2014 September Affiliate Practice

Affiliated Practice

SEPTEMBER 2014

Electronic Protected Health Information and Patient Communications Doctors Responding to Health Care Changes

by Merging Practices, But There Are Risks to That Too Three NJ Health Care Organizations Earn Millions of Dollars in Bonuses for Saving Medicare Money

Affiliated Practice Published by Montdor Medical Media, LLC

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C O N T E N T S 4

Steve Puchik, COO of GANJ discusses the Integrated Group Practice (IGP) business model

5

Electronic Protected Health Information and Patient Communications

7

Doctors Responding to Health Care Changes By Merging Practices, But There are Risks to That, Too

9

Three N.J. Health Care Organizations Earn Millions of Dollars in Bonuses For Saving Medicare Money

11

ASC Pays $5M to Settle Kick-Back Case Based on Cheap Buy-In Claim

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Proposed Physician Fee Schedule Draws Criticism From Docs, Insurers

12

Providers See Little Enthusiasm to Join Pioneer ACOs

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Healthcare Spending Growth Expected to Pick Up This Year to

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Medicare ACOs Improve Quality, Have Mixed Results on Slowing Spending, CMS Says

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Medicare Gives First Glimpse Of ACO Quality Performance

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ACOs, Other Delivery Reforms Shift Job Roles at Hospitals

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With Kaiser in Sight, Anthem Creates New Plan With Major California Hospitals

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Advocate, Northshore Merger Would Create Giant Health System in Illinois

21

Ascension Deals Signal New Economic Reality in Healthcare

24

ACPE Changes Name to Reflect Shifting Healthcare Realities

2 AFFILIATED PRACTICE

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Steve Puchik, COO of GANJ discusses the Integrated Group Practice (IGP) business model Gastroenterology Associates of New Jersey, LLC or GANJ as it is best known, offers a business model that provides physicians with a way to retain ownership of their individual practices, while merging together to form an Integrated Group Practice (IGP).

Steven J. Puchik, COO, shares how the IGP works. “What makes this model unique is that although there are many practices operating under one tax ID, each practice retains total autonomy regarding how it’s run clinically,” Mr. Puchik states. “But we’ve taken the business part out of each practice and that’s run here in the administrative office,” he further explains.

“The basic infrastructure of an IGP begins with one central business office that performs all of the administrative functions, that will no longer need to be performed by each individual practice,” relates Mr. Puchik. “So they keep their autonomy but lose some of the work and obviously, the expense,” he adds. Some of the responsibilities delegated to the central office include: •

Accounts payable

•

Accounting

•

Payroll

•

Human resource management (including benefits management, pension administration, employee handbook implementation and employee termination issues)

•

Overseeing vendors who provide services such as EMR and billing

Mr. Puchik also makes a point of mentioning the increased leverage that the IGP has in terms of negotiating. For instance, reimbursement rates from third party payers can be negotiated higher for the IGP than for an individual, while medical malpractice insurance rates for each member of the group are less expensive.

Going forward, Mr. Puchik foresees enough partners joining the IGP for it to self-insure against malpractice.

“This leverage can also be used for bank financing deals, EMR purchase, medical supplies and equipment, etc. You get better rates when you have more people being supplied,” Mr. Puchik points out. “There’s enormous potential and unlimited possibilities of what everyone involved in an IGP can gain,” he continues. “Bigger is not always necessarily better but in the case of an IGP, bigger is most definitely better,” Mr. Puchik asserts. In fact, he is so confident, that he would like GANJ to eventually include gastroenterologists from across the entire tri-state area.

Besides the sharing of expenses of practice management amongst the large group of physicians that comprise GANJ and the substantially increased cost-efficiency, freeing physicians from the responsibility of dealing with the business end of practice management allows them to focus attention more completely on their patients. Just as important, having the resources that are generated from the efforts of the group, allows GANJ to recruit the brightest and the most expertly-trained physicians to join with them in practice.

4 AFFILIATED PRACTICE

Electronic Protected Health Information and Patient Communications

By Beth Christian and Kurt Anderson Giordano, Halleran & Ciesla, Attorneys at Law Electronic recordkeeping and communication tools are a fact of life for every modern medical practice. You may be considering, or may already have implemented, electronic communications with your patients. This article will set forth some of the things that you should consider in implementing an electronic communication process for your practice that is compliant with HIPAA as well as some of the requirements for other electronic protected health information (‘EPHI’).

Question #1:

Does HIPAA allow health care providers to use email with their patients?

Health care providers are permitted to communicate electronically (such as through email) with their patients, as long as they apply reasonable safeguards when doing so. If your practice will use email to transmit EPHI, it must ensure that the transmission is compliant with HIPAA technical safeguards, discussed below. Alternatively, you may limit email communications to out-bound communications only, such as practice announcements, general health education information, or appointment reminders.

Even if no EPHI is communicated by email, you should take measures to avoid unintended disclosures. You may want to send a test email to the patient for address confirmation. While HIPAA doesnít prohibit the use of unencrypted email with patients, safeguards should be applied to protect patient privacy, such as limiting the amount or type of information disclosed in the unencrypted email.

Patient preferences should also be respected. An individual has the right under HIPAA to request that you communicate by email if it would be reasonable for the health care provider to do so. Conversely, if a patient does not want information sent via unencrypted email, other means of communication must be used (e.g., phone, mail or encrypted email).

If you do not want patients to send e-mail messages to you, you should include a disclaimer at the bottom of each e-mail which states that the sending e-mail address is only used to send messages, that incoming e-mail is not regularly monitored at that e-mail address, and that patients should call your office if they have any questions or health concerns. Consider also whether you will use text messaging with patients or communicate with them via Facebook or Twitter. While, publicly posting EPHI to a social media platform is clearly problematic, as platforms like Facebook and Twitter add private messaging capability, they begin to function more like traditional email platforms (e.g., Gmail, Yahoo, AOL).

Question #2:

What types of administrative safeguards should my practice implement in order to protect EPHI?

HIPAA requires that health care providers implement administrative safeguards in order to secure EPHI. Administrative safeguards are ‘administrative actions, policies, and procedures to manage the selection, development, implementation and maintenance of security measures to protect EPHI and to manage the conduct of the covered entity’s workforce in relation to the protection of that information.’ A practice must conduct an accurate and thorough assessment of potential risks and vulnerabilities to SEPTEMBER 2014

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the confidentiality, integrity and availability of EPHI. The practice must identify what EPHI it creates, receives, maintains and transmits. In addition to computer workstations, EPHI may also reside on servers, or on portable devices such as laptops and cell phones.

You should have security measures in place to reduce risks and vulnerabilities to a reasonable and appropriate level. E-mail access should only be granted to persons who have received HIPAA training, and electronic devices used to communicate via email should be password protected. Your employees shouldnít share passwords or leave them in open areas. Appropriate sanctions must be imposed against employees who failed to comply with security policies and procedures. You should implement a written sanction policy that covers both email and other forms of EPHI storage, security and communication, and should train your employees regarding the policy. You should also implement procedures for the authorization and/or supervision of employees who work with EPHI. You should maintain a record of every electronic device used by your workforce and implement a sign out procedure for electronic devices used to communicate with patients. Many well publicized HIPAA breach settlements have involved the assessment of fines and penalties against providers whose employees have lost laptops or cell phones containing EPHI. A practice must also have a data backup plan to create and maintain retrievable copies of EPHI. A number of physician offices had devices used to send and receive email damaged by flooding during Hurricane Sandy. You should ensure that your practice is able to regularly backup all sources of EPHI (including email) on a regular basis.

The use of business associate agreements is an important component of the administrative safeguards required by HIPAA. You should have written contracts in place with all outside entities entrusted with EPHI. Question #3:

What types of physical safeguards should my practice implement in order to protect EPHI?

HIPAA also requires practices to comply with various physical safeguards. Physical safeguards relate to protecting the buildings where and equipment on which EPHI is kept from not only unauthorized intrusion, but also natural hazards. Practices must implement policies and procedures which limit physical access to buildings and equipment, specify proper use of equipment containing EPHI, and address the proper receipt, movement and removal of such equipment.

