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Current Reform Initiatives and
Their Impact on Physician
Compensation
November 13, 2013
David McMillan, CPA
New Orleans, Louisiana
Speaker Biography
David W. McMillan, CPA
PYA Principal

David McMillan provides financial and strategic services to
the Firm's healthcare clients. David's areas of
concentration are: feasibility studies for various healthcare
entities; mergers, acquisitions, and affiliations among
providers; strategic planning and forecasting, clinical
integration services; and valuations and operational
analysis.
Agenda
Healthcare Reform Initiatives Overview
Regulatory Considerations
Value-Based Payment Modifier
Quality Incentives

Medicare-Medicaid Parity
Rise in Insured and Increased Access to Primary Care
Accountable Care Organizations and Bundled Payments
Healthcare Reform
Initiatives Overview
The Push Towards Quality and Lower Cost
Rebuilding
Primary Care
Workforce

Expanding
Authority to
Bundle
Payments

Encouraging
Integrated
Health
Systems

Increasing
Medicaid
Payments to
Primary Care
Physicians

Linking
Payment to
Quality
Outcomes
The Train Has Left the Station…

Medicaid
demonstration project
– fee-for-service to
global fee

2010
Healthcare reform
begins with
consumer-focused
initiatives (i.e.,
focused on
insurance reform)

Center for
Medicare and
Medicaid
Innovation –
explore models of
payment based on
quality

2011
Physician quality
reporting –
Physician Compare
website

Hospital
readmissions –
Reduction in
payments to
hospitals for
preventive
readmissions

2012
ACO program
launch – shared
savings

Hospital valuebased purchasing
program

Bundled payment
initiatives

Medicare –
Medicaid parity

2013

Value-based
purchasing –
physician payments
phased in 2015 to
2017
Value-Based Payment
Modifier
The Future is Now

• Pay for volume
• No quality
measured

Value- Based
Payment
• Quality per click
• Process
improvement

Fee For
Service

THEN

• Quality
outcomes of
episodes
• Whole system
improvement

Care
Coordination

NOW

FUTURE
Calculation of Value-Based Payment Modifier
in CY 2015
Groups of Physicians with 100 or more
Eligible Professionals

PQRS Participation (Groups that selfnominate/register for PQRS as a group and
report at least one measure, or elect PQRS
Administrative Claims)

Elect QualityTiering Calculation

Upward, downward, or no
adjustment based on quality-tiering

Non-PQRS Participation (Groups that do not selfnominate/register for PQRS as a group and do not
report at least one measure)

No Election

0.0%
(no adjustment)

Source: Summary of 2015 Physician Value-based Payment Modifier Policies

-1.0%
(downward adjustment)
Tiered Value-Based Payment Modifier
Both upside reward and downside risk
Focused on outliers in quality and cost
Composite scores for cost and quality
Three tiers – High, Average, and Low
Additional upward adjustment for care of sickest patients
Sum of upward adjustments will be offset by downward adjustments
Tiered Value-Based Payment Modifier
Quality/Cost

Low Cost

Average Cost

High Cost

High Quality

+2.0X

+1.0X

+0.0%

Medium
Quality

+1.0X

+0.0%

-0.5%

Low Quality

+0.0%

-0.5%

-1.0%
Quality Incentives
Quality Incentive Compensation
Overview – Arrangements by which hospitals compensate physicians for
Overview – Arrangements by which hospitals compensate physicians
the achievement of certain pre-defined quality indicators
for the achievement of certain pre-defined quality indicators
Increasingly common arrangements
 Quickly becoming components of (or even fully characterizing)
many physician-hospital alignment arrangements

Example factors generally considered when evaluating quality incentives:
 Core measures

 Risk reduction

 Patient satisfaction

 Quality-related educational activities

 Specialty-specific outcomes measures
Co-Management Model

Hospital

Hospital
Pays
for:

• Base management fees
• Incentive Compensation
(limited) Including:
- Quality
- Operational
Efficiency

$

Hospital

Physicians

Management
Company/
LLC/Committee

Service Contract
to Manage Hospital’s
Service Line at-risk for
Quality and
Operational Goals

Physicians
OIG Opinion No. 12-22
Cardiac catheterization clinical co-management arrangement between a hospital and
a cardiology group. The group received a fixed fee and a performance-based fee
that was “at risk” based on the achievement of pre-determined metrics. Performance
fee based on the following:

Employee
Satisfaction –
5%

Patient
Satisfaction –
5%

Quality of Care
– 30%

Cost Reduction
– 60%
Areas of Concern Noted by the OIG
Stinting on
Patient
Care

Payments
to Induce
Patient
Referrals

“Cherry
Picking”

Unfair
Competition

The OIG states that “hospital cost-savings programs, in general, and the
arrangement in particular, may implicate at least three Federal legal authorities: the
Civil Monetary Penalty, the Anti-Kickback Statute and the Physician Self-Referral
Law.”
Keys to Compliance
Civil
Monetary
Penalty

• Cost-savings component implicates the CMP; however, sanctions
not sought due to the following safeguards:
Patient care is monitored through third-party utilization review
and internal committee and board review.
Benchmarks are structured so that physicians have flexibility to
use cost-effective clinically appropriate materials.
Term is limited to three years and is subject to a cap.

