Transcript Medicare Appeals Process
Ohio Hospital Association 2015 Annual Meeting
Innovate To Differentiate – Collaboration And Partnership In The Health Care Industry
June 9, 2015
Presented By:
Jolie N. Havens
614.464.5429 | [email protected]
Matthew E. Albers
216.479.6196 | [email protected]
Vorys, Sater, Seymour and Pease LLP
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Today’s Agenda
› › › › › › Modern health care marketplace Overview of industry consolidation trends Discussion of historical models and methods of alignment Modern consolidation drivers and incentives New and emerging collaboration models Hospitals in the payor game © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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If You Listen To Nothing Else We Say…
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Sound Familiar?
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Modern Health Care Marketplace
• • • • • • • • Trending up: Focus on primary care and preventive care Focus on care coordination and population management Providers assume some risk Evidence-based care Increased capital needs Overall revenue pressure (providers and payors) Increased oversight/regulation Employed physicians and practice acquisitions › • • • • • Trending down: Focus on acute care Revenue predictability Independent (non health system) competitors FFS payments/volume Margin for erro r © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Influences On Market Trends
ACA • • • Service delivery reform (comprehensive, coordinated care executed through provider teams, patient-centered care, education, innovation, HIT/data sharing) Reimbursement reform (value over volume, clinical quality incentives/penalties, provider transparency and accountability, various forms of bundled payments) Health coverage access reform (Medicaid expansion, Marketplaces, more services covered, less coverage limits, tighter insurance regulation) Aging population/potential for higher acuity patients Proliferation of chronic conditions Return to physician employment/affiliation model © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Current Response To Market Trends
Band together to survive and grow - or risk failure alone…
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Current Consolidation Who’s Zooming Who?
• Horizontal integration continues › Material increase in hospital/hospital activity Since 1998, almost 20% increase in hospital systems of more than 21 hospitals • › In Q1 2015, 23 hospital transactions announced nationally (27 – Q1 2014) 35% involve acquisitions by for-profit organizations, a slight uptick from recent years • • • • Horizontal and vertical integration occurring across the industry, not just hospital/hospital Hospital/physician practice/home health agency/ASC Physician practice/physician practice Hospital/payor Payor/payor © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Current Consolidation Notable Recent Activity
• • Total operating revenue of the acquired organizations nearly $5B: • • • • • Meridian Health and Hackensack University Health Lancaster General Health and University of Penn Health System National Surgical Healthcare and Optum Healthcare Ventas (REIT) and Ardent Medical Services (10 Hospitals) Peconic Bay Medical Center and LIJ Health System • LifePoint Hospitals and Roaring Spring Nason Hospital Ohio hospitals are definitely in the consolidation/collaboration game › › › Hospital/hospital: University Hospitals and Samaritan Regional Health System Cleveland Clinic and Akron General Mercy Health and Summa Hospital/physician practice: everyone!
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“I Do” Circa 1990-2008
• • • Traditional (early 20 th principals: century) marriage Courtship: identification of complimentary partners and business synergies Engagement: up front cash/capital contributions with little long-term specificity › › Two become one: what’s mine, and what’s yours, is now ours High initial value propositions One dominant or controlling partner © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Does Traditional Marriage Still Work?
• Large capital infusion: • • Still a preferred term and driver Limited in duration Merger into single entity: • • Less common Liability and successor issues Community property: • Gets more and more complicated • Foundations, spin-offs, JVs Dominant/controlling partner: Still evident, but no longer presumptive © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Why Get Married At All?
Access to capital: • Debt market factors • Growth = survival New service lines: • Population health movement ≠ reduced need for sub specialty (tertiary and quaternary) services Payor contracting leverage • Market expansion/pressure: Introduction of new provider segments (retail clinics, employer-sponsored clinics) • • Scale is required to compete Technology needs: Largest cost to hospitals is no longer “bricks and sticks” © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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What Do Happy Marriages Have In Common?
