Hospital and Cardiologist Alignment: What’s Next? Making a Case for the Cath Lab Purchased Services Agreement (PSA)

Over the past few years, the restructuring of the traditional cardiologist/hospital relationship has brought about a massive change, but has it reduced costs or improved clinical outcomes? The transition to value-based purchasing in health care will force providers to make further changes. Adopting a dyad structure to manage their cardiovascular service line may be the best option for providers, especially for the high-cost cardiac cath lab. This article examines the past and current cardiology environment, and suggests a business model that can effectively reform health care at your hospital.

Historical perspective

Hospitals have traditionally provided and billed for the technical component of services, which includes personnel such as technologists or nurses, supplies, and capital-intensive items such as equipment and real property. On the other hand, physicians traditionally provided and billed for the professional component of services, meaning their time. As technology made capital equipment more affordable, physicians added the technical component of in-office imaging for the convenience of the patient and because of the financial boost it provided to their practices.  As costs soared, the major cardiology payers, Medicare and Medicaid, cut reimbursement dramatically for in-office testing. The natural result was a massive restructuring of traditional hospital-cardiologist relationships. Many office-based procedures, such as nuclear studies, echocardiography, treadmill, and electrocardiogram, moved to the hospital, where they are better paid. Kristin Truesdell from Corazon has stated that the largest determinant of this switch was financial security.¹ In a case study, she described a three million-dollar revenue difference, a 1:4 ratio, of non-invasive technical fees between office-based and hospital-based procedures. There were 7 total cardiologists in that practice, indicating that the gross charges increased by over $400,000 per physician!  

Cardiologists and hospitals have used many technical approaches to accomplish restructuring.  Healthcare Strategy Group describes four major alignment strategies.² Each alignment strategy has many variables, but important elements such as call coverage, outreach, and productivity bonuses need to be addressed in any business structure. Alignment strategies (also see Figure 1) include:

1. Physician employment: includes the hospital’s purchase of all practice assets, and its employment of all clinical and non-clinical staff, followed by employment of the cardiologist. Although it may be costly for the hospital to acquire the practice and its capital equipment, this method is thought to provide the highest level of alignment and integration.  
2. Management Service Organization (MSO): physician employment without the hospital’s purchase of capital equipment. The cardiology practice entity remains in place, but the equipment, clinical space, and administrative staff are sub-leased, or otherwise sold or provided to the hospital at fair market value.  The clinical staff and cardiologists are hired by the hospital. The key advantage to an MSO is the ability to more easily unwind it in the future.   
3. Professional Services  Agreement (PSA): does not result in physician employment by the hospital. The physician practice remains in place and employs the cardiologists and non-clinical employees (billing, reception, and administration). The hospital acquires the clinical and non-clinical assets from the practice, then bills patients for the technical component of services. This model allows for greater flexibility.    
4. Co-management agreement: a strategy to align, but remain independent. A co-management agreement typically involves the hospital retaining a new business entity made up of cardiologists or cardiology practices to manage the cardiovascular service line, or a portion of the cardiovascular service line for the hospital.  

According to MedAxiom VP Joel Sauer, nearly 70% of MedAxiom’s cardiologist members are now aligned or integrated with hospitals. The alignment was likely accomplished to address the drastic cuts in reimbursement for in-office imaging, but may not have created the long-term structural changes that are needed. Employed physicians may feel complacent. Contractual work may not be rewarding. In fact, cardiologists’ overall compensation decreased 8% between 2012 and 2013.³ Max Rieboldt, President and CEO of Coker Group Holdings, indicates that the various physician alignment structures are just stage I, but that stage II will involve further integration, such as accountable care organizations and clinically integrated networks.⁴ The question for cardiologists and hospitals is, “What comes next?”  

As costs climb, movement to value-based purchasing 

According to Medicare and Medicaid projections, if health care continues on its current path, by 2021, Medicare and Medicaid costs will be nearly 20% of total GDP.⁵ It is no wonder there are so many attempts to decrease the costs of health care. The government initiated the Bundled Payments for Care Improvement in 2013 as a means to test value-based care.⁶  

The traditional fee-for-service payment model for health care is being replaced with value-based purchasing. Value-based purchasing has been defined by the National Business Coalition on Health as a demand-side strategy to measure, report, and reward excellence in health care delivery.⁷ Modern Healthcare recently reported that “Several of the nation’s largest health systems and insurers are joining together in a new task force, with the goal of shifting 75% of their business to contracts with incentives for quality and lower-cost health care.”⁸ The task force indicates that it will reach its target by January 2020.  