You probably already limit access to buildings and equipment by having physical locks on the doors to your building, requiring user IDs and passwords and requiring users to log off computer systems when not being used. You should also consider using video surveillance cameras and posting signs identifying restricted areas. There are also many ways to reduce unwanted exposure to EPHI on individual workstations. Monitors should be positioned so unauthorized users cannot view the screens.

Privacy screens (which reduce the ability of persons not directly in front of the monitor to view the screen) are available at very low cost. Most operating systems come with screen saver functionality that, after a period of inactivity, displays a selected image on monitors thereby reducing unintended exposure of EPHI to unauthorized persons.

HIPAA also requires practices to implement safeguards with respect to the handling of storage media (e.g. internal and external hard drives, flash/thumb drives, discs). Practices must implement policies and procedures for the receipt, movement and removal of such devices, including having back-up retrievable exact copies of EPHI. One frequently misunderstood issue is erasure of data. HIPAA requires that you erase any media that contained EPHI before you discard it. However, erasure is not the same as deletion. In a Windows environment, when you delete a file, it is simply moved into your recycle bin, not erased. Even when you empty your recycle bin, the data is not erased. Rather, the data remains on your hard drive and the computer merely marks that space as free space that can be written over. In order to truly erase such data, this free space must be overwritten. When data is overwritten, it is replaced with random data. Software that performs this function is readily available at low cost and many operating systems come equipped with this functionality. Windows XP Pro, Vista, 7 and 8 all include functionality that will overwrite free space.

Question #4:

What types of technical safeguards should my practice implement in order to protect EPHI?

Many of the HIPAA technical safeguards are common place in even small practices (e.g., use of unique user names and passwords).

HIPAA, however, also requires practices to be able to ìtrackî user identity. Guidance from the Centers for Medicare & Medicaid Services suggests that you may have a duty not only to track user ‘identity,’ but also to track user ‘activity.’

Practices should configure their systems to automatically terminate an electronic session after a predetermined time of inactivity.

While this is not mandated by HIPAA, practices are required to implement it where it is reasonable and appropriate. There are likely few circumstances where the implementation of this specification would not be reasonable and appropriate, even for small practices.

Encryption has garnered much attention in this area. HIPAA does not require the encryption of EPHI, unless it is ‘reasonable and appropriate.’ Unfortunately, this does not provide bright line guidance. The US Department of Health and Human Services (HHS) has published unofficial guidance (in the form of FAQs) on the use of encryption in email transmissions via the Internet. According to the HHS, if a patient emails unencrypted EPHI to a provider, the provider may assume that the patient has consented to the use of unencrypted email, unless (a) the patient has explicitly stated otherwise, or (b) the provider feels that the patient may be unaware of the risks of using unencrypted email. Even with this guidance, however, practices should be very cautious about the unencrypted transmission of EPHI over public computer networks (e.g., the Internet) and should obtain express written and informed consent from the patient.

6 AFFILIATED PRACTICE

Doctors responding to health care changes by merging practices, but there are risks to that, too

By Beth Fitzgerald As the health care system strives both to improve quality and rein in spending, physicians are merging into larger groups or with hospitals to compete in what could be a future of declining reimbursements for the medical care they deliver.

Mergers present doctors with opportunities and risks, and the experts who advise physicians try to maximize the financial advantages — and design exit strategies in case the deal doesn’t work.

Monica Kaden is a principal in the accounting firm Fischer Barr & Wissinger LLC. She is an accredited senior appraiser who performs valuations of medical practices for a variety of reasons, including mergers, sales of whole or partial interests in medical practices, and litigation.

“This is a period of uncertainty for a lot of physicians, and there is comfort in becoming part of a larger group,” Kaden said. But doctors who have grown accustomed to autonomy may not adapt well to being part of a very large practice, or becoming employed by a hospital. For that reason, Kaden said, a deal may allow doctors to keep their own Medicare reimbursement number post-merger, so they can more easily go back to being independent if there’s a parting of the ways.

Health care attorney Mark Manigan with Brach Eichler added that a physician practice merger “usually has some mechanism built into the transaction that contemplates an exit” if the parties aren’t satisfied. He said there may be a fixed term to the deal, or there may be a “honeymoon” such as a 16-month period when “anyone can walk out.”

He added that poor management of the merged entity is a major reason why some physician consolidations don’t succeed.

Kaden pointed out that, despite the consolidation wave that has been underway for several years, New Jersey is still home to many small, two- or three-doctor practices. For generations, young doctors have bought into these small practices when the senior doctors retire, and that’s still going on.

“There are plenty of small groups still out there where a younger associate is buying in and wants to be part of that private practice,” Kaden said. While mega mergers tend get a lot of attention, “There are still a lot of younger physicians who want to become partners in established groups — that has not gone the way of the wind.”

Kaden might be asked to come up with a value for the entire practice, she said, so the owners can determine how much an incoming partner might be asked to put up in exchange for a 20 percent stake.

While this consolidation has predominantly affected primary care physicians in New Jersey, specialist practice mergers are catching up, Manigan said: “I would say much of the primary care market has done something: Either they have hooked up with a hospital or joined a larger organization. Those that haven’t are evaluating multiple affiliation opportunities.” )Manigan said he is working with several groups of specialists that are looking to form “single specialty super groups” that in one case would bring 50 doctors together in one group.

He said such a large group “has the wherewithal to invest in technology and negotiate with payers.” If the world changes as many experts predict — and doctors are paid for delivering value — these large groups will be better positioned to compete.

And even if health care doesn’t undergo this seismic shift to value-based reimbursements, the larger medical groups would still have an advantage: “At the end of the day, you are a larger and more dominant player in the market. You are well positioned for any reimbursement paradigm if you are large, integrated and well run.”

Another option is for the physician practice to consider be acquired by a hospital. Kaden said there are two main components of such a deal: how much the physicians will be paid up front for their practice, and what salary they’ll earn once they’re part of the hospital.

And in many cases, the hospital can increase the compensation the doctors receive.

“That is because the hospital knows they can get better contracts and higher reimbursement rates” from health insurers and other payers, Kaden said. Thus, the hospital “may offer a higher salary to the physicians than they were getting on their own.”

Manigan said another reason physician practices are merging is to create larger groups that can afford to invest in the technology needed to participate in new reimbursement models that many experts believe will become the norm in a few years.

Traditionally, doctors were paid a fee for every service they provided; now Medicare and commercial insurers are moving toward rewarding medical practices for hitting certain quality benchmarks, while also saving the payers money by operating efficiently.

“It will take some fairly sophisticated IT to track all the analytics in the practice of medicine” required by these new reimbursement models, Manigan said.

Kaden said a practice that has kept up with the times, particularly when it comes to technology, will likely command a higher SEPTEMBER 2014

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value. For the past few years, there has been a major push by the federal government to encourage physicians to adopt electronic medical records. While the government provides grants to defray the cost, some physicians have been slow to go digital.

Kaden said, “It would definitely decrease the value of the practice if they have not converted to IT because (the acquirer) is going to have to spend a significant amount of money and time” to make the switch to electronic medical records.

Dennis J. Alessi, an attorney with the law firm Mandelbaum Salsburg, said it may not be advantageous for a small practice or a solo practitioner to join a very large practice, however. Such practices are likely to be dominated by the senior physicians and the merger terms “may not be very acceptable to the new physician coming in who may have very little say in how the place is run,” he said.

Instead, a better option may be for small practices “to try to come together with other small practices and create a new large practice.”

The challenge, Alessi said, is to “find a physician leader who can help bring the other physicians together.” But a brilliant physician may lack the skills to lead and manage a large organization.

“It is difficult to find that physician leader,” Alessi said. “But that is what you need to deal with all the bickering and bring everyone together.”

In a large practice, the specialists will be reimbursed at a higher rate than the primary care doctors, and may have to be convinced to share some of their income with the lower-paid primary care colleagues.

The argument for sharing, Alessi said, is that “the specialists rely on the primary care doctors to refer patients to them. You have a built-in referral base, but in return for that, you have to agree to share some of your income.

