L E A D E R S H I P P R O B L E M SO L V I N G V A L U E C R E A T I O N
Copyright 2010. Alvarez & Marsal. All Rights Reserved.
November 4, 2010
Christopher J. Kalkhof, FACHE
Director, Healthcare Industry Group
Francis LaMorte, M.D.
Director, Healthcare Industry Group
(New York Office)
NAMCP Fall Managed CareForum 2010(Las Vegas, NV)
Emerging Business Models for Hospital andPhysician Integration: Clinical Integration asa Business Strategy for Accelerated Growth
Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Presentation Agenda
I. Overview of Evolving Federal
and State Regulatory
Landscape and Impact on
Provider Revenues
II. Emerging Provider
Business/Financing Models:
Options and Considerations
III. Lessons Learned
IV. Q&A and Program Close
(1)1
Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 2
I. Overview of Evolving Federal
and State Regulatory
Landscape and Impact on
Provider Revenues
Plan now for ACA impact
Do not put yourself in the
position of having to react in
2013 or 2014
Presentation Agenda
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Cost shifting, government reform, and budget deficits are
eroding the traditional payer-provider relationship
Cost shifting from government payers will not lessen and may
increase under the Affordable Care Act.
CMS, State Medicaid programs and the health plan
community (irrespective of product type e.g., commercial,
Medicaid, Medicare, etc.) have begun the process of
fundamentally restructuring payment methodologies.
Private sector health plans have to rethink the fundamental
structure of their provider networks.
Providers and payers… will be expected to do more with
less! How efficient and cost-effective are your ops?
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
3
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
What will be the impact of health care reform with respect
to negotiated agreements between providers and payers?
Providers and payers alike will be entering into unchartered
waters.
There will be multiple pricing and payment models emerging
within different regional markets around the country over the
next few years.
There will be different winners and losers on a region-to-
region basis. Some critical success factors?
– Business model and ability to manage patient populations.
– Physician alignment and integration.
– Collaborative vs. adversarial payer relationships
4
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
A value-driven/outcomes-based system reimbursement
and by extension… pricing environment will:
Hold providers accountable for their performance in terms
of patient quality, safety and outcomes as well as the cost
and setting of care delivery.
Emphasize population and disease care management
across a care continuum.
Creates significant financial incentives for physicians,
hospitals, health insurance plans and other healthcare
providers… to better align and coordinate care delivery.
Will require that providers in many cases… greatly
enhance their decision support capabilities and overall
contracting strategy across all contracts.
5
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
The ACA offers few specifics at present.
The different legislative components of the ACA which
impact providers and payers the most, go into effect
between 2010 and 2014… some retroactively, but most on
a “to be determined” going forward basis.
– To finance the ACA… a re-basing of our core
healthcare financing mechanisms will be required.
Absent specific regulatory guidelines, many organizations
are struggling to understand the impact of the ACA on their
organizations so that they can plan accordingly.
– The economic and lost opportunity costs or either
going in the wrong direction or waiting too long to
take action… can be very significant.6
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
What do we think we know about strategic impact?
Reform laws include provisions that pressure…
– Health plan historical pricing and assumptions about
managing provider costs.
– Provider net revenue with the assumption of more risk.
– Provider and health plan margins.
There are general national themes… however
implementation of specific strategies will most likely be
deployed on a regional basis.
There will be notable regional successes and failures.
What about your local market?
7
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
What if…
Fed/State
deficits grow?
ACA costs:
> $1 trillion?
> $2 trillion?
Access
diminishes?
Hospitals fail?
Payer par
networks
change?
Government and
payers under
pressure from
premium increases
Budget shortfalls in 48 States
States blocking payer rate hikes
Demand for demonstrable value
Double digit billion $$ Medicare deficits
Unresolved Medicare SGR payment-
adjustment for physicians (40%
cumulative cut by 2016)
EHR meaningful issues/penalties
RAC expansion into other payers
New risk-based payment models
Need for clinical integration/physicianalignment and IT/operational support
ICD-9 to ICD-10 conversion in 2013
Continual CMS
threat to reduce
payments
Increased
uncertainty and
revenue risk
Impact of above on your care delivery model?
