SEVEN TIPS FOR HOSPITALS Considering CINs
As the healthcare industry transitions to value-based care models, Clinically-Integrated Networks (CINs) are being created to achieve quality outcomes, coordinated patient care and reduced operating costs. A CIN is a network of healthcare providers, including hospitals, physician groups and/or individual physicians working together to achieve a common goal of improved patient care and the overall well-being of their communities in which they serve.
For their providers, Clinically Integrated Networks offer significant benefits such as increased efficiencies leading to reduced costs of care and opportunities for alternative value-based contracts with payers, while still allowing providers to maintain their autonomy in individual practices. Furthermore, to enhance their alignment between providers, Clinically Integrated Networks offer integrated incentive distribution models to tie individual organizational and provider goals with the overall goals of the network. They can take many forms, so there is not a singular approach to designing and optimizing the networks.
Their shape and structure largely depends on the stakeholders, desired outcomes, and applicable regulatory structures.
With these trends as the backdrop, we have seven tips for hospitals as they enter this next phase of value-based payment and consider their options for competing in the value-based world:
1) REMEMBER THE TRIPLE AIM!
The Triple Aim encompasses three tenets: (1) improve the patient experience; (2) improve the health of populations; and (3) reduce the per capita cost of care. These tenets are the new drivers of value and transactional trends in healthcare. Increasingly, fair market value and commercial reasonableness may be tied to the potential for advancing these tenets.
2) PRODUCTIVITY IS IMPORTANT, BUT SO ARE QUALITY AND VALUE.
Survey data from the Medical Group Management Association (“MGMA”) indicate that 100% productivity-based compensation models are on the decline for physicians. Although productivity will probably always be important, with the healthcare marketplace shifting focus to quality and value, hospitals may benefit from active planning to ensure that they are able to meet or exceed benchmark standards of quality and value. This may require re-evaluation of existing business practices and compensation arrangements with physicians and other providers, with an eye toward current trends and regulatory realities, as well as careful consideration of the various options for consolidation, clinical integration and alignment, and new and innovative compensation models.
3) ASSUME SUNSHINE EVERYWHERE, AND BE PREPARED FOR WHEN THE CLOUDS COME.
Healthcare is a highly-regulated and heavily scrutinized industry. With qui tam lawsuits and related government investigations on everyone’s mind, it seems like good practice to consider how activities may be presented or interpreted if they become the subject of an investigation. Planning for the possibility of scrutiny by having appropriate documentation to support decisions regarding transactions makes good sense. The appropriate documentation may include fair market value reports, and explanations of the “whys” of a transaction, including community needs and other reasonable business justifications.
4) REMEMBER THAT WHEN SOMEONE LOSES, SOMEONE ELSE WINS, OR WE ARE ALL LOSERS.
Hospital financial losses may be reasonable and expected for a variety of reasons. Some market data indicate that certain types of services, even if legitimately needed, tend to generate losses by nature, regardless of management. On the other hand, recent developments suggest that hospital losses that are perpetual and result from physician compensation that exceeds revenue from physician services may attract regulatory scrutiny. This being the case, good documentation to support the hows and whys of a transaction may be very important if losses are expected. (See Tip #3)
5) BE REASONABLE.
First, given that acrimonious relationships or negotiations may breed qui tam relators, we recommend taking a reasonable and fair approach to transaction structuring and compensation issues by ensuring appropriate communication and transparency among stakeholders.
Second, complying with the standards for commercial reasonableness may be helpful for withstanding regulatory scrutiny, even when a “commercially reasonable” arrangement is not explicitly required for regulatory compliance. As such, we recommend careful consideration of the government’s guidance regarding what constitutes a commercially reasonable arrangement, and taking steps to ensure that there are facts and documentation to establish that a transaction is commercially reasonable. The price tag for being “unreasonable” – both corporate and individual – could be very high.
6) ALWAYS REMEMBER “THE DEVIL IS IN THE DETAILS.”
As healthcare evolves, there are various reasons for hospitals to reevaluate and, in some cases, change the way they do business and the types or focus of the relationships and transactions that they enter into. This makes for novel and interesting challenges, particularly given the complexity and intensity of the legal and regulatory scrutiny that we have seen over the last few years. We recommend that hospitals be mindful of the old adage that “garbage in = garbage out.” Incomplete or inaccurate information may result in faulty assessments of arrangements, including their fair market value, commercial reasonableness and regulatory implications. Context is important to interpretation of facts, and an incorrect or incomplete understanding, communication or evaluation of details can lead to pitfalls in the event of scrutiny or an investigation later. In transactions, as in most things, little details can have a big impact.
7) DON’T GO At IT ALONE.
There are two points underlying this tip:
1) The new realities of healthcare are such that comprehensive, coordinated care for populations is widely regarded as a lynchpin for future financial viability, and collaborative approaches to care delivery- for example, through clinical integration with other providers and/or affiliations and partnerships—can be important for surviving and thriving.
2) Given the rapidly changing marketplace, as well as the regulatory environment and related pitfalls, identifying and working with advisors who are appropriately informed and who have specialized expertise in health care, including appropriately experienced valuation analysts and counsel, may be a smart investment for creating and implementing a compliant transaction. In transactions, as in most things, good decisions are informed decisions.
How HealthCare Appraisers works
At HealthCare Appraisers Inc., we’ve been working with top healthcare providers for over 2 decades to provide guidance on fair market value and commercial reasonableness. Our focus has always been on the health and life sciences field, offering robust industry experience.
We provide multi-dimensional support to ensure that CINs have a genuine “path to value.” Given our breadth of experience, HAI professionals support our clients in many ways:
- Advise on CIN formation and navigate the web of federal and state regulations;
- Deliver critical due diligence and valuation expertise in complex CIN decisions;
- Offer specifically designed solutions, processes, and consulting services to hospital-sponsored CINs.
- Determine the proper form and amount of contributions and distributions for independent community and employed of physicians;
- Design short and long-term operation and implementation strategies;
- Provide independent counsel on fair market value and commercial reasonableness issues and policies.
At HealthCare Appraisers, we pride ourselves on our deep expertise and truly independent and objective valuation services. If you are considering a CIN or looking for counsel on fair market and commercial reasonableness matters, follow the link below to speak to a CIN expert. If you want to learn more about Clinically Integrated Neworks (CINs) follow this link to our extended white paper: Clinically Integrated Networks (CINs): Fair Market Value In A Value Focused World.