“That is the kind of issue you need a physician leader to deal with in order to bring everyone together.”

Visit us now online at www.NJPhysician.org

8 AFFILIATED PRACTICE

Three N.J. health care organizations earn millions of dollars in bonuses for saving Medicare money

By Beth Fitzgerald Three New Jersey health care consortiums are among 64 nationwide that have generated savings for Medicare, and they will receive millions of dollars in shared savings from the program.

The three New Jersey accountable care organizations, or ACOs, are part of a nationwide program launched by Medicare in 2012 with the goal of transforming the huge federal health care system for the elderly into one that rewards health care providers for improving quality and avoiding wasteful spending.

There are 11 Medicare ACOs in New Jersey, and the federal Department of Health and Human Services announced that three were among the 64 that so far have generated savings of $372 million for Medicare. Those 64 are out of a total of 242 Medicare ACOs throughout the country, so just one-quarter of the ACOs in the U.S. were able to generate savings and earn a bonus from Medicare.

The three New Jersey ACOs are: •

Optimus Healthcare Partners, which saved Medicare $17.03 million and will receive a shared savings payment from the government of $8.34 million;

•

Meridian ACO, which saved Medicare $14.89 million and will receive $7.30 million; and

•

Hackensack Physician-Hospital Alliance ACO, which saved Medicare $10.75 million and will receive $5.27 million.

“That is actually an extraordinary amount if you look across the country,” Dr. John F. Vigorita, chief executive of Summit-based Optimus, said. “The fact that we got three ACOs that could achieve some shared savings — that’s remarkable. Throughout the country, the majority were not able to achieve any shared savings.”

Vigorita said his ACO began operating on April 1, 2012, and now includes 500 doctors and 34,000 Medicare patients; the Atlantic Health System is the hospital partner of the ACO. He said the ACO was able to improve access to health care for the Medicare patients. He said the ACO succeeded in reducing inappropriate emergency room visits as well as unnecessary hospital readmissions, and improved the coordination of the medical care that the patients receive.

“Our success was probably our dedication to the triple aim of improved patient experience and quality, improved health outcomes for our patient population and reduction in the burden of high cost,” Vigorita said. “It was through the efforts of our participating physicians and our hospital partner, Atlantic Health System.”

In addition to partnering with Optimus, the Atlantic Health System also operates its own ACO, which did not make the list of ACOs that generated savings for Medicare in this initial status report on the program.

But Vigorita said Atlantic “most definitely played a role in the success” of the Optimus ACO. The physicians who participate in ACOs also will share a portion of the bonus payments the ACOs receive from HHS. Dr. Morey Menacker, chief executive of the Hackensack ACO, said the bonuses will help compensate the 100 doctors in the ACOs for their work to transform their medical practices in ways that ultimately saved Medicare money.

Menacker said when the doctors signed up with the ACO two years ago, “There was no guarantee that there were going to be savings. So the doctors were willing to make changes in their practice philosophy and practice patterns — which was the purpose, from my perspective, for joining the program — in order to create this new environment of the way medicine is being practiced.”

He said that it’s important to reward the doctors, since “The only way that you can truly initiate change is to show the benefit of the change, so the physicians should be bonused for their effectiveness.”

And he said the bonuses are likely to “encourage other physicians who previously said ‘I’m not going to change the way that I do things’ to say, ‘Wait a minute, maybe it is in my best interests to do things differently and do things according to best practices, and not just the way that I feel like practicing.’ ” Menacker said there are a number of ways that the ACOs changed how Medicare patients were cared for.

“We made it clear that the physician’s responsibility is not solely for when he or she sees the patients in the office, but as a comprehensive caregiver.”

SEPTEMBER 2014

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The physicians extended their office hours and they closely monitored patients moving in and out of the hospital and nursing homes. Experts have identified managing transitions from one health care setting to another as critical to avoiding hospital readmissions.

During off hours, the doctors are accessible to patients to help determine whether the patient needs to visit the ER, or could instead receive medical guidance by phone and come to the doctor’s office the next day, Menacker said. And the doctors followed best practice clinical guidelines, including making sure the patients got preventive care and screenings.

Menacker said he congratulates the three New Jersey ACOs: “I think by showing this kind of success, we showed that we can manage patients in a more efficient and cost-saving manner, which will allow us to continue to move forward and look at other payment options, other reimbursement options, to improve the general care of patients.”

Joel Cantor, director of the Rutgers Center for State Health Policy, said: “This is encouraging; it suggests that the ACO model can be effective. The hospitals must meet quality targets as well as achieve savings in order to be eligible for bonuses.”

Although the Atlantic Health System ACO has not yet qualified for a shared savings bonus from Medicare, it has succeeded at bringing down spending and raising quality, according to Dr. David Shulkin, president of the Atlantic ACO. He pointed out that, with 73,000 patients and 2,100 doctors, the Atlantic ACO is one of the largest in the country. The Valley Hospital in Ridgewood is a member, along with the five hospitals in the Atlantic system, which include Morristown and Overlook Medical centers.

Shulkin said that, to qualify for shared savings, the ACOs had to achieve savings of 2 percent below what Medicare would have expected to spend, and he said the Atlantic ACO is approaching that benchmark.

“We’re exactly where we thought we would be,” at this point, Shulkin said. The Medicare program extends for a total of 36 months, and the second reporting period began in January; Shulkin said he is optimistic the ACO will quality for a bonus in this new reporting period.

But he said short-term gains are not the goal.

“We always saw this as being like an ocean liner that takes a little longer to steer and change direction,” Shulkin said. “We did not expect this would be a quick and easy, short win.”

He said the Atlantic ACO decided it needed to be very large “to actually change the health care in our community, and we knew it was a long-term commitment.”

He said Atlantic has tracked its trends in spending and quality measures since launching the ACO in April 2012, and “We are absolutely headed in the right direction. The trends show that we are making great progress, probably ahead of schedule of where we thought we would be. And most important, we have been able to demonstrate significant improvement in quality measures.”

He noted that Atlantic is also the hospital partner of the Opimus ACO, which did achieve Medicare shared savings in this first go-round.

“Optimus is a smaller, primary care-led ACO, which did well in terms of shared savings,” while the Atlantic ACO, “is much, much larger.”

Shulkin said: “Twenty-one months into our larger experiment, the Atlantic ACO is right on track with our hopes about the direction that we’re heading — that we’ll be able to essentially change the way health care is delivered in this part of New Jersey.”

He said the Atlantic ACO has learned that, “When patients establish relationships with the primary care doctor, schedule regular preventive care visits and follow on the testing that they need, that’s part of the formula for improving the health status of the community.”

He said the Atlantic ACO has “taken the historically high (Medicare) spend rates in New Jersey down over these past 21 months.

We’ve seen a very nice, slow, steady downward trend on the cost side, and a slow trend upward on the quality side.”

He said the Atlantic ACO was opened up to “any and all physicians that were part of our community, because that is the way you have a long lasting impact on health care.”

And he said he is optimistic that Atlantic will see a shared savings bonus in the future.

“I think the trend looks good enough, and we’re seeing such a strong level of participation of our doctors and our post-acute providers that I don’t see any reason we won’t achieve shared savings. But that is not the primary objective of Atlantic.”

He said: “We are in this for the long haul, and health care is not going to change in 36 months, particularly in New Jersey. This is a good 10- to 15-year commitment.”

In addition to the six acute care hospitals, the Atlantic ACO members include rehabilitation hospitals, sub-acute care facilities and home health care agencies.

“This was not a pilot test effort,” Shulkin said. “This was ‘We have a chance to change health care, so let’s do it big.’ ”

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

ASC Pays $5M to Settle Kick-Back Case Based on Cheap Buy-in Claim There was a development in the ASC industry that I suspect this case will send chills down the spine of some ASC owners and operators. The good news, however, is that with a little careful planning the risk can be tightly managed.

Meridian Surgical Partners, LLC (“Meridian”), an ASC development and management company, is paying $5M to settle a whistleblower claim filed by the administrator of an ASC it acquired.

