Setting Up the Physician Employment Model for Alignment

Setting Up the Physician Employment Model for Alignment and Collaboration in a Managed Care Setting WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

In managed care settings, one of the most notable trends among doctors and the overall healthcare and physician recruiting industries is the movement toward employment arrangements and an increasingly declining preference of compensation frameworks such as income guarantees and private practices. WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

As the market acclimates to industry changes and issues such as the overall decline of physicians, due to maldistribution/turnover, compensation, malpractice, and work-life balance, it is important that market leaders, executives and administrators become aware of how they can optimize a physician employment structure that will suit their alignment goals and thus help them maximize productivity and market share. WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Physicians, in turn, can be empowered to make informed decisions when considering where to practice, given their own background, expertise, compensation and work-life requirements. WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Introduction Approach to Reform Trends toward Employment From the 1990’s to Today Steps to take toward Employment 6 Contentious areas of Employment WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Response to Reform • • • Defend the Current Model Wait for the Mandate to Happen Hedge your Bet Begin the Transformation Lead the Transformation Find your Niche (Join Another System) BDC Advisors: Trends in Physician – Hospital Integration; June 2010 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

4 Key Strategies to “Hedging your Bet” 1. Strengthen Physician Employment Capabilities 2. Organize Employed Physicians into a Group (SSG or MSG) 3. Create a Clinically Integrated Network (Independents) 4. Invest in Clinical Information Technologies BDC Advisors: Trends in Physician – Hospital Integration; June 2010 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Employment in the ‘ 90 s • Way to Control Referrals • Focus on Primary Care WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Hospital-Physician Relations • An MCO or hospital’s financial success and clinical reputation stems largely from its medical staff. • The ability to recruit, retain and build physician loyalty is important to any hospital/MCO’s market position. New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Hospital-Physician Relations Over the past several years, many health systems have revisited closer integration strategies with new and existing physicians. New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Mid ‘ 90 s • For some hospitals these integration strategies include a return to physician employment models that were rampant in the mid-1990’s. • This trend was later discontinued following large losses to the hospitals. New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Mid ‘ 90 s • In the mid-1990’s, the employment of physicians was an offensive strategy to deal with the advent of capitation. • In most markets, capitation never materialized so hospitals were left with large infrastructure costs and losses. New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Today’s Strategies • Systems Drivers Toward Integration: – Integration is a defensive measure to protect market share • Surgery, Imaging and Outpatient Services • Entrepreneurial Physicians – To increase clinical services or reputation by recruitment of “superstar” physician – Physician Shortages, especially in less desirable geographical locations New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Today’s Strategies • Physician Drivers toward Integration: – Stabilize and secure income through economic alignment – Need for greater predictability of volume and desire to improve patient care New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Today’s Strategies • Hospital / MCO & Physician Drivers: – Costly clinical information technology needs of both parties – Consolidation amongst the larger payers, which requires hospitals to build their leverage through physician loyalty therefore becoming indispensable to the payers (similar to the 1990’s). New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

What’s Different Today? • The difference is in the approach. – The mid-1990’s are a painful reminder of the financial pitfalls that are possible. • Healthcare organizations are more strategic and more prudent in developing their strategies. – They are monitoring their results as well. New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Modern Integration Strategies • • • Employment Joint Ventures for Opt and Inpt Services Malpractice Insurance Offerings Construction of MOB’s Gainsharing with Physicians New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Employment • Contracts today are carefully constructed • Have clearly defined and agreed-upon productivity targets • Include both primary care AND specialists and sub-specialists • In rural or less desirable markets, employment may be the only way to attract specialists. New Strategies or Back to the Future? Moody’s Investment Service, September 2005 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Different Approach in 2010 • Much like the middle of last decade – Productivity Management – Goal Alignment – Physician Integration WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Continued Trend Towards Employment – Aging of Physician Marketplace – Increasing costs • Overhead • Reimbursements • Quality of Life WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Current Drivers of Physician Employment 1. 2. 3. 4. 5. 6. Declining Physician Incomes Private Practice Financial / Regulatory Stress Changes in Practice Preferences (Demographics) Projected Physician Shortages Increasing Acceptance by Hospitals / Physicians Physician-hospital Alignment BDC Advisors: Trends in Physician – Hospital Integration; June 2010 WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Now that you have decided to employ… what do you do? WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Steps Toward Employment Model 1) Determine Need 2) Medical Staff / Strategic Plan In-Network / Community Out of Network / Community 3) Valuate Practice 4) Negotiate Purchase Price 5) Employ the Physician 3) Employ the Physician WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Six Contentious Areas • • • Termination Duties Compensation Benefits Restrictive Covenant WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Term • Duration of the agreement – 1 -2 years common – Most auto-renew; evergreen • Start date can be an issue WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Termination • For Cause – Mutual Agreement – Death – Disability • Well-defined – Loss of License, Privileges, etc? • Without Cause – Bi-lateral WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Duties • Duties of physician – Practice Activities – Maintaining Licenses; Certifications – Privileges – Fees – Maintaining Liability Insurability • Duties of Employer – Facilities – Billing Services WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Compensation • Salary • Per-Shift / Hour • Bonus – Performance • Production • RVU – Discretionary WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Incentives • Salary plus Productivity – RVU’s – % of Collections WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Benefits • • • Employer / Employee Paid Health / Dental Malpractice Vacation; CME; PTO CME allowance 401 K Match Profit Sharing WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Restrictive Covenant • AKA – Covenant not to Compete – Non-Compete • Time and Distance • Non-Solicitation • Confidentiality / Non-Disclosure • Every employment agreement has one – Only way to avoid is to go on own (i. e. Income Guarantee) WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Recap Approach to Reform Trends Toward Employment From the 1990’s to Today Steps to Take Toward Employment 6 Contentious Areas of Employment WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™

Thank you! Craig Fowler, Vice President Training, Recruiting & Public Relations 1455 Lincoln Parkway • Suite 350 • Atlanta Georgia 30346 800 -492 -7771 (main) • 404 -816 -8831 (local) cfowler@phg. com • www. phg. com WE HELP BRING HEALTHCARE TO COMMUNITIES THAT NEED IT! ™