So, what can we do to prepare?

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Practice Issues Impacting Health care for the orthopedic surgeon? Jack M. Bert, MD Adjunct Clinical Professor University of Minnesota School of Medicine Cartilage Restoration Center of Minnesota Minnesota Bone & Joint Specialists, Ltd St.Paul, Minnesota

Disclosure • Consultant: Wright Medical Technology, Exactech, Tornier, Sanofi, Smith & Nephew, LINK, Arthrex • Board Positions: Business Section Editor, Orthopedics Today Executive advisor AANA NFL Retired Player’s Association • Company Positions: President, Orthopedic Practice Management Inc.

H.R.8 signed 1/1/13. It’s impact on surgeons • Extends Bush tax cuts up to $400K singles and $450K for married couples,  39.6% above • Capital gains to 20% & estate tax from 35 to 40% • Postpones sequestration cuts (spending cuts) X 2 months, 3/1/13. (cost is $25.1) • Prevents the 27% cut in Medicare MD rates • Extends Medicare Work Geographic Adjustment (89 geographic areas) thru 2013

H.R.8 signed 1/1/13. It’s impact on surgeons • $25.2 billion cost for Medicare “doc-fix” • statute of limitations to recover overpayments from 3 to 5 years as requested by OIG (should Medicare spending by $500 million) • Medicare Improvement Fund (spending by $1.7 billion according to CBO)

It could get worse…perhaps even self service surgery!!!

So, what can we do to prepare?... • #1:Code properly to obtain the highest reimbursement for what we do, both E&M and surgical coding! (Remember that with RAC’s and ZPIC’s around the corner, you need to get your own “house in order” to survive audit)

Contract Language • “ Employee is specifically responsible for selecting all codes to be submitted under his provider number and for assuring that patient files are properly documented to support such codes and the medical necessity therefor.”

So, what can we do to prepare?... • #2:Configure your group or solo practice to be efficient and attempt to control the marketplace as best as possible (Attempt to merge with other groups in your marketplace as an “umbrella merger” to see how it goes. Only need a common provider # and common pension plan to be considered a merged entity for billing & collection purposes)

So, what can we do to prepare?... • #3: Become “uniquely necessary” as an orthopedist perhaps being the “best” arthroscopic shoulder specialist, the best TJA specialist or the only hip arthroscopist in your area • Learn unique technology to remain as a “superspecialist” in your community

So, what can we do to prepare?...

• #4: Add services unrelated to the “handson”practice of orthopedics • Traditional ancillaries w ASC, PT, DME, MRI • Unconventional ancillaries and JV including; *Joint Ventures with the hospital *Co-management relationships *IME, record review company *Utilization of ASC for almost ALL cases • Add an “OUCC” clinic: (Orthopedic Urgent Care Clinic)

So, what can we do to prepare?... #5:Diversify: Try to develop some other source of income IF we have massive reductions in our reimbursements from routine clinical revenue and surgical revenue e.g. •Do IME’s, medical record reviews •Encourage attorney and insurance company referrals and service them well •Consider speaking to chiropractors. They are a great referral source •Try to get on the monthly calendars of your FPs meetings and let them know what you do!

So, what can we do to prepare?... • #6: If a hospital employee, figure out a way to negotiate your contract in order to avoid being terminated without cause if the hospital decides you are making too much money • Attempt to negotiate a long term,“no cut” contract • Attempt to be reimbursed on a productivity basis (remember the average orthopedist produces 5x his salary [net] for the hospital)

Contract “Inheritances. Employee agrees that, while employed by Employer under this Agreement, he will not solicit for himself an inheritance from any person whom Employee treated as a patient of Employer (who is not related by blood or marriage to Employee); provided, however, that this restriction shall not apply to any solicitation of an inheritance or lifetime gift by a patient to any foundation created by or directly affiliated with Employer.”

So, what can we do to prepare?... • #7: If a hospital employee, remember that you are the one bringing in the ancillary revenue (ave. nationally is $2.4 million net/orthopod) Mike McCaslin, Western Orthopedic Forum, 2011 survey

• Ask for ancillary help arguing that you will be able to increase throughput with a PA-C, scribe and a med tech to enter data and do minor procedures

So, what can we do to prepare?... • #8:Physician Hospital Collaboration: Hospitals and Physicians are co-dependent for clinical and financial success. Most MD’s believe that administrators and insurers have no clue as to the problems that they face on a daily basis and administrators and insurers feel the same way about physicians.(Healthleaders 2/23/13). Hospitals must lead with resources & all “players” must review operational and clinical programs regularly plus the financial metrics associated with those programs

So, what can we do to prepare?... • #9: Collect Outcome Data: Payment “shared risk” models will be here within the next few years and whether this is done with single large groups, vertically integrated groups with or without hospital association is still unknown. Reducing cost, increasing efficiency without sacrificing quality care as evidenced by collecting outcome data will be critical in the future to define QUALITY…..

