, useful health information. In turn, the physicians will use this information to improve care for members, close gaps in care and reduce waste. We are creating a loop of improved information to drive better care. By working together, we can help bring better health, better care and better cost to thousands of Aetna members.” Aetna said 135,000 of its members in New Jersey now are in various types of “value-based” collaborative arrangements, including ACOs, and its goal is to reach 215,000, or nearly 20 percent of its New Jersey membership, by year-end. Aetna has ACO agreements with Atlantic Health, parent of Morristown and Overlook Medical Centers; the Hunterdon Healthcare System; and Summit-based Optimus Healthcare Partners, a physician-led ACO. Aetna said that, nationally, more than 1.5 million of its members are covered by these new health care models. LHS Health Network is a group of health care providers who coordinate care and are accountable for cost, quality and patient satisfaction for the health care they provide, and includes 90 primary care physicians. “Our new collaboration with Aetna makes sense, given Lourdes’ position in the southern New Jersey market as a high-value provider offering members quality health care services in the most efficient manner,” said Alexander J. Hatala, chief executive of Lourdes Health System and the LHS Health Network. Under the agreement with LHS, Aetna also is implementing a Medicare Provider Collaboration model to improve care to more than 2,000 Aetna Medicare Advantage members, who may have complex health care needs.

UnitedHealthcare teams up with accountable care organization By Beth Fitzgerald Summit-based Optimus Healthcare Partners, an accountable care organization, and the health insurer UnitedHealthcare announced Wednesday they are working together to provide coordinated health care. Their goal: improving quality and reining in costs for New Jerseyans enrolled in UnitedHealthcare's employer-sponsored and Medicare health plans. Optimus Healthcare Partners is one of more than a dozen ACOs that have taken shape across New Jersey in the wake of national health care reform. ACOs get physicians, hospitals and other health care providers to work in tandem with health insurers, Medicare and other health plans. In April, UnitedHealthcare announced an ACO partnership with the Atlantic Health System. Optimus includes more than 550 physicians – more than 170 primary care physicians and 380 specialists – who coordinate care and are accountable for quality, cost and patient satisfaction for the health care they provide. The more than 17,000 people enrolled in UnitedHealthcare’s employer-sponsored and Medicare plans who currently receive care from Optimus providers will not have to do anything differently to get the benefits of the ACO. In fact, some have already experienced them: The Optimus ACO program became available for UnitedHealthcare Medicare Advantage enrollees April 1, and for UnitedHealthcare’s employer-sponsored health plan participants July 1. UnitedHealthcare said its members who have a doctor-patient relationship with an Optimus physician will have all aspect of their

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care coordinated by care teams with the goal of providing the right care in the right place at the right time. “Optimus Healthcare Partners’ patient-centered approach to health care focuses on care coordination and helps patients navigate through the complex health care system,” said Dr. John Vigorita, chief executive of Optimus Healthcare Partners. “UnitedHealthcare continues to work with care providers statewide to help enhance health services and improve coordination of care for patients,” said Michael McGuire, CEO of UnitedHealthcare of New York and New Jersey. “We believe our collaboration with Optimus Healthcare Partners will deliver enhanced quality, better outcomes and greater efficiency for our health plan customers in New Jersey.” The Optimus ACO includes the Optimus physicians and six hospitals: Morristown Medical Center, Overlook Medical Center, Newton Medical Center, Somerset Medical Center, St. Barnabas Medical Center and Warren Hospital

Anthem Blue Cross forms ACOs in San Francisco area Anthem Blue Cross has teamed up with large San Francisco Bay-area medical groups to form three new accountable care organizations aimed at Blues members with two or more chronic conditions. The groups forming the new ACOs under Anthem's Enhanced Personal Care preferred provider organization program are: Brown & Toland Physicians, UCSF Medical Group and several affiliated Sutter Health foundations. Anthem noted in a news release that a similar arrangement with Torrance, Calif.-based HealthCare Partners Medical Group saved $4.7 million in the first half of 2013. But a blog post on the San Francisco Medical Society website offered a touch of skepticism.