Meridian purchased a 60% interest in the ASC for $96K a share and then shortly after syndicated to physician utilizers for $25K per share. The whistleblower claimed that transaction violated the Federal Anti-Kickback Statute because the purchase price was less than fair market value (“FMV”) and as was a disguised kick-back to the physicians in exchange for anticipated referrals to the ASC. The whistleblower noted that the physicians immediately enjoyed a 50% return on their investment. The government did not intervene in the case.

We have an old saying in law that “bad facts make bad law.” The position taken by the Meridian was aggressive and while they denied any wrongdoing, and while the government had not intervened, Meridian paid handsomely to make this matter disappear.

A few observations, comments and tips: •

The most likely whistleblower is a current or former employee (be careful who you hire).

• While the government did not intervene in this case, the next plaintiffs’ bar cottage industry may have been born. I suspect some of the folks affiliated with the 5000+ ASCs we have in the U.S. will be solicited by enterprising plaintiff lawyers.

• Undertake physician utilizer buy-ins without FMV support at your own peril. Our standard advice on physician utilizer buy-ins is that these transactions be sold at FMV with supportive market guidance in the file from a reputable valuation company, particularly if the price is much lower than recent market indicators (as in the Meridian case). There are solid valuation principals that have been relied upon to justify different purchase price for the same product. For example, a controlling interest is worth more than a minority interest that can be terminated without cause. As always, it is a matter of degree and reasonableness. An ounce of prevention…

Please let me know if we can be of any assistance to you.

Mark Manigan Brach Eichler L.L.C. 101 Eisenhower Parkway | Roseland, New Jersey 07068 Direct: 973.403.3132 | Firm: 973.228.5700 | Fax: 973.618.5532

Proposed physician fee schedule draws criticism from docs, insurers

By Virgil Dickson Stakeholders from across the healthcare continuum are raising red flags about provisions of Medicare's proposed physician fee schedule for 2015, including quality incentives and reporting for physicians, a new reimbursement code for chronic-disease management and a fact-finding initiative addressing concerns that Medicare is overcharged after hospitals acquire physician practices.

More than 2,000 comments were received on the 600-plus-page proposed rule. A final version is expected to be released

by Nov. 1.

The Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare spending, challenged the agency's approach of adjusting payments to clinicians based on the quality of care furnished to beneficiaries instead of the cost of that care.

“It may in fact be impossible for the Medicare program to transparently and reliably establish, collect, benchmark, assess and adjust payments based on quality measures for individual clinicians,” MedPAC said.

MedPAC's comment letter also suggested that the CMS' approach to this new system could lead to mass confusion because physicians are unlikely to understand why their Medicare payments are changing and what they need to do to improve their performance and increase their quality-based payments.

“A more promising avenue would be to encourage clinicians to organize into or join groups that take clinical and financial accountability for their patients, and have their performance assessed on the basis of a few key outcome measures,” MedPAC said.

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Physicians also had mixed views on evaluating providers on an individual level for Medicare's Physician Compare website. The American Academy of Family Physicians warned that patients are overwhelmed by the volume of online information about quality measures that they don't understand, making it difficult for them to make informed decisions about where to seek care.

“We encourage the agency to avoid that outcome by including only the most important information about the physician as well as including educational products targeted at patients visiting the website,” AAFP said.

The AAFP also suggested that the CMS give group practices 90 days rather than 30 days to preview data about them before it's posted so they have enough time to review and validate the information and challenge the anything they think is wrong.

Insurers, meanwhile, warned that the CMS is creating a new opportunity for fraudsters by compensating physicians for the time they spend outside of face-to-face visits managing care for patients with two or more chronic conditions.

“Extra payment for (these) services presents an opportunity for fraud, waste and abuse,” America's Health Insurance Plans says.

“We recommend that CMS develop an audit mechanism to determine if a physician's office has provided all of the service elements required for use of (this code.)”

As hospitals continue to buy up physician groups, the CMS is seeking to address concerns that Medicare is getting billed for a hospital facility fee for services that are delivered in the same outpatient setting as before the practice was acquired. For now, the agency proposed collecting data to learn more about the dynamic. The American Hospital Association, however, raised concerns about the way the agency intends to collect the information.

“Implementation details are missing and the methodology is untested,” the hospital association said. “Operational issues must be settled and adequately tested before full-scale implementation, and adequate time must be allotted for hospitals to adjust and operationalize their systems to accommodate this proposed change.”

The AHA also said the data collection would be very costly, time-consuming and burdensome, coming at the same time that providers are preparing for the mandatory October 2015 transition to ICD-10 procedure and diagnostic codes.

Providers See Little Enthusiasm to Join Pioneer ACOs

By Melanie Evans

Federal officials are floating the idea of expanding Medicare's Pioneer model for accountable care organizations, but they might struggle to recruit any new participants.

Some prominent ACO leaders shared their skepticism in letters to the CMS that the agency released this month. The program, designed and administered by the CMS Innovation Center, is the government's earliest and most aggressive test under the Patient Protection and Affordable Care Act of new financial incentives for hospitals and doctors to hold down medical costs and meet quality targets.

The Pioneer initiative's rules put doctors and hospitals at too much risk of losing money with too little control, officials with Universal American, CHE Trinity Health, St. Vincent's Health Partners, the Franciscan Alliance and others said in the comment letters to federal officials.

Pioneers must agree to accept potential losses with the promise of bonuses after the first year. ACOs participating in the Medicare shared-savings program, in contrast, can go three years without the risk of owing Medicare money if they fall short.

“Organizations are not gravitating toward the Pioneer ACO model because the downside risk is not outweighed by the opportunity for economic gain—the business case is not compelling,” wrote officials with CHE Trinity Health, a Michigan-based system. The system's CEO is Dr. Richard Gilfillan, who oversaw the launch of Pioneer ACOs as the Innovation Center's director before his departure last June.

Financial rewards are unpredictable thanks to performance targets that are sensitive to demographic changes, CHE Trinity told the CMS. And patients for whom Pioneers must manage costs and quality have no incentive to stay within the ACO's network rather than go elsewhere for care—and they frequently do, several organizations wrote.

Since the launch of the Pioneer model nearly three years ago, 10 of the 32 original participants—selected because they were deemed the best-equipped—have dropped out, saying the risk was too great. The latest was San Diego-based Sharp HealthCare, which disclosed in its financial results that it had withdrawn. The “model was financially detrimental,” the system said.

Some ACOs that left the Pioneer program joined Medicare's less risky accountable care alternative, though that too has seen some participants exit. The departures and doubt that Medicare can recruit new hospitals and doctors to join the Pioneers suggest that early experience in Medicare accountable care has proven more problematic and risky than anticipated. The program got a rocky start as ACOs waited on patient data that could be analyzed to target quality and cost-control efforts. Other difficulties emerged as ACOs gained experience.

Pioneer ACOs need greater certainty in performance targets and must be able to identify early on the patients for which the ACO must manage costs and care, said Kevin Sears, vice president of payer and product innovation for CHE Trinity. CHE Trinity Health

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operates five Medicare ACOs, but none are Pioneers because the system withdrew from the program.

Financial rewards should be larger and targets to achieve those incentives should be clear and fixed from the start, unlike those under existing formulas, which are “volatile” because they're too sensitive to changes in death rates, the system's letter said.

Patients, meanwhile, should be allowed to select an ACO, CHE Trinity suggested. As it stands, patients are assigned to an ACO under criteria based on how much care they receive from doctors in the organization. The system also said Pioneer ACOs should have authority to reduce copays for certain services or providers.

“The absence of the ability to use benefit design or network design elements to help achieve better clinical and financial results, we believe is a hindrance to the success of the Pioneer program,” Sears said.

Allowing patients to voluntarily enroll would encourage ACOs to do more to compete for patients' loyalty on quality, said Universal American, the publicly traded health plan that operates 31 Medicare ACOs, more than any other participant. Universal American withdrew from three of its Medicare ACOs after struggling earlier this year.

Medicare should also identify patients included in ACOs early on, not after organizations are being assessed on performance, several organizations said in their comment letters.

