Top 10 Takeaways from the Medscape Physician Compensation Report 2017

Published in Becker's Hospital Review Medscape has just released the Physician Compensation Report 2017 which analyzed more than 19,200 physicians in over 27 specialties. The 43 slide survey report contains information for physicians on salaries, hours worked, challenges facing physicians and much more. According to the survey, compensation for most specialties increased from the 2016 survey with the exception of Pediatrics which decreased slightly from $204,000 to $202,000. The chart below compares the survey compensation from 2016 to 2017. Key Takeaways 1. Plastic Surgery and Allergy & Immunology had the highest percentage increases from 2016 at 23.9% and 15.8% respectively. 2. Specialists reported average annual earnings 46% higher than primary care physicians at $316,000 and $217,000 respectively. 3. Physician compensation has gradually increased over the past 7 years from an average of $206,000 in 2011 to $294,000 in 2017. 4. Large gaps exist among race/ethnicity as the average salary for White/Caucasian was $303,000, Asian was $283,000, Hispanic or Latino was $271,000 and Black/African American was $262,000. 5. There is substantial variation between states as North Dakota had the highest average compensation at $361,000 and the District of Columbia had the lowest compensation at $235,000. 6. Self-employed physicians earned more than employed physicians with the largest gap being between specialists. Self-employed specialists earned an average of $368,000 while employed specialists earned $287,000. 7. Men earned an average of 16% more than women at $229,000 compared to $197,000 for women. This represents a slight decrease from the 2016 survey of 17%. 8. Accountable Care Organization (ACO) participation continues to increase at a rapid rate from 3% in 2012 to 36% in 2017. 9. The hours spent per week seeing patients has changed very little from the 2016 survey. Approximately 33% reported seeing patients more than 45 hours per week. 10. Hours spent on paperwork and administration continues to increase with 57% of all physicians spending at least 10 hours per week.

The Future of VACs: Valuation and Strategic Considerations

Published by HFMA Vascular access centers operating as extensions of physician practices saw declines in payment rates in 2017 that could threaten their viability. These organizations have the option of converting to ambulatory surgery centers, however, thereby realizing increases in payment. It is critical for healthcare finance leaders to understand these risks and opportunities as part of organizational strategic planning. Vascular access centers (VACs) are outpatient facilities that specialize in treatment of patients with end-stage renal disease (ESRD) who have problems with vascular access (for example, where efforts to access a vein or artery result in prolonged bleeding, inadequate blood flow, or increased venous pressure). Dialysis is a primary cause of such problems and the associated need for treatment in a VAC. About 80.3 percent of patients with ESRD undergoing dialysis are treated via catheter, which means that VACs also play a critical role in reducing the hospitalization of patients with ESRD by allowing nonemergency interventional procedures to be performed in an outpatient setting. For patients who do not have ESRD, VACs may offer an alternative setting for other interventional vascular procedures, including vascular access for reasons related to medical oncology, peripheral arterial disease (PAD), and enteral nutritional and medicine delivery. Many VACs operate under an extension-of-practice (EOP) model, whereby procedures are performed and billed as an in-office ancillary service of the physician practice and paid under the Medicare Physician Fee Schedule (MPFS). Beginning Jan. 1, 2017, changes in the MPFS resulted in significant payment cuts for several commonly performed vascular access procedures, and as a result, VACs operated under the EOP model are seeing significant declines in revenue and profits. As the exhibit below shows, the bundling of certain CPT codes and reductions in the fee schedule has reduced payment for certain VAC procedures by as much as 47 percent. Continue to the full article.

Stacked Physician Compensation: Keys to Compliance

Published by Compliance Today Compensation paid to physicians is under constant scrutiny as the number of healthcare settlements continues to rise both in number and in settlement awards. There has also been a shift by qui tam relators and the government to include both physicians and medical practices in enforcement action cases. Recent settlements have demonstrated the severe financial implications of improper financial relationships as shown in the Table 1 on page 36.

Staying within the law

But what does all this mean? The answer is that any compensation paid to a physician must meet several requirements. It must be commercially reasonable. In the preamble to the Stark Phase II interim final rule, CMS defined commercially reasonable as: [A]n arrangement will be considered commercially reasonable in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential designated health services referrals. 3 Physician compensation must also be consistent with fair market value (FMV). According to the International Glossary of Business Valuation Terms, fair market value is defined as: The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at armslength in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.4 Compensation paid to physicians must not be in violation of the Stark Law. According to the Office of Inspector General, “The Stark Law (42 USC § 1395nn) prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician (or immediate family member) has a financial relationship, unless an exception applies.”5 The Anti-Kickback Statute (AKS) also figures into physician compensation. According to the Office of Inspector General, “The Anti-Kickback Statute (42 USC § 1320a-7b(b)) prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate Federal health care program business.”6 And finally, physician compensation must not trigger the False Claims Act,7 and other regulations designed to prevent fraud and abuse. According to the Office of Inspector General, “The False Claims Act (31 U.S.C. §§ 3729–3733) prohibits the submission of false or fraudulent claims to the Government.” Thus, it is crucial to understand the entire compensation package being paid to a physician in addition to the individual components. Click here to continue to the full article..