Converging market forces will impact strategic choices:
8
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Continue to operate the same butexpect different resultsMaintain status quo
Consolidation of like operations;economies of scale; shared services; afunctional physician alignmentstrategy and the ability to capture andretain lives
Horizontal Merger
Market Strategy
Develop strengths along continuumof care to manage patientpopulations… requires enhancedquality of care and coordinationacross vertical care continuum;supporting IT and ability tocollaborate across care continuum
Vertical Clinical
Integration
Strategy
Evolving Federal and State Regulatory Environments
I. Provider and Payer Brave New World – Transitions Under Affordable Care Act
9
Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 10
II. Emerging Provider Business
and Financing Models:
Options and Considerations
Understand clinical integration
models
Understand your cost structure
Know how to “clinically integrate”
at the service line level
Determine how emerging payment
methodologies will evolve and
impact your care delivery model
Presentation Agenda
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 11
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth
Clinical Integration as defined by regulators
1996 Department of Justice and Federal Trade
Commission Statements of Antitrust Enforcement
Policy in Health Care
– "[A]n active and ongoing program to evaluate
and modify practice patterns by the network's
physician participants and create a high
degree of interdependence and cooperation
among the physicians to control costs and
ensure quality."
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Future State – CIO Provider Networks
Integration of facilities-practitioners with a true
interdependence and collaboration.
Disease management and corresponding clinical
protocols.
Integrated IT which allows efficient/effect patient
information exchange… utilization and claims
data collection to manage care and lower costs…
clinical indicators to improve quality and measure
physician protocol compliance and performance.
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth
12
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Future State – CIO Provider Network
Specialists and PCP focus on in-network referrals.
A high level of physician financial investment and
commitment of time for training, utilization of the
disease management protocols and compliance
with varied clinical pathways.
Processes for improving performance and care
delivery, with enforceable consequences for non-
compliance.
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth
13
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
The evolution of a messenger model PHO/IPA to CIO?
The CIO will be a more complex, fully clinically integrated
business model, which will be capable of providing non-
risk/at-risk solutions to external stakeholder purchasers of
healthcare services… will require:
All internal stakeholders to share a common vision
Joint governance (e.g., physician lead and
professionally managed)
The equitable distribution of risks and rewards.
14
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth
Think “Group Model” HMOw/o the Insurance Risk
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Full GlobalCapitation
Acct Care Orgs(Physician Model)
Global HospitalCapitation
Episodes of Care &Gainsharing
Deg
reeof
Fina
ncialR
isk
Global HospitalCase Rates
Low
High
Risk Withholds& P-4-P
Hospital PPS (IP/OP)
FFS Charges
Degree of Clinical integration
Medical Homes
High
Low
Care Delivery and Financial Risk Continuum
Non-CompetitiveMarket and
Provider Risk isUncommon
CompetitiveMarket and
Provider Risk IsDominant
15
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
ProjectPlanning
Clinical IntegrationGap Analysis
Determine C.I.Organization Model
Determine ClinicalInfrastructure
Define and PlanClinical Initiatives
Determine RegulatoryCompliance
Implement InitialC.I. Programs
Measure, Monitor,Report and Educate
Eight Step Clinical Integration and Business Plan
Development Process: Hospital – Physician PHO Model
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth
16
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 17
The process of starting a CIO starts with a strategic
clinical integration planning process
Choose high level goals for redesign.
Determine the design of the overall care delivery system,
care management and business processes.
Create a compelling value proposition for physicians to
become actively engaged in the change process, take
leadership roles in ensuring the success of the CIO and
establish a system wide culture that says…
…“this is how we will delivery high quality, safe,
effective and efficient care to our patients.”