Washington health systems contract directly with Boeing By Melanie Evans Major health systems in Washington state have announced direct contracts with aerospace giant Boeing that include financial incentives for faster, cheaper and higher-quality medical care. Providence Health & Services, Renton, Wash., and Swedish Health Services, Seattle, jointly entered into a contract with Boeing, as did Seattle-based University of Washington Medicine. Roughly 27,000 Boeing employees in the Puget Sound area will have the option of joining health plans under new accountable-care contracts to be offered among the company's health benefit options for next year, with financial incentives to encourage their use. Boeing is seeking to test its ability to establish direct contracts with providers that can deliver savings, as well as gains in quality, access and patient experience, said Alan May, vice president of human resources for Boeing Commercial Airplanes. “This is the first, as a model,” said May. The deal is one of a small number of direct contracts between giant U.S. companies and health systems, but such agreements underscore the frustration among employers dealing with escalating premiums, spotty quality and poor retail service. Intel Corp. last year agreed to contract directly with Presbyterian Healthcare Services in Albuquerque to provide health benefits for its 54,000 manufacturing employees and dependents in Rio Rancho, N.M. Providence previously entered a deal with Intel that set performance targets for specific conditions. More employers may follow, but it's likely that only the largest will have the necessary resources for such agreements, said Suzanne Delbanco, executive director of the not-for-profit Catalyst for Payment Reform. For major employers, such agreements have the “potential to secure care at lower prices with more intense oversight on quality,” she said. Dr. Rodney Hochman, president and CEO of Providence Health & Services, said the Boeing contract is unprecedented for the system, in terms of its size and scope. JULY 2014

Providence Health & Services, which operates its own health plan, owns or leases 33 hospitals across four states. Providence acquired Swedish Health Services in 2012 and operates the system under a secular division called Western HealthConnect. Swedish owns two hospitals in Seattle and two other hospitals in the state. The provider network for Boeing employees also includes providers outside the two systems. University of Washington Medicine operates three hospitals in Seattle and one in Renton, Wash. The contracts set performance measures for quality, access and savings, with financial incentives that create the potential for losses or bonuses. “We clearly anticipate that we'll bend the cost curve for all,” May said. “That is a big driver behind this.” May declined to say how much the company hoped to save. “We're not communicating targets,” he said. But he added, “We didn't go into this without expectations.” Performance measures include chronic disease management, using nationally recognized quality metrics for diabetes and bloodpressure control, readmission rates and other utilization rates, including appropriate use of urgent and emergency services, said Dr. Paul Ramsey, CEO of UW Medicine and dean of the University of Washington medical school. The deal also tracks performance on measures of access and patient satisfaction, which were a critical inclusion for Boeing, said Dr. Joseph Gifford, CEO of Providence's accountable care organization. The employer is looking for an “environment where the hassle factor of healthcare is gone,” Gifford said. He likened it to “the experience when you walk into a modern retailer, like Nordstrom … you're immediately made comfortable.”

Surgery Partners to buy Symbion in $792 million deal By Bob Herman Surgery Partners plans to acquire Symbion for $792 million, a move that will add to consolidation in the physician surgery center market. The combined company will own and operate about 100 ambulatory surgery centers and surgical hospitals with physician partners in 27 states. Both surgery center companies are backed by private-equity firms. HIG Capital acquired Surgery Partners in 2010, when the ASC company was about a quarter of its size today, and Crestview Partners bought Symbion in 2007. Officials with each group were not immediately available to comment. “Our model focuses on high quality, patient-centric care through multiple inpatient and outpatient services lines, and now has the opportunity to apply it to a larger geographic footprint as a result of this combination,” Mike Doyle, CEO of Surgery Partners, said in a news release. “The acquisition of Symbion provides an opportunity to build a larger, diversified portfolio of assets while also offering a compelling integrated-care model which drives efficiency by cost-effective design.” Nashville, Tenn.-based Symbion recorded more than $535 million of revenue in fiscal 2013. Surgery Partners, headquartered in Chicago and Tampa, is smaller with annual revenue around $280 million, according to Moody’s Investors Service. The merger will put the company closer in terms of total ASCs operated and revenue to competitors Amsurg Corp., United Surgical Partners International and Surgical Care Affiliates.

