This article briefly discusses 10 emerging healthcare issues for 2012, focusing principally on hospital and physician issues.
1. Macro 2012 developments. We expect 2012 to be a very interesting year. There will be (1) a Supreme Court decision on Health Care Reform Act constitutionality, (2) a presidential election and (3) a great deal of overall uncertainty in the markets as to the direction of the country and the healthcare sector. We expect that in 2012, parties will be spending a good deal of time digesting the acquisitions they made last year and making sure that they have met their expectations. Many independent hospitals and independent practices need to take a deep breath and really assess their situation before aggressively moving forward to give up their independence.
2. Community hospital sales and consolidation. 2011 was a fascinating year in terms of pieces moving around the healthcare map. There was an uptick in the number of acquisitions by hospitals of hospitals and physician practices. HealthLeaders Media reported that in 2011, the top 10 hospital mergers were valued at $5.6 billion, compared to $3.8 billion in 2010, citing the "The Health Care M&A Information Source" published by Irving Levin Associates. The amount of mergers and acquisitions increased substantially in 2011 compared with 2010, and the dollar volume of transactions also increased substantially in 2011.
Due to the changing healthcare environment, we are seeing concerned looks on the faces of the boards of community hospitals. This fear has led to an unprecedented willingness to engage in potential sales of hospitals to national chains or larger systems. (See Krist Werling and Bart Walker, "Preparing Your Hospital for Market," Governance Institute BoardRoom Press, February 2012.) On the flip side, buyers may often obtain substantial market benefits from consolidation. (See, e.g., Avik Roy, "Hospital Monopolies: The Biggest Driver of Health Costs That Nobody Talks About," Forbes, Aug. 22, 2011. Also see Katherine Rourke, "Hospital Merger Mania on the Rise Across the U.S.," www.NextHospital.com, April 30, 2011.)
3. Physician independence. A 2011 PricewaterhouseCoopers Health Research Institute survey reported that 46 percent of physicians are interested in hospital employment. This type of interest is consistent with the number of practice transactions we have seen in the last year.
Notwithstanding the talk of physician practice acquisitions and physician integration with hospitals, several large independent physician practice groups have indicated that they have remained very busy, despite systems they once worked with acquiring competing practices. In orthopedics, for example, it is common that almost 12.5 percent of the healthcare budget is spent on orthopedics in total. This means that many systems must have a large orthopedic presence and compete aggressively to employ orthopedic surgeons. Despite the hospital pressure to accept employment, the independent orthopedists seem to be weathering the changes fairly well.
The PWC survey found that 56 percent of physicians want to more closely align with a hospital in order to increase their income, yet 20 percent of physicians surveyed said they don't trust hospitals, while another 57 percent only "sometimes" trust hospitals.
4. Professional services agreement. A number of health systems are considering entering into professional services agreements with physicians and physician groups. Such arrangements are a middle ground between the acquisition of a physician practice and subsequent employment of its physicians, and other kinds of relationships between health systems and physicians. As such, PSAs continue to grow in popularity as an option for increasing integration with a number of specialties, while also enabling physicians to maintain private practice. (See Karen Minich-Pourshadi, "When PSAs Are the Right Choice," HealthLeaders Media, July 13, 2010):
Physician compensation expert Max Reiboldt, president and CEO for The Coker Group, an Alpharetta, GA-based healthcare management consulting firm, refers to these PSA arrangements as "employment lite"—and he says they can offer a good opportunity for both hospitals and physicians. Unlike traditional service agreements, in which a person is hired for a specific function or for limited service, PSAs allow the facility to work with the doctors, [and permit] doctors to keep their independence while the hospital can build in quality measures to help create greater alignment for the physician with the hospital's goal.
"A PSA takes the shape and look of employment, but the physician or practice retains its independence, and if the deal doesn’t go well, then the doctor can go back to private practice," he says.
