Hospital Physician Relationship n Factors Causing Tumult and

Hospital — Physician Relationship n Factors Causing Tumult and Turmoit • • • Challenge of Competition Symbiotic Increasing Regulatory Complexity

Purpose of Presentation n Recognize Strategy and Tactics of Each Side n Identify Collaborative Solutions n Failing That — Identify Competitive Responses

Historically Cottage Industry Characterized by High Utilization and Profits HOSPITALS High Margins Full Beds PHYSICIANS Health Care “Boss” Focused on Care Unlimited Resources Limited Paperwork Long Stays Doctors’ Workshop Little Regulatory Managed Care Interference High Income/ Community Status

Tightening Vise n Rising Costs n Employer Rebellion n Best Care / Worst Care / Highest Cost n Governmental Response

Impact n Hospitals — Eliminated Beds; Shorten Length of Stay n Physicians — Taking Managed Care n Med School Applicants Declined n Focus on Outpatient Care n Both — Competing for Limited $$

Current Considerations HOSPITALS MUST PHYSICIANS MUST Respond to Compliance / Reimbursement Pressure Fight Declining Compensation/Status Focus on Developing IT Deal with Managed Care Hassle Assure Staff Loyalty Contemplate Redistribution of Power/Income Develop Strategies for Integration Find Some Friends

Hospital Actions n Medical Director / Staff Leadership Agreements n Coverage Agreements n Management Agreements n Exclusive Provider Agreements n Employment Agreements n Independent Contractor Agreements n Recruiting Incentives n Gain-Sharing Agreements n Form PHOs

Physician Reaction n n n n ASCs Specialty Hospitals Diagnostic Facilities Rehab Facilities In-Office Ancillaries Inpatient Procedures Ceased Medical Staff Volunteerism IPAs and Group Mergers

Ohio Health Example n Orthopedic Hospital Created n System — Duty to Protect / Preserve Charitable Mission • • Fiduciary Duty of Trustees Profitable Services Offset Charity Care Physicians “Skimming” Profitable Procedures Ensure Privileging Supported Mission n Went Public

New Reality PHYSICIANS ARE § Frantically / Creatively Seeking $$ § Searching for Security / Control § Looking for Leverage HOSPITALS ARE § Requiring Disclosure of Financial Interests § Disqualifying Doctors from Leadership § Restricting Staff Membership / Voting § Recruiting Competing Doctors § Declining Assistance to Competing Groups § Refusing to Deal with Competitors § Entering Exclusive Contracts

Legal Parameters Supporting Competitive Efforts n Community Service Obligations — 501(c)(3) n Fiduciary Duty n Conflict of Interest Policy n Corporate Authority of Board to Govern

Legal Parameters Limiting Competitive Efforts n Anti-Trust • • • Illegal tying arrangements Exclusive dealing Group boycotts Attempted monopolization Monopolistic leveraging n Private Cause of Action n State Unfair Competition Laws

Legal Parameters — Limiting Competitive Efforts n Medical Staff Bylaws • • State law requirements HCQIA JCAHO Medical Staff Bylaws n Vs. Right to Make Management Decisions

Legal Parameters — Limiting Competitive Efforts n Contracts • Covenant Not to Compete n Bylaws • • Corporate Medical n Stark II n Anti-Kickback Statute

Managing the Competitive Environment n Collaboration vs. Competition • • Still a Symbiotic Relationship Remember the Mission n Strategy First n Escalating Tactics

Community Awareness Campaign n Explain Corporate and Tax Structure n Discuss the Mission n Work on Relationships

Collaboration n Join the “Flotilla” • • Set Common Goals Respect Physicians’ Expertise Motivate by Vision / Alignment of Goals Shared Vision and Goals Respect Independent Goals and Action Direction Determined Issue by Issue Partnership When Goals / Visions Align

Collaborative Tools n n n n n Joint Ventures Exclusive Contracts Employment Independent Contractor Medical Director / Staff Leadership Positions Management Agreements Coverage Agreements Recruiting Assistance Malpractice Subsidies

Confrontational Options n n n Tighten Conflict of Interest Policies Recruit Doctors to Compete Enter Exclusive Managed Care Contracts Leverage Patient Steerage Refuse to Contract or Require Additional Terms Engage in “Economic Credentialing” • • • Amend Bylaws Close Department / Exclusive Contracts Limit Privileges n Land Use Restrictions

Build an Ark n Refuse to Deal with Competitors n Decline Assistance to Competitors n Invite “Friends” on Board n Shut the Door

Evaluating the Appropriate Response n Designate a Planning / Review Body • • Board Members Community Leaders Key Loyal Physicians Administrators

Key Points of Analysis n n n Existing Providers in Market Needs Assessment Nature of Competition ID Friends — Secure Them Analyze Impact of Competition ID Physicians’ Motivations

Solicit Input n Physicians with Competing Interests n Medical Leadership n Community Leaders

Board’s Decision n Form a Flotilla n Build an Ark n Go to War

Jeffrey O. Ellis, J. D. Lathrop & Gage L. C. 10851 Mastin Boulevard Overland Park Kansas 66210 -2007 913. 451. 5100 jellis@lathropgage. com