1. E02: Developing Employment
Agreements for Quality, Operational
Efficiency and Patient Contact
ANI: The Healthcare Finance Conference
June 29, 2011
George Batalis, CPA, Director, Pricewaterhouse Coopers, LLP
Curtis Bernstein, CPA/ABV CVA ASA, Director Valuation
Services, Sinaiko Healthcare Consulting
Roger Logan, CPA/ABV ASA, Corporate Vice President,
Catholic Health Partners

2. Introduction
George Batalis, CPA
Director
Pricewaterhouse Coopers, LLP

3. Current Environment
Key Drivers
• Affordable Care Act
• Accountable Care Organizations
• Episode and Case (Bundled) Care Payments
• Quality and P4P Initiatives
• Physician Work Force Shortages
• Reimbursement Reductions
Call to Action
• Focus of Clinical Integration
• Employment of Physicians
• Acquisition of Physician Practices
• Acquire & Expand Ancillary and Ambulatory Services
• Affiliate with other Hospitals and Health Systems

4. Collaboration Factors
Factors driving hospitals to collaborate with physicians:
In this era that some researchers describe as one of “loose managed care,”
hospitals have at least four reasons to align with physicians.
 Improves a hospital’s ability to compete for admissions
 Improve quality of care
 Control the cost of care
 Gain leverage with health plans in rate negotiations
Factors driving physicians to partner with hospitals:
 Increase physicians’ productivity
 Increase income beyond their professional fees though hospital joint
ventures on ancillary services, bonus payments for meeting certain
quality objectives, hourly payment for attending medical staff meetings,
joint ventures pertaining to real estate, and attractive bond offerings.
 Better leverage in gaining entry to private insurers’ provider networks
and negotiating better payment rates with those insurers.

5. Current Challenges Facing
Hospitals & Health Systems
Economic Challenges:
Declining physician compensation is leading all physicians to hospitals for
help with supplementing their income in the following ways:
 Call Pay
 Stipends
 Medical Directorships
 Subsidies
Hospitals are also faced with additional challenges with employed
physicians and physician groups related to duplicative services that both the
hospital and the physicians provide. Some of these duplicative services
include, but not limited to, the following:
 Billing & Collecting
 Coding & Documentation Support
 Administrative Oversight

6. Current Physician Economics
• Common Physician Payments from Hospital:
Contracted Independent
Physicians Employed Physicians
Physicians
(e.g., Hospital Based) (e.g., Community Based)
• Subsidies • Subsidize Physician • Stipends
• Directorships Practice • Directorships
• Call Pay • Directorships • Call Pay
• Call Pay
• Duplicative Services
• Restructuring physician payments should take on the following
attributes:
 Regulatory compliant – fair market value
 Productivity based
 Aligned with hospital goals
 Tied to positive practice economics

7. Restructuring Physician Contracts
Typical contracted physicians get a subsidy for collections guarantees or site
coverage with little or none of their compensation at risk for their performance. To
address physician performance and provide for a “risk/reward” environment the
following are recommended to be included in contracted physician contracts:
 Location/Site Stipend
 Ensure the critical coverage needs at the hospital are being met
 Call Coverage
 Ensure call coverage for critical services, make the physicians responsible
for coordination and coverage of the call schedule
 Management Duties
 Instead of just paying for medical directorships that are non-committal in
the duties expected, the hospital must build specific detailed managerial
and supervisory roles into the duties of the medical director positions
 Quality/Operational Improvements
 Hospitals need to include quality and operational incentives that
physicians can impact change within the hospital

8. Potential Physician Compensation
Structure via Employment or
Professional Services Agreement
Compensation Elements
Productivity
Compensation via Net * Structured through
Collections or Work RVU employment contract
Methodology or professional
services agreement
Management consistent with a joint-
Stipend/Medical
venture / co-
Directorship (s)*
management
company/contract with
Quality, Operational &
a hospital.
New Program
Incentives*

