Although Crocs are known by many as some of the most comfortable shoes around, the Morton Plant Mease Healthcare system in Florida is banning the shoes from use by hospital employees. Hospital leaders there cite safety concerns raised after a needle fell through one of the holes and inside the shoe of an employee at a hospital in Tampa.
A new "employee" at Bethesda Memorial Hospital in Boynton Beach, FL, is ridding healthcare workers of various mundane tasks such as running errands. Tray-C, an automated transportation system robot produced by Aethon Inc. of Pittsburgh, helps with the tracking and delivery of hospital meals and supplies. The system has been in place since early June.
Discovering underpayments of claims dating back to January 1, 2004, the Texas State Insurance Commission has ordered Blue Cross and Blue Shield of Texas to pay restitution to thousands of members totaling $3.9 million, in addition to a $250,000 fine.
Health Management Associates has been named "the sickest player in the hospital group" after its stock dropped 19% last week. It replaces Tenet Healthcare in this slot, although Tenet continues to struggle as well.
Recent changes in the law have created considerable uncertainty about the future of physician-hospital joint ventures—particularly for imaging joint ventures, whole hospital joint ventures, ASC joint ventures, and "under arrangement" services in general.
Election-year talk of healthcare reform together with the recent economic slowdown has exacerbated these uncertainties. In 2008, providers continue to face changes in law, changes in reimbursement, and pressure from managed care. These market pressures will chill some joint venture activity and inevitably cause other joint ventures to unwind.
In addition to the impact of regulatory changes, political vagaries and economic uncertainties as mentioned above, some historical strategies for physician-hospital joint ventures are now demonstrating that either they cannot deliver the desired financial results or that operating tensions within the model itself require that they be unwound.
What alignment strategies work?
Although the current environment for joint ventures is uncertain, the economic pressure on healthcare providers to develop innovative strategies has arguably never been greater. To create alignment strategies that will not only survive but also succeed in this challenging environment, it is essential to understand what motivates providers and physicians.
Providers have traditionally sought joint ventures in order to:
Align the interests of the physicians with those of the health system—share the risk and costs
Enhance physician professional accountability and quality of care
Provide access to a new service or new technology
Access capital
Physicians have traditionally sought joint ventures in order to:
Align the interests of the hospital or health system with those of the physicians—share the risk and costs
Enhance physician autonomy and quality of care
Provide access to management services, group purchasing and IT services
Access capital
Despite multiple legal and market challenges to traditional joint ventures, providers and physicians will continue to demand alignment opportunities to generate revenue, to control costs, and to improve the quality of care delivery.
Equity models remain viable
In certain sectors, such as outpatient surgery, dialysis, cardiac cath labs, sleep centers, and cancer centers, equity models still remain a viable alignment strategy. In a typical equity model, a physician—who can use the facility as an extension of his or her practice—and a provider each own equity in a facility. The joint venture bills the provider for the facility fee or technical component and the physicians will bill for the professional fee. Usually the provider will furnish management services for a fair market value fee and a physician will serve as medical director for a fair market value fee.
Typical equity joint venture structure
The benefits of equity models in certain sectors include the safe harbor protection for certain types of joint ventures; for example, outpatient surgery centers under the federal Anti-Kickback Statute. In other sectors, even where Anti-Kickback Statute safe harbor protection is not explicitly granted, absent either legislative or regulatory changes, equity models will continue to be viable where the risks can be mitigated and sufficient safeguards against fraud, waste, and abuse can be established because of the sense of security physicians derive from ownership. Accordingly, equity models continue to be a preferred model among many physicians.
New focus on quality standards and governance
Although the equity model has been around for some time, the current trend is for joint ventures to focus on quality standards and governance rather than pure financial performance and the division of the resulting revenue. The increased scrutiny on quality standards is evidenced by an abundance of quality studies and reports, the adoption of MS-DRGs, reporting of underperforming hospitals, nursing homes, and physicians by Medicare, state and private agencies and payers, and the movement to value-based purchasing and pay-for-performance reimbursement by both government and non-government payers. These trends demonstrate that joint ventures that align interests to improve quality will be most successful.
With respect to governance, successful alignment will occur when the organizations have synergies and create a governance structure that will best neutralize inherent cultural differences. For example, a physician group may have strong preferences about the type of surgical supplies that a facility uses, but a provider may have a group purchasing arrangement that precludes it from acquiring the supplies preferred by the physicians. The successful joint venture will sensitively compromise and effectively address this tension by such measures as establishing an active physician committee to hear, manage, and resolve clinical and quality issues.