Not everyone predicted Medicare would have a hard time signing up new Pioneers.

Newton, Mass.-based Atrius Health and Phoenix-based Banner Health (which both have Pioneer ACOs) and Oakland, Calf.-based Kaiser Permanente (which does not) all said other organizations may be ready and eager to enter the program. Health systems “have matured and are more willing to accept the risk,” Banner said in its letter.

Kaiser Permanente officials noted that organizations with limited experience have been discouraged by the Pioneer program's performance standards and savings targets, which the system called “overly ambitious.” Kaiser suggested changes that would give Pioneer ACOs more time to improve care and award larger bonuses to those that perform the best.

Healthcare spending growth expected to pick up this year to 5.6%

By Melanie Evans The economy's lackluster recovery eroded wages and left millions chronically unemployed. It also offered significant relief from the fiscal distress of U.S. health spending. Now, spending fueled by the improving economy and the healthcare reform law's insurance and Medicaid expansions are likely to turn that around.

Health expenditures grew 3.6% last year, with the delayed and soft recovery a primary cause, according to projections by CMS actuaries published online by the journal Health Affairs. If the projection is confirmed later this year, it would mark the fifth straight year of growth below 4% and the second time in three years national health spending growth dipped to a historic low.

Economists are divided over how long the health spending slowdown will last. Not long, said actuaries behind the latest numbers. That's in part because of an expected spending spike under the Patient Protection and Affordable Care Act. Projections for this year predict growth of 5.6% as the health reform law's health insurance mandate, health plan subsides and public insurance expansion go into effect.

The news in the projections isn't entirely bad.

The 5.7% average annual growth through 2023 is less than the 7.2% average annual growth in health spending between 1990 and 2008, and the historical 2 percentage point gap between fastrising healthcare expenditures and the economy.

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“A key factor in our projection is not only the effect of the recession but the slow economic recovery,” said Andrea Sisko, an economist with the agency that oversees Medicare and Medicaid who helped produce the figures.

That assessment will be unwelcome among those that hope to see more modest health spending persist and are looking for signs that the slowdown signals meaningful changes in the way healthcare is delivered and paid for. The slowdown—which predated the recession but grew more pronounced as the economy contracted—has met with guarded optimism from some policymakers, who say the continued tepid growth may signal a shift toward a more efficient, less error-plagued health system.

But skeptics contend the economy is a more likely culprit, as workers scaled back spending on doctors or pharmaceuticals during and after a recession that wiped out health benefits, wages and consumer confidence.

Health spending will also rebound with the economy as businesses add jobs, workers gain health benefits and consumer confidence grows, federal economists said. Growth will average 5.7% per year for the next decade, fast enough to outpace annual economic growth by 1.1 percentage points.

Experts behind the projections said it's too soon to say whether spending will decline thanks to efforts underway that seek to improve the quality and lower the cost of healthcare. “We don't have any explicit impact for any of these innovations at the current time,” said CMS economist Sean Keehan. “There's just not enough evidence.”

Sisko said the drag from the economy is partially responsible for the slower growth through 2023 compared with recent decades.

Rapid acceleration in prescription drug spending also contributed to the strong health spending growth during the late 1990s and early 2000s, she said.

Growth in drug spending has been moderate to imperceptible in recent years as generic drugs eclipsed their more expensive brand-name versions that lost patent protection. Pharmaceuticals account for about 10% of health expenditures, which is large enough to make a difference “if you go from a period where blockbusters are everywhere, to a period where blockbusters are nowhere,” said Paul Huges-Cromwick, an economist with the Altarum Institute. Drug spending increased 0.4% in 2012 compared with 11.6% in 2000.

Low overall inflation since the recession has also helped to hold down healthcare prices, said Charles Roehrig, director of the Altarum Center for Sustainable Health Spending.

Healthcare entered the recession with a slowdown underway, Roehrig said. Payment rates to doctors were already cooling and high-deductible health plans were gaining traction.

Growing use of those plans is another factor that federal actuaries said will keep health spending growth below the more robust pace of recent decades.

Less use of medical services among Medicare enrollees is projected to dampen growth, too. Medicare spending growth slowed in 2013 to 3.3% from 4.8% in 2012, and it will slow further to 2.7% in 2015, according to the projections. That's in part because of federal spending cuts but also thanks to less use of medical services, particularly hospital visits, the actuaries said. Greater demand for services as baby boomers age will prompt Medicare spending to accelerate starting in 2016.

Medicare ACOs improve quality, have mixed results on slowing spending, CMS says

By Melanie Evans The participants in Medicare's programs for accountable care organizations have continued to produce mixed results. Quality broadly improved but savings proved more elusive among the early participants.

On Tuesday the CMS said ACOs that launched in 2012 have so far reduced Medicare spending by $817 million, with hospitals and doctors keeping $445 million for their efforts.

The results, which include performance for about 250 ACOs in the Shared Savings Program and the CMS Innovation Center's Pioneer Model, underscore the uneven performance that has characterized early efforts to overhaul healthcare financing. The latest Medicare results—which also show significant gains on measures of quality—add important information to the limited data available on the viability of the model.

The CMS launched the two tests of accountable care in 2012 under a provision of the Patient Protection and Affordable Care Act. The programs reward hospitals and doctors that hold Medicare enrollee health spending below target and meet quality benchmarks. Medicare penalizes Pioneer ACOs that fail to do so. Some Shared Savings ACOs can also see penalties.

Eleven of 23 Pioneer ACOs earned financial bonuses that totaled $68 million during the program's second year. Three faced penalties after health spending accelerated. Performance on quality improved for 28 of 33 measures.

In the Medicare Shared Savings Program, which launched two waves of ACOs in April and July 2012, 53 of 204 organizations with

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available data slowed spending enough to receive bonus payments that total more than $300 million. One will face penalties of $4 million after health spending accelerated.

The CMS released performance results (PDF) for individual ACOs in the shared-savings program late Tuesday afternoon.

Since its start in 2012, accountable care organizations have proliferated in the public and private market. Medicare started with slightly more than 110 ACOs in April and July of 2012. The agency adds new ACOs each January. It now contracts with nearly 350 organizations.

The launch and operation of Medicare ACOs has been somewhat rocky, exposing flaws that some experts and providers worry will undermine participants' ability to succeed. In June the Brookings Institution released eight proposed policy changes without which ACOs face unpredictable and increasingly unattainable incentives, researchers said.

Montefiore Medical Center's ACO will keep $13 million of $24.5 million saved last year in the Pioneer program, said Dr. Andrew Racine, Montefiore's chief medical officer. The organization continues to invest in primary and preventive care to reduce complications and prevent hospitalizations among the chronically ill, he said.

Banner Health's ACO, another Pioneer, will keep $9 million of the $15 million it saved during its second year in Medicare's Pioneer program. Chuck Lehn, CEO of the Phoenix-based health system's ACO, said ongoing investments to bolster primary care and care coordination helped to produce the results.

Lehn described Banner's experience as positive, but not everyone has felt that way. Sharp HealthCare recently disclosed it would exit the Pioneer program, following in the steps of nine other participants that withdrew at the end of the first year.

The largest player in the Medicare Shared Savings Program—insurer Universal American—has backed out of several of its ACO ventures that struggled to produce a return.

The CMS introduced possible changes to ACO quality reporting in July and is expected to release new proposed rules for ACOs soon. The draft changes to quality measures, which would take effect in 2015, are more aggressive than 33 measures used to date. The CMS proposed new measures and called for the removal of others to shift oversight toward the outcome of quality-improvement efforts and away from the process ACOs follow to produce those results. ACOs would be required to meet performance targets for 37 quality measures.

The CMS also offered ACOs a new bonus based on quality improvement.

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Medicare gives first glimpse of ACO quality performance

By Melanie Evans

The CMS for the first time publicly released individual performance data for Medicare accountable care organizations on 33 measures of healthcare quality.

The results for 220 of the participants (PDF) in the Medicare Shared Savings Program reveal how ACOs performed on measures (PDF) of patient experience, preventive care and disease management for some of the leading causes of death among U.S. elderly, including heart disease, cancer and diabetes.