II. Clinical Integration as a Business Strategy for Accelerated Growth
Emerging Business/Financing Models: CIO Options
Project Planning and Gap Analysis
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
(18)
Audit clinical integration readiness of the medical staff
Assess physician motivations to develop a collaborative
clinical integration initiative across the health system.
Use interview-based findings and existing management
reports to create a summary profile of independent and
employed physicians.
Identify the “vital few” …the critical mass of physicians who
are willing to adapt/adopt and transition to a new model.
Identify physician needs and incentives relative to C.I.
Gauge physician views on expanding the PHO/IPA to include
additional physicians in primary and secondary service area.
18
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Project Planning and Gap Analysis
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(19)
Project organizational and internal/external project
team roles; develop, review and finalize the work plan
Prepare internal communications plan for project stakeholders
Evaluate current processes and value stream mapping.
Assess current “level of clinical integration” among
inpatient, outpatient and ambulatory services.
Perform internal/external benchmarking of cost, quality,
efficiency, job skill requirements and calculate cost reduction
and efficiency improvement opportunities
Assess technology tools, enabling capabilities, datawarehouse and operational support needs.
19
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Project Planning and Gap Analysis
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 20
Match Organizational Architecture to Organizational Culture
Governance structure:
– A committee hierarchy and governance model that
promotes equitable distribution of rewards, risks, and
control between hospital and physician partners.
Legal structure options.
– Consider need to create a “New Co.” physician enterprise
structure to serve as the integration vehicle.
Plan for transition… not disruption
– Physician alignment preparation for transition to CIO model.
– Payer relationship maintenance and CIO contracting
strategy.
Emerging Business/Financing Models: CIO Options
Determine “Best Fit” C.I. Organizational Model
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
EmployedPhysicians
Aligned w/HospitalService Lines
Aligned w/HospitalService Lines
Compensation tied togoals and productivityCompensation tied togoals and productivity
Higher cost structureHigher cost structure
Advanced IT tools andreporting
Advanced IT tools andreporting
Few RegulatoryBarriers
Few RegulatoryBarriers
Non-EmployedPhysicians
Diffuse collection ofinterests…not aligned
w/hospital service lines
Diffuse collection ofinterests…not aligned
w/hospital service lines
Strategic focus atpractice level
Strategic focus atpractice level
Declining economicsand often unfavorable
payer contracts
Declining economicsand often unfavorable
payer contracts
Limited IT tools, limitedreporting to manage
Limited IT tools, limitedreporting to manage
Many regulatorybarriers to hospital
alignment
Many regulatorybarriers to hospital
alignment
Integrating
independent and
employed
physicians?
One piece of the CIO
puzzle… a selective,
scalable membership
criterion which
focuses on
collaboration and
equitable treatment
among physicians,
patient outcomes
and managing
patient populations.
21
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Determine “Best Fit” C.I. Organizational Model
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 22Determine Clinical Infrastructure and Define/Plan C.I. Initiatives
Emerging Business/Financing Models: CIO Options
Define and Plan Clinical Integration Initiative Considerations
Build a clinical care model which emphasizes value-driven
care and which can be deployed across disease
management-based service lines in anticipation of future
episodes of care and global capitation reimbursement models.
Identify and validate the key metrics that will be used to define
success and provide meaningful, actionable information.
Provider network refinement/recruitment to allow for strategic
community outreach and inclusion in the “New Co.” clinical
integration organization.
Focus on safety.
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Management and clinical integration plan development
should include utilization management strategies to:
Facilitate administration and physician development.
Foster agreement for a hospital-based UM program jointly
developed with, and formally adopted by employed and non-
employed physicians.
Accomplish joint review of the protocols between employed
and non-employed physicians as well as the “New Co” CIO.
Evaluate the role/need for a CIO Medical Director.
Propose Policy and Procedures guideline for the development
of quantifiable definitions and standards to be formally
incorporated into the hospital's UM program.