• Sanctions not imposed for the following reasons:
FMV compensation and management responsibilities are
robust.
AntiCompensation is not variable with number of patients treated.
Kickback
Hospital operates only cardiac cath lab within 50-mile radius
and the group does not provide cath lab services elsewhere.
Statute
Specificity of measures ensure that pay is for quality
improvement, not referrals.
Three-year term
Self referral law (Stark Law) falls outside of OIG’s jurisdiction. As such, the opinion does
not discuss whether the arrangement implicates this law.
Keys to Compliance
• OIG states that, if the agreement is renewed,
then reviewing and rebasing quality metrics
is essential.
– “We would expect that quality improvement and
cost-saving measures under the Agreement
would be subject to adjustment over time, to
avoid payment for improvements achieved in
prior years and to provide incentives for
additional improvements in the future.
Continuing compensation for conduct that has
come to represent the accepted standard of care
could, depending on the circumstances, implicate
the Anti-Kickback Statute.”
Medicare-Medicaid
Parity
New Primacy of Primary Care
• Enhanced Medicare payments
- For 2011-15, Medicare pays 10% bonus for:
o PC services furnished by PC practitioners
o Professional component of surgical procedure performed in HPSA

• Enhanced Medicaid payments
- Payment rates to PC physicians increased in 2013 and 2014 to 100% of
Medicare rates

• Significant new funding for community health centers
• Increase PC workforce by 16,000 by 2016
- Expand National Health Services Corps
- Other scholarships, loan repayment, and workforce training programs
Overview of Initiative
States estimated to receive $8.5 billion in 2013 and $6.1 billion in 2014 to fund
Medicaid parity payments.

final regulation implementing
November 1, • CMS issuesMedicaid services at Medicare
payment of
2012
levels for 2013 and 2014

March 31,
2013
Nationally,
average
Medicaid
payments are
approximately
66% of
Medicare
rates.

• Deadline for states to submit a
state plan amendment

July 1,
2013

• According to CMS, ¼ of
states had implemented
the temporary payment
increase
Estimated Medicaid Rate Increases by State

Approximately
73% overall
increase in
Medicaid
rates.

Source: http://medialib.aafp.org/content/dam/AAFP/images/ann/2013-7/Medicaid-Fee-Hike-Map.png
Who Does it Impact?
• Eligibility requirements include:
– Medicaid fee-for-service and managed care
payments for primary care services delivered by
a family practice, internal medicine or pediatric
medicine physician.
– Self-attestation regarding board certification in
above-mentioned specialties.
– If not board certified, then the physician must
self-attest that at least 60% of Medicaid codes
billed are Evaluation & Management codes and
vaccine administration codes.
– Also applies to certain related subspecialties
outlined in the regulations.
Impact on Physician Compensation
Hospitalist Subsidy Example
Hospitalist Services Agreement
Financial Assistance Calculation
Low
High
REVENUE
Professional Collections 1

$

60,450
265,460
325,910

2,932,360

TOTAL EXPENSES

56,250

60,450
265,460
325,910

Other Expenses:
Liability Insurance5
Office Overhead6
Total Other Expenses

2,300,000
368,000
2,668,000

54,450

Medical Director Compensation4

2,300,000

2,200,000
352,000
2,552,000

EXPENSES
Physician Compensation and Benefits:
Physician Base Compensation2
Physician Benefits 3
Total Physician Compensation and Benefits

2,100,000 $

3,050,160

Estimated Net Income Before Subsidy (Loss)

$

(832,360) $

(750,160)

Subsidy, rounded
Medicaid Parity Offset 7
Revised Subsidy

$
$
$

(830,000) $
180,000 $
(650,000) $

(750,000)
197,143
(552,857)
Impact on Physician Compensation
Hospitalist Subsidy Example (continued)
1

Represents average of median (low) and mean (high) national survey data for collections per physician
FTE multiplied by 10 FTE physicians to provide coverage.
2

Calculation is based on 10 FTEs to provide coverage and average of median and mean survey
compensation data for clinical compensation.
3

Benefits are calculated at 16% of compensation expense based upon PYA experience and information
from the 2012 MGMA Cost Survey and the 2012 AMGA Medical Group Compensation and Financial
Survey . No material variation in benefits is expected between low and high range.

4

Calculation is based upon one physician providing services 450 hours annually at a fair market
value rate ranging from $121 to $125 per hour.