In a PSA model, a health system will typically purchase a substantial amount or all of a physician’s overall time but will not acquire the physician’s practice. We will see in upcoming years whether or not this model becomes a sizable part of the physician-hospital universe or whether the popularity of the professional services agreement model is merely a stop-gap measure for certain systems. The challenge with the PSA model is that it is much more difficult to conform payments to physicians into various anti-kickback safe harbors and antitrust safety zones than in the practice acquisition and subsequent employment model.
5. Increased governmental investigations. In 2011 we also witnessed significant increases in governmental investigations on a variety of fronts, including physician-hospital relationships, false claims and billing and coding claims. With increased integration of both providers and of payors, we expect additional antitrust claims. Further, with more healthcare fraud investigators on the street, we expect continued increases in Anti-Kickback and Stark acts investigations. Increasingly, recovery audit contractors are also having a material impact on hospital net income.
6. Privileges and disputes. We have observed an increase in the number of privilege and peer review disputes involving physicians and hospitals. We are not exactly sure what is driving increased clinical reviews; however, a great article was published in 2011 based on the concept that the Health Care Quality Improvement Act has resulted in abuses of the peer review system through the courts. The article, entitled "How Courts are Protecting Unjustified Peer Review Actions Against Physicians by Hospitals," by Nicholas Kadar, in the Journal of American Physicians and Surgeons (Volume 16, Number 1, Spring 2011), states that "[n]evertheless, the courts have disregarded the legislative history of HCQIA in the HCJ, and have interpreted and applied HCQIA in a way that protects unjustified peer review actions against physicians by hospitals, against Congress’s expressly stated contrary intent." As a result, according to Kadar, the courts improperly review motions for summary judgment based on HCQIA immunity and improperly dismiss cases on summary judgment before a physician has had an opportunity to present the merits of his or her case.
7. Exclusive relationships between hospitals and payors. Hospitals and health systems with great market positions are again looking at exclusive relationships with payors. Such relationships threaten to become a substantial issue for independent surgery centers, physician practices and competing hospitals. One of the first largely reported exclusive agreements was struck between Boston-based Partners HealthCare and Blue Cross Blue Shield of Massachusetts in 2000. BCBS gave Partners increased reimbursements in exchange for Partners' promise to seek similar pay increases from BCBS competitors. Since 2000, Partners has received a 75 percent increase in payments from BCBS, but health insurance premiums have also risen by 78 percent since that agreement was made.
There is some evidence that the government is monitoring the anticompetitive effects of such behavior. For instance, in February 2011 the Department of Justice took an aggressive stance against a health system under Section 2 of the Sherman Antitrust Act in United States v. United Regional Health Care System (No. 7:11-cv-00030-O (N.D. Tex., Feb. 25, 2011). In United Regional Health Care System, the DOJ alleged that United Regional Health Care System possessed monopoly power in the sale of both in-patient hospital services and outpatient surgical services to commercial health insurers.
8. Ambulatory surgery center transactions, out-of-network, going public and more. The surgery center industry saw a great number of transactions involving national companies and hospitals buying surgery centers. For healthy in-network centers, multiples remained in the upper 6 times EBITDA range to close to 8 in some situations. The ASC industry also saw (1) big chains wholly pursue the model whereby they partner with hospitals to acquire centers, (2) a return of big chains buying centers without hospital partners and (3) a couple of the large chains showing continued interest in acquiring physician-owned hospitals.
In the ASC sector, we continue to see more and more aggressive action by payors against out-of-network patients and an increased effort to scramble for independent physicians to fill slots in surgery centers. We expect a few large ASC chains to test the public markets in 2012.
9. Pioneer ACOs. The Pioneer ACO Model is a CMS Innovation Center initiative designed to support organizations with experience operating as accountable care organizations or in other similar arrangements. The Pioneer ACO Model will test the impact of different payment arrangements in helping these organizations achieve quality and cost goals. After a weak start, 32 provider organizations ultimately enlisted in the Pioneer ACO Project. Many of the enlisted ACO participants are very prestigious systems, such as Allina Hospitals & Clinics, Beth Israel Deaconess Physician Organization and the University of Michigan Health System.
