Protecting Community Objectives In the Affiliation to Full-Integration

Protecting Community Objectives In the Affiliation to Full-Integration

Protecting Community Objectives In the Affiliation to Full-Integration Continuum Xi Zhu, Ph.D. Joseph R. Lupica, JD TRENDS? TRENDS? More Metro Hospitals than Non-Metro Hospitals have joined Systems 75% 70% 70.20% 68.20% 65% 64.30% 64.50%

65.70% 66.40% METRO HOSPITALS 60% 55% 50% 45% 42.00% 40% 45.80% 42.90% 43.70% 44.40%

46.70% NON-METRO HOSPITALS 35% 30% 2007 2008 2009 2010 Source: American Hospital Association Annual Survey, 2007-2012 2011 2012

TRENDS? Rear-View Mirror: All the Usual Statistics Whats Next: Brave New World 10% of Community Hospitals Acquired/Merged (AHA Rpt) Drivers: Capital needs & Cost Control Trade independence for benefits of consolidation Rescue for Underperformers Local Control: Give it up for System-ness Govern Behavior: With rules from System HQ Acquisition/Merger

no longer a given New Drivers: Lives! Population Health/ Network Alignment Seek Interdependence to support shift from FFS to FFV Some rescue features, but also a quest for Excellence Local Control: Structured for collaboration Govern Behavior: With network Incentives Questions we hear from our Clients: 1. Will the Brave New World force me to change my behavior? From: FFS Volume To: Risk-based Population Health Value? All our profit centers become (gulp) cost centers??? 2. If I shift my behavior today, I destroy our volume. So, When and How do we make that big

shift? Wait we can get paid for being a cost center??? Questions we hear from our Clients: 3. So What does all this Brave New World talk have to do with Affiliation? 1. Will the Brave New World make me change my behavior? A BRAVE NEW WORLD? You can always count on Americans to do the right thing after theyve tried everything else.

Cost-plus Medicare PPS Capitation APGs BBA Coverage expansion Is single payer system next?? Are we changing healthcare or just changing funding? How does each thing we try motivate healthcare value? Q1 Q2 Q3 8

A BRAVE NEW WORLD? Oh, the times . . . Q1 Q2 Q3 A BRAVE NEW WORLD? . . . they are a-changin. Old Times Volume-Based Pay-by-the-click Encounters Reimbursement favors high-cost Tertiary hospitals and procedures FILL THOSE BEDS! New Times Value-Based? Accountable Value: Triple Aim High-cost hospitals and procedures become Cost Centers EMPTY THOSE BEDS! Instead, lets try keeping the community

healthier. Q1 Q2 Q3 2.If I shift my behavior today, I destroy our volume Will incentives really shift to reward value? (All this future tense is killing me) WILL INCENTIVES REALLY SHIFT? They are already shifting, so get ready to cross that sturdy bridge over the chasm from volume-based incentives to

value-based payment Q1 Q2 Q3 MEANWHILE, HOW DO WE GET PAID? Your guess is as good as ours. But we do have a hint (and changing the ownership of a hospital has nothing to do with it) Q1 Q2 Q3 HOW DO WE CROSS THAT BRIDGE? Hint: One Step at a Time

Near Term: Low-risk population health strategies Medium Term: Find my institutions value niche in a Network of Care, Build relationships with others in the Network, and Learn the business behaviors needed to share and manage risk Develop scale in covered lives, not System Assets Long Term: Accept risk (and reward) within the Network of Care Q1 Q2 Q3 MEASURING OUR RESULTS?? KNOW WHAT GOOD POPULATION HEALTH LOOKS LIKE Access to care

Mental health Healthy behaviors Maternal/Infant health Chronic disease Injury Environmental determinants Substance abuse Social determinants Tobacco Responsible sexual behavior

Quality of care (Healthy People 2020) Q1 Q2 Q3 HOW DO WE GET PAID FOR POPULATION HEALTH? Just send a bill to Blue Cross for your smoking cessation program. (Um dont book the receivable.) Q1 Q2

Q3 3. What does all this Brave New World talk have to do with Affiliation? WHAT DOES THIS HAVE TO DO WITH AFFILIATION? Consider: Valuation vs. value Q1 Q2 Q3

WHAT DOES THIS HAVE TO DO WITH AFFILIATION? An observation on value: A hospitals high-performing physician group may have more value to a risk-bearing network than to its own hospital standing alone Q1 Q2 Q3 3 Follow-up Questions from our Clients: 1. Can we gain the benefits of Affiliation without abandoning ownership and independence? 2. How do we protect our local

prerogatives? (Hint: Bargaining for board seats isnt enough.) Put another way, Do we Have to HAND OVER OUR KEYS? AFFILIATE WITHOUT ABANDONING INDEPENDENCE? AFFILIATION IS NOT A BINARY CHOICE. (To sell or not to sell that is not the question.)