9. Example Compensation Model
Methodology
The largest portion of the compensation methodology would be a
productivity based compensation methodology which would pay the
physicians on a per work RVU basis. Also, the physicians would receive
additional compensation from meeting performance incentives based
around quality improvements and operational efficiencies, as well as for
participating in managing certain aspects of the service line or medical
directorships.
Optional:
X • Medical
Potential = Pro-forma Clinical + = Total
Work RVU / Conversion Directorship
Compensation Compensation / Compensation
Physician Factor • Incentive
Methodology Physician Pool
Compensation
• Call Coverage

10. Example Incentives
Quality Performance Elements Operational Performance
 Patient Satisfaction Elements
 Infection Rates  First morning start times
 Unplanned return to surgery  Room turnover time
 Demand Matching  Standardized clinical care processes
 SCIP Core Measure Compliance  On time start rate
 Patient prep time
 Risk Adjusted Complication Rates
 Wait time
 Risk Adjusted Mortality Rates
 Cancellation rates
 Readmission Rates
 Utilization of block schedules
 Medical Records Compliance  Case Delays
 AMI  Patient Discharge by 11:00 am, by
 Aspirin at Arrival 2:00 pm
 Aspirin at Discharge  Admission Protocols
 ACE inhibitor use for LSVD  Staff turnover
 Throughput
 Beta blocker prescribed at discharge
 CHF
 Discharge Instructions
 LVF Assessment
 ACE inhibitor use for LSVD
 Adult smoking cessation counseling
 Door to Balloon Time

11. Fair Market Value and Commercial
Reasonableness Benchmarks
Curtis Bernstein, CPA ABV CVA ASA
Director
Sinaiko Healthcare Consulting

12. Do You Recognize This Document?

13. Fair Market Value
• Stark, Anti-kickback and tax exempt laws ALL
require physician compensation arrangements to
be fair market value (FMV)
Stark
FMV
Tax Exempt AKS
• Enforcement climate is increasingly focused on FMV and
commercial reasonableness

14. Stark and Anti-Kickback Law
• Employment Exception under the Anti-Kickback Law
– “[s]hall not apply . . . to any amount paid by an employer to an employee
(who has a bona fide employment relationship with such employer) for
employment in the provision of covered items and services.
• Employment Exception under the Stark Law
– The employment is for identifiably services
– The amount of remuneration paid is consistent with the fair market
value of the services
– The amount of remuneration paid does not take into account the
volume or value of any referrals made by the referring physicians
– The amount of compensation paid would be commercially reasonable
even if no referrals are made to the employer; and
– The employment meets such other requirements as the Secretary of
Health and Human Services may impose by regulations as needed to
protect against program or patient abuse.

15. FMV Definition
• Fair Market Value Requirement under all Laws
– No definition of FMV under Anti-Kickback Law
– Stark Law definition:
Fair market value means the value in arm’s-length transactions,
consistent with the general market value. General market value
means “. . . the compensation that would be included in a service
agreement as the result of bona fide bargaining between well-
informed parties to the agreement who are not otherwise in a
position to generate business for the other party on the date of
acquisition of the asset or at the time of the agreement.” Stark II,
Phase III Final Rule (42 CFR Section 411.351)

16. “Almost” Safe Harbor
• Stark II, Phase II created a “safe harbor” provision in the
definition of fair market value relating to hourly payments to
physicians for personal services.
– Hourly rate, determined as the average of the median
reported by at least four national services divided by 2,000
hours, is less than or equal to the average hourly rate for
emergency room physician services in the relevant physician
market
– Surveys include Sullivan Cotter, Hay Group, Hospital and
Healthcare Compensation Services, MGMA, Watson Wyatt,
and William M. Mercer

17. Benchmark Surveys

18. Data Available for Benchmarking
• wRVUs
• Professional Collections
• Encounters
• Total RVUs
– Includes practice expense RVUS for designated
health services (DHS)
• Total Collections
– Includes ancillary revenues from DHS
• Operating Expenses

