Finding the Strategic Tipping Point : To Employ or Not to Employ Orthopedic Surgeons. Melinda Bemis and Craig Pederson

Transcription

1 Finding the Strategic Tipping Point : To Employ or Not to Employ Orthopedic Surgeons Melinda Bemis and Craig Pederson

2 INTRODUCTION AND OVERVIEW

3 Today s speakers Craig D. Pederson Principal Edina, Minnesota cpederson@insighthp.com Melinda Bemis Director, Strategic Planning & Business Development St. Cloud, Minnesota ext BemisM@centracare.com 3

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6 Outline for Today s Discussion Agenda Item Approximate Timing Introduction and Overview 11:45am 11:55am Small Group Breakout Discussions Small Group Summary Presentations Wrap-Up Discussion & Lessons Learned 11:55am 12:15pm 12:15pm 12:45pm 12:45pm 1:00pm 6

7 Learning Objectives 1. To identify the strategic "tipping" point at which the risk of employing orthopedic surgeons (and competing against the independent group practice) equals the cost of the status quo (doing nothing). 2. To define a short list of 3-5 factors that will drive organizational decision-making on a combined basis. 3. To identify the issues necessary for participants to complete a "tipping point" analysis for their own organization. 4. To understand the other factors / risks to leadership of moving forward with a decision to employ orthopedic surgeons. 7

8 What s at stake? At a micro level, a busy orthopedic surgeon drives a significant amount of downstream volume and associated contribution margin From a payer perspective, orthopedic surgeons represent a significant portion of the Total Cost of Care (TCOC) for individual patients and patient populations. Est. Annual Volume for Established Assumed Contribution Margin Ortho. Surgeon Per Case Per Physician Hospital IP Surgeries 190 $ 7,500 $ 1,425,000 Hospital OP Surgeries 90 $ 3,500 $ 315,000 ASC Cases 110 $ 2,000 $ 220,000 MRI (outpatient) 200 $ 250 $ 50,000 Physical Therapy 220 $ 120 $ 26,400 Total for Established Orthopedic Surgeon $ 2,036,400 8

9 What s at stake? A service line that typically generates a significant portion of overall health system margin A listing of more profitable hospital service lines typically includes: Cardiology Neurosciences Oncology Orthopedics 9

10 The environment: A trend towards reduced contribution margin per case in orthopedics Sample Contribution Margin Per Case Hospital Inpatient $7,000 Outpatient Hospital $3,500 ASC $2,000 Assumed CM per Change from Inpt. Case Total Percent Inpatient ortho case $ 7,000 Outpatient ortho case $ 3,500 $ (3,500) -50% ASC ortho case $ 2,000 $ (5,000) -71% Impact of competing ASC entities? 10

11 The environment: Orthopedic service providers that are increasingly aligned (at the provider level), highly specialized and organized around large ambulatory footprints (one-stop shops). Physician Specialties Supporting Providers Services Specialty Programs Radiology Muskuloskeletal Primary Care Physician Assistants Acute Injury Clinic Hilton Recovery Program Radiology; Musculoskeletal Muskulosk. Prim. Care/Acute Injury Clinical Psychology Ambulatory Surgery Center Pain Management Program Anesthesiology Muskulosk. Prim. Care/Sports Med. Neuropsychology Joint Replacement Sport Concussion Program Orthopaedic Surgery Nonoperative Orthopaedics Pain Psychologist Diagnostic Imaging TRIA Kids Ortho. Surg: Sports Med. Sports Medicine & Pediatrics Hand Therapy Hand Therapy TRIA L.E.A.P. Ortho. Surg: Spine Surg. Physical Medicine & Rehab. Orthotist Physical Therapy TRIA Fit & Well Ortho. Surg: Shoulder Podiatric Surgery Pedorthist Sports Medicine Running Program Ortho. Surg: Hand Pain Medicine Physical Therapy Cycling Program Ortho. Surg: Foot & Ankle Aquatic Therapy Return to Throwing Program Source: Tria website. 11

12 The environment: A continued shift of joint replacements to an outpatient setting Article highlights: Approximately 40 ASCs across the country are currently performing outpatient joint replacements. Currently, CMS has limited Medicare and Medicaid payments for inpatient procedures for total hips. Total knees allowed as hospital outpatient setting as of 1/1/2018. Source: Hospitals fret as joint replacements move to outpatient centers; Modern Healthcare, June 6,

13 The environment: Potential market shifts as providers evolve. 55% 50% 45% 40% 35% 30% Inpatient Market Share Trend 25% All Services Orthopedics Cardiovascular 13