Q1 Q2 Q3 AFFILIATE WITHOUT ABANDONING OWNERSHIP? Enhance independence with interdependence. Report Card Does Joey work & play well with others? Q1 Q2 Q3 AFFILIATE WITHOUT ABANDONING

OWNERSHIP? ANTITRUST ISSUES Collaboration & Collusion start with the same four letters Tension between two federal policy objectives CIN structures can manage antitrust concerns: Accept Shared Risk and/or Sign on to joint protocols Q1 Q2 Q3 EXAMPLES ALONG THE WIDE SPECTRUM OF AFFILIATIONS Branding Branding Specialty Specialty

Telehealth Telehealth ACO or or ACO Commercial Commercial Risk Network Network Risk Merger Merger or Joint Joint or Membership Membership Degree of Integration

Shared Shared Support Support Services Services Transfer Transfer Protocols Protocols Clinical Clinical Integration Integration CCO CCO Management Management Contract

Contract Asset Sale/ Sale/ Asset Membership Membership Substitution Substitution System Question: Why should we ever invest capital in a hospital we dont own? Q1 Q2 Q3 2. How do we protect our local prerogatives?

(Hint: Bargaining for board seats isnt enough.) PROTECTING LOCAL PEROGATIVES Post-closing covenants Reserved powers trump the Bargain for a majority of board seats. trumpofboth number seats. Q1 Q2 Q3 ORGANIZING THE WIDE SPECTRUM Branding Branding

Specialty Specialty Telehealth Telehealth ACO or or ACO Commercial Commercial Risk Network Network Risk Merger Merger or Joint Joint or Membership Membership

Degree of Integration Shared Shared Support Support Services Services Q1 Transfer Transfer Protocols Protocols Clinical Clinical Integration Integration CCO

CCO Management Management Contract Contract Asset Sale/ Sale/ Asset Membership Membership Substitution Substitution -------------Zone 1------------- ---------Zone 2--------- ---------Zone 3--------- AFFILIATION LITE

INTERDEPENDENCE OWNERSHIP SHIFT No ownership shift Ownership transfer optional Old-School M&A Deal Cost Efficiencies Governance by Shared Risk Governance by HQ Clinical & Marketing advantages Capital for the right stuff Major MTI capital

Q2 Q3 CASE STUDIES INTERDEPENDENCE CASES (from Zones 1 & 2) Formal Collaborative (Missouri) Merger without Ownership Transfer (rural NY) Large Risk Networks (several states) FLEXIBLE MEMBERSHIP CASES (from Zone 3) Joint Membership (New Mexico) Local Governance exceeding Local Ownership (Idaho) Acquisition by National/Regional JV (several states) Q1 Q2 Q3

Case Study #1: JOINT MEMBERSHIP MODEL Local hospital gains equal voice, with dollars to accompany its votes Local Hospital now Debt-Free Bond Payoff $$ Continuing $$ Support Hospital Foundation St. Vincent Hospital 501(c)(3) Continuing $$ Support Appoints

Half Dedicated Reserve Fund Appoints Half Pull Excess Funds out of Hospital to keep them local 501(c)(3) Initial Funding $$$ Q2 Q3 Bond Payoff $$

Local Support Trust CHRISTUS Health Q1 Continuing $$ Support Shared Governance 501(c)(3) holds and reinvests capital from Systems original funding VOTING DOES Case NOT HAVE StudyTO #2TRACK OWNERSHIP SPLIT LHP $201

M COUNTY COUNTY STRONG CAPITAL PARTNER Community Benefit Organization (LLC) LLC OWNERSHIP MC ash 77% 23% LLC BOARD 50%

50% te u b i tr Con ets s s sA LLC Board 5 Members for each partner Strategic decisions Meets quarterly Portneuf Medical Center HOSPITAL BOARD

9% Q1 Q2 Q3 91% Hospital Board Local Leaders & Physicians Operating decisions Meets monthly 3. How do we preserve the benefit of our bargain? (Hint: Start long before the ink dries ) PRESERVING THE BENEFIT OF THE BARGAIN

Where do we start? Just have dinner with that nice system down the road! but only Unless if youre ready You Prepare First to be your on theObjectives menu Q1 Q2 Q3 PRESERVING THE BENEFIT OF THE BARGAIN How a deal works after the closing starts long before the closing. It starts before you approach the bargaining table

before you consider which is the best partner even before you decide to seek a partner. It starts when your fiduciaries develop objectives for your communitys healthcare system. Do not hesitate to seek out the voices of your physicians and caregivers, your community members, . . . and your premium-paying employers. [and document every fiduciary move for a possible AG Q1 Q2 Q3 Setting Objectives 1. Who are We? 1. Who? 2. Why even look for

Affiliation? 3. Whats in it for us? 4. Whats in it for them? 5. Only then, ask . . . Who are They? PRESERVING THE BENEFIT OF THE BARGAIN: Managing Partner Risk Set Affiliation Objectives First Engage your Community Keep an open mind (Options are Optional!) Get Tough Contractual Commitments Q1 Q2 Q3 PRESERVING THE BENEFIT OF THE BARGAIN Remember: Board seats are not as important as:

The power reserved for those seats And the firm covenants in a definitive agreement Q1 Q2 Q3 Overall goal: A Bright Future For all the people in the community Who depend on you for clear thinking Protecting the sustainable excellence Of their healthcare jewel.

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