23
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Determine Clinical Infrastructure and Define/Plan C.I. Initiatives
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 24
Emerging Business/Financing Models: CIO Options
Define and Plan C.I. Initiative Considerations
Develop comparative performance methodology to:
– Identify physician- leaders with styles that are visionary,
mentoring, affiliate, and democratic.
– Avoid confrontational processes that could perceived as
threatening to physicians with non-aligned practice styles.
– Plan for the development and distribution of physician-
specific reports.
Build transformational experiences (small wins) to build trustand demonstrate successes.
Remove barriers that frustrate physicians in delivery of care.
Determine Clinical Infrastructure and Define/Plan C.I. Initiatives
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 25Determine Clinical Infrastructure and Define/Plan C.I. Initiatives
Emerging Business/Financing Models: CIO Options
Define and Plan C.I. Initiative Considerations
Develop training and physician leadership roles for varied
C.I. committees.
Assess necessary information technology and operational
support structure necessary to enable and facilitate high
quality physician care… as is clinically appropriate… at the
individual patient level… across disease management
oriented service lines.
Evaluate technology and infrastructure options for data
collection, common patient data registry, disease
management and EBM clinical protocols as well as EHRs.
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Clinical data brokertechnologies
Common EMR / AffiliateEMR
Data warehousing
Managed care systems
Single purpose 3rd partyintegration “overlays”
Patient registry systems
Portals
Health data exchangetechnologies
Current StateUnderstanding
Clinical IntegrationObjectives
Supporting Systems Strategy
26Determine Clinical Infrastructure and Define/Plan C.I. Initiatives
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Potential IT strategies may include the following:
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Determine Regulatory Compliance
Engage qualified legal counsel in early development stages as
well as to determine likely FTC regulatory compliance. FTC
review considerations typically encompass the following:
1. Integration of facilities/practitioners that represents true inter-
dependence in collaboration and productive information sharing.
2. Participation of both specialists and primary care physicians, in a
way that requires in-network referrals.
3. Treatment of a broad spectrum of diseases/disorders accompanied
by a comprehensive array of corresponding clinical protocols.
4. Integrated information technology that allows network providers to
efficiently and effectively exchange information regarding patients
and practice experience.
27
Determine Regulatory Compliance of Change Process
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 28
Emerging Business/Financing Models: CIO Options
Determine Regulatory Compliance
5. Integrated IT in which utilization and claims information is
collected, analyzed, and distributed with the goals of lowering
costs, reducing utilization rates, and improving the quality of care.
6. Integrated IT that enables the measurement of physician
compliance and performance, in comparison to widely accepted,
peer-reviewed benchmarks and standards.
7. A high level of physician financial investment and commitment
of time for training and utilization of the system, accompanied by
agreement among physicians to comply with the standards,
benchmarks, and protocols of the network.
8. Processes for improving performance and compliance, with
enforceable consequences for non-compliance.
Determine Regulatory Compliance of Change Process
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 29
Determine Business Case for Change Process
Emerging Business/Financing Models: CIO Options
Scenario Planning for Clinical Integration Initiatives
Define clinical integration strategy… obtain senior
management and physician leadership input… prioritize
strategic alternatives… identify and validate growth
objectives… identify and confirm potential growth
vehicles to achieve clinical integration objectives.
“What if” considerations for extension of the planned
CIO business model to other facilities in the region (e.g.,
for future initiatives such as an ACO or a network PHO
clinical integration model).
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Scenario Planning for Clinical Integration Initiatives
Define key barriers and facilitators to future state process
redesign and risk mitigation action plan.
Develop IT Vision (e.g., financial, clinical and E.H.R.).
Estimate one-time and recurring costs for each future state
redesign area.
Define phasing options relative to indentified change priorities
and cost reduction/efficiency gain goal achievement.
Estimate benefits to organization-physician members of
Clinical Integration by major care delivery service line.