Quality measures have been a point of contention for Medicare’s accountable care effort since it first began. Hospitals and doctors rejected an early proposal for 65 measures, which the CMS shaved to 33. Federal officials earlier this summer proposed an increase to 37 measures with some existing measures to be swapped for others.

The program’s financial incentives reward hospitals and medical groups that can slow the growth in medical expenses, but only if providers also meet targets for quality. For patients and policymakers, the quality measures serve as a check against the temptation for hospitals and doctors to withhold medical care in order to meet cost benchmarks tied to financial bonuses.

The CMS last week reported aggregate quality performance for more than 200 participating ACOs through last December.

Collectively, they scored better than other providers on 17 of the 22 quality measures for which there is comparable data. Public reporting on the performance of individual ACOs has so far been limited to five quality measures reported at medicare.gov. The CMS also released results of each ACOs’ financial performance last week: 53 of them reduced the cost of patient care enough to share $300 million in bonuses.

ACOs that joined the program in 2012 and 2013 were required to report quality scores through last December but were not yet required to meet performance targets, a condition that took effect in January.

Medicare launched the Shared Savings Program in April 2012 under a provision of the Patient Protection and Affordable Care Act. It has grown from 27 in the first cohort to about 340, with more expected to join in January.

The quality results released on Monday did not reflect the performances of the smaller number of organizations participating in the CMS Innovation Center’s more ambitious Pioneer ACO model.

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ACOs, other delivery reforms shift job roles at hospitals

By Melanie Evans

Phoenix obstetrician Megan Cheney no longer makes hours of telephone calls on Thursday nights to report routine results of laboratory tests to waiting patients. The calls, however, still get made every week.

A medical assistant with experience in obstetrics and gynecology now handles calls involving routine findings. That has freed time for Cheney to draft the lectures she delivers twice a week to her medical resident trainees. The shift in responsibilities may be minor, a matter of hours in a lengthy work week. But it is one of many underway at Banner Health, where the drive to cut costs has triggered an extensive overhaul of employees' roles and patient care.

Labor is the largest expense for health systems, and Banner officials see potential savings in freeing up their highest-paid professionals—doctors, pharmacists, advanced practice nurses, physician assistants—for work only they are qualified to do. “We certainly don't need physicians calling back on routine results,” said Mindy Smith, chief operating officer of the Banner Medical Group. To do that, Banner is delegating new responsibilities across a team of clinical and clerical workers. Not only has that shifted work from doctors to medical assistants, but also from medical assistants to clerical staff, whose numbers will soon grow in Cheney's clinic to accommodate the domino-like transfer of duties.

New financial incentives The same strategy is playing out at health systems across the country as new financial incentives to cut costs proliferate under Medicare and private insurance. The focus on more tightly defined roles has grown. Some have done so strictly to cut costs. Others have sought to maximize the efficiency of teams used to manage patients' care. The result has been an ongoing, sometimes uncertain evolution in the daily tasks of healthcare's front-line workforce.

As a result, roles for medical assistants, pharmacy technicians and other workers, including clerical staff, have expanded. Those without extensive medical credentials or a high salary are being asked to work more closely with patients. Advanced practice nurses see primary-care patients. Medical assistants meet with clinic patients to collect basic information once gathered by nurses.

These practices have increased demand for such workers, including occupations with more advanced clinical training such as advanced practice nurses and physician assistants, whose median salaries are nearing $100,000 less than those of physicians.

Advance practice nursing hires represent the fastest-growing segment for recruiter Merritt Hawkins, said Travis Singleton, a senior vice president for the firm. Jobs for medical assistants are projected to grow 29% by 2022. Physician assistants and advanced practice nurses will see demand increase 38% and 31%, respectively.

The pressure to squeeze labor expenses has been amplified as health systems invest in workers to more heavily promote prevention and manage medical care, regardless of its location, from hospitals to clinics to homes, and to provide support as patients move between them.

Hospitals' need to cut costs and coordinate care is driving healthcare systems to give greater responsibility for direct patient services to less-credentialed workers such as medical assistants, pharmacy technicians and even clerical staff.

The upfront employee investment, industry executives say, is expected to yield a return by preventing disease complications and costly hospital visits and producing the quality of care required to earn incentives under new payment contracts, such as accountable care. But managing labor costs is a top priority.

Accountable care organizations have hired scores of care coordinators as they launch their efforts. Advocate Health Care in Illinois initially hired 60 coordinators. Partners HealthCare, Boston, doubled its care coordination staff to 50 as it ramped up its early ACO efforts. But that investment can drag down margins. Universal American, a publicly traded insurer that owns the most Medicare accountable care organizations, said its $63 million investment in care coordination and information technology last year eroded its earnings.

Greater investment in care coordination has also intensified efforts to reorganize roles and shift responsibilities, not solely to increase efficiency but to better coordinate medical care among multiple professionals who jointly care for those patients at the highest risk for costly complications.

Care coordination strategies increasingly rely on teams of social workers, health coaches, doctors, nurses, physician assistants and medical assistants who collaborate to provide patient care. A team model seeks to leverage each individual's expertise to increase efficiency, said Dr. Dave Krueger, executive director and medical director for the Bellin-ThedaCare Healthcare Partners.

“We shouldn't be asking the nurse to become an expert on the social work side and vice versa,” he said. “A group of us is going to be taking care of a group of patients. Instead of a doctor with a patient panel, it will be more of a clinic with a clinic panel.”

'Big economic lift' That care team is expanding to include pharmacists, pharmacy technicians and psychiatrists to tackle medication errors and prevalent but untreated mental illness that can undermine patients' ability to care for themselves. Advocate Health Care soon SEPTEMBER 2014

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will add psychiatrists and psychologists to teams that meet with hospitalized patients. Dr. Lee Sacks, chief medical officer for Advocate and chief executive of its physician group, said a 2011 study of its hospitalized patients found one-third had mental health conditions, and those patients spent more time in the hospital and were more likely to return.

Advocate also will add mental-health professionals to emergency-department teams and primary-care clinics, with the hope of improving care and lowering costs. “If we did a better job, there would be a big economic lift,” he said.

But the switch to teams and newly defined roles isn't straightforward or without risk, experts say. Communication breakdowns among team members can compromise care. Tensions may arise as roles are reassigned.

Health systems do not yet know what configurations work best for various patients or settings, and efforts vary as organizations test and tweak different models. “We're experimenting,” Banner Health's Smith said.

Banner has shifted numerous responsibilities to medical assistants, reducing its reliance on registered nurses. Banner now sees an expanded role for registered nurses to work with more complex patients. And Advocate patients who call to speak with a nurse now are triaged to clerical staff unless the request is medical in nature.

New roles, new relationships Some doctors and other professionals are struggling to adapt to the new roles and new relationships required to make care coordination successful. Older physicians who have long been in the workforce typically struggle more to work within a team after years of independence and more entrepreneurial practice, recruiters say. Conversely, younger doctors are often more eager to make the switch to teams, despite limited training.

Medical groups are looking for cost-effective alternatives to replace retiring physicians as Medicare and private insurers squeeze reimbursement and new financing models grow more common, said David Cornett, a senior executive vice president at Cejka Search, a healthcare recruiting firm. “The initial waves of bundled payments are telegraphing that doctors will be paid less and not more,” he said.

Employers increasingly hire doctors, young or old, who can embrace the common goal of team-based care, Singleton said. They can be difficult to find when training does little to prepare doctors to work collectively. “A team of experts does not equal an expert team,” he said. “We've trained them to work alone, and we're asking them to practice completely differently.”

Banner's Cheney, who joined the same practice where she was a resident until last summer, said she feels more comfortable delegating now that she has built a relationship with a medical assistant. Assigning tasks to the medical assistant clearly can improve her efficiency, but she says she must resist the urge to do more, as was the case when she was a resident. “You're used to doing everything,” Cheney said. “I know the ins and outs of the office. It's been an adjustment.”