So, what can we do to prepare?... • #10: Consider “Disruptive Innovation”:

“Non disruptive” Ancillary Services • • • • • •

ASC’s Specialty Hospitals prior to 2011 MRI PT DME In some groups, ancillary services comprise up to 75% of each partner’s salary…

What are the insurer’s thinking? • They want to form “high value networks” which basically means good care/low cost.. • Insurers are changing benefit designs to attract employers…good care/low cost • Byproduct of ACA is that employers are saying “you want insurance, you go to who we tell you to go to” • Thus, insurers are changing their networks

Results of this thinking is; • If you are in a private group, you want to be at the negotiating table with the insurers • If you are not invited & seated at the table, “you may be on the menu” • If you are hospital employed, you want to be as “indispensible” as possible i.e. unique in what you can do!

“Disruptive Innovation”:what are private groups doing now.. • Specialty physician directed bundled payments • Physician-Hospital JV’s: co-management agreements that make sense • Developing a hospital beyond 2010..

Specialist Directed Bundled Payments • “The treating specialist is the ONLY person qualified to control costs” • Specialists initiate 85% of cost but only receive 6% of payment • As of 3/31/13, 3,490 TJAs have been performed by 21 orthopedists using bundled payments with a commercial payer at a physician JV hospital Personal comm, SH Care Grp., 4/25/2013

Specialty MD direct bundled payments • Several groups doing this with TJA; California, Wisconsin, Illinois, Missouri & Minnesota • The amount is 35 to 47% < the hospital reimbursement for the same procedure AND ALSO includes 60 to 90 days of global care!! • MD group 100% at risk for ALL costs associated with the procedure UNLESS negotiated with private payer otherwise the group can super insure itself for costs >$50K

Specialty MD directed bundled payments • Utilization of postoperative recovery areas overnight with staffing for 24 hour stay • Femoral or adductor nerve blocks for OP pain control (soft tissue long acting local anes. inj.) • MD owned PT and local “fitness center” referral after 1 week of PT • Physician groups of all 4 projects getting preferential referrals from insurers as a result of cost savings

Specialty MD directed bundled payments • In Wisconsin, BCBS and state WC is preferentially referring patients to this orthopedic group. Their business has 25% over the past 2 years!! • In Illinois & Missouri, the payers are offering $1,000 cash to patients to utilize the orthopods in this large group for their TKA procedure

Physician MD directed bundled payments • 3 year pilot program with Medicare to begin in 1st quarter of 2014…. • Groups representing 405 orthopedists have agreed to participate IF the grant is accepted by the Medicare Innovation Project group which has $1 billion in grant money

“Disruptive Innovation”:what are private groups doing now? • Specialty physician directed bundled payments • Physician-Hospital JV’s: co-management agreements that make sense • Developing a hospital beyond 2010

What is the Co Management Model? • Physicians would form a new entity (i.e. a Management Company) that would contract with the Hospital to manage the Designated Svc. Line Program (“Program”). • Governance in Management Company would be shared between Hospital and Physicians • The compensation for services provided by Management Company would include the following: • Base Management Fee: Hourly fee • Incentive Compensation: Based upon quality, efficiency & patient satisfaction must hit the metrics • Projects: For example, program for block scheduling

What is the Co Management Model? • The Physicians and the Hospitals will set up the Program governance structure and the various oversight committees needed to appropriately manage the Program (i.e., Finance & Operations Committee, Quality Committee, etc.).

What is the Co Management Model? • Control of patient care • “Hospital within a hospital” • Must form an LLC. Multiple groups can be part of this…becomes a team effort. • Quality, efficiency & patient satisfaction. Contract must be between the entire orthopedic LLC and the hospital • Fair market value company can actually figure out an hourly rate as to how much money it would take to do metric analysis e.g. Camden group in California does this.

Legal Structure of Transaction Physicians

Clinical co-management services

Hospital Fixed and incentive compensation

Management Company Management Board

Finance Committee

Quality Committee

What is the Process for Forming a Management Company? • Developing the Participation Criteria and Performance Metrics that will be measured in the management company • Working with legal counsel to determine the valuation and address the regulatory issues surrounding the management company

Bottom Line! • Gain sharing is a program through CMS that allow physicians and hospitals to share in cost reduction (not revenue). After a certain threshold is attained, the cost reduction from a base can be shared. • c.f. “Bundled payments for Care Improvement: Implementation Protocol & Gain Sharing List”, Center for Medicare and Medicaid Innovation, August, 2013 (CMS.gov) .

Bottom Line ! •

• “Co-management agreements” are legal and give you and your group control over the care of your patients inside a hospital. • Compensation occurs on an hourly basis for managing the care process including the OR, Inpatient Unit, PT, Case management, etc. • In addition you can be compensated for achieving certain quality metrics –such as on time starts in the OR, day of surgery ambulation for joint and spine patients, patient satisfaction and the like.

