This short article briefly outlines severalmethods by which hospitals attempt toalign interests with physicians. Certain of

these options may be useful for different types ofprojects. Further, depending on whether pursing animaging venture, an ASC venture, a nuclear cameraventure, a cardiac cath venture, or other type of venture, certain of the models may be more or lessuseful. Briefly stated, the core models are as follows:

I. Minimal Integration Models. We general-ly view the following as minimal integration models.This generally means that the arrangements areshort term and generally do not require the develop-ment of partnership agreements or require extensivecapital contributions.

1) Medical Directorships. This involves an agree-ment with a physician or physician group who willprovide various services to the venture, i.e., admin-istrative services, training of employees and staff,etc., in exchange for a set fee.

2) Management Contracts. These are situationswhere either the hospital would manage a physi-cian practice or a physician would manage adepartment of the hospital or some other effort onbehalf of the hospital.

3) Gainsharing Efforts. Gainsharing usuallyinvolves the hospital and physicians working togeth-er to achieve cost savings in purchasing for certainsurgical procedures or other procedures and thensharing those savings between each other. While aminimal integration model, these efforts take a greatdeal of time and effort to put together.

4) Under Arrangement Joint Ventures. In the traditional under arrangement joint ventures, ahospital simply buys an existing service from aphysician group or similar entity and then bills forthe services. This is differentiated from the moreextensive under arrangement ventures being puttogether today and noted below.

5) Part-Time Employment Arrangements. Here,the hospital or a related party employs physicians ona part time basis to provide services to the hospital.

6) Independent Contractor. Here, like an employ-ment agreement, the hospital typically contractsdirectly with a physician and has him or her provideservices on the hospital’s behalf. In other independ-ent contract arrangements, such as hospital-basedindependent contractor arrangements, the physicianprovides services and bills third parties. Often, thereis very little economic difference.

II. Medium Integration Models. We gener-ally view the following as medium integration mod-els. They require more work and effort to puttogether than a minimum integration model andoften require capital contributions and the develop-ment of various partnership type agreements.

1) True Joint Venture. Here, the physicians andhospital joint venture to be the actual provider ofservices. The joint venture provider is developedtogether. The provider of services bills third partypayors and Medicare. This is a typical or traditionalmodel for a surgery center.

2) Equipment, Real Estate or Infrastructure JointVenture. Under these types of joint ventures, thephysicians and hospital jointly invest in an equip-ment joint venture or real estate joint venture.Then, this venture leases equipment or real estate toeither a physician group or a hospital group or both.

3) Under Arrangements Joint Venture. Under thisscenario, the physicians and hospital will often puttogether a much fuller under arrangements venturethan under the minimal integration under arrange-ments. Then, this joint venture will include every-thing except the provider number and license. Ratherthan providing services to third parties and commer-cial payors, it will provide its services to the hospitaland the hospital will bill its services as hospital outpa-tient department services to third parties. Thesetypes of under arrangements and joint venturesinvolve several regulatory risks. Nevertheless, theyhave become increasingly common and popular.

III. Full Integration Models. There are alsoseveral complete integration models which includethe following:

September 2008Vol. 2008 No. 1

Minimal to Maximum Integration ModelsBy Scott Becker

INSIDE2 Letter from the Editor

3 CMS Revisits Stark ‘Stand in the Shoes’ Provision

8 Hospital Leader Shares Insight on Current State of Hospitals and Health Care

10 New Orleans Hospital Agrees to Pay $1.75 Million to Settle False Claims Allegations

11 Permanent Recovery Audit Contractors to be Announcedin May

11 Investment Analyst Initiates Hospital Operator Coverage with ‘Sell’ Ratings

24 HospitalLeadersto KnowBy Scott Becker and Rob Kurtz

1. Jack Bovender, Jr. – Jack Bovender, Jr. isthe chairman and CEO of Hospital Corporationof America (HCA). He assumed this role inJanuary 2002. Prior to this position, Jack servedas HCA’s executive vice president and COO forabout ten years, and was division president ofHCA’s Atlanta division and president of HCA’sEastern Group Operations. Prior to joiningHCA, Jack served as a lieutenant in the UnitedStates Navy, as CEO of Medical Center Hospitalin Largo, Fla., and West Florida Regional MedicalCenter in Pensacola, both owned at the time by HCA.