• • • Governance compatibility: • • Maintenance of local control Avoidance of micro-management • Leveraged sophistication and resources Cultural compatibility: Town & gown Employment models Mission similarities © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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The Modern “Marriage”
M&A activity is now much more than traditional transactional structures New players in the hospital M&A marketplace • Some regulatory concerns have shifted/increased Antitrust enforcers are finally paying attention to health care, specifically not-for-profit health care Consolidation now exists on continuum, with various relationship possibilities across the continuum No “one size fits all” approach Hospitals have a variety of different relationships in place at any one time © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Marriage Alternatives & “New” Relationship Models
1. Joint operating agreements • 2. Service line arrangements Brand sharing/extension • Data sharing/aggregation 3. ACO/PCMH models • Private v. public payor models 4. Membership/share interest purchase 5. Hospital/payor integration © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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1. Joint Operating Agreements
Relatively common historically Contract relationship, often described as a virtual merger/virtual integration • • Can be an interim or long-term solution Can avoid certain legal/regulatory issues: CHOW Foundation/gift instrument restrictions © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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1. Joint Operating Agreements
(cont’d)
Typical arrangement: • Two entities, each “contributing” to the JOA structure • Creation of a combined oversight board to govern the combined operations • • Often involves the creation of a joint operating company (JOC) Participants maintain their own boards, subject to the control of the JOC © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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1. Joint Operating Agreements
(cont’d)
Advantages: • Offers expedient combination method and flexibility to unwind › • Can provide significant tax advantages if financial and structural integration meets the ITS standards Disadvantages: • • Limited durability Perceived (but not actual) simplicity • Antitrust skepticism © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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2. Service Line Arrangements
Identified synergies to either develop new or expand upon existing service lines Often involve specialty services and/or notable industry players Driven by competitive advantage and/or community needs Less resource intensive Interdependent, but independent © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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2. Service Line Arrangements
(cont’d)
• • Advantages: Independence maintained Additional services with limited investment • • • • • • Brand identification Improved competitive position Disadvantages: Limited relationship Death by 1,000 cuts?
Potential regulatory scrutiny (concern is veiled attempt to pay for referrals) Teach potential competitor new tricks © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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3. Accountable Care & Patient Homes
› › • Accountable Care Organizations (ACOs) Team care concept involving multiple provider segments • • • • • • Government programs v. private payors Goal of overall cost reduction, along with shared savings and shared risk ACO “label” applied to variety of relationships Patient-Centered Medical Home (PCMH) Team care concept to support primary care Care coordination hub Extensive patient contact © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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3. Accountable Care & Patient Homes
(cont’d)
Nationally, hospitals are limited participants Counterintuitive incentives for hospital participation Wholesale care delivery initiative, but limited integration tool • Not a “consolidation” method per se Still requires aligned interests and significant coordination (among providers and with payors) © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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4. Membership/Share Interest Purchase
Limited financial commitment Limited control acquired Long-term commitment potential, with limited investment Competitive “blocking” strategy Return to engagement stage © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospital/Payor Integration – Strange Bedfellows?
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5. Hospital/Payor Integration – Blurred Lines
› Presently, distinction between payor and provider is blurring › › Both parties entering the market of the other and taking on new roles in own market Notable activity: • • • Highmark and West Penn Aetna and Inova Cigna and Weill Cornell Physician Organization • • • • • WellPoint and CareMore Health Group UnitedHealth and Monarch Healthcare Humana and Concentra UnitedHealth/Optum 360 and Mayo Clinic (revenue management and patient satisfaction services) Anthem Vivity (includes competing hospitals) Higher standards make better lawyers.
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5. Continuum of Hospital/Payor Relationships
• • • Degrees of hospital/payor relationships › › › No relationship: OON/non-participating (UCR/higher patient cost-sharing) Direct provider contracting with employers Provider discounting arrangements/concierge medicine › › › Partnership: Network contract relationship/participation (agreed-upon discounts in exchange for volume) Preferred provider relationship/narrow network (potentially lower rates with higher volume, with or without hospital care coordination/management services) Risk-sharing payment arrangements (managed care/P4P – typically only partial risk) › › Vertical integration. Hospital as payor – full risk (JV, merger, etc.) Payor-owned provider v. provider-owned payor © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospital/Payor Integration Where We’ve Been
• Traditionally seen as adversaries - payors want to cut costs, while hospitals want quality care Resulted in fragmented, expensive health care, along with patient dissatisfaction Pre-ACA industry model for care access, care affordability, and care quality not sustainable – significant portion of population would be unable to access or afford quality care • • Adversaries must work together post-ACA Gain efficiencies and align incentives by integrating payor’s payment system with provider’s care delivery system Much easier said than done © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospital/Payor Integration Where We’ve Been