5

Based upon the average of the 2012 MGMA Cost Survey median professional liability insurance
expense per full-time equivalent physician for physicians specializing in internal medicine and the 2012
AMGA Medical Group Compensation and Financial Survey median professional liability insurance
expense per full-time equivalent physician for physicians specializing in hospital medicine. PYA utilized
10 FTE physicians based upon an analysis of historical encounter trending.

6

Estimated overhead expenses at $26,546 per FTE physician per 2012 AMGA Medical Group
Compensation and Financial Survey .

7

Medicaid parity offset is based on the following broad assumptions for illustrative purposes only:
Medicaid revenue approximates 20% of the professional collections and was initially collected at a
rate of approximately 70% that of Medicare.
Rise in Insured and
Access to Primary Care
Effects of the PPACA on Primary Care
Enactment of provisions of the
PPACA are expected to increase the
number of covered individuals by 32
million.

By 2019, primary care visits are
predicted to increase between
15.07 million to 24.26 million.

Assuming stable levels of physicians’
productivity, the increased demand
would require between 4,307 to
6,940 primary care physicians.

Source: Abraham, Jean Marie, Hofer, Adam N. and Moscovice, Ira. Expansion of Coverage under the Patient Protection and Affordable Care Act and Primary
Care Utilization. The Milibank Quarterly. Vol. 89, No.1. 2011
Decline in Uninsured

Source: http://kff.org/report-section/state-and-local-coverage-changes-under-full-implementation-of-the-affordable-care-act-report/
Demand on the Rise
“Demand for
Family
Physicians
Fuels Salary,
Compensation
Increase,
Survey Finds”

Rise in
Compensation

• Median first-year compensation for family practice physician (without
OB) increased $7,000 between 2011 and 2012.
• Median compensation for all primary care physicians increased $5,000
between 2011 and 2012.

• Increases due in large part to rise of ACOs and integrated delivery
systems that require the services of primary care physician.
• Healthcare reform extending coverage to more people has created
Drivers of Pay
additional demand for services.
Increase

Supply

• According to the Merritt Hawkins 2013 Review of Physician and
Advance Practitioners Recruiting Incentives, family practice and
internal medicine physicians are the most highly recruited specialties.

Source: Demand for Family Physicians Fuels Salary, Compensation Increase, Survey finds. American Academy of Family Physicians. July 9, 2013.
Accountable Care
Organizations and Bundled
Payments
ACO – Where are they now?
Nine of the original 27 organizations are leaving
the Pioneer ACO program; seven of the nine will
join the MSSP.
As of January 2013, 250 ACOs provided care to
four million beneficiaries (27 ACOs at initiation).

Based on a white paper released by Premier
healthcare alliance, only 21% of commercial
payers offer upside savings arrangements.
Medicare ACO in a Nutshell
(“Shared Savings Program”)
ACO providers
ACO operations
Beneficiary assignment
Performance
requirements
Shared savings payment
Regulatory waivers

• Mandatory - Sufficient PCPs to care for at least 5,000 beneficiaries
• Optional - Other Medicare-enrolled providers
• Legal entity, governing body, management structure, medical director
• Meet patient-centeredness, evidence-based medicine, coordination,
and cost-effectiveness goals & measures
• Patients assigned by CMS based on PCP TIN
• Patients retain freedom of choice
•Receive shared savings payments if meet certain performance standards on
33 quality measures (or pay back Medicare); more demanding over time
•Minimum Savings Rate (MSR)

• 1-sided – 50% shared savings
• 2-sided – 60% shared savings, at risk for 2% over benchmark

• Waiver from requirements of Stark Law, Anti-Kickback Statute, and
Gainsharing CMP, Antitrust
Medicare ACO:
How You Get Paid

ACO is eligible for annual payment
based on Medicare savings.
– Savings = difference between
Medicare’s projected total
expenditures for ACO’s assigned
beneficiaries (“benchmark”) and
actual total expenditures
– Must be above Min Sav. Rt.

•

Savings are based on FFS payments
to all providers, including non-ACO
providers.

Actual

•

Savings

ACO participant receives same
Medicare Part A and Part B FFS
payments.

Benchmark

•

MSR

$ACO
$CMS
Funds Sharing Challenges
Based on equity?

Return of withhold

Based on revenue?

