Top 10 Lessons Learned From First to Second Generation Transactions Involving Physicians and Health Systems AHLA Healthcare Transactions Conference Nashville, TN May 10-11, 2018 Max Reiboldt, CPA R. Michael Barry, Esq. Coker Group Arnall Golden Gregory, LLP
Agenda I. Overview of Presenters II. Industry Overview III. Compensation Trends IV. Best Practices for Physician Compensation Structures V. Illustration of Actual Model VI. Compliance Considerations VII.Conclusion VIII.Q&A 2
OVERVIEW OF PRESENTERS 3
Coker Team Max Reiboldt, CPA President and CEO Max Reiboldt, CPA, is president and chief executive officer of Coker Group with over 42 years of total experience, the last 23 years specifically focused on healthcare. He has experienced first-hand the incredible changes of healthcare providers, which uniquely equips him to handle strategic, tactical, financial, and management issues that health systems and physicians face in today's evolving marketplace. From his extensive work with health systems/hospitals, medical practices, and related healthcare entities, Mr. Reiboldt understands what motivates and sustains healthcare industry professionals. He also knows what healthcare organizations need in order to maintain viability in a highly competitive market. He has keen knowledge of the effects on healthcare entity management, and is proficient in employing practical responses to the fiscal realities of market demands. Whether a transitional provider or a more cutting-edge healthcare entity, Mr. Reiboldt is uniquely qualified to work with these organizations to provide sound solutions to everyday and long-range challenges. Mr. Reiboldt oversees Coker Group’s services and the general operations of the Firm. Mr. Reiboldt provides sound financial, strategic and tactical solutions to hospitals, medical practices, health systems, and other healthcare entities through keen analysis and problem solving. Working with organizations of all sizes, Reiboldt engages in consulting projects with organizations nationwide. His expertise encompasses physician/hospital alignment initiatives, hospital service line development, clinical integration initiatives, financial analyses (including physician compensation plans), mergers and acquisitions, hospital and practice strategic planning, ancillary services development, PHO/IPA/MSO development, appraisals, and most recently, “accountable care era” consultation. As the industry moves to adapting to many changes in response to healthcare reform, Reiboldt is providing hands-on consultation to a full array of healthcare providers. 4
Coker Team R. Michael Barry Arnall Golden Gregory, LLP R. Michael Barry is a partner in the Corporate Practice and the Healthcare Practice. Mr. Barry focuses his practice on health care transactional and regulatory law – specifically for hospital, health systems and other institutional providers. Mr. Barry's health care practice deals with Medicare fraud and abuse analysis and advice, including physician self-referral and anti-kickback issues. He represents hospitals and health care systems, as well as a variety of institutional physician practices, associations and medical device manufacturers. His practice also focuses on joint ventures between hospitals and physician groups, ambulatory surgery centers, medical practice sales and acquisitions, medical office leases and buy-side and sell- side health care regulatory due diligence (state and federal). He also advises clients in the negotiation and preparation of acquisition, divestiture and joint venture agreements, corporate governance, shareholder agreements, employment agreements and separation arrangements, corporate practice of medicine issues, and other general business and operational matters. Prior to practicing law, Mr. Barry was a health care tax consultant with a large, international accounting firm. 5
Max Reiboldt, CPA INDUSTRY OVERVIEW 6
Industry Paradigm Shifts Continue Traditional healthcare delivery model Predominantly Fragmented care Episodes of care; Production management Disjointed provider utilization (volume)/Fee-for- base treating primarily management service (FFS) sick people payments Coordinated Performance Integrated care delivery of care (value); Quality/cost Collaboratives: management rendering control; bundled ACOs/CINs/PCMHs/ focusing on appropriate services payments; QCs preventative care at appropriate place capitation; risk- and time based Accountable care era healthcare delivery 7