Make the business case for each future state CIO design.
Emerging Business/Financing Models: CIO Options
30
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Determine Business Case for Change Process
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Preparing Your Clinical Integration Business Plan (i.e., from
your completed assessment and planning process)
1. Internal and external clinical integration readiness
assessment… current state design.
2. Scenario planning: your future state design options and the
required process changes to achieve them (core/contingent).
3. Governance and committee structure for a clinical integration
organization.
4. Physician and Staff educational needs for creating a clinical
integration business model.
5. Required information system technologies to support a clinical
integration business model.
31
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Your Clinical Integration Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 32
II. Clinical Integration as a Business Strategy for Accelerated Growth: Assessment to CIO Business Plan
Emerging Business/Financing Models: CIO Options
6. Core operational, physician and employee issues associated
with transitioning from a current state to a future state
business model.
7. Estimated cost reduction as well as potential efficiency and
quality gains.
8. Project management and performance improvement tools
needed for clinical integration initiatives.
9. Future state clinical integration organization
redesign/transition work plan for each major clinical service
line area.
Use your C.I. business plan as your development roadmap
and/or as a template for a FTC Staff Advisory Opinion.
Your Clinical Integration Business Plan
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 33
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Payments
Evolving/new payment value-based payments…
Should allow providers time to transition from current
payment methodologies to more risked and
accountability based payment methodologies.
The degree of provider integration and alignment of
financial incentives across the care continuum… will
determine the ability of providers to accept risk/reward
based payments and remain financially viable.
The two leading contenders for the new “norm” for
payment methodologies... bundled payments and
global capitation.
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (34)34
Features of a 2010+ Global Capitation Payment Model?
Capitated payments supply provider organizations with
fixed “medical care” budgets… partial or global services
– Risk adjustments… protection mechanisms for
adverse risk and catastrophic patient cases… formulaic
structural rewards to providers for improving quality and
reducing unnecessary services utilization.
– Performance incentives… based on quality and safety
metrics.
– Shared savings opportunities… reducing underuse,
misuse and overuse within global payment levels.
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Payments
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Utilization Average Gross Deduc. Net
Category Of Service PMPY Cost PMPM or Copay PMPM
HOSPITAL
Inpatient 0.0860 7,664.40$ 54.93$ 0.00 54.93$
Ambulatory Surgery 0.0520 1,057.96 4.59 0.00 4.59
Emergency Room 0.1530 276.90 3.54 50.00 2.91
Outpatient Radiotherapy 0.0433 212.67 0.77 0.00 0.77
Hospital Outpatient 0.1537 595.73 7.64 0.00 7.64
SNF 0.0001 1,953.00 0.02 0.00 0.02
Ambulance 0.0170 612.56 0.87 0.00 0.87
Dialysis/Chemo/Private Nurse 0.0461 374.40 1.44 0.00 1.44
Home Care 0.0035 306.47 0.09 0.00 0.09
Home Care Supplies 0.0340 1,271.90 3.61 0.00 3.61
Surgery/Major 0.0060 2,755.96 1.38 0.00 1.38
Misc. Office Serv. 0.0335 348.41 0.98 0.00 0.98(HMO CoPay/COB adjust.