Sharing of bonuses

Utilization targets?
Funding of losses

Some other way?
One-sided model-MSSP

Not responsible
for losses
initially

• 1st two years, upside only
• 3rd year, must convert to two-sided model
• Subject to 25% withhold

Key issues:
• MSR set using historical expenses
• Benchmark adjusted annually

• Bonuses limited to 50% savings off the MSR, capped at
7.5%
Two-sided model-MSSP
On the hook for
losses
immediately

• Eligible for a larger percent of savings
• Exposure to 40% of losses
• Subject to 25% withhold

Key issues:
• MSR set using historical expenses
• Benchmark adjusted annually
• Bonuses limited to 60% after savings exceed 2%,
capped at 10%
• Losses capped at 5%, 7.5% and 10%
Shared Savings Models-MSSP
One-Sided Model
(performance years 1 & 2)

Two-Sided Model

Sharing Rate (assuming
maximum performance on
quality measures)

Up to 50%

Up to 60%

FQHC/RHC Participation
Incentives

Up to 2.5 percentage points

Up to 5 percentage points

Maximum Sharing Cap

Payments capped at 7.5% of
ACO's benchmark

Payments capped at 10% of
ACO's benchmark

Shared Losses Cap

N/A

Year 1 - 5%
Year 2 - 7.5%
Year 3 - 10%
Considerations for Primary Care
Critical to the success of
an ACO or bundled
payment initiative

Will likely be a shortage
by 2014 – even more so
than currently

Care delivery will likely
shift to
mid-level practitioners
changing the cost
structure of practices

Work relative value unit
assignments likely to
increase over the next
few years
Bundled Payments for Care Improvement
Initiative
Five-year
initiative
launched
January 31,
2013

Private
payers
already
using
bundled
payments

Based on Medicare ACE
Demonstration Project –
free-range ACO

Pricing based on
discount of payer’s
historic total cost

Single payment for
defined group of services
within specified episode
of care

Gain-sharing incentives
Bundled Payment Initiative Pilot
MODEL

MODEL 1

MODEL 2

MODEL 3

• Inpatient hospital and physician
• Post-acute care services
services
Types of Services
• Related readmissions
• Related post-acute care services
Included in
All inpatient hospital services
• Other services defined in
• Related readmissions
Bundle
the bundle
• Other services defined in the
bundle

MODEL 4
• Inpatient hospital and
physician services
• Related readmissions

To be proposed by applicant

To be proposed by
applicant; subject to
minimum discount of 3%;
larger discount for MSDRGs in ACE
Demonstration

• Acute care hospital: IPPS
payment less predetermined discount
Payment from
• Physician: Traditional fee
CMS to Providers
schedule payment (not
included in episode or
subject to discount)

Traditional fee-for-service
Traditional fee-for-service
payment to all providers and
payment to all providers and
suppliers, subject to
suppliers, subject to reconciliation
reconciliation with
with predetermined target price
predetermined target price

Prospectively established
bundled payment to
admitting hospital;
hospitals distribute
payments from bundled
payment

All Hospital IQR measures
Quality Measures and additional measures to
be proposed by applicants

To be proposed by applicants, but CMS will ultimately establish a standardized set of
measures that will be aligned to the greatest extent possible with measures in other CMS
programs

Expected
Discount
Provided to
Medicare

To be proposed by applicant;
To be proposed by applicant;
CMS requires minimum discount
CMS requires minimum
of 3% for 30-89 days postdiscounts increasing from 0%
discharge episode; 2% for 90
in first 6 mos. to 2% in Year 3
days or longer episode
Bundled Payments - So, How’s it Working
So Far?
Case Study from DataGen and New York-Presbyterian Hospital Addresses Key
Success Factors for the Bundled Payment Care Initiative

Understanding
data is critical
to success

Determination
of episodes
that offer the
greatest
opportunity

Engaging
physicians

Influencing
utilization of
post-acute
care services

Source: New Case Study Examines Key Success Factors for Medicare Bundled Payment Initiative. Yahoo! Finance. September 4, 2013.

Patient
Engagement
Key Implications for
Valuations
Common Types of Physician Alignment
Strategies
Hospitalist
Strategies

Physician
Practice
Acquisitions
(“Buy and
Employ”
Transactions)

Quality
Incentives

Physician
Alignment
Transactions

Direct
Employment

Call Pay
Arrangements

Clinical
Co-Management
Agreements
Physician Alignment Vehicles
More Common
Physician Employment
Medical
Directorships

Physician
Leasing
Agreement

Physician
Services
Agreement

Real Estate JV

Co-Management

Equipment JV

More Integration

Less Integration
Physician Advisory
Council

EMR

Quality
PHO
Shared Savings

Less Common
Navigating the Regulatory Environment
STARK LAW
Prohibited self-referrals
for Medicare and
Medicaid patients.

ANTI-KICKBACK
Knowingly and willful
STATUTE
offers, payments, or
receipts for referrals.

IRS-NFP
IRC Section 501(c) 3
REQUIREMENTS
requirements

100
m

Road

Menu
Compliance Issues Regarding HospitalPhysician Financial Relationships
COMMERCIAL
REASONABLENESS

FAIR MARKET
VALUE

SENSE

CENTS

Overall
Arrangement

“WHY?”