6 Key Trends Affecting Healthcare Real Estate in 2018

Published by: Becker's Hospital Review Written by Victor H. McConnell, VMG Health, Kelly M. Bondy, Hall Render and Andrew Dick, Hall Render

1. The Tax Cuts and Jobs Act

Since the election of Donald Trump as President, Republicans on Capitol Hill have made attempts to repeal the Affordable Care Act (“ACA”) throughout 2017. A comprehensive repeal was not achieved, but certain legislative changes in the last year have chipped away at the ACA. Those legislative changes will have an impact on hospitals and health systems. Most notably, the Tax Cuts and Jobs Act (“TCJA”), which was signed into law on December 22, 2017, will significantly affect the healthcare sector. Beginning in 2019, the TCJA will effectively repeal the “individual mandate” set forth in the ACA by reducing the penalty tax to $0. Without the individual mandate, the Congressional Budget Office (“CBO”) and the Joint Committee on Taxation (“JCT”) expect premiums for policies purchased in the marketplace to rise, with fewer people obtaining health insurance. The CBO and JCT estimate that with the repeal of the individual mandate, approximately 43 million people under the age of 65 will be uninsured by 2026. That is a significant increase over its previous estimate of 28 million uninsured under the ACA prior to the passage of the TCJA. This larger uninsured population may result in an increase in the use of financial assistance programs and a rise in uncompensated care costs for many non-profit hospitals and health systems. Additionally, the TCJA has changed certain aspects of tax-exempt financing. While the TCJA did not repeal tax-exempt financing for private activity bonds, it does prohibit new advance refunding bonds. This removal of advance refunding opportunities may affect certain non-profit healthcare organizations by removing the ability to save money for other cash flow needs. Further, Standard & Poor's Outlook for 2018 suggests that other provisions of the TCJA, such as the reduction of the corporate tax rate, may reduce demand for tax-exempt paper and could mean an increase in interest rates for tax-exempt healthcare bonds, thus reducing banks' interest in doing direct placement or direct purchase bonds. Moody’s 2018 Healthcare Outlook suggests that tax reform may increase the cost of capital for hospitals and healthcare providers, creating greater merger and acquisition activity, especially for smaller hospitals who cannot afford higher interest rate costs in the taxable market. More broadly, the TCJA is expected to have a significant effect across all real estate sectors, with changes to include new rules for pass-through income and asset depreciation. Overall, the continued uncertainty surrounding the ACA will make planning and strategizing difficult for hospitals and health systems. This uncertainty is compounded by the effect that the TCJA will have on the healthcare market, especially in the non-profit sector, including an increase in the cost of tax-exempt financing and a rise in uninsured patients. These changes may result in more pressure on operating margins for non-profit systems, especially as healthcare policy continues to move towards value-based reimbursement and outpatient migration. Commercial real estate owners and investors will likely benefit from the tax savings generated by the TCJA, with the change in tax treatment of capital expenditures and new deductions for owners of pass-through entities, which may result in increased investment in real estate assets and development. Click here to continue to the full article. 

Advising the Urgent Care Client

Published by: American Bar Association The proliferation of urgent care centers (UCCs) across the country has created strong demand for tailored legal advice and guidance for the industry. UCCs are facilities that serve patients with non-life-threatening conditions (i.e. flu symptoms, cuts and sprains, and minor burns) on a retail basis. Historically, the industry has been dominated by private equity investors; however, other market participants, including health systems, physician groups and health insurance companies have demonstrated increased activity in this growing market. These strong future growth patterns in the urgent care industry should continue to pose legal and other issues that potential investors, operators and investors should be aware.

Urgent Care Industry Overview

When advising the urgent care client, legal professionals should have a fundamental understanding of the industry and operations of a UCC.  Across the United States, there are approximately 12,000 UCCs,¹ or one UCC for every 30,000 residents.  UCCs offer more services than retail clinics found in many pharmacies and grocery chains but fewer services than a hospital emergency department.  The industry is very fragmented; the largest 10 operators account for only approximately 20 percent of all locations² and less than 40 percent of all locations are owned by operators with over five locations.³  Based on these statistics, much of the legal work in the industry involves clients that operate one to five locations. According to a 2016 benchmarking study performed by the Urgent Care Association of America (UCAOA), the industry’s most prominent trade group, the largest owners of UCCs include corporations (39 percent), hospitals or hospital joint ventures (31 percent) and physician groups or single physicians (24 percent).⁴  The strategic motivations of each ownership group may differ slightly.  For example, corporations are typically more focused on financial opportunities whereas health systems may view UCCs within the overall context of an integrated care delivery model for the population (i.e. UCCs serve merely as entry points into the health system and/or allow the system to provide the full spectrum of care).  In a recent investor quarterly conference call, a representative from the nation’s largest health insurance company was quoted as follows: “We currently have about 250 [urgent care] sites, we’ll grow these to about 2,500 or more over the course of the next decade or so….we can accomplish 90% of what happens in an emergency room, but do so for 90% less.”⁵ Click to continue to the full article. 