2. Irene Cumming – Irene Cumming hasserved as the president and CEO of UniversityHealthSystem Consortium (UHC) in OakBrook, Ill., an alliance of 101 academic medicalcenters and 178 of their affiliated hospitals

continued on page 5

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Letter from the Editor

Four Interesting DevelopmentsThis has been a fascinating first quarter of 2008. Four of the developmentsthat we find to be really interesting are as follows:

1. The acceleration of high-deductible plans and consumer-driven healthcareCommentators speak in abstract terms about “consumer-driven health-care.” The real concept is that people will pay a greater proportion of theirhealthcare costs and thus become more concerned about shopping for services based on cost and quality. Quietly, and without a lot of fanfare, weare seeing a great increase in the number of high-deductible and high-co-payment plans. This has the effect of having people be much more concerned and more active consumers of healthcare rather than someonewho just accepts services at a place their physician determines. From a hos-pital perspective, this means much more working with patients on a case-by-case basis to assess whether the rates should be negotiated for a specificpatient. This is something that is often achievable even though it has to bedone in the context of other rules relating to commercial payor plans,Medicare and Medicaid.

2. Healthcare jobs outstripping manufacturing jobs for the first timeThe country, for the first time, is seeing overall healthcare jobs overtake thenumber of manufacturing jobs. Healthcare jobs are being recognized asengines of growth and not just a cost to be borne. This reminds me of acomment made by the CEO of GE, Jeff Immelt, at a conference a few yearsago. There he stated, in so many words, that all is well at GE as long as rev-enues and profits from healthcare outstrip rising healthcare costs. This

country, at some point, instead of viewing healthcare solely as a problem,should see it as the driver of economics and jobs that it is. Often, health-care provides high-quality service jobs not readily available in other partsof the economy. See the Wall Street Journal article “Factories Fading,Hospitals Step In.”

3. Hospital InsolvenciesMore than half of the country’s hospitals are now technically insolventor at risk, according to a new Alvarez and Marsal study. Alvarez andMarsal, a leading professional services firm, has completed a study whichshows the following:

• More than 2,000 of the nations 4,900 acute care hospitals do not makea profit from treating patients. The majority of potentially insolvent hospitals are in urban areas.

• Capital expenses are hugely underfunded.

One of the interesting aspects of the study is the contrast to the record profits as a whole the hospital industry has shown over the last 24months. This is partially explained with the concept that approximately1,000 very profitable hospitals account for the great majority of overall industry profits. The complete findings are available atwww.alvarezandmarsal.com.

4. Massachusetts Healthcare PlanThe Massachusetts Plan is an innovative plan based on the premise that everybody in the state is required to have healthcare insurance. There,the government did a significant study and found that, essentially, theuninsured could be divided into three main categories: those who are intheir 20s and 30s and could afford healthcare but choose not to buy it(the true freeloaders), those that were poor but not so poor as to be eligible for Medicaid, and those that were eligible for Medicaid but didnot sign up for it. After two years of the experiment, the results are starting to show. The plan is a little bit more costly than expected (butnot nearly to the magnitude of the unexpected costs of the MedicareDrug Bill a few years ago), and it is helping to solve a problem.Fascinatingly, it comes from a bipartisan effort in a relatively liberal statethat was driven by a Republican governor.

We find these four developments some of the most interesting developments in healthcare currently.

Should you have any questions about this or other issues, please call meat (312) 750-6016 or e-mail me at sbecker@mcguirewoods.com.

Very truly yours,

Scott Becker

(800) 417-2035

(312) 750-6016sbecker@mcguirewoods.com

3visit www.beckersasc.com

CMS is revisiting the Stark “stand in theshoes” provision as a component of its2009 Hospital Inpatient Prospective

Payment System (IPPS) proposed rule.

This provision, which was included in the PhaseIII final rule, is aimed at determining whether adirect or indirect compensation arrangementexists between a physician and an entity to whichthe physician refers Medicare patients for DHS.To do so, the referring physician would stand inthe shoes of:

• 1. Another physician who employs the referring physician

• 2. His or her wholly-owned professional corporation

• 3. A physician practice (that is, a medical practice) that employs or contracts with the referring physician

• 4. A group practice of which the referring physician is a member or independent contractor

This concept meant, for practical purposes, thatthe relationship between the Stark provider and

the physician would also need to meet a Stark Actexception even though the physician didn’t have adirect relationship with the provider. This wasviewed as needed due to the concept thatproviders would pay physician-owned entities inmanners that otherwise don’t comply with Starkbut avoid the Stark Act prohibitions by utilizingintermediate entities.

