Payor-Provider Contract Management: How to Avoid Becoming a - PowerPoint PPT Presentation

Payor-Provider Contract Management: How to Avoid Becoming a Horror Story September 23, 2013 The Princeton Club New York City 39 Offices in 19 Countries

Speakers • John M. Kirsner, Columbus john.kirsner@squiresanders.com, +1 614.365.2722 • John Kirsner acts as both counsel and advocate for large and small hospitals, physician group practices, other healthcare providers, and imaging and lithotripsy development companies. His work involves the creation of foundation model arrangements, physician-hospital alignment, joint venture transactions, clinical integration, accountable care, contract analysis, group practice merger and formation, network formation and operation, managed care contracting, regulatory review, compliance issues, and recruitment and physician employment. • John is listed in The Best Lawyers in America for healthcare law and insurance law. He has been named an Ohio Super Lawyer each year since 2006. 2

Speakers Paul Gallese, Chicago pgallese@alvarezandmarsal.com, +1 312.601.9071 Paul Gallese is a Director with Alvarez & Marsal Healthcare Industry Group, LLC in Chicago. Mr. Gallese specializes in the development, operation, design, and restructuring of health care delivery systems, academic medical centers, risk bearing provider organizations and health insurers.. Prior to joining A&M, Mr. Gallese had extensive experience in the operations and finance of insurers, provider organizations, and integrated delivery systems. He has conducted and concluded complex negotiations for physician hospital joint ventures, physician compensation plans, and managed care capitation contracts on behalf of physicians, hospitals, and ancillary providers nationally. His clients included The University of Colorado School of Medicine, The University of Mississippi Medical Center, Florida Atlantic University, The University of Miami Miller School of Medicine, Children's Memorial Hospital in Chicago, Clark County Medical Center in Las Vegas Nevada, and The Children's Hospital, Denver In addition to his advisory and policy experience, Mr. Gallese has served in senior leadership and interim executive roles for health plans, hospitals, and medical groups. His senior leadership roles include the Lewin Group; The Albert Einstein Practice Plans (Philadelphia); Cleveland Clinic Florida, Mt, Sinai Medical Center (Cleveland, Ohio), and Salick Cancer Centers (Los Angeles). He served as a member of the commissioning team and Associate Administrator of USC University Hospital in Los Angeles. Currently, Mr. Gallese is engaged in a number of projects including restructuring and re-purposing of a safety- net hospitals and development of sustainable ambulatory care models. He has also served as the CEO of Community Health Plan of Washington, an $800 Million earned premium, 240,000 member Medicaid and Medicare Advantage Health Plan based in Seattle, Washington.. Mr. Gallese earned a bachelor's degree in physical therapy, with focus on neuroanatomy and pathokinesiology, from Marquette University. Mr. Gallese’s professional practice focused on Pathokinesiology and Sports Medicine. He has practiced in California, Nevada, New Mexico and Arizona. He earned a master's degree in business administration, with concentrations in strategy and finance, from Pepperdine University in Malibu, California. 3

Agenda • Healthcare Industry: Increasingly Complex & Changing Rapidly • Complexity and Change � Heightened Need for Compliance and Spur to Integration • Fundamental Observations • Managing the Unknown • Complexity and Change � Enforcement Risk • Horror Stories • Basic Best Practices • How to Avoid Becoming a Horror Story 4

Healthcare Industry: Increasingly Complex & Changing Rapidly � Uncertainty: Current regulatory environment driving unprecedented unrest – New regulations and payment systems – New penalties – Focus on “value” and “quality” � New push for integration, ACOs and the like – Range of vertical integration strategies, hospitals acquiring and developing other businesses – Creates new ongoing Stark/Anti-Kickback/CMP/Antitrust issues that increase legal risk – ACO waivers – Proper contracting model and compliance strategies extremely important � Insurance Exchanges (developments) – Narrow networks – Leverage pendulum shifting towards payers rather than providers – New reporting and compliance requirements � Changing Payment Structures – Moving away from fee for service models toward quality and outcome-based models » Shared savings » Bundling/Global Payments � Projected Increased Spending – Funding the added coverage 5

Hospital Finances: In a Shrinking Bubble Medicare value purchasing Ostensible decrease in Statutory the number DSH of Reductions uninsured Hospital finances Increased Medicaid Reduced coverage Medicare & Payments mobility Lower Medicaid DSH 6