factors & above changes) 0.0052 400.00 0.18 10.00 0.18
TOTAL HOSPITAL 0.6282 1,527.49$ 80.04$ 0.63$ 79.41$
COMMERCIAL MEDICAL BUDGET -- AVE. COSTS 1-1-XW TO 12-31-XW
Hospital Financial Proposal Review - HMO/Capitation ProposalMedical Budget - IPA/Hospital - Joint Managed Care Product IPA/Hospital Network
10/1/20XY - Small Urban Market
(35)
Example: Global Capitation35
PHYSICIAN SERVICES
Office Visits - PCPs 2.8505 90.76$ 21.56$ 15.00 18.00$
Office Visits -Specialists 2.1010 90.76 15.89 15.00 13.27
Inpatient Visits 0.1660 260.73 3.61 0.00 3.61Laboratory 2.3480 22.77 4.46 0.00 4.46Miscellaneous Office Procedures 0.8310 178.04 12.33 0.00 12.33
Surgery - Major 0.4820 517.39 20.79 0.00 20.79
Surgery- Minor 0.0060 282.58 0.15 0.00 0.15
Anesthesia 0.0520 999.72 4.34 0.00 4.34
Emergency Room 0.1680 228.82 3.21 0.00 3.21OB/Delivery 0.0200 2,679.32 4.47 5.00 4.47Outpatient Mental Health 0.2180 150.40 2.74 25.00 2.29
TOT. PHYSICIAN SRVCs 9.2425 121.40$ 93.55$ 6.63$ 86.92$
COMMERCIAL MEDICAL BUDGET -- AVE. COSTS 1-1-XW TO 12-31-XW
Hospital Financial Proposal Review - HMO/Capitation ProposalMedical Budget - IPA/Hospital - Joint Managed Care Product IPA/Hospital Network
10/1/20XY - Small Urban Market
OTHER OUTPATIENT
Other Hosp Outpatient 0.0020 151.64$ 0.03$ 0.00 0.03$
Radiotherapy 0.0010 483.87 0.05 5.00 0.05
DME 0.0430 296.48 1.07 0.00 1.07
Pharmacy 7.5300 72.60 45.56 15.00 36.15
Ambulance 0.0010 697.15 0.06 50.00 0.06
Home Visits 0.0010 135.23 0.02 20.00 0.02
Home Health Supplies 0.0110 345.02 0.32 0.00 0.32X-Ray 1.6060 162.78 21.79 0.00 21.79
High Risk Int. Care 0.0010 175.35 0.02 0.00 0.02
Optical Dispensing 0.0130 108.11 0.12 0.00 0.12
Alcohol Abuse 0.0730 142.36 0.87 0.00 0.87
Physical Therapy 0.1560 101.75 1.33 15.00 1.14
TOT. OTHER O/P 9.4380 90.50$ 71.24$ 9.60$ 61.64$
TOTAL MEDICAL COSTS 19.3087 1,739.39$ 244.83$ 16.86$ 227.97$
IPA Desired Medical Mgt. Fee For Physician Services @ 2% of Medical = 1.74$
TOTAL GLOBAL CAPITATION REQUIRED = 229.71$
COMMERCIAL MEDICAL BUDGET -- AVE. COSTS 1-1-XW TO 12-31-XW
Hospital Financial Proposal Review - HMO/Capitation ProposalMedical Budget - IPA/Hospital - Joint Managed Care Product IPA/Hospital Network
10/1/20XY - Small Urban Market
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Payments
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Bundled Payments...
Payment methodologies referred to as “Episodes of Care”
(EoC) – CMS has already started piloting an EoC payment
methodology called “Acute Care Episodes” with a select
number of hospitals… as CMS goes, will others?
The ACA expands episode of care pilot programs at the
Medicare and State Medicaid levels… expect 1115 waiver
modifications.
Some health plans are presently engaged in these pilot
programs with hospitals or other provider organizations that
have the operational support infrastructure to manage
episode of care reimbursement methodology and risk.
36
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Payments
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. (37)
The key challenge for providers will be their ability to
align and integrate community care standards for a
specific EoC while also being able to provide
clinical/operational support for the entire episode of care.
37
Bundled payments have been around for some time in
the form of specific provider type oriented payments such
as DRGs… would expand to capture all EoC services.
The main difference with EoC payment methodologies
of the future… specific requirement to coordinate and
manage care across a vertical continuum of care…
specific to an episode of care event… tied to a specific
length of time… at a set, fixed price.