19. Benchmarking Example
Benchmark
FTE 25th 75th 90th
Sub Specialty Status 2010 Data Percentile Median Percentile Percentile %ile
Non-Invasive/General 1.0 473,475 428,296 611,771 838,094 1,216,953 31P
Invasive/Interventional 0.6 350,134 610,536 762,549 962,796 1,204,643 24P
Electrophysiology 1.0 850,422 615,358 742,237 948,202 1,123,496 63P
Benchmark
FTE 25th 75th 90th
Specialty Status 2010 data Percentile Median Percentile Percentile %ile
Non-Invasive/General 1.0 5,770 5,408 7,117 9,315 12,134 30P
Invasive/Interventional 0.6 4,575 7,465 9,447 12,529 16,081 27P
Electrophysiology 1.0 12,293 8,040 9,846 12,447 17,116 74P
Is there a perfect correlations?
How do I weigh these?

20. Understanding Benchmarks
• Which survey(s) does not
include sign on bonuses in
MGMA
total compensation?
• Which survey presents
shareholder and non- AMGA
shareholder data
separately?
• Which survey(s) include SCA
physicians providing full time
administrative services with
clinic based physicians?

21. Correlating Statistics
• Every physician is not paid for every
possible service (e.g., not all physicians
are medical directors)
• According to the 2010 MGMA
Compensation Survey, approximately 30%
of providers receiving a quality based
incentive bonus and less than 50% of
physician earn any form of incentive
bonus.

22. Determining FMV Compensation -
AGAIN
• Should the physician producing at the 90th percentile wRVUs earn
90th percentile compensation per wRVU?
– Maybe, but unlikely
– The physician should not be compensated at the 90th
percentile compensation per wRVU solely for clinical services
– The 90th percentile compensation per wRVU should be earned
through a culmination of multiple services
Comp / Comp /
wRVU Extended 90th %ile % wRVU Extended %
Specialty wRVUs (75P) Comp Comp Higher (90P) Comp Higher
Internal Medicine 7,214 $ 50 $ 359,009 $ 316,038 113.6% $ 61 $ 443,255 140.3%
General Cardiology 12,450 70 868,245 637,929 136.1% 92 1,144,716 179.4%
Hem Onc 7,905 103 816,194 783,651 104.2% 127 1,004,208 128.1%

23. Compensation per wRVU Trend
Source: MGMA Physician Compensation and
Productivity Survey: 2010 Based on 2009

24. Stacked Compensation
Paying for Call Coverage, Medical Directorships, P4P,
Supervision, Sign On Bonus, Etc.
• Need to determine if the total compensation is reasonable.
• Additional benchmarking:
– Compensation per wRVUs
– Compensation to professional collections
– Compensation per total RVUs
– Compensation to total collections
– Compensation per encounter

25. Post -Transactional
Management and
Administration
Roger Logan, CPA/ABV ASA
Corporate Vice President
Catholic Health Partners

26. 3-D Perspective

27. Calculating the Risks

28. CY 2011 - Case Example
Assumptions
– Employed Procedural Specialists
– Physician compensation model reflects the following key
components:
Individual Productivity Component
Quality/Clinical Measures Component
Practice Efficiency and Financial Component
– The compensation plan is developed and derived through
the due diligence efforts by CHP and its independent legal
and compensation valuation advisors; and will be subject
to initial and ongoing annual reviews to assure consistency
and regulatory