“Disruptive Innovation”: What are private groups doing now? • Specialty physician directed bundled payments • Physician-Hospital JV’s: co-management agreements that make sense • Developing a hospital beyond 2010

Can physicians build a new hospital under the new federal guidelines? • Under the Health Care Reform Act of 2010, MDs can NOT own any part of the operations company BUT they can own; • The Management Company which: *Employs administrators, CFO, Nsg. Director. *Physicians thus have control of fxn of hospital. *Gets a fixed percentage of the net revenue • The Billing Company which: Gets a fixed percentage of net revenue

Can physicians build a new hospital under the new federal guidelines? • Land & Building Relationship: The operations company rents from the MDs or an investor network purchases the facility from the physician group. The operations company has 100% financing in place at 4%. • Equipment The operations company leases from the physicians

Can physicians build a new hospital under the new federal guidelines? • There is a significant “return on investment” for the docs who enter into this relationship • Ideally, best to include primary care providers (PCPs) as owners. • Hospital must have an emergency room to be qualified as a non specialty hospital (in 3 cases staffed by NP or PAC) • “Usually” can be done in a CON or non-CON state

Finally, what if I am hospital employed? • Be “uniquely” necessary…be the “cartilage restoration expert” in your community • Try to secure a long term contract • Get involved in the administrative aspects of your hospital to develop relationships • Try to base your salary on “work RVUs”…remembering that the hospital employed docs get a 20 to 30% bump in RVU reimbursement

Finally, what if I am hospital employed? • For example; if your base is 7,500 work RVUs to be considered full time, then ask for $60/RVU of work performed above the 7,500 RVU number. • The docs that don’t get dumped from hospital employment are those that work hard, work efficiently, and generate revenue for the often very high administrative salaries

Conclusions • Bundled payments are being done with commercial payers and soon with Medicare. • Medicare’s goal is to abolish fee for service in 5 years • Only real question is, will the bundle go to the hospital or to the private specialty group, or both?

Conclusions • Hospital/MD JV’s with orthopedists are currently being done in 14 communities with the blessing of both physician and hospital attorneys without violation of Stark II & III.

Conclusions • These are all operational concepts that are being employed in both CON and non CON states

Conclusions • Health care spending is clearly a major issue that must be addressed • Obamacare will add costs to the system as a result of adding additional patient volume • Bundled payment mechanisms to the physician groups must be explored as a method to reduce expenses

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New rules of coding: What you need to know in 2014 When should you outsource billing & coding Compliance in your practice: what you must do Contracting with your group or hospital: how do you protect yourself Preparing yourself for an audit: What is critical? Should you merge with another group or hospital: How do you decide? What are the potential effects on patient care? Case examples of real life group dilemmas and hospital employment disasters: How to safeguard against them and maintain patient satisfaction Electronic Health Records: Updating your practice to comply with new regulations

Case presentations

Case Study # 1 • Doc A is a solo practitioner in small town < 30,000 population • The are 2 other practitioners that he shares call with (Doc B & C) but doesn’t get along with them. Reason is his wife ignored Doc B’s wife at a social function 5 years ago plus he took care of a patient of Doc B who didn’t like Doc B and had to have a revision of a TKA which Doc A did which went very well (jealousy & resentment). • There is only one small hospital in the area..

Case Study # 1 • None of the docs have any ancillary services • They use the hospital exclusively for all their needs • Their revenue continues to decrease but their individual overhead(s) continue to increase • They all share call and that’s it! • They are in one of the 36 CON states

So, what can they do???

Possible solutions; David, Bill, George • Umbrella Corporation How do I get these guys together in the same room? • Begin ancillary service development How can we tell if an ancillary will work or not? What if it’s a CON state vs. non CON state? • Do a PRO-FORMA!! Referrals & payors

Possible solutions • But oh, oh what may the hospital decide to do? • They could get their own orthopods • They could approach you about joint venturing • When would it make sense to joint venture? When you’re in a CON state When they control FMD’s & patient volumes

Discussion & Questions

Case Study # 2 • Doc B is in a 10 man group in town with another 12 man group. • No other groups within 30 miles • They are very competitive and don’t like each other & are fighting over the same patient population and neither group is terribly busy • They don’t share call • Neither of the groups are owned by the only hospital in town.

Case Study # 2 • Can they merge together? How do they determine that? • Can they joint venture their ASC and be paid upon productivity? • Can they joint venture their MRI and PT and be paid upon productivity? • Can they share other services like billing and collections and still not be considered a merged entity i.e. can they “outsource” to each other?

Discussion & Questions

Physician Reimbursement Possibilities .

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% of dollar savings Payment for time worked Payment for specific work completed Benefits in lieu of payment : Increased hospital space New equipment & supplies Hospital assistance in the form of MD assts, NPs, ortho techs. • Recruiting costs for new MDs

Physician Reimbursement Possibilities .

• Physicians can be reimbursed by earning a negotiated portion of bundled payments that are given to the hospital for the service delivered by the hospital & the MD

Leitman et al, Jrnl Hosp. Med., 2010 Cassidy, NOIG advisory opinion. Healthcare Law, 2001