The Department of Health and Human Services made a wise decision by making the process of testing the ACO model more manageable for health systems. An article entitled "Pioneer ACOs: Promise and Potential Pitfalls," posted by Steven Lieberman on Dec. 29, 2011, in Health Affairs Blog states:
The 32 Pioneer ACOs selected by CMS will operate in 18 states for up to 5-year periods. Hospitals are key players in 22 (69 percent) of the Pioneer ACOs, with 16 integrated delivery (or healthcare) systems, 4 hospital- physician partnerships, and 2 individual practice associations (IPAs) named for hospitals where the physicians have affiliations (or employment). The remaining 10 Pioneer ACOs (31 percent) are predominately IPAs, with one identified as an alliance of 5 multi-specialty medical groups. (The Leavitt Partners survey reported hospitals sponsored 99 (60 percent) of ACOs, with 38 (24 percent) sponsored by IPAs, and 27 (16 percent) sponsored by insurers, a category not relevant for Medicare ACOs.) In addition to urban entities, the selected Pioneer ACO sites include ACOs that serve rural areas.
Time will tell whether the ACO model will endure as a significant part of the healthcare landscape.
10. Opting out of Medicare. Notwithstanding the difficult economy, we hear from more physicians that they have decided to opt out of Medicare. This trend is occurring more frequently in certain specialties in which physicians are not overly reliant on Medicare business or hospital referrals. For instance, the New York Times reports that of the 93 internists affiliated with New York-Presbyterian Hospital, only 37 accept Medicare, according to the hospital’s website. Further, we typically see the decision to opt out of Medicare with physicians who have built tremendous brands and franchises and who can afford to not take Medicare patients. Interestingly, despite opting-out of Medicare, many of these physicians nevertheless continue to see Medicare patients on either a pro bono basis or through other means. (See, for example, Julie Connaly, "Doctors are Opting Out of Medicare," New York Times, April 1, 2009.)
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1. Macro 2012 developments. We expect 2012 to be a very interesting year. There will be (1) a Supreme Court decision on Health Care Reform Act constitutionality, (2) a presidential election and (3) a great deal of overall uncertainty in the markets as to the direction of the country and the healthcare sector. We expect that in 2012, parties will be spending a good deal of time digesting the acquisitions they made last year and making sure that they have met their expectations. Many independent hospitals and independent practices need to take a deep breath and really assess their situation before aggressively moving forward to give up their independence.
2. Community hospital sales and consolidation. 2011 was a fascinating year in terms of pieces moving around the healthcare map. There was an uptick in the number of acquisitions by hospitals of hospitals and physician practices. HealthLeaders Media reported that in 2011, the top 10 hospital mergers were valued at $5.6 billion, compared to $3.8 billion in 2010, citing the "The Health Care M&A Information Source" published by Irving Levin Associates. The amount of mergers and acquisitions increased substantially in 2011 compared with 2010, and the dollar volume of transactions also increased substantially in 2011.
Due to the changing healthcare environment, we are seeing concerned looks on the faces of the boards of community hospitals. This fear has led to an unprecedented willingness to engage in potential sales of hospitals to national chains or larger systems. (See Krist Werling and Bart Walker, "Preparing Your Hospital for Market," Governance Institute BoardRoom Press, February 2012.) On the flip side, buyers may often obtain substantial market benefits from consolidation. (See, e.g., Avik Roy, "Hospital Monopolies: The Biggest Driver of Health Costs That Nobody Talks About," Forbes, Aug. 22, 2011. Also see Katherine Rourke, "Hospital Merger Mania on the Rise Across the U.S.," www.NextHospital.com, April 30, 2011.)
3. Physician independence. A 2011 PricewaterhouseCoopers Health Research Institute survey reported that 46 percent of physicians are interested in hospital employment. This type of interest is consistent with the number of practice transactions we have seen in the last year.