Rising Concerns Increased demand for physician services – Fueled by Affordable Care Act – Aging patient population – Healthcare expenditures are approximately $3.3 trillion and accounts for 17.9% of Gross Domestic Product (GDP) in 2016; expected to increase by 5.5 percent per year to $5.7 trillion and 19.7 percent of GDP by 2026 Reimbursement challenges – Implementation of MACRA/MIPS/APMS – Other reimbursement placed “at risk” based on performance – Focus on value-based vs. volume-based (what does this mean for FFS?) 8
Rising Concerns Efficiency considerations – Significant investment in physician networks…what do we do with the critical mass developed? – Search for alignment between reimbursement, vision/values, and incentive structure 9
Changing Landscape Number of independent practice owners has declined from 62% in 2008, to 49% in 2012 to 33% in 2016* 47% of all practices are actively pursuing value- based payments in 2017, up from 44% 2015** The federally funded healthcare Payment Learning & Action Network (“LAN”) aims to have 50% of all U.S. healthcare payments in alternative payment models by 2018*** – As of 2017, 29% was tied to alternative payment models, an increase from 23% in 2015 *The Physicians Foundation 2016 Survey of America’s Physicians **2017 Value-Based Payment Study 10 ***LAN APM Measurement Report, 2017
Changing Payment Models Fee-for-Service •Providers paid a specified amount for each service provided Increasing Provider Risk Pay-for- •Incentives for higher quality measured by evidence-based standards Performance Value-based •Percentage reimbursement at risk, earned back by high quality outcomes. Purchasing Bundled •Single payment for episodes of treatment, shared by hospital and Payments physicians. •Percentage of savings from reduced cost of care shared with hospitals Shared Savings and physicians. •All services compensated in one payment that manages the patient Global Payments across the delivery system 11
MACRA Overview Timeline: – MACRA was passed in April 2015 – Notice of Propose Rulemaking issued in April 2016 – Final Rule issued on October 14, 2016 Replaces the sustainable growth rate (“SGR”) as a way for the Centers for Medicare and Medicaid Services (“CMS”) to adjust payments to physicians in order to drive quality up and control or reduce costs Consolidates multiple pre-existing reporting and payment incentive programs: – PQRS – physician quality reporting system – VPM – value payment modifier – MU – meaningful use Adds new incentive program: – CPIA – Clinical Practice Improvement Activity Includes: – MIPS – Merit Incentive Payment System – APMs – Alternative Payment Models (basic and advanced) 12
MIPS Overview Will begin distributing payments in January of 2019; however, the performance in 2017 will determine those payments Rewards performance via a two year lookback – E.g. 2017 performance will determine payments for 2019, etc. Eligible participants: – Now: Physicians, dentists, PAs, NPs, clinical nurse specialists, certified registered nurse anesthetists (“CRNAs”) – In year three: Rehab professionals (physical therapists (“PTs”) / occupational therapists (“OTs”) / speech and language pathologists (“SLPs”)), audiologists, nurse midwives, clinical social workers, clinical psychologists, dieticians / nutritional professionals In 2017, approximately 85% of providers eligible for MACRA are expected to participate in MIPS MIPS measures and creates a composite score – Quality (uses PQRS) – 50% – Resource use* (uses VPM) – 10% – Clinical practice improvement (creates clinical practice improvement activities (CPIAs) – 15% – Advancing care information (uses MU) – 25% * The final rule stated that the resource use category will not be factored in for the 2017 data. Therefore, during the first year only, the quality category will be weighted at 60%. 13
Impact of Changing Payment Models • Requires changes to how we are currently practicing Operational • Additional costs - IT tools, staffing, contracting, etc. • At-risk vs. guaranteed comp • Changes in amount Financial • Changes in incentive drivers 14
Max Reiboldt, CPA COMPENSATION TRENDS 15
Compensation Trends Change has become an operative word Changing Changing Plans : Incentives: • 41% changing • 39% of placements models every year in 2017 included or two, 38% every quality incentives, three to five years* up from 32% in 2016** *Physician Compensation: Shifting Incentives, Healthleaders Media Council **Merritt Hawkins Review of Physician Recruiting Incentives 16
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