Scope

Range of
Dollars Only

Key Question

“HOW
MUCH?”
Contact Information
David McMillan, CPA
Principal
(865) 673-0844 ext 120
dmcmillan@pyapc.com

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Healthcare Reform and Physician Compensation— Presentation Examines What’s in Their Wallet

  • 1. Current Reform Initiatives and Their Impact on Physician Compensation November 13, 2013 David McMillan, CPA New Orleans, Louisiana
  • 2. Speaker Biography David W. McMillan, CPA PYA Principal David McMillan provides financial and strategic services to the Firm's healthcare clients. David's areas of concentration are: feasibility studies for various healthcare entities; mergers, acquisitions, and affiliations among providers; strategic planning and forecasting, clinical integration services; and valuations and operational analysis.
  • 3. Agenda Healthcare Reform Initiatives Overview Regulatory Considerations Value-Based Payment Modifier Quality Incentives Medicare-Medicaid Parity Rise in Insured and Increased Access to Primary Care Accountable Care Organizations and Bundled Payments
  • 5. The Push Towards Quality and Lower Cost Rebuilding Primary Care Workforce Expanding Authority to Bundle Payments Encouraging Integrated Health Systems Increasing Medicaid Payments to Primary Care Physicians Linking Payment to Quality Outcomes
  • 6. The Train Has Left the Station… Medicaid demonstration project – fee-for-service to global fee 2010 Healthcare reform begins with consumer-focused initiatives (i.e., focused on insurance reform) Center for Medicare and Medicaid Innovation – explore models of payment based on quality 2011 Physician quality reporting – Physician Compare website Hospital readmissions – Reduction in payments to hospitals for preventive readmissions 2012 ACO program launch – shared savings Hospital valuebased purchasing program Bundled payment initiatives Medicare – Medicaid parity 2013 Value-based purchasing – physician payments phased in 2015 to 2017
  • 8. The Future is Now • Pay for volume • No quality measured Value- Based Payment • Quality per click • Process improvement Fee For Service THEN • Quality outcomes of episodes • Whole system improvement Care Coordination NOW FUTURE
  • 9. Calculation of Value-Based Payment Modifier in CY 2015 Groups of Physicians with 100 or more Eligible Professionals PQRS Participation (Groups that selfnominate/register for PQRS as a group and report at least one measure, or elect PQRS Administrative Claims) Elect QualityTiering Calculation Upward, downward, or no adjustment based on quality-tiering Non-PQRS Participation (Groups that do not selfnominate/register for PQRS as a group and do not report at least one measure) No Election 0.0% (no adjustment) Source: Summary of 2015 Physician Value-based Payment Modifier Policies -1.0% (downward adjustment)
  • 10. Tiered Value-Based Payment Modifier Both upside reward and downside risk Focused on outliers in quality and cost Composite scores for cost and quality Three tiers – High, Average, and Low Additional upward adjustment for care of sickest patients Sum of upward adjustments will be offset by downward adjustments
  • 11. Tiered Value-Based Payment Modifier Quality/Cost Low Cost Average Cost High Cost High Quality +2.0X +1.0X +0.0% Medium Quality +1.0X +0.0% -0.5% Low Quality +0.0% -0.5% -1.0%
  • 13. Quality Incentive Compensation Overview – Arrangements by which hospitals compensate physicians for Overview – Arrangements by which hospitals compensate physicians the achievement of certain pre-defined quality indicators for the achievement of certain pre-defined quality indicators Increasingly common arrangements  Quickly becoming components of (or even fully characterizing) many physician-hospital alignment arrangements Example factors generally considered when evaluating quality incentives:  Core measures  Risk reduction  Patient satisfaction  Quality-related educational activities  Specialty-specific outcomes measures
  • 14. Co-Management Model Hospital Hospital Pays for: • Base management fees • Incentive Compensation (limited) Including: - Quality - Operational Efficiency $ Hospital Physicians Management Company/ LLC/Committee Service Contract to Manage Hospital’s Service Line at-risk for Quality and Operational Goals Physicians
  • 15. OIG Opinion No. 12-22 Cardiac catheterization clinical co-management arrangement between a hospital and a cardiology group. The group received a fixed fee and a performance-based fee that was “at risk” based on the achievement of pre-determined metrics. Performance fee based on the following: Employee Satisfaction – 5% Patient Satisfaction – 5% Quality of Care – 30% Cost Reduction – 60%
  • 16. Areas of Concern Noted by the OIG Stinting on Patient Care Payments to Induce Patient Referrals “Cherry Picking” Unfair Competition The OIG states that “hospital cost-savings programs, in general, and the arrangement in particular, may implicate at least three Federal legal authorities: the Civil Monetary Penalty, the Anti-Kickback Statute and the Physician Self-Referral Law.”