Notwithstanding the talk of physician practice acquisitions and physician integration with hospitals, several large independent physician practice groups have indicated that they have remained very busy, despite systems they once worked with acquiring competing practices. In orthopedics, for example, it is common that almost 12.5 percent of the healthcare budget is spent on orthopedics in total. This means that many systems must have a large orthopedic presence and compete aggressively to employ orthopedic surgeons. Despite the hospital pressure to accept employment, the independent orthopedists seem to be weathering the changes fairly well.
The PWC survey found that 56 percent of physicians want to more closely align with a hospital in order to increase their income, yet 20 percent of physicians surveyed said they don't trust hospitals, while another 57 percent only "sometimes" trust hospitals.
4. Professional services agreement. A number of health systems are considering entering into professional services agreements with physicians and physician groups. Such arrangements are a middle ground between the acquisition of a physician practice and subsequent employment of its physicians, and other kinds of relationships between health systems and physicians. As such, PSAs continue to grow in popularity as an option for increasing integration with a number of specialties, while also enabling physicians to maintain private practice. (See Karen Minich-Pourshadi, "When PSAs Are the Right Choice," HealthLeaders Media, July 13, 2010):
Physician compensation expert Max Reiboldt, president and CEO for The Coker Group, an Alpharetta, GA-based healthcare management consulting firm, refers to these PSA arrangements as "employment lite"—and he says they can offer a good opportunity for both hospitals and physicians. Unlike traditional service agreements, in which a person is hired for a specific function or for limited service, PSAs allow the facility to work with the doctors, [and permit] doctors to keep their independence while the hospital can build in quality measures to help create greater alignment for the physician with the hospital's goal.
"A PSA takes the shape and look of employment, but the physician or practice retains its independence, and if the deal doesn’t go well, then the doctor can go back to private practice," he says.
In a PSA model, a health system will typically purchase a substantial amount or all of a physician’s overall time but will not acquire the physician’s practice. We will see in upcoming years whether or not this model becomes a sizable part of the physician-hospital universe or whether the popularity of the professional services agreement model is merely a stop-gap measure for certain systems. The challenge with the PSA model is that it is much more difficult to conform payments to physicians into various anti-kickback safe harbors and antitrust safety zones than in the practice acquisition and subsequent employment model.
5. Increased governmental investigations. In 2011 we also witnessed significant increases in governmental investigations on a variety of fronts, including physician-hospital relationships, false claims and billing and coding claims. With increased integration of both providers and of payors, we expect additional antitrust claims. Further, with more healthcare fraud investigators on the street, we expect continued increases in Anti-Kickback and Stark acts investigations. Increasingly, recovery audit contractors are also having a material impact on hospital net income.
6. Privileges and disputes. We have observed an increase in the number of privilege and peer review disputes involving physicians and hospitals. We are not exactly sure what is driving increased clinical reviews; however, a great article was published in 2011 based on the concept that the Health Care Quality Improvement Act has resulted in abuses of the peer review system through the courts. The article, entitled "How Courts are Protecting Unjustified Peer Review Actions Against Physicians by Hospitals," by Nicholas Kadar, in the Journal of American Physicians and Surgeons (Volume 16, Number 1, Spring 2011), states that "[n]evertheless, the courts have disregarded the legislative history of HCQIA in the HCJ, and have interpreted and applied HCQIA in a way that protects unjustified peer review actions against physicians by hospitals, against Congress’s expressly stated contrary intent." As a result, according to Kadar, the courts improperly review motions for summary judgment based on HCQIA immunity and improperly dismiss cases on summary judgment before a physician has had an opportunity to present the merits of his or her case.
7. Exclusive relationships between hospitals and payors. Hospitals and health systems with great market positions are again looking at exclusive relationships with payors. Such relationships threaten to become a substantial issue for independent surgery centers, physician practices and competing hospitals. One of the first largely reported exclusive agreements was struck between Boston-based Partners HealthCare and Blue Cross Blue Shield of Massachusetts in 2000. BCBS gave Partners increased reimbursements in exchange for Partners' promise to seek similar pay increases from BCBS competitors. Since 2000, Partners has received a 75 percent increase in payments from BCBS, but health insurance premiums have also risen by 78 percent since that agreement was made.