Massachusetts provider coalition protests Partners’ expansion

By Bob Herman A coalition of Massachusetts health systems and physician groups is challenging an agreement that would allow the state's largest healthcare organization, Boston-based Partners HealthCare, to get even bigger. The coalition—which includes Boston's Beth Israel Deaconess Medical Center and Tufts Medical Center, Cambridge Health Alliance, Lahey Health in Burlington, Atrius Health in Newton and several other community hospitals and physician groups—sent letters to state Attorney General Martha Coakley (PDF) and Deputy Attorney General Christopher Barry-Smith (PDF) asking that stakeholders have a say in Partners' new acquisitions. “Our position is quite simple: If it's really a good agreement for the Commonwealth, and the agreement is consistent with the intent of Chapter 224 (Massachusetts' healthcare cost-containment law), then it should be able to withstand public scrutiny,” said Dr. Howard Grant, president and CEO of Lahey Health. At issue is a proposed deal struck in May between Partners and the state attorney general's office. Under the agreement, the 12-hospital Partners system would acquire Hallmark Health System in Melrose, Mass., and South Shore Hospital in South Weymouth, Mass., but with several stipulations. For example, Partners would not be able to raise prices systemwide more than

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the general inflation rate, which has hovered between 1% and 2%, and is lower than the rate of medical inflation. In addition, for the next decade, private payers will be able to contract separately with the system's academic medical centers in Boston—Massachusetts General Hospital and Brigham and Women's Hospital—and its community hospitals and physician groups. But the coalition wrote that Partners' continued expansion has “significant and deleterious impacts on the entire Massachusetts marketplace.” For instance, the group said the price cap regulation would have little effect, because Partners already commands some of the highest prices in the state. Indeed, in 2012, Partners' hospital prices were well above the median—between the 70th and 90th percentiles—for all commercial payers, according to data from the Commonwealth of Massachusetts Center for Health Information and Analysis. Partners' physician groups similarly charged higher-than-average prices to most insurers, with prices ranging between the 75th and 100th percentiles. Community hospitals in the state also are concerned, saying their operations will be at risk if more patients are ultimately filtered to higher-cost tertiary facilities. “The growth of Partners will threaten the viability of low-cost hospitals that are already delivering high-quality care,” Grant said. In response, Partners said its process with the attorney general's office and the state's Health Policy Commission, which monitors and evaluates hospital transactions, has been “open and transparent.” The system also said it believes the proposed settlement is fair. “This is an agreement, in principle, that will improve patient care, result in more coordinated patient care, and will help slow growth in healthcare costs,” said Rich Copp, spokesman for Partners. Brad Puffer, a spokesman for Coakley's office, said officials have received the coalition's letters and are reviewing them—but did not immediately address the points raised. “Our agreement, in principle, would help to control costs and level the playing field in the market,” he said. “The negotiations are ongoing, but we are committed to being transparent and allowing for feedback, should a final agreement be reached.” Many of the coalition's members, including Beth Israel Deaconess and Lahey Health, have been involved in their own transactions. Lahey's Grant said consolidation in today's healthcare environment makes sense, but only to the extent that healthcare costs are actually reduced. “I think the consolidation of health systems and physician groups to gain greater efficiencies—in order to be able to make legitimate investments in IT and realize certain administrative savings—does not necessarily need to result in higher costs,” Grant said.

EmCare acquires Fla. physician company for $170 million By Bob Herman Physician outsourcing firm EmCare has purchased Phoenix Physicians in a $170 million cash transaction. EmCare, a subsidiary of publicly traded Envision Healthcare, also will assume certain liabilities, according to filings with the Securities and Exchange Commission. The deal is expected to close in two weeks. Phoenix Physicians, headquartered in Fort Lauderdale, Fla., specializes in outsourcing emergency department and other physician specialty services. The firm includes more than 500 physicians and clinicians, and operates in 21 acute-care hospitals in six states. “Phoenix Physicians' strong leadership team, history of organic growth, long-term customer satisfaction track record and geographic footprint allow us to continue our market-centric strategy to develop new hospital and health system relationships that can enhance our growth opportunities,” EmCare CEO Todd Zimmerman said in a news release. The deal is expected to boost Envision's revenue by $125 million annually, a modest addition to overall company revenue. In fiscal 2013, Envision recorded $6 million in net income on revenue of more than $3.7 billion. EmCare represented almost $2.4 billion of total revenue. Since Envision Healthcare went public last August, company shares have soared approximately 43%. As of 1:30 p.m. EDT Wednesday, shares were trading at $35.76.