  • 17. Keys to Compliance Civil Monetary Penalty • Cost-savings component implicates the CMP; however, sanctions not sought due to the following safeguards: Patient care is monitored through third-party utilization review and internal committee and board review. Benchmarks are structured so that physicians have flexibility to use cost-effective clinically appropriate materials. Term is limited to three years and is subject to a cap. • Sanctions not imposed for the following reasons: FMV compensation and management responsibilities are robust. AntiCompensation is not variable with number of patients treated. Kickback Hospital operates only cardiac cath lab within 50-mile radius and the group does not provide cath lab services elsewhere. Statute Specificity of measures ensure that pay is for quality improvement, not referrals. Three-year term Self referral law (Stark Law) falls outside of OIG’s jurisdiction. As such, the opinion does not discuss whether the arrangement implicates this law.
  • 18. Keys to Compliance • OIG states that, if the agreement is renewed, then reviewing and rebasing quality metrics is essential. – “We would expect that quality improvement and cost-saving measures under the Agreement would be subject to adjustment over time, to avoid payment for improvements achieved in prior years and to provide incentives for additional improvements in the future. Continuing compensation for conduct that has come to represent the accepted standard of care could, depending on the circumstances, implicate the Anti-Kickback Statute.”
  • 20. New Primacy of Primary Care • Enhanced Medicare payments - For 2011-15, Medicare pays 10% bonus for: o PC services furnished by PC practitioners o Professional component of surgical procedure performed in HPSA • Enhanced Medicaid payments - Payment rates to PC physicians increased in 2013 and 2014 to 100% of Medicare rates • Significant new funding for community health centers • Increase PC workforce by 16,000 by 2016 - Expand National Health Services Corps - Other scholarships, loan repayment, and workforce training programs
  • 21. Overview of Initiative States estimated to receive $8.5 billion in 2013 and $6.1 billion in 2014 to fund Medicaid parity payments. final regulation implementing November 1, • CMS issuesMedicaid services at Medicare payment of 2012 levels for 2013 and 2014 March 31, 2013 Nationally, average Medicaid payments are approximately 66% of Medicare rates. • Deadline for states to submit a state plan amendment July 1, 2013 • According to CMS, ¼ of states had implemented the temporary payment increase
  • 22. Estimated Medicaid Rate Increases by State Approximately 73% overall increase in Medicaid rates. Source: http://medialib.aafp.org/content/dam/AAFP/images/ann/2013-7/Medicaid-Fee-Hike-Map.png
  • 23. Who Does it Impact? • Eligibility requirements include: – Medicaid fee-for-service and managed care payments for primary care services delivered by a family practice, internal medicine or pediatric medicine physician. – Self-attestation regarding board certification in above-mentioned specialties. – If not board certified, then the physician must self-attest that at least 60% of Medicaid codes billed are Evaluation & Management codes and vaccine administration codes. – Also applies to certain related subspecialties outlined in the regulations.
  • 24. Impact on Physician Compensation Hospitalist Subsidy Example Hospitalist Services Agreement Financial Assistance Calculation Low High REVENUE Professional Collections 1 $ 60,450 265,460 325,910 2,932,360 TOTAL EXPENSES 56,250 60,450 265,460 325,910 Other Expenses: Liability Insurance5 Office Overhead6 Total Other Expenses 2,300,000 368,000 2,668,000 54,450 Medical Director Compensation4 2,300,000 2,200,000 352,000 2,552,000 EXPENSES Physician Compensation and Benefits: Physician Base Compensation2 Physician Benefits 3 Total Physician Compensation and Benefits 2,100,000 $ 3,050,160 Estimated Net Income Before Subsidy (Loss) $ (832,360) $ (750,160) Subsidy, rounded Medicaid Parity Offset 7 Revised Subsidy $ $ $ (830,000) $ 180,000 $ (650,000) $ (750,000) 197,143 (552,857)
  • 25. Impact on Physician Compensation Hospitalist Subsidy Example (continued) 1 Represents average of median (low) and mean (high) national survey data for collections per physician FTE multiplied by 10 FTE physicians to provide coverage. 2 Calculation is based on 10 FTEs to provide coverage and average of median and mean survey compensation data for clinical compensation. 3 Benefits are calculated at 16% of compensation expense based upon PYA experience and information from the 2012 MGMA Cost Survey and the 2012 AMGA Medical Group Compensation and Financial Survey . No material variation in benefits is expected between low and high range. 4 Calculation is based upon one physician providing services 450 hours annually at a fair market value rate ranging from $121 to $125 per hour. 5 Based upon the average of the 2012 MGMA Cost Survey median professional liability insurance expense per full-time equivalent physician for physicians specializing in internal medicine and the 2012 AMGA Medical Group Compensation and Financial Survey median professional liability insurance expense per full-time equivalent physician for physicians specializing in hospital medicine. PYA utilized 10 FTE physicians based upon an analysis of historical encounter trending. 6 Estimated overhead expenses at $26,546 per FTE physician per 2012 AMGA Medical Group Compensation and Financial Survey . 7 Medicaid parity offset is based on the following broad assumptions for illustrative purposes only: Medicaid revenue approximates 20% of the professional collections and was initially collected at a rate of approximately 70% that of Medicare.