(cont’d)
• Hospital/payor vertical integration is not a new concept › › › Has existed for decades in variety of forms, although quietly in some cases Many prior attempts have failed and/or parties pulled out – major concerns over internal conflicts, weakened profits, physician alienation, etc. (Humana – sold off hospitals in early 1990s) Few truly successful at complete integration (Kaiser, UPMC, Geisinger, Intermountain Health) Often provider-driven (dominant provider in geographic area [hospitals and physicians] with lesser payor) © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospitals As Payors
• • • • • • • • • • Renewed interest from hospital perspective: Provider/payor interests must become aligned (movement toward risk-based payment models, and industry focus on access, care coordination, cost containment, and population management) Less revenue predictability under new reimbursement models Reduced emphasis on inpatient care (keep patients healthy) Significant capital investments outstanding Payor role can be used to develop key relationships with other industry players Prior consolidation supports robust network development and expanded care coordination/management Potential for differentiation and competitive advantage Diversification/alternative revenue streams (premium payments, potential ASO fees, increased MA payments) › › Data access/sharing/aggregation Payors have full spectrum of health care data on covered lives (hospitals know only limited episodes of care) Sophisticated analytics support delivery of quality care while also managing costs, as well as provider role in population health management Millions of new patients/insureds flood industry post-ACA © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospitals As Payors
(cont’d)
• • • Hospitals can take on payor role in a variety of ways: Joint venture with existing insurer (equity or contractual) Merge with/acquire existing payor Create new insurance product from scratch • • Potential insurance license leasing/assignment arrangement Each model presents distinct opportunities and challenges, both legal and business Many providers remain cautious regarding potential payor role › HealthLeaders Media Survey (released March 2015): Surveyed 300 leaders nationally at health systems, hospitals, and physician organizations 26% health systems report ownership/operation payor arm (16% hospitals and 7% physician organizations) › 28% respondents report assessing and deciding against payor arm Ohio hospitals are in the game (examples: Premier Health and CHP/HealthSpan Partners) © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospitals As Payors – JV
• • • Hospital considerations (in addition to traditional JV issues): Potential for lower cost market entry (especially contractual JV – private label product, risk pool arrangement, enhanced contracting arrangement) Access to insurance expertise, management expertise, and other key resources and capabilities (each party does what they do best) • • • • • • • New compliance obligations and liability segregated in new entity (equity) Data sharing/aggregation Independent, but interdependent Easier to unwind - could be short-term or long-term • Competition issues (between insurer JV partner and JV plan entity) Examples: Elevate Health Solutions – Harvard Pilgrim Health Care, Dartmouth Hitchcock, and Elliot Health System Innovation Health – Aetna and Inova Tandigm Health – Independence Blue Cross and DaVita HealthCare Partners Blue Cross Blue Shield of Arizona Advantage – BCBS AZ and Banner Health © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospitals As Payors – M&A
› Hospital considerations (hospital purchase): › • • • • • Large upfront capital investment and ongoing reserve funding requirements New licensure/new regulatory framework (insurance), for transaction and ongoing Significant capture of market share in single transaction, but consider network adequacy Potential for duplicative infrastructure, at least initially Potential integration challenges Examples: • • • Ascension Health and US Health and Life Insurance Company Catholic Health Initiatives MemorialCare Health System Higher standards make better lawyers.
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5. Hospitals As Payors – Create New Health Plan Product
Hospital considerations : • • • • • • • Large capital investment with probable early losses Resource intensive New licensure/regulatory framework (insurance) – initially and ongoing Potential for delays to eventual market entry Must buy/develop necessary expertise Must carefully define market in relationship to network capabilities Competition, market reception, branding Example: Sutter Health (reported $50M start-up costs) © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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5. Hospitals As Payors Preliminary Hospital Considerations
Level of desired integration, if any, and timeline Criteria for identifying and vetting potential payor partners Available capital, resources, and expertise Impact on other hospital projects and payor arrangements Culture and business shift (adopting the “payor mindset”) Overall potential for achieving efficiencies due to providing and financing the care (cutting out the middle man/less need for policing) Trust issues/capacity for alignment (insurers and physicians) Ability to manage complex integration, including financial losses Population to be covered/managed Capacity to build/maintain robust provider network Defining market and understanding unique market dynamics Understanding scale and “critical mass” Many legal issues (state insurance law, tax/non-profit status) Exit strategy © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Industry Predictions
• Hospitals and payors will continue to partner, integrate, and move into each other’s markets Newer models will continue to expand and change industry landscape Payors opening retail clinics • • • Retailers opening clinics Employer-based clinics (both wellness and occupational) Direct provider relationships with employers and consumers (MedLion) Additional government scrutiny?
*Difficult to predict provider and payor activity on national scale due to influence of unique regional/local market factors *Standard attorney disclaimer © Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
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Questions?
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