There is some evidence that the government is monitoring the anticompetitive effects of such behavior. For instance, in February 2011 the Department of Justice took an aggressive stance against a health system under Section 2 of the Sherman Antitrust Act in United States v. United Regional Health Care System (No. 7:11-cv-00030-O (N.D. Tex., Feb. 25, 2011). In United Regional Health Care System, the DOJ alleged that United Regional Health Care System possessed monopoly power in the sale of both in-patient hospital services and outpatient surgical services to commercial health insurers.
8. Ambulatory surgery center transactions, out-of-network, going public and more. The surgery center industry saw a great number of transactions involving national companies and hospitals buying surgery centers. For healthy in-network centers, multiples remained in the upper 6 times EBITDA range to close to 8 in some situations. The ASC industry also saw (1) big chains wholly pursue the model whereby they partner with hospitals to acquire centers, (2) a return of big chains buying centers without hospital partners and (3) a couple of the large chains showing continued interest in acquiring physician-owned hospitals.
In the ASC sector, we continue to see more and more aggressive action by payors against out-of-network patients and an increased effort to scramble for independent physicians to fill slots in surgery centers. We expect a few large ASC chains to test the public markets in 2012.
9. Pioneer ACOs. The Pioneer ACO Model is a CMS Innovation Center initiative designed to support organizations with experience operating as accountable care organizations or in other similar arrangements. The Pioneer ACO Model will test the impact of different payment arrangements in helping these organizations achieve quality and cost goals. After a weak start, 32 provider organizations ultimately enlisted in the Pioneer ACO Project. Many of the enlisted ACO participants are very prestigious systems, such as Allina Hospitals & Clinics, Beth Israel Deaconess Physician Organization and the University of Michigan Health System.
The Department of Health and Human Services made a wise decision by making the process of testing the ACO model more manageable for health systems. An article entitled "Pioneer ACOs: Promise and Potential Pitfalls," posted by Steven Lieberman on Dec. 29, 2011, in Health Affairs Blog states:
The 32 Pioneer ACOs selected by CMS will operate in 18 states for up to 5-year periods. Hospitals are key players in 22 (69 percent) of the Pioneer ACOs, with 16 integrated delivery (or healthcare) systems, 4 hospital- physician partnerships, and 2 individual practice associations (IPAs) named for hospitals where the physicians have affiliations (or employment). The remaining 10 Pioneer ACOs (31 percent) are predominately IPAs, with one identified as an alliance of 5 multi-specialty medical groups. (The Leavitt Partners survey reported hospitals sponsored 99 (60 percent) of ACOs, with 38 (24 percent) sponsored by IPAs, and 27 (16 percent) sponsored by insurers, a category not relevant for Medicare ACOs.) In addition to urban entities, the selected Pioneer ACO sites include ACOs that serve rural areas.
Time will tell whether the ACO model will endure as a significant part of the healthcare landscape.
10. Opting out of Medicare. Notwithstanding the difficult economy, we hear from more physicians that they have decided to opt out of Medicare. This trend is occurring more frequently in certain specialties in which physicians are not overly reliant on Medicare business or hospital referrals. For instance, the New York Times reports that of the 93 internists affiliated with New York-Presbyterian Hospital, only 37 accept Medicare, according to the hospital’s website. Further, we typically see the decision to opt out of Medicare with physicians who have built tremendous brands and franchises and who can afford to not take Medicare patients. Interestingly, despite opting-out of Medicare, many of these physicians nevertheless continue to see Medicare patients on either a pro bono basis or through other means. (See, for example, Julie Connaly, "Doctors are Opting Out of Medicare," New York Times, April 1, 2009.)
Related Articles on Hospital Management:
Survey: ICU Fellowship Directors Frequently Feel 'Overburdened'
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McLeod Loris Healthcare Lays Off 48