  • 26. Rise in Insured and Access to Primary Care
  • 27. Effects of the PPACA on Primary Care Enactment of provisions of the PPACA are expected to increase the number of covered individuals by 32 million. By 2019, primary care visits are predicted to increase between 15.07 million to 24.26 million. Assuming stable levels of physicians’ productivity, the increased demand would require between 4,307 to 6,940 primary care physicians. Source: Abraham, Jean Marie, Hofer, Adam N. and Moscovice, Ira. Expansion of Coverage under the Patient Protection and Affordable Care Act and Primary Care Utilization. The Milibank Quarterly. Vol. 89, No.1. 2011
  • 28. Decline in Uninsured Source: http://kff.org/report-section/state-and-local-coverage-changes-under-full-implementation-of-the-affordable-care-act-report/
  • 29. Demand on the Rise “Demand for Family Physicians Fuels Salary, Compensation Increase, Survey Finds” Rise in Compensation • Median first-year compensation for family practice physician (without OB) increased $7,000 between 2011 and 2012. • Median compensation for all primary care physicians increased $5,000 between 2011 and 2012. • Increases due in large part to rise of ACOs and integrated delivery systems that require the services of primary care physician. • Healthcare reform extending coverage to more people has created Drivers of Pay additional demand for services. Increase Supply • According to the Merritt Hawkins 2013 Review of Physician and Advance Practitioners Recruiting Incentives, family practice and internal medicine physicians are the most highly recruited specialties. Source: Demand for Family Physicians Fuels Salary, Compensation Increase, Survey finds. American Academy of Family Physicians. July 9, 2013.
  • 31. ACO – Where are they now? Nine of the original 27 organizations are leaving the Pioneer ACO program; seven of the nine will join the MSSP. As of January 2013, 250 ACOs provided care to four million beneficiaries (27 ACOs at initiation). Based on a white paper released by Premier healthcare alliance, only 21% of commercial payers offer upside savings arrangements.
  • 32. Medicare ACO in a Nutshell (“Shared Savings Program”) ACO providers ACO operations Beneficiary assignment Performance requirements Shared savings payment Regulatory waivers • Mandatory - Sufficient PCPs to care for at least 5,000 beneficiaries • Optional - Other Medicare-enrolled providers • Legal entity, governing body, management structure, medical director • Meet patient-centeredness, evidence-based medicine, coordination, and cost-effectiveness goals & measures • Patients assigned by CMS based on PCP TIN • Patients retain freedom of choice •Receive shared savings payments if meet certain performance standards on 33 quality measures (or pay back Medicare); more demanding over time •Minimum Savings Rate (MSR) • 1-sided – 50% shared savings • 2-sided – 60% shared savings, at risk for 2% over benchmark • Waiver from requirements of Stark Law, Anti-Kickback Statute, and Gainsharing CMP, Antitrust
  • 33. Medicare ACO: How You Get Paid ACO is eligible for annual payment based on Medicare savings. – Savings = difference between Medicare’s projected total expenditures for ACO’s assigned beneficiaries (“benchmark”) and actual total expenditures – Must be above Min Sav. Rt. • Savings are based on FFS payments to all providers, including non-ACO providers. Actual • Savings ACO participant receives same Medicare Part A and Part B FFS payments. Benchmark • MSR $ACO $CMS
  • 34. Funds Sharing Challenges Based on equity? Return of withhold Based on revenue? Sharing of bonuses Utilization targets? Funding of losses Some other way?
  • 35. One-sided model-MSSP Not responsible for losses initially • 1st two years, upside only • 3rd year, must convert to two-sided model • Subject to 25% withhold Key issues: • MSR set using historical expenses • Benchmark adjusted annually • Bonuses limited to 50% savings off the MSR, capped at 7.5%
  • 36. Two-sided model-MSSP On the hook for losses immediately • Eligible for a larger percent of savings • Exposure to 40% of losses • Subject to 25% withhold Key issues: • MSR set using historical expenses • Benchmark adjusted annually • Bonuses limited to 60% after savings exceed 2%, capped at 10% • Losses capped at 5%, 7.5% and 10%
  • 37. Shared Savings Models-MSSP One-Sided Model (performance years 1 & 2) Two-Sided Model Sharing Rate (assuming maximum performance on quality measures) Up to 50% Up to 60% FQHC/RHC Participation Incentives Up to 2.5 percentage points Up to 5 percentage points Maximum Sharing Cap Payments capped at 7.5% of ACO's benchmark Payments capped at 10% of ACO's benchmark Shared Losses Cap N/A Year 1 - 5% Year 2 - 7.5% Year 3 - 10%