What new strategies can be pursued?
In the next year, the industry will experience the unraveling of relationships, such as "under arrangements" and some per-click leases. The unwinding of these arrangements combined with pressure for new models will create opportunity for existing arrangements to be re-examined and restructured to incorporate new quality and joint governance standards. Providers that move decisively now to unwind difficult joint ventures, yet deal with physicians fairly, will maximize the long-term benefits of preserving physician relationships.
The industry will likely experiment with many models in different contexts rather than looking to a small group of models that function in a "cookie cutter" fashion. The greatest and most effective joint venture activity will likely incorporate innovative strategies that further quality and governance goals. To the extent hospitals have looked at joint ventures for increased patient revenue, the new focus is to expand and improve quality of patient care. A current example is the OIG's approval in January 2008 of two gainsharing arrangements with physicians-one a group of anesthesiologists; the other cardiac surgeons. Although this model is not a "typical" gainsharing arrangement, most gainsharing arrangements exhibit the following characteristics:
Hospital-based physicians or physicians in hospital-controlled outpatient setting identify cost savings opportunities-for example, controls over use of disposable supplies.
Physicians share in percentage of cost reductions.
Specific performance and quality measures are implemented to protect clinical care and prevent inappropriate underutilization.
Some of the specific features of the approved arrangements include:
A limited number of specific cost-saving opportunities (to clarify the task undertaken and get buy-in)
Data gathering to benchmark cost, quality and utilization on a national basis (guessing and estimating are discouraged)
Physician and hospital joint review of less costly products and supplies that are considered for use (cooperative efforts to achieve patient quality goals are paramount)
Limitations on the dollars that reach the gain-sharing pool if utilization drops below established objective measures (in order to suppress any urge to skimp on supplies or products)
Each gainsharing arrangement would entail its own specific features, but all gainsharing arrangements should consider including these and other safeguard measures to ensure that innovative strategies further quality and governance goals instead of establishing structures that foster a "minimum necessary" approach. The discussions around formation should not center on whether the safeguards are sufficient to sanction the arrangement from a fraud, waste and abuse perspective, but whether the safeguards are sufficient to further quality and governance goals.
These gainsharing arrangements demonstrate complex and thoughtful structures that create incentives for physicians to control costs that benefit the provider, but include safeguards for preventing fraud, waste and abuse. Further, they should improve the quality of patient care.
The OIG's approvals of these gainsharing arrangements contrast markedly with the position first taken by the OIG in its Special Advisory Bulletin of July 1995. Although the OIG opinions address anesthesiologists and cardiac surgeons, there is no reason that gainsharing arrangements will be limited to these types of specialties. In fact, the future trend may be to implement gainsharing arrangements beyond these narrow (and other specifically approved) specialties and into other practice and business settings, perhaps even large multispecialty physician primary care groups.
In today's environment, healthcare providers must enter into new relationships cautiously, with a clear understanding of potential changes in law and predetermined exit strategies. Where is the good news in all of this? That the joint ventures crafted today will increasingly focus on quality of care and shared governance, which more closely align the interest of the provider, the physicians and patients. Sound advice for providers is to follow your facilities' and your physicians' needs, not necessarily the market.
Beth Conner Guest is a partner at Waller Lansden Dortch & Davis in Nashville and co-manages the firm's corporate and commercial transactions practice. She can be reached at Beth.Guest@wallerlaw.com.
James S. Mathis is senior regulatory counsel for Omnicare Inc., a provider of pharmaceutical care for the elderly. He can be reached at JamesSMathis@yahoo.com.
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An obscure ruling from an increasingly obscure agency has some public companies in a tizzy. In late spring, to very little fanfare, the Securities and Exchange Commission shifted its position significantly on so-called shareholder proxies in general, and votes on universal healthcare in particular. The reason this decision didn't make many headlines, I think, is that we were in the throes of the credit crisis and observing an economy that seemed poised to really hit the skids over $140-per-barrel oil and $4 a gallon gasoline, not to mention a brutal endgame in the Democratic presidential primary.
Essentially, the agency said that public companies did not have the right to exclude a shareholder proxy vote on whether the company favorably views principles of universal healthcare. What does this have to do with healthcare finance, you might reasonably ask? Read on.
Activist shareholder groups are promoting a concerted effort to get some of the nation's largest companies to vote on essentially the same set of healthcare principles. Many religious and social organizations, as well as organized labor, hold shares in public companies through pension funds and other investment vehicles, and attempt to use this influence to right what they perceive as wrongs in the way the company operates. As shareholders, they have the right to propose board votes at annual meetings on a variety of subjects. At least until now, that doesn't mean the company has to actually hold a vote on the proposals. To be fair, many such proposals are cockamamie and silly, and were the board to waste its time voting on every proposal submitted by someone with an agenda, they would never get to company business.