JULY 2014

Banner Health to acquire Arizona’s academic health system By Bob Herman Leaders at Banner Health, Phoenix, and the University of Arizona Health Network, Tucson, signed a nearly $1 billion agreement Thursday in which Banner will acquire UAHN and its subsidiaries. Banner will acquire the University of Arizona Medical Center and its south campus, which have 624 beds between them, UAHN's faculty practice, University Physicians Healthcare, and the system's three health plans.

Initial terms of the deal (PDF) stipulate that Banner will spend at least $500 million toward capital projects in the next five years, and it will pay $300 million to establish an academic endowment. UAHN's long-term debt, totaling about $146 million, will also be paid off. Also, the University of Arizona and its medical school will become Banner's exclusive academic partner. UAHN is a private, independent entity from UA. Executives said Thursday that the partnership mirrors what other health systems across the country are doing as they prepare for an environment that will pay for value and population health instead of volume. “Organizations are identifying strategic partners where you can combine your strengths and be an organization much more likely to succeed in the future,” Dr. Ronald Creasman, Banner's board chairman, said at a news conference. UAHN and Banner said they plan on reaching a definitive agreement by September.

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First Choice Emergency Room’s parent goes public By Bob Herman Adeptus Health, the parent company of the largest free-standing emergency room network in the U.S., went public Wednesday, with shares jumping by the end of the day. The Lewisville, Texas-based organization owns and operates First Choice Emergency Room. First Choice was founded in 2002 and has more than doubled in growth since 2012. At the end of 2012, First Choice operated 14 freestanding EDs. That number now sits at 37, with a vast majority in Texas suburbs. Adeptus Health priced its stock at $22, the high range of its initial $19 to $22 estimate. By the end of Wednesday, Adeptus Health was trading at $25.75. As of Friday morning, shares were holding steady around $25.40. The company offered 4.9 million shares, with net proceeds totaling about $100 million. After deducting $7.3 million in IPO expenses, including $2.3 million in bonuses to executives, Adeptus Health gained $93 million. Adeptus Health plans on using those funds to pay down debt, build working capital and other general corporate purposes. Adeptus Health lost $3 million in 2013, but net patient service revenue grew 42% year over year, totaling $103 million, according to filings with the Securities and Exchange Commission. In the first three months of this year, revenue reached $38.8 million. First Choice's business model relies solely on treating privately insured patients in its EDs. Four payers—Blue Cross and Blue Shield, UnitedHealthcare, Aetna and Cigna—accounted for 87% of its revenue last year. Hospitals and health systems have been partnering with freestanding ER companies more as a way to boost sluggish inpatient volumes. Adeptus Health, owned by private-equity firm Sterling Partners, trades on the New York Stock Exchange under ADPT.

JULY 2014

Fresenius Medical Care takes $600 mln stake in Sound Physicians FRANKFURT, June 27 Germany's Fresenius Medical Care (FMC) agreed to buy a majority stake in Sound Inpatient Physicians Inc for about $600 million, part of a drive to offer additional services linked to its core business of kidney dialysis. FMC is to become a majority shareholder as part of a recapitalisation of Sound, alongside existing investor TowerBrook Capital Partners and Sound's senior management team, the German company said in a statement on Friday.

FMC expects to close the deal within the next 10 days. The dialysis specialist said in April it aims to widen its services to medical fields related to kidney failure, part of drive to almost double group sales to $28 billion by 2020. Sound Physicians works with more than 1,000 physician partners providing care in over 100 hospitals and post-acute care centres across the United States, FMC added.

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