29. Case Example
2011 Compensation Summary
Employed Specialist Physicians For Illustration and Discussion Purposes Only
COMPENSATION COMPONENTS CY 2011
Physician
A. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3
Adjusted
wRVUs Scheduled Tiers (2) wRVUs (1) 10,000 12,000 14,000
Tier From To Payout Rates
I - 7,000 $ 38.00 $ 266,000 $ 266,000 $ 266,000
II 7,001 11,000 $ 43.00 129,000 172,000 172,000
III 11,001 15,000 $ 48.00 - 48,000 144,000
wRVUs in Excess of Highest Tier Paid @ $ 48.00
Personal Performed Productivity $ 395,000 $ 486,000 $ 582,000
85.7% 85.7% 85.7%
B. Practice Efficiency Incentive (3)
The targeted operational improvements in operations and incentive will be
calculated as a % of the individual professional production.
Practice Efficiency Incentive 5.0% $ 19,750 $ 24,300 $ 29,100
4.3% 4.3% 4.3%
C. Quality and Clinical Measure Incentives (4)
Targeted Quality Incentive will be based on the achievement of specified 100.0%
quality and clinical measures incentives and targeted @ 10% of Total Comp
Quality and Clinical Incentive 11.7% $ 46,215 $ 56,862 $ 68,094
10.0% 10.0% 10.0%
Total Compensation by Physician Before Professional Adjustments $ 460,965 $ 567,162 $ 679,194
$/wRVU $ 46.10 $ 47.26 $ 48.51
100.0% 100.0% 100.0%

30. Market Trends
Reimbursement
CPT Nonpayment for
Reimbursement
Rate Code Preventable
CPT Code
Complications
Pay for
Volume Performance
Today Tomorrow
Physician Compensation
Efficiency
Quality
Productivity
Source: Sullivan Cotter and Associates; 2011

31. Case Example
2013 Compensation Summary
Employed Specialist Physicians For Illustration and Discussion Purposes Only
COMPENSATION COMPONENTS CY 2013
Physician
A. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3
Adjusted
wRVUs Scheduled Tiers (2) wRVUs (1) 10,000 12,000 14,000
Tier From To Payout Rates
I - 7,000 $ 33.00 $ 231,000 $ 231,000 $ 231,000
II 7,001 11,000 $ 38.00 114,000 152,000 152,000
III 11,001 15,000 $ 43.00 - 43,000 129,000
wRVUs in Excess of Highest Tier Paid @ $ 43.00
Personal Performed Productivity $ 345,000 $ 426,000 $ 512,000
74.2% 74.2% 74.2%
B. Practice Efficiency Incentive (3)
The targeted operational improvements in operations and incentive will be
calculated as a % of the individual professional production.
Practice Efficiency Incentive 8.0% $ 27,600 $ 34,080 $ 40,960
5.9% 5.9% 5.9%
C. Quality and Clinical Measure Incentives (4)
Targeted Quality Incentive will be based on the achievement of specified 100.0%
quality and clinical measures incentives and targeted @ 20% of Total Comp
Quality and Clinical Incentive $ 92,460 $ 114,168 $ 137,216
19.9% 19.9% 19.9%
Total Compensation by Physician Before Professional Adjustments $ 465,060 $ 574,248 $ 690,176
$/wRVU $ 46.51 $ 47.85 $ 49.30
100.0% 100.0% 100.0%

32. Quality Measures
• Accordingly, CHP has identified over 800 Industry Standard Quality Measures
from organizations such as Centers for Medicare & Medicaid Services (CMS),
Joint Commission on Accreditation of Healthcare Organizations (JCAHO),
National Quality Foundation (NQF), and Agency for Healthcare Research and
Quality (AHRQ) for possible in the following areas:
Acute Care Long-Term Care
Emergency Department Ambulatory Surgery
Behavioral Health Physician / Clinic
Home Health Health Plan /
Population Based

33. Reimbursement
Market Trends
Quality Patient
Improvement Population
Consumer Down the
Value
Road
Physician Compensation
Value
Quality
Productivity ?
Source: Sullivan Cotter and Associates; 2011

34. Sample Performance Matrix
Patient Satisfaction Clinical Utilization and Outcomes
Examines patients’ perceptions of Describes the clinical performance of
their care experience including their hospital and business unit and refers
perceptions of the overall quality of to such things as access to hospital
care, outcomes of care, and unit- and specific service volumes, clinical
based care at a single point and efficiency, and quality of care.
various points of time.
Financial Performance and Condition System Integration and Change
Describes how each hospital and Describes a Sample Hospital’s ability
business unit manages their financial to adapt to its changing health care
and human resources. It refers to a environment. More specifically, it
financial health, efficiency, examines how clinical information
management practices, and human technologies, work processes, and
resource allocations, targets and community relationships function
results. within the health and hospital systems
across the region.