  • 38. Considerations for Primary Care Critical to the success of an ACO or bundled payment initiative Will likely be a shortage by 2014 – even more so than currently Care delivery will likely shift to mid-level practitioners changing the cost structure of practices Work relative value unit assignments likely to increase over the next few years
  • 39. Bundled Payments for Care Improvement Initiative Five-year initiative launched January 31, 2013 Private payers already using bundled payments Based on Medicare ACE Demonstration Project – free-range ACO Pricing based on discount of payer’s historic total cost Single payment for defined group of services within specified episode of care Gain-sharing incentives
  • 40. Bundled Payment Initiative Pilot MODEL MODEL 1 MODEL 2 MODEL 3 • Inpatient hospital and physician • Post-acute care services services Types of Services • Related readmissions • Related post-acute care services Included in All inpatient hospital services • Other services defined in • Related readmissions Bundle the bundle • Other services defined in the bundle MODEL 4 • Inpatient hospital and physician services • Related readmissions To be proposed by applicant To be proposed by applicant; subject to minimum discount of 3%; larger discount for MSDRGs in ACE Demonstration • Acute care hospital: IPPS payment less predetermined discount Payment from • Physician: Traditional fee CMS to Providers schedule payment (not included in episode or subject to discount) Traditional fee-for-service Traditional fee-for-service payment to all providers and payment to all providers and suppliers, subject to suppliers, subject to reconciliation reconciliation with with predetermined target price predetermined target price Prospectively established bundled payment to admitting hospital; hospitals distribute payments from bundled payment All Hospital IQR measures Quality Measures and additional measures to be proposed by applicants To be proposed by applicants, but CMS will ultimately establish a standardized set of measures that will be aligned to the greatest extent possible with measures in other CMS programs Expected Discount Provided to Medicare To be proposed by applicant; To be proposed by applicant; CMS requires minimum discount CMS requires minimum of 3% for 30-89 days postdiscounts increasing from 0% discharge episode; 2% for 90 in first 6 mos. to 2% in Year 3 days or longer episode
  • 41. Bundled Payments - So, How’s it Working So Far? Case Study from DataGen and New York-Presbyterian Hospital Addresses Key Success Factors for the Bundled Payment Care Initiative Understanding data is critical to success Determination of episodes that offer the greatest opportunity Engaging physicians Influencing utilization of post-acute care services Source: New Case Study Examines Key Success Factors for Medicare Bundled Payment Initiative. Yahoo! Finance. September 4, 2013. Patient Engagement
  • 43. Common Types of Physician Alignment Strategies Hospitalist Strategies Physician Practice Acquisitions (“Buy and Employ” Transactions) Quality Incentives Physician Alignment Transactions Direct Employment Call Pay Arrangements Clinical Co-Management Agreements
  • 44. Physician Alignment Vehicles More Common Physician Employment Medical Directorships Physician Leasing Agreement Physician Services Agreement Real Estate JV Co-Management Equipment JV More Integration Less Integration Physician Advisory Council EMR Quality PHO Shared Savings Less Common
  • 45. Navigating the Regulatory Environment STARK LAW Prohibited self-referrals for Medicare and Medicaid patients. ANTI-KICKBACK Knowingly and willful STATUTE offers, payments, or receipts for referrals. IRS-NFP IRC Section 501(c) 3 REQUIREMENTS requirements 100 m Road Menu
  • 46. Compliance Issues Regarding HospitalPhysician Financial Relationships COMMERCIAL REASONABLENESS FAIR MARKET VALUE SENSE CENTS Overall Arrangement “WHY?” Scope Range of Dollars Only Key Question “HOW MUCH?”
  • 47. Contact Information David McMillan, CPA Principal (865) 673-0844 ext 120 dmcmillan@pyapc.com

Editor's Notes

  1. Is there a way to make this like train tracks with stops along the way?
  2. Other models include:Value-based modelsJoint ownership
  3. 2-4% MSR
  4. Hospital IQR – Hospital Quality Reporting InitiativeIn all of the proposed models, gainsharing with providers is allowed, provided that participants can show that quality of care is not negatively impacted.
  5. Stark:Exceptions typically require compensation to be set in advance, consistent with fair market value (FMV) and not determined in a manner that takes into account the volume or value of referrals.42 U.S.C. §1395nnAKS:Prohibits the knowingly and willful offer, payment, solicitation or receipt of remuneration for purposes of inducing or rewarding for referrals of services reimbursable by a federal health care program.42 U.S.C. §1320a-7b(b)IRS:Tax exempt hospitals/health systems must ensure that no part of its earnings “inure to the benefit of any private shareholder or individual. Transactions between tax exempt hospitals and physicians that are in excess of FMV could jeopardize the hospital’s tax exempt status.IRC Section 501(c)(3) and related regulations.