In the IPPS proposed rule, CMS presented twoproposals for how it may define indirect compen-sation arrangement.

• Under the first proposal, CMS would revise the provision to provide that a physician would be deemed not to stand in the shoes of his or physician organization if the compensation arrangement between the physician organization and the physician satisfies the requirements of an existing exception, such as for bona fide employment relationships, for personal service arrangements or for fair market value compensation. An additional exception would protect an arrangement between a physician organization and a

component of an academic medical that satisfy the academic medical center’s obligations under the Medicare graduate medical education rules.

• Under the second proposal, the provision would go unchanged but would promulgate a new exception to include nonabusive arrangements that warrant protection not available under existing exceptions, such as certain “mission support” payments, subject to conditions necessary to protect against program and patient abuse.

The effective date for the provision wasDecember 2007, but CMS delayed the date untilDecember 4, 2008 in a final rule issued in mid-November 2007.

The complete stand-in-the-shoes proposals canbe found beginning on p. 577 of the IPPS proposed rule. You can find it by visitingwww.cms.hhs.gov/AcuteInpatientPPS/downloads/CMS-1390-P.pdf.

CMS Revisits Stark ‘Stand in the Shoes’ Provision

(800) 417-2035

4 visit www.beckersasc.com (800) 417-2035

5visit www.beckersasc.com(800) 417-2035

representing approximately 90% of the nation’s non-profit academic medical centers, for morethan 12 years. She oversees corporate operationsand performance, formulates and executes theorganization’s strategy, and represents UHC tothe business and health care communities and thepublic. Irene joined UHC after serving as president and CEO of the University of KansasHospital Authority for 11 years.

3. Delos M. “Toby” Cosgrove – Dr. TobyCosgrove is the CEO of the Cleveland Clinic. Heis a renowned heart surgeon and has numerouspatents filed for developing medical and clinicalproducts used in surgical procedures, includingthe Cosgrove Mitral Valve Retractor, the StentlessAortic Valve, Low Velocity Aortic Cannula, andthe Cosgrove-Baxter Annuloplasty System for usein valve repairs. He has published hundreds ofarticles and many training and continuing medical education films covering such topics asblood conservation in cardiac surgery and aorticvalve repair.

4. Trevor Fetter – Trevor Fetter has served aspresident and CEO of Tenet HealthcareCorporation since September 2003 and alsoserves as a member of the company’s board ofdirectors. During Fetter’s tenure, he has helpedachieve a peace accord with organized labor andresolved all major litigation facing the company.Under his leadership, Tenet has worked to findsolutions to the national uninsurance challenge;Tenet’s Compact with Uninsured Patients hasbecome a model for the industry as it providesmanaged care-type discounts to uninsuredpatients and ensures they receive treatment,regardless of their ability to pay. Trevor has alsoserved as the chairman and CEO of Broadlane, aleading provider of cost management services toboth investor-owned and non-profit hospitals,and currently serves on the board of theFederation of American Hospitals.

5. Alyson Giles – Alyson Giles is presidentand CEO of CMC Healthcare System andCatholic Medical Center, Manchester, N.H. Shehas been president and CEO of CMC HealthcareSystem since 2002 and president and CEO ofCatholic Medical Center since 1999. She alsoserves as the 2008-2009 immediate past chair-man of the American College of HealthcareExecutives. Prior to her current position, Alysonserved as executive vice president and COO ofOptima Healthcare; president and CEO of NewLondon Hospital; and president and CEO ofLake Shore Hospital in Manchester, N.H.

6. Larry Goodman – Dr. Larry Goodman isthe president and CEO of the Rush UniversityMedical Center. He also serves as president of

Rush University and is a principal officer of theRush board of trustees. He is known as an excep-tional leader and has developed the systemtremendously over the last several years. He hasalso published in prestigious publications such asthe Journal of the American Medical Associationand the Journal of Infectious Diseases. Hisresearch has focused on infectious diseases, partic-ularly gastrointestinal infections in HIV-positivepatients. He is also known for promoting innova-tion in medical education.