35. Performance Measures
• Process of care - A healthcare service provided to or on
behalf of an individual or population
• Outcome of care - The health state of an individual or
population resulting from healthcare
• Access to care - An individual or population's attainment of
timely and appropriate healthcare
• Experience of care - An individual or population's report
concerning observations of and participation in healthcare
• Structure of care - A feature of a healthcare organization or
clinician relevant to its capacity to provide healthcare
• Provider of care – Direct linkage to the provider of care

36. Transitioning to a Performance Metrics
• Relevance to stakeholders - The topic area of the measure is of significant
interest, and financially and strategically important to stakeholders (e.g.,
businesses, clinicians, patients).
• Health importance - The aspect of health the measure addresses is clinically
important as defined by high prevalence or incidence, and a significant effect on
the burden of illness (i.e., effect on the mortality and morbidity of a population).
• Applicable to measuring the equitable distribution of health care - The
measure can be stratified, or analyzed by subgroup to examine whether
disparities in care exist among a population of patients.
• Potential for improvement - There is evidence indicating that there is overall
poor quality or variations of quality among organizations indicating a need for the
measure.
• Susceptibility to being influenced by the health care system - The results of
the measure can be put into actions or interventions that are under the control of
the user, leading to improvements that are known to be feasible.

37. Example – The Value Proposition
CY 2011 CY 2013 CY 2015
Assigned Area Value % Area Value % Area Value %
PERFORMANCE AREA(S) Weight Weight 10% Weight 20% Weight 30%
Patient Care Considerations 40.0% 4.0% 55.0% 11.0% 75.0% 22.5%
Percent Time Response
Response Time(s) (a) Achieved Time
Emergency Response 90.0% within 30 minutes 5.0%
Urgent Response 90.0% within 4.0 hours 5.0%
Service Preparation and Start-Times 90.0% within 30 minutes 5.0%
Post-Op visits on inpatients 90.0% within 24 -48 hours 5.0%
Reports (Pre and Post Operative) 90.0% within 24 hours 5.0%
JCAHO and Other Core Measures (b)
Quality Targets and Service Standards 5.0%
Patient Protocols and Pathways 5.0%
ACO/PCMH Recommendations and Improvements 5.0%
Service Productivity 15.0% 1.5% 10.0% 2.0% 5.0% 1.5%
Percent Time Targeted
Adequate Staff and Service Coverage (c) Achieved Performance
Professional Sevice and Call Coverage Requirments 95.0% 90% of Svc. Rqmts 5.0%
Workload/Workforce Management Target of Section 98.0% Top 25 Percentile 5.0%
Resource Utilization and Service Efficiency Rating 91.0% Top 25 Percentile 5.0%
Medical Staff and Referral Source Relations 15.0% 1.5% 15.0% 3.0% 5.0% 1.5%
Committee Memberships
Participation 5.0%
Leadership 5.0%
Service Satisfaction (d) > 90% 5.0%

38. Example –The Value Proposition
(Continued)
CY 2011 CY 2013 CY 2015
Assigned Area Value % Area Value % Area Value %
PERFORMANCE AREA(S) Weight Weight 10% Weight 20% Weight 30%
Financial Responibility 10.0% 1.0% 10.0% 2.0% 10.0% 3.0%
Annual Budgets: Preparation and Achievement (e) 2.0%
Cost Containment and Service Efficiencies (f) 2.0%
Management Care Participation Targets(g) 4.0%
Fee Management Targets(g) 2.0%
Organizational Development Participation 5.0% 0.5% 5.0% 1.0% 2.0% 0.6%
Attendance @ Non-sectionMeetings 2.5%
Interdisciplinary Efforts on System/Hospital Issues 2.5%
Human Resource Management 15.0% 1.5% 5.0% 1.0% 3.0% 0.9%
Staff Development and Training Participation 5.0%
Staff Supervision and Management 5.0%
Staff Satisfaction 5.0%
TOTAL PERFORMANCE WEIGHT 100.0% 10.0% 100.0% 20.0% 100.0% 30.0%