14 Payment Methodology The environment: Provider alignment models need to evolve to keep pace with a rapidly changing payment environment. Full Capitation Subcapitation Case Rates Closed System Team-Based Care Disease Management P4P (Robust) P4P ( Lite ) Fee for Service Solo MD Practices Group Practices Registries Non-MD Clinicians Multispecialty Group Practices Stage of Evolution EMR Integrated Delivery System Clinic Model Notes: 1-P4P = Pay for Performance 2-EMR = Electronic Medical Record Source: Lee, T. and Mongan, J., Chaos and Organization in Health Care Cambridge: Massachusetts Institute of Technology,

15 Continuum of Physician Hospital Alignment Models Practice Relationship ACO Clinically Integrated IPA/PHO PSA Outreach PSA Specialty or Division PSA Full Practice Employment Direct Physician Enterprise Foundation Health System Subsidiary LESS ALIGNED MORE ALIGNED Clinical Business Partnership Hospital-Sponsored Malpractice Call/Coverage Payments Intake/Discharge Liaison MOB MSO Services Productivity ED Call Medical Direction Joint Ventures EMR Services Clinical Co- Management Gainsharing Joint Venture Management Company Physician-Owned Hospital 15

16 Hypothetical MICRO orthopedic case study: SCENARIO: INDEPENDENT ORTHOPEDIC PHYSICIAN GROUP WITH PHYSICIAN-OWNED ASC TIMEFRAME: Present State Future State Est. Annual Est. Annual Per Physician Volume Assumed HOSPITAL Volume Assumed HOSPITAL CM Variance per Ortho. Contribution Margin per Ortho. Contribution Margin Present vs. Surgeon Per Case Per Physician Surgeon Per Case Per Physician Future State Hospital IP Surg. 190 $ 8,000 $ 1,520, $ 6,000 $ 660,000 $ (860,000) Hospital OP Surg 90 $ 3,200 $ 288, $ 3,200 $ 352,000 $ 64,000 ASC 0 $ 2,200 $ - 0 $ 2,200 $ - $ - MRI 0 $ 250 $ - 0 $ 250 $ - $ - PT 0 $ 120 $ - 0 $ 120 $ - $ - Est. CM for Established Ortho. Surgeon $ 1,808,000 $ 1,012,000 $ (796,000) SCENARIO: HEALTH SYSTEM EMPLOYED ORTHOPEDIC SURGERY GROUP TIMEFRAME: Present State Future State Est. Annual Est. Annual Per Physician Volume Assumed HOSPITAL Volume Assumed HOSPITAL CM Variance per Ortho. Contribution Margin per Ortho. Contribution Margin Present vs. Surgeon Per Case Per Physician Surgeon Per Case Per Physician Future State Hospital IP Surg. 190 $ 8,000 $ 1,520, $ 6,000 $ 660,000 $ (860,000) Hospital OP Surg 90 $ 3,200 $ 288, $ 3,200 $ 352,000 $ 64,000 ASC 110 $ 2,200 $ 242, $ 2,200 $ 352,000 $ 110,000 MRI 200 $ 250 $ 50, $ 250 $ 50,000 $ - PT 220 $ 120 $ 26, $ 120 $ 26,400 $ - Est. CM for Established Ortho. Surgeon $ 2,126,400 $ 1,440,400 $ (686,000) Per Physician CM Variance Independent versus Aligned Physician $ 318,400 $ 428,400 16

17 SMALL GROUP BREAKOUT DISCUSSIONS

18 Assignment 1. Select an individual to serve as scribe for the group. The scribe will summarize key points of the group s discussion. 2. Spend minutes discussing the case study facts. Develop the group s response to each of the case study questions. Feel free to fill in missing facts as needed to support your recommendations (and refute alternative scenarios)! 3. Select an individual to serve as presenter for the group (this can also be the scribe). The presenter will present the small group s discussion points to the large group. 18

19 Discussion Questions 1. What should leadership do (if anything)? What is the recommendation for orthopedics? Is the status quo option (do nothing) the best course of action? o Describe leaderships vision for the orthopedic service line and the organizational relationship with orthopedic surgeons. What does it look like 3 years from today? 2. What is the rationale for your recommendation? Please describe? Even a recommendation of status quo should be supported by rationale for staying the course. 3. How do we get from where we are today? Please include relevant details, timing, etc.? 4. What are the most significant risks associated with moving forward with the recommendation? How will key stakeholders react, e.g., local orthopedic surgeons, the public, other? What contingency plans will need to be in place? 19