7. Brett Gosney – Brett Gosney is one of thefew people on the list that operates a physician-owned hospital. He is the founder and CEO ofthe first physician-owned hospital in Colorado,the Animas Surgical Hospital. He is the vice pres-ident and president elect of Physician Hospitalsof America (PHA). He helped lead the efforts todevelop the hospital and fought through a widerange of local and state battles and handled anumber of efforts to help make the hospital a terrific contributor to health care services in theDurango community.

8. Jeff Hillebrand – Jeff Hillebrand is theextraordinary COO of the EvanstonNorthwestern Healthcare (ENH) System. Jeff hasguided ENH through various and different chal-lenges to become and remain one of the leadinghospitals and health systems in Illinois. Jeff previ-ously served as executive vice president, presidentof ENH Medical Group, senior vice president,and president, of Glenbrook Hospital. He is a fellow of, and has served as a regent in, theAmerican College of Healthcare Executives, and is a member of the Society of HospitalPlanning of the American Hospital Association,Leadership Greater Chicago and the YoungPresidents Organization.

9. Chris Karam – Chris Karam is one of theleaders of the Texas-based Christus HealthSystems, serving as president and CEO. Chrisspecifically heads up one of the most dynamichospitals in the system based in Texarkana, Tex.He is an officer for the Ark-La-Tex HealthNetwork, which includes approximately 325physicians and 20 facilities with common goals.

10. Paul Levy – Paul Levy has served as thepresident and CEO of Beth Israel DeaconessMedical Center, a Harvard Medical School teach-ing hospital, since 2002. He is the executive deanof administration at Harvard Medical School andpreviously was an adjunct professor of environ-mental policy at MIT. He also publishes a blogcalled “Running a Hospital” in which he shareshis thoughts about health care.

11. Ed Murphy – Dr. Ed Murphy is the CEO

of the Carilion Health System. He is a proactiveleader who has helped to transform CarilionSystem from a traditional not-for-profit modelinto an integrated physician-driven delivery sys-tem. Prior to joining Carilion Health System andbeginning in 1994, he was president and CEO ofSeton Health System in Troy, NY. He is also onthe board of managers for The Egg Factory,which creates and develops innovations with an emphasis in the space of optics and ophthalmics. He is someone to continue to watch over the next several years.

12. Don Nestor – Don Nestor has served asthe senior vice president of finance for the AuroraHealthcare System for as long one can remember.He is responsible for the management of all ofAurora’s operations with the exception of thoselocated in the Milwaukee area. He is an unusuallygifted leader with a long history of driving thegrowth of the Aurora System.

13. Mark Newton – Mark Newton is theCEO of the Swedish Covenant Health System inChicago. Mark took the leadership of the systemapproximately three years ago after he completedserving as the president of Highland ParkHospital. During these three years, he has carvedout a position for Swedish Covenant as one of theleading systems in the Chicago area and hashelped develop and grow the system in a chal-lenging area. Mark also serves on the boards ofthe Illinois Hospital Association and the ChicagoHospital Risk Pooling Program, and is a memberof the advisory board at North Park UniversitySchool of Business in Chicago.

14. Keith Pitts – Keith Pitts has served as vicechairman of Nashville-based Vanguard HealthSystems since 1999 and serves as the chair of theboard of the Federation of American Hospitals.Prior to joining Vanguard, Keith was the chair-man and CEO of Mariner Post-Acute Networkand its predecessor, Paragon Health Network. Hehas also served as OrNda HealthCorp’s executivevice president and CFO, and has spent more than15 years as a consultant to health care organiza-tions, most recently as a partner in Ernst &Young’s healthcare consulting practice.

15. Ron Reed – Ron Reed is the CEO ofMercy Hospital in Iowa City. He helped puttogether a joint-venture ASC between his hospital and local physicians and has been instrumental in ensuring corporate support whileat the same time preserving and cultivating thephysician led entrepreneurial spirit of the project.Ron serves on the board of directors for the IowaHealthcare Collaborative and has been namedone of the most influential business leaders in theIowa City area by a local business publication.

24 Hospital Leaders to Know (continued from pg. 1)

6 visit www.beckersasc.com (800) 417-2035

16. John Rex-Waller – John Rex-Waller isthe chairman, president and CEO of NationalSurgical Hospitals, which partners with localphysicians to develop freestanding surgical facilities. John has also served as the CFO ofHawk Medical Supply, a provider of disposablemedical supplies to physicians and previously hewas the CFO and a co-founder of NationalSurgery Centers which was one the largestindependent owner and operator of surgery cen-ters in the country. He has also worked as aninvestment banker.