Alleviate frustrations Patients, too, must adjust. Diane Ekstrand, vice president of human resources for Banner, said it was a medical assistant who called to remind her of an upcoming annual physical and who initially discussed her medications, weight and family life during the appointment.

Too little time with a doctor, however, may frustrate many patients. Teams should not be a barrier to appropriate physician visits, said Dr. Bob Williams, a director with consulting firm Deloitte who helps oversee the company's accountable care consulting.

But teams with clearly defined responsibilities can help alleviate workers' frustration and boost job satisfaction, executives and consultants say. Jobs with more responsibility can be more fulfilling and show an employer values workers' expertise and talents.

That can be an asset for employers in a competitive labor market, said Jennifer Radin, a principal with Deloitte who specializes in workforce and operations. “Those who are more satisfied are more likely to stay with the organization.”

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With Kaiser in sight, Anthem creates new plan with major California hospitals

By Bob Herman Health insurer Anthem Blue Cross and seven competing health systems in Southern California are joining forces to create a new health plan that executives believe will enhance competition in the area while reducing healthcare costs.

Anthem, a subsidiary of Indianapolis-based WellPoint (which will be renamed Anthem later this year), said the new Anthem Blue Cross Vivity plan will be similar to an HMO. Vivity members will be able to go to hospitals and doctors at Cedars-Sinai Health System, Good Samaritan Hospital and UCLA Health, all in Los Angeles; MemorialCare Health System, based in Fountain Valley; PIH Health, Whittier; Torrance (Calif.) Memorial Medical Center; and Huntington Memorial Hospital, Pasadena, without having to pay a deductible—patients will only have to pay monthly premiums and copayments, which were not detailed.

The new plan is likely to shake up the California insurance market. Oakland-based Kaiser Permanente, one of the largest integrated health systems in the country, has traditionally dominated the state. Kaiser controls more than a third of the market, according to a report from the California HealthCare Foundation (PDF). Anthem, however, is Kaiser's biggest competitor with a 15% foothold and could gain more traction by adding some of Southern California's top academic and community hospitals.

Vivity also represents a blossoming type of insurance venture, one in which hospitals, physicians and insurers work together to move away from a fee-for-service structure and toward a value-based reimbursement plan that rewards high-quality and safe patient care. But the health plan is only one part of the joint venture. The health systems intend to eventually link their electronic health-record systems to better coordinate and analyze patient care.

Vivity will be offered to large employers next month and will go live Jan. 1. One large group, the California Public Employees' Retirement System, the second-largest buyer of health benefits in the country, has already agreed to use the network.

“This unprecedented partnership was created to provide employers and consumers with a unique healthcare offering,” Barry Arbuckle, CEO of MemorialCare, said in a release. “Anthem Blue Cross Vivity provides choice, convenience and affordable access to exceptional physicians and hospitals throughout our region.”

Anthem and the health systems have been planning the new HMO plan for more than a year.

Advocate, NorthShore merger would create giant health system in Illinois

By Andrew L. Wang Advocate Health Care, Illinois' largest system, and NorthShore University HealthSystem, the dominant health network in Chicago's northern suburbs, announced today they will merge to form a 16-hospital system to be called Advocate NorthShore Health Partners.

Together, the two non-profit systems generated $7.3 billion in revenues and $361 million in operating income in 2013, according to the Modern Healthcare Financial Database. Presence Health, the 12-hospital network formed in the 2011 merger between Resurrection Health Care and Provena Health, was the second-largest system by revenue in the state with $2.8 billion in total revenue, according to the database.

The merger would be the largest in recent memory in the state. It would be the latest in a flurry of local hospital consolidation, as health systems fight to build geographic reach and financial brawn in an industry beset by increasingly stingy insurers and steeply rising operating expenses. Being bigger helps health systems command more favorable reimbursements rates from payers and lower per-patient costs through economies of scale.

The Chicago area is more fragmented than many major hospital markets, though this deal would make it less so. Advocate NorthShore would become the 16th largest system in the country, based on 2013 system revenue, according to the Modern Healthcare Financial Database.

“In order to improve outcomes and lower cost, we need scale, and to be attractive to payers and employers we need geographic reach,” said Advocate CEO James Skogsbergh, 56, who will serve with NorthShore CEO Mark Neaman, 63, as co-CEOs of the new system. “This certainly fills a hole for Advocate.”

Neaman has agreed to remain in the position for at least two years following the close of the deal, which is expected in early 2015.

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Spread mostly through the northwest and western suburbs with two hospitals in the city, Advocate was formed in 1995 with the merger of Evangelical Health Systems Corporation and Lutheran General HealthSystem. Its 11 adult acute-care centers include Advocate Christ Medical Center in Oak Lawn, Advocate Illinois Masonic Medical Center in Chicago's Lakeview neighborhood and Lutheran General Hospital in Park Ridge. It's most recent acquisition occurred in 2013, when it scooped up Sherman Hospital in Elgin.

NorthShore once was known as Evanston Northwestern Healthcare, but changed its name in 2008 when it ended its teaching affiliation with rival Northwestern Memorial Healthcare in Chicago. Anchored by Evanston Hospital, NorthShore has built its employed physician group into one of the largest in the state, with nearly 900 doctors. That put it behind only the medical groups of Advocate and Northwestern.

Regulatory approvals The deal must be approved by the Illinois Health Facilities and Review Board, the state body that regulates mergers, acquisitions and changes of ownership in the healthcare industry. The Federal Trade Commission will also scrutinize the union to ensure that it does not run afoul of antitrust laws.

The agency has nicked NorthShore before. After it acquired Highland Park Hospital in 2000, the FTC filed a complaint alleging that the merger allowed the hospital network to improperly raise prices. In 2007, the FTC ruled the merger was anticompetitive and required that Highland Park's contracts with insurers be negotiated separately from those of NorthShore's other hospitals. A separate class action suit related to the Highland Park allegations is ongoing.

Word of the proposed merger comes just days after the Sept. 1 closing of a union between Northwestern Memorial Healthcare in Chicago's Streeterville neighborhood and Winfield-based Cadence Health. Anchored by Northwestern Memorial Hospital in the city and Central DuPage Hospital in the western suburbs, that new four-hospital system is operating under the Northwestern Medicine name and will generate at least $3 billion in annual revenue.

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Messrs. Skogsbergh and Neaman said that they have talked periodically in recent years about collaborations, but Neaman approached his counterpart about a merger about six months ago, just after the Northwestern-Cadence deal was announced.

“We're seeing Northwestern with Cadence, Alexian (Brothers Health System) with Adventist (Midwest Health),” Neaman said. “The triggering point was what was happening in the external marketplace.”

More leverage With its increased scale and reach, the larger system will likely have significantly more leverage in contract negotiations with insurers. At the same time, the deal will put pressure on the dwindling number of independent hospitals to more strongly consider partnering with a larger system.

The Advocate-NorthShore merger potentially will help both systems expand their efforts in managing the treatment of large groups of patients and the value-based payment models sweeping the industry. As both government and commercial payers shift to contracts that reimburse providers for good outcomes rather than high service volumes, hospitals and physicians must coordinate care from the doctor's office to the emergency room to keep patients healthy and eliminate unnecessary services.

Many hospitals systems and physicians are forming accountable care organizations to better manage the health of large patient populations. Such ACOs are paid by private insurers or Medicare under contracts that reward them for the good health of a defined group and penalize them for bad outcomes such as excess hospital readmissions.

The state Medicaid program is also contracting with health systems and doctors in accountable care entities, or ACEs, a form of managed care for members of the state-federal program for the poor in which providers are paid a fixed amount per member per month to cover the costs of care.

The economics of accountable care are such that providers must reduce the per-patient encounter costs. The only way to make up for the loss in revenue is to increase patient volume and keep patients healthier so they don't need expensive hospital care.

“The trick is, how are we going to get paid for that so we can invest in our healthcare organizations,” said Skogsbergh.

Pioneer in health management Skogsbergh was named Advocate CEO in 2002, after serving as chief operating officer since 2001. Prior to that he was executive vice president of Iowa's largest health system.