Emerging Business/Financing Models: CIO Options
II. Clinical Integration as a Business Strategy for Accelerated Growth: Payments
Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 38
III. Lessons Learned
Effective change in a
restructured regulatory and
reimbursement environment
will not be sustainable…
absent… physician
leadership
Presentation Agenda
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
III. Risk Models and the Assumption of Performance Risk
Transition to a value-driven healthcare system will require a
great deal of re-engineering to support more integrated care
delivery models designed to manage patient populations.
Managing the financial risk associated with bundled and
capitation payment methodologies… the greater the
financial risk for healthcare organizations… the greater the
need for clinical integration and expanded information
technology and operational support.
Healthcare organizations unable to develop the appropriate
operating business model relative to the accepted level of
financial risk will become financially distressed and at
greater risk for bankruptcy.
39
Lessons Learned: Risk and Care Management Models
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 40
Lessons Learned: Risk and Care Management Models
III. Risk Models and the Assumption of Performance Risk
In the end, its about…
Strategy and Strategy Execution
People
Process
Technology and Capital
Sustainability
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
The ACA will be a
transformative event… be
prepared… do not wait
until 2013 or 2014 to act!!!
41
III. Risk Models and the Assumption of Performance Risk
Lessons Learned: Risk and Care Management Models
Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 42
IV. Questions and Answers
Presentation Agenda
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved.
Christopher Kalkhof,FACHE
Director
Office
(347) 254-2433
Mobile
(716) 912-0309
ckalkhof@
alvarezandmarsal.com
Website
www.alvarezandmarsal.com
Christopher Kalkhof
IV. Contact Information and Speaker Bio
(43)43
▲ Christopher Kalkhof is a Director with Alvarez & Marsal’s Healthcare Industry Group in New York. He has more than25 years of diverse healthcare management experience. He specializes in managed care strategy development andcontract negotiations; contract implementation and integration with revenue cycle/case management processes;provider-payer collaborations; physician alignment and integration; strategic planning and new product development.
▲ Over the last several years, Mr. Kalkhof has spent much of his time assisting clients optimize their net managed carerevenue potential, resulting in net rate increases and revenue improvements of nearly $500 million. Over the span ofhis career he has gained managed care related work experience in over 20 states and has directly negotiatedhundreds of payer agreements for hospital, behavioral health, physician, IPA/PHO, home care, hospice and skillednursing facility clients. He has also reviewed hundreds of additional payer contracts.
▲ Recent or prior relevant experience has included:
– Developing a broad-based managed care strategy and leading a contract rebasing/negotiations process involvingover 50 payer product contracts/20 different payers for a partial physician owned hospital with an estimated netrevenue improvement of $10 million on an 18 month run rate basis.
– Working with a large safety net health system to improve physician charge capture and reduce payer denials aswell as reorganize the managed care department, build a contracts administration unit and develop strategies forimproving market position for a system owned health plan.
– Renegotiated payer contracts for nearly $13 million in net revenue increases (24 month run rate basis). Stoppedan unjustified payer attempt to recoup $1.2 million in alleged overpayments, upgraded contract manager (CM) andincorporated CM application into revenue cycle operations.
– Conducting a risk mitigation/EBIDA improvement opportunity assessment as part of a due diligence “clean team”review of an acquisition candidate hospital, which also included a clinically integrated PHO joint venture.
– Evaluating a hospital’s current contracting strategy, contract content and physician-clinical integration options.
▲ Prior to joining A&M, Mr. Kalkhof was: Director/National Managed Care Lead for a Big 4 firm’s provider consultingpractice; Interim SVP of Managed Care for a nine hospital system; Interim VP Managed Care for a community hospital;consulting Director of Managed Care at community hospital through the bankruptcy and post-bankruptcy ownershipchange to physicians; Partner in a practice management firm; Director of Marketing Administration and ProfessionalRelations for a large health insurer; and Product Development Manager for a HMO.