17. Michael Sachs – Michael Sachs is thefounder of Sg2. Sg2 is the premier provider ofdata and information to hospital and health sys-tem leaders in the country. It generally workswith some of the most prestigious health systemsin the country. Before founding Sg2, Michael wasthe chairman of Sachs Group, which providedhealth care planning and marketing data to morethan 1,000 institutions in the United States.Michael is a revolutionary thinker and imple-menter of ideas and a tremendous provider ofresources to hospitals and health systems.

18. Molly Sandvig – Molly Sandvig is theexecutive director of PHA. She has done an out-

standing job for physician-owned hospitals andher leadership on behalf of them has been instru-mental in the ongoing debate about the rights forphysicians to develop and hold ownership stakesin physician-owned hospitals. Molly also serves asthe president of the South Dakota Association ofSpecialty Care Providers, representing specialtyhospitals and ambulatory surgery centers inSouth Dakota. She is currently serving a secondterm as a governor appointee to the South Dakota Healthcare Commission. Molly isalso a co-chair of the governor-appointed subcommittee on Universal Healthcare Access inSouth Dakota.

19. Nancy Schlichting – Nancy Schlichtingis president and CEO of the Henry Ford HealthSystem. Nancy previously held the positions ofexecutive vice president and COO for the systemand was responsible for its hospitals, communitycare services, hospital joint ventures, physicianpractice development and integrated supportservices. She has also served as the president andCEO of Henry Ford Hospital and was responsi-ble for the operation of the Detroit Campus.Prior to joining Henry Ford Health System in1998, Nancy was executive vice president andchief operating officer of Summa Health System

in Akron, Ohio. She has also served as presidentof the Eastern Region of Catholic HealthInitiatives, president and CEO of RiversideMethodist Hospitals and executive vice presidentand chief operating officer of Akron CityHospital.

20. Wayne Smith – Wayne Smith is the CEOof Community Health Systems (CHS). CHS isthe largest for-profit publicly traded health sys-tem in the country. Since Wayne’s arrival in 1997,CHS has grown from $742 million in net rev-enue to over $4 billion in net revenue. He hasdone a remarkable job of guiding the companyforward in changing times. He also completedthe large merger of the Triad System and is doinga terrific job from what we can tell of integratingthe two systems together. He has become one ofthe foremost leaders of hospital systems in thecountry and recognized as such shortly.

21. Paul Summerside – Dr. PaulSummerside is the chairman of the board of oneof the most successful hospitals in Wisconsin, theAurora BayCare Medical Center. He has been adynamic leader on behalf of this organization.Aurora BayCare Medical Center is owned in largepart by the Aurora Healthcare System and is

7visit www.beckersasc.com

located in Green Bay, Wis. Paul is a dynamic andexperienced leader. He also serves as the chiefmedical officer for BayCare Clinic. In this role,he is responsible for all physician relations,recruiting, quality assurance and physician con-tracting. He is also a residency-trained andboard-certified physician in emergency medicine.

22. John Thomas – John Thomas is presi-dent and chief development officer of CirrusHealth. Headquartered in Trophy Club, Tex.,Cirrus develops and manages specialty surgicalhospitals and ambulatory surgery centers. Prior tojoining Cirrus Health, John served as senior vicepresident and general counsel for Baylor HealthCare System. John ahs also served as generalcounsel/secretary with the Unity Health System,a division of Sisters of Mercy Health System in St.Louis, and as president of wholly-owned captiveinsurance companies Church UniversityInsurance Company and Health Care InsuranceCompany of Texas.

23. John Toussaint – Dr. John Toussaint isthe former president and CEO of ThedaCare inAppleton, Wis. He recently took the lead on theThedaCare Center for Creating Value inHealthcare, a new ThedaCare-sponsored effort to

promote value-based purchasing. His tenure aspresident and CEO of ThedaCare was marked byimpressive growth as well as growing worldwidenotoriety for ThedaCare’s success in applying leanmanufacturing principles and the ToyotaProduction System to the delivery of patient care;the process and tools are called the “ThedaCareImprovement System.” John was the first chair-man of, the Wisconsin Collaborative forHealthcare Quality and he founded theWisconsin Health Information Organization.