Under his watch, Advocate has been a pioneer in population health management, starting a commercial ACO contract with Blue Cross and Blue Shield of Illinois in 2011 that is believed to be the first of its kind. The contract, which covers about 380,000 members in the Chicago area, has shown early signs of reducing utilization and costs.

NorthShore has done little with ACOs, though like Advocate, it is contracting with the state Medicaid program to form an ACE. With its large employed doctor base and advanced information technology infrastructure, it's prepared to take on the risks involved, Neaman said.

For Neaman, the merger would be the last chapter of a 40-year career at the same health system that started when he joined as an administrative trainee. He took over the CEO slot in 1992, building the system through expansion of outpatient services and small acquisitions, careful not to stray too far from its sweet spot on the North Shore, where patients have high incomes and most have private insurance.

Ascension deals signal new economic reality in healthcare

by Melanie Evans Ascension Health, one of the nation's largest hospital owners, is expanding rapidly with a string of announced deals that its CEO says will grow its reach beyond hospitals to keep pace with rapid Obamacare-induced changes in the marketplace.

But notably, Ascension is not on an acquisition spree. Its latest deals—in Illinois, Michigan, Arizona and Wisconsin—are not outright purchases, but rather agreements with regional rivals and other national players to jointly own, operate or contract for hospitals and insurance companies.

The deals pair Ascension with well-established players in each market and allow the system to avoid costly competition or wasteful duplication by capitalizing on partners' resources that Ascension lacks, said Robert Henkel, Ascension Health's chief executive. The strategy also will allow Ascension to jointly develop broader services to care for patients at home, in nursing homes and other locations outside of hospitals. “There are times we don't have all the pieces,” he said.

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Medicare and Medicaid introduced new financial incentives for lower-cost care under reform and commercial health plans followed. An explosion of dealmaking across healthcare has followed as hospitals, medical groups, insurance companies and drug and devicemakers consolidated or diversified, depending on strategy.

While those deals include a flurry of mergers and acquisitions, they also include a rush of joint agreements such as Ascension's that in some cases deliver the same strategic advantages, often at a lower cost or initial investment, consultants and analysts say.

Joint contracting or joint operating agreements also can yield leverage needed to boost rates paid by insurers, lower prices paid to suppliers and prevent exclusion from increasingly prevalent narrow network health plans, or plans that limit access to a select group of providers, they said.

“Having an entity that is distinctly in control is not a requirement for success,” said Lisa Martin, a hospital analyst for Moody's Investors Service.

And as health systems increasingly enter contracts, such as accountable care, that tie financial performance to patients' overall health and medical expenses, big organizations that care for large numbers of patients—with relatively healthy people to offset the cost of sicker ones—may be at an advantage, experts said.

Ascension's joint agreements will expand its size and geographic reach in one of its newest markets, Chicago, and one of its largest, Michigan, without the drain on capital and antitrust scrutiny that accompany mergers and acquisitions. Deals in Tucson, Ariz., and Milwaukee will bring in new owners to boost investment in accountable care and health insurance activities.

Ascension's deal in Michigan created a behemoth network with hospitals owned by CHE Trinity Health. Combined, the partners' newly created Together Health Network includes 27 hospitals and 5,000 doctors that officials say will place 3 out of 4 state residents within 20 minutes of a network hospital or doctor.

In Illinois, Ascension also would gain the clout of an additional half-dozen hospitals in Chicago under a joint agreement with Adventist Health, another large U.S. health system based in Orlando, Fla. Ascension's three Chicago-area hospitals, acquired in a 2011 deal for the Alexian Brothers Health System, Arlington Heights, Ill., needed more scale in a market where the Blues insurers and powerful competitors have aggressively adopted accountable care contracts, said Jordan Shields, a vice president for Juniper Capital. Blue Cross of Illinois and Advocate Health Care, Downers Grove, Ill., entered an accountable care contract early in the decade.

Ascension Health would divest some ownership under announced deals in Arizona and Wisconsin.

Tenet Healthcare Corp. would hold the majority of a proposed joint venture with Dignity Health and Ascension in Tucson, where Ascension's operations have increasingly struggled in recent years. The partners have released limited details about the deals, but Tenet Healthcare's spokesman said Ascension would enter a joint venture that would fund and expand a physician-led accountable care organization and clinically integrated network. Ascension declined to comment on the deal. Tenet Healthcare referred additional questions to Ascension.

In Wisconsin, Froedtert Health, Milwaukee, would jointly own a health plan owned by Ascension's Ministry Health Care under another proposed deal. Ministry includes Milwaukee's Columbia St. Mary's hospitals.

For Ascension, the deals present challenges as well as opportunities. Joint agreements require joint decisions without a single owner, or a single CEO, as final arbiter in disputes, consultants said.

That can be problematic when joint operating agreements are confronted with potentially unpopular choices, such as consolidating lucrative or high-profile services in a single hospital, said Mitchell Morris, global healthcare leader for consulting firm Deloitte. But failure to make tough decisions can undermine the goals of the affiliation. “If decisions are easy and obvious, then everyone agrees to them,” he said.

Sharp exits Pioneer ACO program Sharp Healthcare broke even on the first two years of its Medicare accountable care program, but executives feared financial losses under formulas used to assess bonuses or penalties for the Medicare ACOs. Sharp joined nine other ACOs that have left the Pioneer ACO program, which was launched as Medicare's first and most ambitious test of accountable care.

Risk-based contracts rise slightly Health system revenue from risk-based contracts, such as Medicare and commercial accountable care, increased slightly last year, though it remained a sliver of total revenue, Moody's Investors Service reported in its latest snapshot of not-for-profit hospital median performance.

The median health system reported 2.4% of revenue from risk-based contracts, up from 2.1% the prior year. The median number of covered lives, or the number of people in contracts that put health systems at some financial risk, increased to 108,956 in 2013 from 84,382. The median number of employed physicians increased as well, to 94 in 2013 from 83 the prior year and 74 the year before that. Meanwhile, revenue woes and rising expenses eroded hospital margins last year. Moody's reported the median operating margin dropped to 2% from 2.5%.

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ACPE changes name to reflect shifting healthcare realities

By Andis Robeznieks The American College of Physician Executives has changed its name to the American Association for Physician Leadership, in response to how the healthcare industry is looking to physicians, not just physician executives, to help it navigate through healthcare reform.

Launched in the mid-1970s as the American Academy of Medical Directors, the 11,000-member, Tampa, Fla.-based educational organization has been dedicated to developing physician leadership and management skills. While it has kept its physician focus, the group noted that the name change reflects how it has broadened its scope to serve as a resource for healthcare systems, public policy makers and patients.

The new name also reflects the goal of its CEO Dr. Peter Angood to expand the group's traditional mission from serving as an education provider for midcareer physicians to helping shape national healthcare policy and serving doctors at all stages of their careers.

“Every organization is grappling with physician integration and physician engagement,” Angood said. “And having physicians in leadership roles helps an organization work better.”

He pointed to the CMS' Pioneer Accountable Care Organization program and how 21 of the 29 ACOs that saved enough money to earn bonuses were physician led.

The organization is committed to broadening its membership to attract doctor in all stages of their careers, Angood said.

“This includes residents and early career-sector physicians who want this type of training and they're not getting it in medical school or residency,” he said. “They recognize that, if they're going to succeed in their practice, they'll need these skills.”

He also noted how the organization's ranks and its programs are filled with older physicians seeking to transition out of clinical roles and into management, consulting, government and entrepreneurship.

The name change and program expansion was in the works for more than a year and included member surveys and workshops, working with organization rebranding experts and consulting with doctors who had little idea what the organization was about or what it did.

“That helped us,” Angood said in reference to that last group. “The rebranding is not just a new name, logo and color. It's about examining who you are and what you are.”

Some of it could get laborious, he acknowledged—especially deciding on a new name.

“We went over it word by word—it was an intense process,” Angood said, adding that since the group has members in 45 countries, “We debated 'American' versus 'International' versus 'Global.' We debated calling it an 'Academy' versus an 'Association.' Even the word 'for' was debated. Should it be 'of' or should it be 'for?'”

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