▲ Mr. Kalkhof received his Master of Health Administration degree from Tulane University and his Bachelor of Science,degree from Allegheny College. He is a Fellow in the American College of Healthcare Executives and a frequentpresenter on managed care revenue improvement and physician alignment topics for the HFMA, ACHE, MGMA, WRGand other professional groups. In 2008, Mr. Kalkhof served as a member of the NYS Office of Medicaid InspectorGeneral’s Medicaid Managed Care Compliance Program Guidance Advisory Committee.
© Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 44
Francis LaMorte,M.D.
Director
Office
(347) 891-0116
flamorte@
alvarezandmarsal.com
Website
www.alvarezandmarsal.com
Christopher Kalkhof
IV. Contact Information and Speaker Bio
44
Dr. Francis LaMorte is a Director with the Alvarez & Marsal Healthcare Industry Group in New York. He specializesin physician practice management, healthcare business strategy, hospital-based patient throughput, physiciancompensation, and governance
Prior to joining Alvarez & Marsal, Dr. LaMorte advised a financial syndicate on the buy-out of a genericpharmaceutical company, and developed the business plan and start up of a PPO
Since joining A&M his work has included contract assessment of a one-hundred member employed -physicianmedical foundation, a medical staff audit and development of a contract renegotiation strategy for a 252-bedmedical center, a hospital merger assessment, and planned hospital closings for two systems
Previously, Dr. LaMorte served as executive chairman of EMX, L.P., He led a post-demerger restructuring of thefirm’s operations and governance, designing and leading multiple, sustained, transformational initiatives thatenabled EMX to turnaround and become one of the nation’s largest privately-held emergency medicine practicemanagement firms, with more than 400 providers under management at twenty-four emergency departments andhospitalists practices providing care for 1.3% of the nation’s emergency patients
– Achievements included: design and execution of a recapitalization as an alternative exit strategy to a plannedIPO; restructuring of the corporate governance board; implementation of a balanced scorecard andproductivity–driven physician compensation plan; and the business development of subsidiaries for urgent carecenters, hospitalist practices, a consumer retail chain, physician billing company and an IT managementsystem now operating thirty EDs
As company compliance officer, he co-developed the company HIPAA program. He developed risk controlsystems and training programs for billing, coding, EMTALA, and HIPAA obligations
Dr. LaMorte served for twenty years as attending physician in the emergency department of the flagship hospital ofthe St. Barnabas Health Care System. He was chairman of the System’s utilization management committee, andpresident of the thousand-member IPA
Dr. LaMorte earned a bachelor's degree from Princeton University, and received his doctorate in medicine from theRobert Wood Johnson Medical School. He holds a master's degree in business administration from the YaleUniversity School of Management
Copyright 2010. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 4545
www.alvarezandmarsal.com
The Alvarez &Marsal Advantage
Founded in 1983, Alvarez & Marsal (“A&M”) is a leading independent global professional services firm with more than 1,700 professionalsbased in North America, Europe, Asia and Latin America.
Currently 39 offices globally with headquarters in New York, London, and Hong Kong.
Offer deep financial, tax, operational and industry expertise.
Deep bench of talent across industries with the unique ability to transition between financial, operational and advisory roles to meet client’schanging business needs.
A&M is the leading, independent global professional services firm which excels at leadership, problem solving and value creation. A&M’sHealthcare Industry Group practice represents an assembled team of healthcare professionals who bring a significant track record of workingwith management, boards of directors and stakeholders of both investor-owned and non-profit providers, payers and suppliers to improveoperational, financial and clinical performance.
A&M’s managed care consultants and interim management professionals bring deep best practices expertise in the development of managedcare contracting and physician alignment strategies, payer contract negotiations, and the implementation / integration of contracting andphysician alignment strategies into an organization’s overall clinical and business operations.
Our managed care services are aligned with your contract management cycle and can be tailored to meet your specific needs and marketenvironment. We work with your team, serving in advisory or interim management roles, to ensure your success with your overall payercontracting strategy.
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