24. Daniel Wolterman – Daniel Woltermanhas served as the CEO of the Memorial HermannHealthcare System in Houston since 2002.Daniel has more than 25 years of experience invarious executive positions in the healthcareindustry and served as the chairman of the TexasHospital Association. He has taken a high-profilerole as an advocate for reducing the number ofuninsured Texans. His leadership and advocacyhave raised the profile of the uninsured issue andhelped build momentum at the state and national levels for meaningful action. In 2007 he received the Partnership for Action Grassroots Champion Award from the AmericanHospital Association.

1) Income and Employment Through HospitalDirectly. The typical full integration generallyincludes full and complete employment of thephysicians. Here, the hospital directly employsphysicians. This has the benefit of satisfying theFraud and Abuse Statute employment safe harborand the Stark Act employment exception.

2) Hospital Employs the Physicians Through aSubsidiary. Here, the hospital creates a subsidiarycompany and employs the physicians through thesubsidiary. Again, this provides the hospital withincreased control of its ability to provide servicesover time and to control the physicians’ services.

3) Professional Corporation or FoundationModel. Under this type of scenario, the hospitalprovides services through a captive or related professional corporation that employs the physi-cians. Here, we note certain recent IRS private let-ter rulings regarding UBIT in practice corpora-tions owned by hospitals.

This article is not a legal analysis of the models discussed herein. Rather, this is intended as anoverview of certain of the options. As one movesforward with any of these options, one should consider the provision of more comprehensivelegal guidance, as well as the review of different valuation issues that are involved in each model.

(800) 417-2035

Minimal to Maximum Integration Models(continued from pg. 1)

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In just eight years, BayCare Clinic has becomean extremely profitable, high-quality, physi-cian-owned organization serving the Green

Bay, Wis., community. The chief medical officerfor BayCare is Paul Summerside, MD, FAAEM,who also serves as the president of the board ofmanagers for Aurora BayCare Medical Center,also located in Green Bay.

Dr. Summerside sat down with The Hospital Reviewand shared his thoughts on the major challenges currently facing hospitals, why many hospitals arestruggling to find sustainable success and what stillkeeps him excited about healthcare.

Government regulations hinder growth.Hospitals are eager to invest in growth opportuni-ties, but the lack of predictability in how futuregovernment regulations may impact such venturesis forcing hospitals to limit their investments. Suchinvestments are not cheap, especially when consid-ering the expenses associated with hiring physiciansand nursing and technical staff.

“The role of government regulation … is a mas-sive factor that we have no control over and canchange a very good investment into a bankruptinvestment with a stroke of a pen,” Dr.Summerside says. “It makes us not invest in a lot

of things that make sense and have longer payoffhorizons because we’re not sure if the horizon willever get there.”

Since a solution to the issue of rapidly changing reg-ulatory and payment rules is not in sight, hospitalswill struggle to reach their true potential, thusdepriving patients of the finest care possible, he says.

“You have a set of rules today that make it verysmart to build this or that or develop this businessline and a year later, it’s bankrupt after you put allof the money into it because someone decided tochange the rules. It is a very difficult businessreality that I think hamstrings medicine frombeing as efficient as it could be.”

Failure to invest in the “right” physi-cian executives hurts integration. Toomany hospital administrative boards are viewingphysician executives and clinical leadership aspolitical panderers to pacify their medical staffs,which is hurting effective integration of physi-cians and fails to encourage collaborationbetween the hospitals and physicians, Dr.Summerside has observed.

Since physicians can easily move their practice toanother hospital or even potentially open a

competing practice, integration and collaborationwith physicians is crucial to a hospital’s success.With much of the success tied to the effectivenessof clinical leadership, hospitals should take a freshlook at the individuals hired to fill these roles andnot shy away from investing in these positions.

“I think the systems that will do well are the onesthat are able to engage highly competent physi-cian executives, recognize that value and employthem to make the machine work better,” Dr.Summerside says. “I would postulate that manyhealthcare systems struggle because they don’tappreciate this.”

Hospitals are often filling these leadership positions with pediatricians and family practi-tioners, which are typically the lowest compensat-ed physicians. While such appointments mayresult in financial savings for organizations, when compared to the salary that may be required tohire a physician coming from a more profitablespecialty, these individuals often lack the experience necessary to bring about positivechanges and results.

“Who is the least familiar with the high-tech,high-compensation world of a tertiary hospitalthan a family practitioner and an outpatient pedi-atrician?” Dr. Summerside says. “Who is the leastlikely to sit down in a meeting with neurosur-geons and orthopods and ER docs that drive therevenue of the hospital and have any credibility?