Hospital IP � OP Shift Hospital Outpatient Visits and Inpatient Bed days per 1,000 population 1990 to 2010 2500 2000 1500 1000 500 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Outpatient Inpatient Source: AHA Trendwatch Data 7

Hospital IP National Admission Trends Millions Source: AHRQ HCUPNet Source: AHRQ HCUPNet 8

Evolution of Payment Models: Public Funding Diagnosis or condition Fee for Multi-provider Full capitation Per diem specific DRG Episode of care episode of care (health system service Inpatient capitation payment at-risk) (health system at-risk) Source: HD Miller. Creating Payment Systems to Accelerate Value Driven Health Care. Issues and Options for Policy Reform. Commonwealth Fund, Sept 2007 Growing “Creativity” in Public Payment Models…not our first journey through this healthcare business cycle • Medicaid redesign models: New York State • Single Payer redesign: Maryland • Novel Medicaid Expansions: RI, OK, AR Providers face increasing complexity, increasing regulatory challenges and a range of resulting financial challenges. Government payers are increasingly utilizing downstream risk vehicles that appear to be commercial contracts. The reality is: providers are increasingly reimbursed by public funds and are, therefore subject to public payer rules, regulations, audits and scrutiny 9

Complexity and Change � Heightened Need for Compliance and Spur to Integration • Implement and carry out compliance plans � Need to live up to perceptions of consumers and regulators � Need to oust bad behavior • Providers live in an increasingly challenging space that demands, by virtue of market forces, a radical change in business and operational mindset � Consolidation � Merger Integration � Market Rationalization � Business Scale � Vertical Integration Strategies • New push for integration, ACOs and the like � Range of vertical integration strategies, hospitals acquiring and developing other businesses � Creates new ongoing Stark/Anti-Kickback/CMP/Anti-trust issues that increase legal risk � ACO waivers � Proper contracting model extremely important 10

Hospital “Deal Flow”: Pace of Consolidation Increasing All Hospitals 111 $14.0 120 $12.3 $12.0 90 100 76 $10.0 $9.9 80 $9.2 60 60 $8.0 $7.9 52 50 60 $6.0 40 $4.3 $4.0 $3.8 $2.5 20 $2.0 $0.0 0 2007 2008 2009 2010 2011 2012 2013YTD Number of Transactions Announced Dollar Value of Transactions ($ in Billions) 11

Government Sources “Own” Healthcare • In 2010, total public spending for healthcare services exceeded 50% of total national health expenditures 2009 2010 2011 2012 2013 2014 2021 NHE, billions $2,495.80 $2,593.60 $2,695.00 $2,809.00 $2,915.50 $3,130.20 $4,781.00 NHE per capita $8,148.60 $8,402.30 $8,660.50 $8,952.80 $9,214.20 $9,807.50 $14,102.60 GDP, billions of dollars $13,939.00 $14,526.50 $15,093.00 $15,696.80 $16,387.40 $17,223.20 $24,395.30 NHE as percent of GDP 17.91% 17.85% 17.86% 17.90% 17.79% 18.17% 19.60% Wall Street Journal 4 February 2010 Keehan S P et al. Health Aff doi:10.1377/hlthaff.2012.0404 12

Hospitals “Sell” Reputation First: What is “Value”? 1. Lieberman, Trudy. "Do Hospital Ratings Matter?" Centers for Advancing Health. June 2012. 2. Abraham, Jean, et al. "Selecting a provider: what factors influence patients' decision making?." Journal of healthcare management/American College of Healthcare Executives 56.2 (2011): 99. 13

Fundamental Observations 1. The US healthcare system is commanding increasing amount of funding from all sources, primarily government sources. Public payer sources will increase as a percentage of total for most providers. 2. Hospitals are reacting to changes in healthcare finance by deploying vertical integration strategies. So called “headwaters” strategies (get closer to the payer source) have driven hospitals to become insurers, home health providers, physician groups, etc. 3. Providers are consolidating to create business scale and more survivable financial models. Provider consolidation is rampant and will likely continue for the foreseeable future. 4. Increased market footprint combined with increasing public funding makes providers more likely regulatory targets. Providers are increasingly challenged to create and maintain complex and thorough compliance functions designed to withstand regulatory scrutiny. 14

15 Managing the Unknown