Healthcare

Clinically Integrated Networks (CINs) are gaining traction in many areas of the country, but the concept of clinical integration isn’t new. The terminology pre-dates the ACA by over a decade, as the FTC coined the term in 1996 in its Statements of Antitrust Enforcement Policy in Health Care. Today’s CINs, however, have a different look and feel than one of their more common predecessors, the Physician-Hospital Organization (PHO). The PHO similarly attempted to integrate hospitals and physicians through hospital sponsorship and physician membership, but most PHOs never reached the levels of financial and clinical integration necessary to accept risk-based payer contracts. Today’s CINs, spurred on by ACA reforms and the gradual shift from fee-for-service payment models, are making strides in collaboratively increasing the quality of care while reducing costs.

Among the models found in the healthcare market, joint ventures (JVs) can benefit organizations that have an interest in pursuing a service together. Examples of services operated in JVs include the following:

Today’s urgent care center has become a highly regarded primary care delivery model, sought after by physicians, group practices, hospitals, and management companies because of its unique appeal to providers and patients and its prospects for continued profitability. With busy emergency rooms and longer wait times for primary care clinic appointments, the urgent care center (UCC) gives low-acuity patients a convenient option for affordable primary care. For physician groups, the UCC appeals to the suburban market segment and patients who prefer a no-appointment-necessary format and short wait time for minor injuries or illnesses. For hospitals, the UCC relieves expensive emergency departments and represents a primary care entry point into the system.

C-Suite executives and physicians are inundated with accounts of qui tam litigation and settlements with the Department of Justice over hospital payments to physicians, which serve as a reminder of the risks of payments in excess of FMV. Without going into a detailed legal analysis, it’s safe to say that in most transactions and compensation arrangements between hospitals and physicians who have the ability to refer patients to the hospital, FMV is a requirement for compliance with the most often used exceptions under the Stark law and safe harbors provided by the federal anti-kickback statute.

Two days into the 2015 Annual Meeting, two important fair market value (FMV) and commercial reasonableness (CR) issues stand out as worthy of emphasis, as they resonate in almost every discussion on hospital/physician deal compliance.

“I only want you to tell me what the doctor’s practice is worth. I will worry about her salary. Why do you care about compensation anyway?”

This is a common response from clients when we ask for post-acquisition physician compensation as an input to determine fair market value of the physician’s practice in a potential acquisition. Hospitals sometimes try to compartmentalize physician practices by looking at the value of the business apart from the value of the physician’s services. Because medicine is a service-based industry, however, value is largely dependent on income from physician services, and physicians expect compensation for such services. Therefore, you cannot consider the value of a physician practice without considering the value, or cost, of its primary income generator, the physician.

I was fortunate to have been invited to co-author a chapter on merit-based savings distribution models in The ACO Handbook: A Guide to Accountable Care Organizations, Second Edition with Bo Bobbitt.  Bo is a seasoned health care attorney who works with many ACOs and clinically integrated networks. He is with the Smith Anderson law firm in Raleigh, North Carolina, and speaks and writes on this subject extensively.

Breaking down the siloes that exist in our fragmented healthcare system requires the collaborative commitment of clinicians and facilities, and true clinical integration fosters (and, in turn, is promoted by) teamwork, transitional care, reduction in clinical variation, and information-sharing. For the ACO model to be successful, a correlation must exist between financial incentives and the common goals of improving experience of care for patients, improving the health of populations, and reducing the per capita cost of healthcare. 

Given the regulatory risks associated with failure to pay fair market value (FMV) in certain physician compensation arrangements, parties contracting with physicians for services are rightly concerned about FMV and are justified in their efforts to find effective means by which FMV can be determined and documented.

One such means for the assessment of FMV is the use of widely available published survey reports on physician productivity and compensation. Several sources exist for this information, and there is a broad acceptance of published surveys in the industry as indicative of compensation for physicians in many specialties. Let’s look at what the government—specifically CMS—says about the use of surveys.

The recent Citizens Medical Center settlement brings to resolution yet another qui tam action which, among other facts, underscores the compliance risks of hospital compensation arrangements with physicians in excess of fair market value. The USDOJ announced last month that Citizens Medical Center will pay $21,750,000 to settle the False Claims Act allegations involving over two dozen individual physicians of at least six different specialties and practice groups. The opinion of U.S. District Court Judge Gregg Costa of the Southern District of Texas in ruling on the Defendant’s motion to dismiss the plaintiff’s FCA allegations is instructive particularly with regard to the compensation by the hospital of its employed cardiologists.

Healthcare machinery and equipment (M&E) change hands daily across the country through larger business transactions or as individual assets or groups of assets being bought and sold. M&E values can impact the viability of the transaction or the parties’ compliance with complex laws governing the deal. Below are easy-to-remember tips on the Purpose, Process, and Pitfalls of M&E appraisals.

With record attendance of over 450 professionals attending AHLA’s Transaction Program in Nashville last week, it’s evident that healthcare transactions are top of mind. One might think the industry would be further down the road in defining the latest iteration of payment and delivery system models, but the healthcare industry appears to be a marathon, rather than a sprint.

Today’s sessions at AHLA’s Transactions Program made me reflect on the fact that time has taught us valuable lessons about what not to do in the future. An initial wave of hospital affiliations and acquisitions has occurred with mixed success.

Three recognizable trends were dicussed today that are reshaping healthcare transactions:

Surveys such as the Health Leaders Media survey, Physician Alignment: New Leadership Models for Integration, indicate that physician employment will continue to be a primary integration strategy for many hospitals and health systems. Where saturation of primary care and specialist practice acquisitions and employment has occurred, several markets have moved to a second or third tier, such as urgent care centers and related physician employment. It seems that some markets are only limited by the supply of viable targets.

Physician practices, however, are not created equal, and hospitals and health systems are becoming increasingly savvy in targeting groups for alignment that can demonstrate delivery of high-quality care. As the reimbursement model continues the shift from a volume-based to value-based system, physician participation in meeting quality and cost-saving targets will require a greater nexus to methods of physician compensation. In an increasingly competitive environment, it may be difficult to meet the need for quality care without a carefully selected and motivated physician network.