“So you end up with poor physician leadership, ifthere’s any at all, which perpetuates this kind oflaissez-faire medical environment where the specialists have very poor relationships with thehospitals and little integration and little creativitygoes on.”

The solution is for hospitals to view these positions for what they truly are: Leadership forthe hospital’s most expensive and important investment — the physicians. To fill this respon-sibility, hospitals should recruit a high-level physician and reward them with appropriatecompensation, training, freedom and authority tomake the hospital’s business work effectively.

“The institutions that can harness executives atthat level — the richer will get richer and the

Hospital Leader Shares Insight on Current State of Hospitals and Health CareBy Rob Kurtz

(800) 417-2035

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poorer will get poorer, and fast,” Dr. Summersidesays. “Medicine is way too much of a team gamenow. All the pieces have to work together very well.”

“Transparency” will fail with lack of standardization. “Transparency” in healthcare has been a buzzword for several yearsnow, with growing pressure on organizations topublicize their costs. Unfortunately for hospitalsand patients, such transparency could actuallyserve to deceive patients about what is trulyimportant unless the government develops stan-dard weights and measures for quality and safety.

Dr. Summerside correlates the need for such stan-dardization to that of the automobile industry afew decades ago, when manufacturers did not haveto meet extensive safety standards. Manufacturerswere free to sell whatever they could and the con-sumer would purchase automobiles with a beliefthey were buying good, safe cars.

Then came Ralph Nadar’s book, Unsafe at AnySpeed: The Designed-In Dangers of the AmericanAutomobile, which lead to Consumer Reports andother third-party measurements, and eventuallygovernment crash safety tests.

“That’s a basic standardized weight and measure, and made the true quality [of automobiles] transparent to the consumer,” Dr. Summerside says.“Once that occurred, look at the radical changes inthe automobile industry. It had to start with that.”

Healthcare presently lacks such a weight andmeasure, and if organizations merely publicizetheir prices, and patients (consumers) base theirdecisions solely on this information, they may bechoosing a care provider for the wrong reason.

“If one guy is charging $700 for a hernia and theother guy is charging $5,000, and the $5,000 guyhas a 1 in 1/1000 infection rate and the other guyhas 10/100 rate, who is really cheaper? Howtransparent is the fact that you published just theprice? That’s the fraud the insurance companiesand their fee schedule panels have perpetrated

“I think that if we can truly have honesty aboutour practices with our patients and our outcomes,that will be the best thing for doctors and theirsystems,” Dr. Summerside says.

He believes the government must becomeinvolved and start developing such weights andmeasures slowly are carefully, even if it is one pro-cedure at a time or just starting with tracking andreporting wound infection rates. Unfortunately,such efforts would require unglamorous gruntwork, something politicians are typically eager toshy away from.

Specialties relying on governmentpayors to struggle. Dr. Summerside hasseen an ongoing struggle for hospitals to recruitphysicians for all specialties, but the struggle ismagnified for those relying primarily on govern-ment payors. And it is a struggle that will only getharder with continued reimbursement cuts andregulatory restrictions.

“Medicare and Medicaid rates in our environ-ment are unsustainable for things like cardiology,pulmonary, critical care, ER,” he says. “If you’vegot a significant portion of your practice in thegovernment payor arena, you are really going tostruggle, at least in this area of the country.”

Need for staff forcing tough decisions.The best of anything is always in short supply, andsuch is the case with good nursing staff and otherhospital staff. Many hospitals are struggling to fillopenings and ultimately settling for whatever isavailable, which is an unfortunate and dangeroustrend to start, Dr. Summerside observes.

“We’ve drawn a line on not accepting poor fits andthat can be a hard line, but I tell you, once you getoff that position, there is no bottom. If you acceptpoor performance, it drives all performance down.”

Payor consolidationanother unfortunatetrend. The damagecaused by payor con-solidation over thepast several years,which has the dwin-dled down the num-ber of payors control-ling most contracts tothree, or four if youconsider Medicare, isterrible news for hos-pitals and patients, Dr.Summerside says.

“Anybody who thinksthe consolidation ofthese insurance com-panies is good for thepatient or good forcost is nuts. That’s aconcept that went outwith Teddy Roosevelt.That’s why the anti-trust legislation wasinitiated. But the cur-rent administration,the Department ofJustice, has turned acompletely blind eyeto this stuff,” he says.