Opportunities and Threats Facing Hospitals and Health Systems

Published by Becker's Hospital Review Leveraging VMG Health’s expertise as a leading provider of transaction health care valuation services, this article examines seven key issues facing Hospitals and Health Systems in 2017 and into 2018.

Shift to Outpatient Sites of Care

A higher percentage of low-acuity care is being provided in lower-cost, outpatient settings (i.e., ASCs, Urgent Care, Primary Care, etc.) This trend is primarily driven by an increase in consumer cost-sharing and improving patient navigation to relevant access points within the healthcare system. CMS is further leading the push to outpatient facilities in an effort to reduce national healthcare expenditures and improve the overall efficiency of the U.S. healthcare environment. Additionally, many ASC and urgent care platforms are owned/operated by large corporate entities and private equity groups with better access to capital to aid in marketing efforts to steer patients to these outpatient settings, and out of the higher cost hospital setting. Hospitals and health systems that acquire, form joint ventures with, partner with, or develop, their own outpatient infrastructure will be well suited to take advantage of this trend.

The Rise of Consumerism

Patients are increasingly taking an active role in the decision making behind their health care needs. The cost of care, quality of care, and ease of care, are crucial factors in the patient-driven decision making process. Brand awareness is an important catalyst in driving patient volume. Larger marketing budgets result in the ability to take advantage of the consumerism trend by educating patients on portfolio of service offerings, price concerns, and quality of care offered by a hospital operator or other healthcare provider. Additionally, competition in the outpatient site of service (for example, urgent care chains), increases the need for a higher focus on marketing, and brand awareness, for hospitals and health systems. Hospitals and health systems that allow consumers to choose among a variety of inpatient and outpatient settings and compare costs, quality, and access to physicians of different healthcare organizations will enhance the consumer experience and engage the consumer base. Continue to the full article.

ASCs in 2017: A Year in Review

Published by: Becker's Hospital Review Written by: Colin Park & Genevieve Gerten Throughout 2017 there were numerous changes in the healthcare industry, with large events such as the inauguration of a new president and significant shift in political control and Hurricanes Harvey and Irma impacting the industry. As it relates to ambulatory surgery centers (“ASCs”), there were a few trends to note: continued consolidation, changes to reimbursement, continued migration of higher acuity procedures to the ambulatory setting, and approval of additional Current Procedural Terminology (“CPT”) codes permitted in ASCs.

Transaction Activity for ASCs

In 2017, there were a number of transactions announced involving large, national operators. This continued trend of consolidation in the market mirrored the healthcare industry at large, and is summarized in the chart on the following page. Notable, large transactions in 2017 included:

• In January 2017, UnitedHealth Group (“UNH”) announced its plans to acquire Surgical Care Affiliates, Inc. (“SCA”), which will be combined into its OptumCare platform. The deal was valued at approximately $2.3 billion and was funded through cash and stock. As of the fiscal year ended 2016, SCA had approximately 205 surgical facilities (inclusive of surgical hospitals and other facilities), $1.3 billion in revenue, and $148.7 million in EBITDA.
• National Surgical Healthcare (“NSH”) was acquired by Surgery Partners, Inc. (“SGRY”), which was announced in May 2017. The approximate transaction size was $760 million. At the time of the transaction, NSH had approximately 21 surgical facilities.
• The consolidation of the ASC market has been further fueled by private equity capital, as was the case in the NSH acquisition. In conjunction with SGRY’s acquisition of NSH, which closed on August 31, 2017, Bain Capital Private Equity (“Bain”) acquired H.I.G. Capital’s 54% equity stake in SGRY for approximately $503 million. Bain also partially funded capital for the acquisition in exchange for preferred equity in SGRY.

