Why Physician Employment Is Not A Strategy By Itself

1. Why Physician Employment Is Not A Strategy By Itself John Kirsner Partner, Squire Sanders Michael Strilesky Manager, Charis Healthcare

2. Today’s Objectives • Market Conditions Impacting Physician Employment and Integration • Key Revisions of Healthcare Reform Considerations that Impact Alignment • Clinical Integration, Co-Management as Alternative to Physician Employment • Strategic Considerations for the Future

3. Keys to the Future: Reduced Fragmentation and Comprehensive Integration Future State: Patient Centric Care Present State: Fragmented Care

4. Low Integration High Independent Medical Staff Medical Directorships, Subsidies, Management Contracts Under-Arrangements, Joint-Ventures Clinical Institute, Co-Management Foundation Employment The Next Step: Moving to More Integrated and Performance Based Models Care Coordination / Bundling Income Guarantee Fixed Salary Productivity (FFS)

5. Why The Push To Employment:Physician Income Declining Specialist Production vs. Compensation 2007-2008 PCP Production vs. Compensation 1991-2009 $565k $250k $185k $125k 1991 2009 PCP Production PCP Compensation Source MGMA 2009

6. 7 Steps: Developing a Successful Employed Medical Group Source: Sg2, Building a Successful Employed Medical Group

7. Group of providers with the organization to contract as a unit, monitor performance (“ACO”) ACO will share aggregate savings with Medicare that result from the integrated structure Sufficient primary care physicians to serve 5,000 Medicare Part B beneficiaries Three year agreement Existing leadership and management structure that includes clinical and administrative systems Must meet certain quality measures and demonstrate patient-centered care Group of providers including a hospital, a physician group, a skilled nursing facility, and a home health agency One bundled payment to the group for an “episode of care” for participating Medicare beneficiaries Episodes of care are defined as One of ten applicable conditions selected by the Secretary Care beginning three days prior to admission to a hospital and ending thirty days following discharge from the hospital Must meet certain quality measures It’s Now the Law: ACO and Bundling Demonstration Projects ACO Bundling

8. Primary Care Inpatient Procedure Surgeon Post-Acute Care Downstream Risk Payment Flow in a Bundled World I:Bundled Facility Fees • Results in “supergroups” and clinically integrated PHOs • Hospital owns/ controls/contracts with all facilities • Physician-hospital collaboration more important than ever Payor Bundled Facility Fees Professional Fees CIS Specialist 8

9. Primary Care Group Practice I CIS Surgeon Group Practice II Downstream Risk Payment Flow in a Bundled World II:Bundled Professional and Facility Fees • Hospital owns/controls/ contracts with all facilities • Hospital owns/controls/ contracts with physician practices • Can an independent Group be strong or large enough to survive? • Foundation Model/ACO as End Game? • Is there capacity for Foundation/ACO everywhere? Payor All Payments (Professional and Technical) Bundled Inpatient Procedure Post-Acute Care Specialist Group Practice I 9

10. Repeal of Hanlester • Healthcare Reform amended the Anti-Kickback Statute’s intent standard, such that, in violating the Anti-Kickback Statute, a person need not have actual knowledge of the Statute or a specific intent to violate the Statute • This effectively overturns Hanlester • Historically, other courts and the OIG have reviewed the facts, circumstances and safeguards surrounding an arrangement in evaluating Anti-Kickback Statute compliance • While this will likely continue, there will be a “sorting-out” period with respect to risk analysis, and parties should take a thoughtful, cautious and comprehensive approach when evaluating Anti-Kickback Statute compliance

11. Clinical Integration • FTC allows joint contracting where clinical integration exists • Defined as a “network implementing an 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.” Statements of Antitrust Enforcement Policy in Health Care (August 1996) at Statement 8, § B.1.

12. Clinical Integration – Key Characteristics • Selective, scalable membership • Delivery of evidence-based care • Infrastructure for coordination and collaboration • Performance transparency system • Meaningful performance-based incentives

13. Clinical Integration – Necessary Components • Clinical protocols and benchmarks • Governance and staffing infrastructure • Data monitoring and reporting • Contractual model and accountabilities • Technology infrastructure • Payer contracting vehicle • Performance-improvement tools and processes • Performance-based pay structures

14. Surgeon Primary Care Treatment in a Clinically Integrated Network Patient Flow • Implications • Access to health records by individual physician and group • Access by all physicians in CIN • Access between groups • Access by Hospital • Physician-driven Specialist • EMR • Performance Improvement • Clinical Pathways Post-Acute Care 14

15. What Facilities Want: Structural Physician Collaboration • Hospitals and Health Systems are seeking greater collaboration • Survey of Facilities - Either already implementing/are considering within 2 years: • Co-Management Relationship: 22%/27% • Office Leasing: 40%/22%* • Equipment Lease: 15%/14%* • Joint Venture: 21%/37% • Under-Arrangement: 18%/10%* *Discouraged after most recent Stark regulatory changes Source: Advisory Board, Toward True Shared Governance: Emerging Oncology Service Line and Physician Alignment Models (2009). To Edit Footer Text: Select View/Header and Footer/Check Mark Footer Box/Edit Text

16. Co-Management Intended to Drive Comprehensive Integration WIN-WIN

17. Co-Management Leadership Structure LLC Management Company Executive Director • Orthopedics • Urology • General Surgery • Budgeting • Human Resources • Managed Care Contracting ©2010 Squire, Sanders & Dempsey L.L.P. 17

18. Co-Management Legal Structure Specialists Cancer Center Pays the LLC for: • Base management fees • Expense reimbursement • Incentive compensation meeting service line management benchmarks Service Contract to Manage Cancer Center Management Contract Equity $ Management Company LLC Equity Return (Incentive Payout) Specialists ©2010 Squire, Sanders & Dempsey L.L.P. 18

19. Value-Based Purchasing Reduce Preventable Readmissions Reduce Hospital Acquired Conditions Bundled Payments Accountable Care Organizations Healthcare Reform…The Goal The Goal Increase Healthcare “Value” 1. Reduce Costs Improve Quality Tactics 2. Prerequisite 3. Electronic Health Records Source: HFMA Regulatory Sound Bites I September 2009 To Edit Footer Text: Select View/Header and Footer/Check Mark Footer Box/Edit Text

20. Economic Comparison of Integrated Strategies

21. Getting Here from There… 2010 2015 Accountable Care Organization COST Integrated Physician Network QUALITY Co-Management Optimizing EMG & MSO Strategy GROWTH EMG: Employed Medical Group, MSO: Management Services Organization

22. Contact Information John M. Kirsner, Esq. Squire, Sanders & Dempsey L.L.P. Partner, Health Care Practice Group (614) 365-2722 jkirsner@ssd.com Michael Strilesky Charis Healthcare Manager (330) 650-1752 michael.strilesky@charishealthcare.com