Effort and strive for excellence still rewarded.Despite all of the challenges and bad news whichseems to impact health care on a regular basis, theopportunity for excellent patient care excites Dr.Summerside.

“I still believe, in my heart, despite of all of theregulatory crap we go through, in the UnitedStates of America, if you get up in the morningand you work a little bit harder and a little bitbetter than the other guy, you will succeed.

Such enthusiasm toward his practice and organi-zation is a significant qualification for anyonehired to join his staff and is the basis of a questionhe asks prospective physicians during interviews.

“I say, ‘if you get up every morning and look inthe mirror and you can ask yourself why shouldany patient come to see me instead of somebodyelse, if you’ve got an answer for that, you’re goingto do great with our group. But if you don’t knowor you don’t care, you shouldn’t come here.’ If we can keep the right group of guys who get upevery morning and give patients a reason to seethem instead of somebody else, the patients willbe better off.”

(800) 417-2035

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ANew Orleans Hospital, Touro Infirmary,will pay $1.75 million to settle

allegations that it submitted falseMedicare claims, according to the Department ofJustice (DOJ).

The DOJ alleges Touro made unlawful paymentsof almost $150,000 annually, from 2000 to 2004,to psychiatrist Dr. Maria Carmen Palazzo toinduce her to refer patients to the hospital.

These kickbacks were allegedly disguised as a series of consultant and medical directorshipcontracts.

Federal law prohibits the payment of kickbacks or

other inducements for referrals of patients participating in federal healthcare programs.

“Kickbacks are a blight on the health care system,” said Jeffrey S. Bucholtz, acting assistantattorney general for the DOJ’s civil division,according to the DOJ.

“They corrupt physicians’ medical judgment and lead to overutilization and misuse of taxpayer dollars. We will continue to be vigilant in our efforts to combat this pernicious practice,” he said.

Announcement of the settlement comes just afterPalazzo was convicted of 39 counts of healthcare

fraud, including 13 counts from her contractualrelationship with Touro. “Dr. Palazzo heard … what health care providerswho defraud Medicare are hearing from juries allover America; you will be held accountable foryour greed,” said Mike Fields, special agent incharge for Health and Human Services Office ofInspector General (HHS-OIG), according to aDOJ press release. “HHS-OIG agents will continue to work closely with our state and fed-eral law enforcement partners to protect theMedicare Trust Fund.”

Palazzo faces a possible maximum term of imprisonment of 390 years and fines of almost$10 million.

New Orleans Hospital Agrees toPay $1.75 Million to Settle FalseClaims Allegations

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11visit www.beckersasc.com

With the recovery audit contractor (RAC) demonstration programending this past March, CMS expects to name the new, permanent RACs by May, announced Kimberly L. Brandt, CMS

program integrity director, at the Health Care Compliance Association’sCompliance Institute held in New Orleans.

The RACs will be tasked with: • Detecting Medicare improper payments (including both underpay-

ments and overpayments) • Correcting Medicare improper payments (i.e., repay money to a

provider who was underpaid or collect money from a provider who was overpaid)

The RACs will be required to use clinical staff, such as nurses, when conducting medical reviews. Each RAC will also have a Medical Director.

Once these new companies are announced to serve as the permanent RACs,CMS and the new RACs will conduct extensive provider outreach. CMShas said it will work with provider associations to help facilitate outreach.

To learn more about the RAC program, visit www.cms.hhs.gov/RAC.

ACiti Investment Research analyst began coverage of hospital operator stocks and issued a ‘sell’ rating for them due to growing

debt and lower patient commercial admissions, according to published reports.

The analyst, Gary Taylor, gave his lowest rating on shares of several hospi-tals including Tenet Healthcare, Universal Health Services, LifepointHospitals and MedCath, anticipating that they will continue to loseground over the next year.

Tenet was also hit with a downgrade by a Deutsche Bank analyst, whochanged his rating from “buy” to “hold.”

The hospital operator had received an upgrade to “outperform” from “neutral” by a Credit Suisse analyst just a few days earlier, according to published reports.

The analyst said rising prices are likely to contribute to stronger revenues, and he pointed to first-quarter earnings from UnitedHealth and Wellpoint as evidence of the price growth.

PermanentRecovery AuditContractors to beAnnounced in May

Investment AnalystInitiates HospitalOperator Coveragewith ‘Sell’ Ratings

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