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Compensation and Compliance: Five Common Sense Steps

Published by Compliance Today Based on the healthcare industry’s increased emphasis on the requirement for physician compensation arrangements to be fair market value (FMV) and commercially reasonable, health system executives are faced with the importance of these standards. These standards can sometimes seem challenging to digest and apply to arrangements based on vague regulatory guidance, as well as evolving physician alignment strategies. That said, many factors supporting these standards can be met by stepping back and applying common sense. The nuances of how to determine FMV compensation appropriately for the myriad of physician arrangements (e.g., on-call, pay for performance, employment) is beyond the scope of this article. Similarly, navigating all the appropriate questions, which should be asked to ensure an arrangement is commercially reasonable, is often a robust analysis that is also not the focus here. The point is to demonstrate that both of these standards have some common themes, which are easy to “check the box” on, and important to keep in mind for any physician compensation arrangement. A growing number of settlements involve the breach of the FMV and commercially reasonable standards. These settlements often display obvious non-compliant structures for compensating physicians. In addition, there are simple steps to ensure an arrangement is properly set up, and these steps will be critical to any compliance policy for physician compensation. The following is a checklist to help ensure your physician compensation arrangements have met the “common sense” regulatory litmus test. Continue to the full article and checklist to help ensure your physician compensation arrangements have met the “common sense” regulatory litmus test.

Recent Litigation and Dispute Matters Involving Impermissible Financial Arrangements

Published by Becker's Hospital Review Published by John Meindl and Ingrid Aguirre Summarized below are some recent litigation and dispute matters involving impermissible financial relationships with physicians; including alleged kick-backs, compensation, leasing, and various other arrangements. The healthcare compliance environment continues to be challenged with complex regulations, increasing qui tam activity, and regulators increasing their efforts to reduce fraud and abuse.

1. United States ex rel. Deshpande, et al. v. The Jamaica Hospital Medical Center, et al. – September, 2017

MediSys Health Network, Inc. allegedly violated the False Claims Act by engaging in alleged improper financial relationship with referring physicians, according to the Justice Department. In this case, the improper financial relationshps occurred in the form of compensation and office lease arrangements that were allegedly not compliant with Stark Law. Stark Law restricts the financial relationships that hospitals may have with referring physicians. MediSys Health settled for $4 million with the DOJ for this whistleblower suit. The lawsuit was filed under the qui tam, or whistleblower provision of the False Claims Act. The claims settled by this agreement are allegations only, and there has been no determination of liability.

2. $1.3 Billion Takedown – July, 2017

The Department of Justice found over 412 individuals, across 41 federal districts, responsible for approximately $1.3 billion in fraud losses due to false billings. This represents the largest health care fraud enforcement action in Department of Justice history. These false billings charged Medicare, Medicaid and TRICARE for unnecessary drug prescriptions and for medications that were never purchased or distributed to the beneficiaries. According to the Department of Justice, patient recruiters, beneficiaries and other co-conspirators were allegedly paid cash kickbacks in return for supplying beneficiary information in order for the providers to then submit fraudulent bills to Medicare for unnecessary medical services or services that were never performed. A complaint, information, or indictment is merely an allegation, as there has been no determination of liability. Click here to continue to the full article and five steps.

When Physicians Opt Out

Five Value Considerations in Group Practice Acquisition Carve-outs

2017 was a busy year for acquisition activity in the healthcare industry, with major deals announced in nearly every vertical. As consolidation and acquisition activity continues at a fervent pace, attractive acquisition targets are becoming increasingly scarce, the competition for these deals is fierce, and the deal structures are becoming more creative and complex. For acquisitions involving large physician medical groups, the challenges for a successful acquisition are even greater with increased regulatory compliance considerations, complicated and widely-varying compensation models and professional service relationships, and perhaps most importantly, the differing personalities, opinions, and motivations of the individual physicians. It should come as no surprise that the continuity of providers plays a major role in medical group acquisitions. For large practices, gaining consensus among physicians across the myriad of negotiable deal terms is not easy. This is especially true when the target practice resembles a loose affiliation of individual sub-practices, or when the practice operates in “pods” divided by office location, medical specialty, or hospital affiliation. So what happens when one or more physicians or physician pods believe the proposed acquisition is not in their best interest? Should they oppose the acquisition and potentially kill the deal? Or is it possible for this sub-set of physicians to opt out and pursue an alternative? Here are five value considerations when physicians opt out of the deal.

1)     The value of a group practice is not linear

A common misconception is that the value of a group practice varies proportionately with the number of physicians participating in the deal.   Under that construct, if 10% of the doctors opt out, the value of the practice would be reduced by 10% (or conversely the value of the physician pod opting out is equal to 10% of the total). In many instances this construct does not hold true and the sum of the parts does not equal the whole. Large group practices benefit from economies of scale, including shared overhead costs, higher utilization of practice assets, intra-group collaboration/increased productivity, sharing of ancillary profits, etc. Because of this, when a group of physicians opts out of a deal, the cost structure and profit sharing of the parent practice may not change proportionately. This may result in a disproportionate decline in value or offer price. Similarly, when a pod seeks to separate from the parent, the revenue and cost structure associated with operating the smaller sub-group practice may be much different than that associated with functioning as part of the group, resulting in a lower valuation on a standalone basis. Click here to continue to the full article.