20 Case Study A Blue Hospital Blue Hospital is a community hospital with 350 beds located in metro area with 1 additional significant hospital competitor. The orthopedics service line has historically contributed significantly toward the hospital s annual operating margin which has traditionally hovered at a healthy 8%. However, Blue Hospital s operating margin has dropped to 5% over the past 3 years while contribution margin from orthopedics has dropped 6% over the same time period. Blue Hospital s inpatient market share for orthopedics has also dropped from 47% to 37% over the past 5 years while overall market share for all services has remained flat at 50% during the same time period. The market share loss is somewhat hidden by the fact that overall hospital inpatient orthopedic case volumes have remained relatively stable during the same period (again supporting the fact that the overall number of cases in the market is growing). While some of the lost cases are moving to the local competitor hospital, a significant volume of patients appear to seeking services at large orthopedic centers located outside of the primary service area and more than a 45 minute drive from Blue Hospital. Orthopedic surgery professional services in the community are provided by Regional Orthopedic Clinic (ROC), a large, single-specialty group practice with 20 physicians. The clinical quality of the physicians has always been high although the lack of any formal provider alignment model between ROC and Blue Hospital is resulting in an increasing number of difficulties in managing payer contracts with significant compensation tied to value based performance metrics. ROC currently provides orthopedic trauma call coverage to Blue Hospital and is compensated approximately $1Mil annually. ROC also owns 50 percent of a physician owned ambulatory surgery center (ASC). Whenever clinically feasible, ROC physicians perform cases, particularly commercial insurance cases, at their owned ASC as well as clinically appropriate Medicare cases which are quickly increasing. A high percentage of Medicaid and no-pay cases are performed at the Blue Hospital ASC. However, Blue Hospital does not have any meaningful volume of commercial ASC cases. continued on next page 20

21 Case Study A Blue Hospital (continued) Blue Hospital s planning department has concluded that the market demand for orthopedic surgeons significantly exceeds the current supply in the area and recommends recruiting up to 7 orthopedic surgeons over the next 5 years. However, ROC leadership disagrees with the findings and has resisted the need to add more clinical capacity and some sub-specialties. In addition, ROC leadership has indicated that they will no longer provide trauma coverage if Blue Hospital pursues a strategy of recruiting orthopedic surgeons to its employed physician group. 21

22 Case Study B Grove Hospital Grove Hospital is a community hospital with 290 beds located in a city with a population of approximately 50,000. While the immediate community has no other competing health system facilities there is a 25 bed critical access hospital (CAH) approximately 14 miles away. Grove is part of a large, integrated health system (Southern Health System) with facilities in 3 different states. The medical staff for both Southern Health System and Grove Hospital consists of a high number of fully aligned physicians (employed) within a medical group that has a long history in the community and the state. Orthopedics is one of the few specialties that remain independent in the community. Cedar Valley Orthopedics (CVO) is an independent physician group with more than 15 orthopedic surgeons including spine surgery. Over the past 15 years the group has developed all of the ancillary and facility based services typical of a large orthopedic practice including X-ray, physical therapy, sports medicine programs, MRI and an ambulatory surgery center (ASC). CVO also has multiple contractual relationships in place with hospitals in surrounding communities including medical directorships and professional services agreements (PSAs) in which the local hospital owns and operates the orthopedic physician group and leases physician capacity from CVO. One PSA relationship has been in place for over 10 years. Physician compensation performance for the group is very competitive both regionally and nationally so the group has been able to successfully recruit and retain physicians in the past. continued on next page 22

23 Case Study B Grove Hospital (continued) As a health system, Southern s percentage of payer contracts/reimbursement models for both managed and value based patient populations has been steadily increasing. This focus on managed/value based patient populations has increasingly highlighted the fact that, unlike other hospitals in the health system, Grove has almost no alignment with the orthopedic surgeons of CVO with the exception of a medical director and call/coverage agreement. This lack of alignment has started to be reflect in Grove s performance relative to key value based performance metrics while other Southern facilities are trending to the positive. Finally, the recently completed strategic plan for the system includes a goal of increasing the level of hospital-physician orthopedic provider alignment. 23

24 Small Group Summary Presentations

25 Wrap-Up Discussion and Lessons Learned

26 Discussion Questions years ago, a majority of cardiology physicians were structured similar to many large orthopedic surgery groups today, i.e., large, independent, single specialty physician groups with significant subspecialization and build-up of supporting ancillary/facility-based services. A. Why did a majority of the large, independent cardiology groups fully align with hospital partners over a relatively short time period? B. Could what occurred in cardiology also occur in orthopedic surgery, i.e., a rapid period of physician-hospital alignment? 2. What are the factors that will most likely to cause physician-hospital alignment in orthopedic surgery? 26

27 Lessons Learned 27

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