But they have to take this one, which has been showing up on 2008 proxies, seriously. It asks companies to implement "principles for comprehensive healthcare reform" like those devised by the Institute of Medicine. While the proposal does not require companies to offer full health benefits for all employees, it asks top corporate executives to view universal coverage as a broader question of social policy.
James H. Cheek III, an attorney in the Nashville law firm of Bass, Berry & Sims' corporate and securities practice, says the SEC's decision is a surprising one because historically, companies have been allowed to exclude shareholder proxies rather easily. "One of the bases for rejection is if the shareholder proxy deals with ordinary business operations," he says. "Those are management decisions. The board and management can't allow them to try to manage the business from afar."
Until recently, a vote on principles of universal healthcare fell squarely into the rejection bucket. The new SEC ruling means the agency wants to look at social policy issues like the universal healthcare proposal on a case-by-case basis. "You have to write to the SEC and get permission to exclude these proposals," Cheek says. "There will no longer be automatic dismissal of these."
Activist shareholders have responded by bombarding companies that have not already taken a public position on universal healthcare with proxy vote proposals. Last year, there were only two proposals. This year, says Cheek, there have already been 28-and this was when I talked to him a few weeks ago. They can't force the company to do anything. But they can embarrass the companies-healthcare companies--that depend on the current healthcare system, which, as we all know, is quite a long way from being "universal."
To most companies, the vote itself doesn't really matter much. Whether GM or IBM have a public debate and hearing about universal healthcare is really immaterial to their financial results, discussion of which is a big reason for holding an annual meeting. Indeed, many public companies would love to have the healthcare cost burden magically taken off their plates. Sure would help GM, for example. But where it gets interesting is in proxy votes at public healthcare companies like UnitedHealthcare, Health Management Associates, Medtronic, or any of hundreds of others.
"The concern of many companies that are targets, especially those that are in the healthcare industry," says Cheek, "is that it calls to attention the flaws in reimbursement systems that impact their businesses."
You can see where public healthcare companies that may have a pretty big financial stake in preserving the status quo might be a little nervous. The SEC ruling gives shareholders a platform. "You have to give the shareholder the floor at the meeting, and they can make any comment they want as long as it's related to the proposal," says Cheek.
That, my friends, could be bad for business.
Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top quality issues facing healthcare leaders.
During an operation at a Salem, MA, hospital in 2007, an orthopedic surgeon was frustrated by a pair of scissors that wouldn't cut, and threw them. He narrowly missed a nurse. In many hospitals, outbursts from a top surgeon who generates significant revenue or a star researcher who wins huge grants often have been tolerated. But in this instance, North Shore Medical Center disciplined the doctor who threw scissors and required mandatory team training for all operating room staff under a recent policy requiring physicians to treat their colleagues with "civility and respect." The hospital is part of an emerging effort to crack down on what some call healthcare road rage, inspired by a growing body of research suggesting that swearing, yelling, and throwing objects are not just rude and offensive to co-workers, but hurt patients by increasing the likelihood of medical errors.
Maryland-based medical officials are working on two reports on ways to deal with a severe physician shortage in Southern Maryland that is predicted to get worse, with many area doctors expected to retire by 2015. The collaboration stems from a report this year by the Maryland Hospital Association and the Maryland State Medical Society that warned of dire shortages. Physicians, elected leaders and hospital administrators from three regions are serving on two task forces, the Task Force to Review Physician Shortages in Rural Areas and the Task Force on Health Care Access and Reimbursement. The panels are expected to present recommendations to the governor later this year.
Massachusetts Gov. Deval Patrick has signed into law one of the nation's strictest limits on gifts given to medical professionals by drug salespeople, the most contentious measure contained in a broad package intended to improve healthcare safety and curb skyrocketing costs. The new law also provides $25 million to promote electronic medical record-keeping, requires the state university to graduate more primary care doctors, and gives regulators the power to hold hearings when health insurers want to raise premiums.
New Jersey Gov. Jon Corzine has signed into law a measure that will create an early-warning system to help spot financially troubled hospitals. Four acute-care hospitals in New Jersey have closed already this year, and a fifth hospital will shut its doors this week. The law gives the state Department of Health and Senior Services the authority and access to information needed to monitor hospital finances. The department should then be able to identify financially troubled hospitals before a crisis strikes.