39. Case Example
2015 Compensation Summary
Employed Specialist Physicians For Illustration and Discussion Puproses Only
COMPENSATION COMPONENTS CY 2015
Physician
A. Individual Physician Productivity: Dr. 1 Dr. 2 Dr. 3
Adjusted
wRVUs (1) 10,000 12,000 14,000
Base Salary $ 33.00 (2) $ 330,000 $ 396,000 $ 462,000
70.0% 67.8% 65.7%
B. Practice Efficiency Incentive (3)
The targeted operational improvements in operations and incentive will be
calculated as a % of the individual professional production.
Practice Efficiency Incentive 0%-5% $ - $ 9,900 $ 23,100
0.0% 1.7% 3.3%
C. Value Consideration: Quality and Clinical Measure Incentives (4)
Targeted Quality Incentive will be based on the achievement of specified 100.0%
quality and clinical measures incentives and targeted @ 30% of Total Comp
Quality and Clinical Incentive $ 141,570 $ 178,200 $ 218,064
30.0% 30.5% 31.0%
Total Compensation by Physician Before Professional Adjustments $ 471,570 $ 584,100 $ 703,164
Professional Expense Adjustments (i.e., discretionary exenses) (5) - - -
Net Physician Compensation Available $ 471,570 $ 584,100 $ 703,164
$/wRVU $ 47.16 $ 48.68 $ 50.23
100.0% 100.0% 100.0%

40. Positioning for ACOs/PCMHs and
Episode-of-Care Payments
1: Creating a Case Rate for Each Provider in Each Phase of an
Episode of Care
– e.g., paying each physician a single fee for a patient’s hospital stay
2a: Including a Warranty in Each Provider’s Case Rate
– e.g., including the cost of any related hospital readmissions in the
hospital’s DRG payment
2b: Bundling Case Rates for All Providers in a Particular Phase of an
Episode of Care
– e.g., paying a single fee to both the hospital and physicians
managing the hospital stay
3: Bundled Rates with Warranties
– e.g., paying a single fee to the hospital and physicians, covering
the initial admission and readmissions
4: Combining the Case Rates for all Phases of an Episode
– e.g., paying a single fee for both inpatient and post-acute care

41. Contracting Model -ACO Lead
Health Plan
PPO contract amendment PPO contract amendment -
- outlines terms look to hospital for payment
Health System
ACO
New contract
New contract
New contract
Physician and
Optional rehab Surgeon
Hospitals
package services Groups/IPA
New contract
Other MDs, PT
Adapted: Copyright © 2010 Integrated Healthcare Association.

42. The Future Revisited
Aggregation Definitions Performance
Service
of Services
Line CPT Hospitalization Outcomes/Safety
ICD10 -
CM APR - Procedure
DRG Episodes Readmissions
MS - of Care Providers
Quality
DRG
(ETGs) Time
APR -
Reimbursement
Horizon
Condition
DRG Pricing
Resource Consumption Profiles Allocation of $
Service Analytics Payment
Cost Analytics ACO Payee Reform
Market Analytics
Pricing Analytics
Solvency Bundled
Payment for
Viability
Case of Care
Capital

43. George Batalis, Pricewaterhouse Coopers; (813) 222-6240; george.batalis@us.pwc.com
Curtis Bernstein, Sinaiko Healthcare Consulting; (720) 240-4440; curtis.bernstein@sinaiko.com
Roger W. Logan, Catholic Healthcare Partners; (513) 639-2843; rwlogan@health-partners.org