A world-renowned example of high quality cardiac care is The Cleveland Clinic. CEO Toby Cosgrove published an article in the Harvard Business Review acknowledging the move to value-based care, stating that the change is embraced by The Cleveland Clinic. He notes, “What makes Cleveland Clinic different stretches back to our founding 92 years ago as a physician-led group practice that runs a hospital — not a hospital that employs doctors. This distinction is important. Decisions from the CEO on down are made by physicians based on what is best for the patient.”⁹ In addition to physician leadership, he stresses the importance of using data to drive quality. “Whether providers like it or not, health care is evolving from a proficiency-based art to a data-driven science.”⁹

What is the dyad model?

In 2012, the American College of Cardiology (ACC) Council on Clinical Practice published a white paper, “Developing and Managing a Successful CV Service Line,” that provides advice on how to successfully transition a hospital’s cardiovascular service line from traditional fee-for-service payment models to value-based payment models.¹⁰ The white paper describes several key elements for success in the new value-based environment, including:

Dyad leadership. A dyad leadership model is most simply defined as “two individuals engaged in an ongoing relationship.”¹⁰ This concept has evolved in health care to mean joining physician and non-physician administration as leadership partners. Zismer et al have outlined a reasonable division of responsibilities between physician and non-physician partners.¹¹ Physician responsibilities include minimizing practice variation, maximizing productivity of physicians and staff, and managing physician-driven resource utilization. Non-physician responsibilities include financial management, supply chain, and capital deployment. A proper governance and organization structure should support this division of responsibilities.  

Blending of cultures. In a brief discussion with health care consultant Jim Palazzo from Navigant, he highlighted the importance of the cultural evolution from simply aligning to integrating. Cardiology alignment, as described above, involves moving services under one roof. However, integration is the cultural process of connecting goals and working together to solve issues.  

Understanding financial aspects. The ACC white paper notes, “The team must design tools to share accurate, credible data related to cost, quality, use of resources and efficiencies….”¹⁰ In our experience, this is one of the more difficult steps to accomplish. The hospital’s financial data is sometimes impossible to replicate, and interpretations of the data changes depending on how or when it is collected and reported. Cardiologists may lose confidence in the information as a result.

Understanding and managing data. Many systems do not adequately tie together cost and clinical information. The ACC-National Cardiovascular Data Registry (NCDR) CathPCI registry, and related ICD and Action registries, are rich with clinical information. The challenge is to put this data to practical use to improve day-to-day clinical care.  

An early example of the dyad partnership

Cardiac Partners has developed and operated physician-owned cath labs for over 30 years. The business began in response to a need for more cath lab capacity in light of the (then) “new” angioplasty procedure and the ability for a cath lab to provide therapeutic procedures. In the early 1980’s my father, John F. Carroll, MD, and his colleagues in Tucson, Arizona, were competing for time in a single procedure room performing 2,000 cases per year. At that time, Arizona had a Certificate of Need (CON) law that dramatically slowed the hospital’s ability to expand. I was a law student at the time, and was able to create a structure that was exempt from the CON requirements as a private physician’s clinic. The private physician’s clinic was able to provide cath lab services for a local hospital under arrangements.¹² This structure offered the best of both worlds, quick development timeline, and hospital support to allow angioplasty procedures and the then-required surgical standby. The additional benefit that occurred was the discovery that physicians can be very powerful allies to control costs and also improve quality. 

Stark laws

The Stark law prohibits physician referrals for designated health services (DHS) for Medicare and Medicaid patients, if a physician or an immediate family member has a financial relationship with that entity.¹³ The reason for the prohibition was to eliminate financial considerations from the physician’s decision to refer a patient for treatment. Initially, cath lab services were not considered to be DHS, so the Stark law prohibition did not apply. In 2009, a technical amendment to the regulations made cath lab services provided under arrangements (as was done in the case described above in Arizona) into a DHS, so the prohibition applied. The Stark laws effectively closed many physician-invested cath labs in the United States. However, some under arrangement cath labs restructured their business model to try to preserve the positive benefits (such as dyad management, cost controls, and teamwork) while still complying with the regulatory structure. The restructure typically involved severely limiting the services provided from the prior under-arrangements approach (capital equipment, space, supplies, and labor) to a more limited approach of supplies, labor, and management services. This restructured approach can be referred to as a Cath Lab Purchased Services Agreement, or a Cath Lab PSA.  

The Cath Lab PSA 

Business model. The Cath Lab PSA model (Figure 2) is a nearly ideal way for a hospital and its cardiologists to respond to the demands of value-based purchasing. The model makes full use of the dyad management structure, and puts the parties together as stakeholders in a business that is both cost efficient and clinically effective. The hospital purchases supplies and implantable devices, staffing, and management services from the cath lab entity. The fees paid are capitated flat fees, shifting the risk for very high-cost items to the cath lab entity. The hospital provides capital equipment, real property, and other hospital services not provided by the cath lab entity. This business model puts the hospital and cardiologists immediately into the role of partners and puts all the pieces in place for long-term integration.   

Ownership/governance. The ACC white paper and Harvard Business Review article by Toby Cosgrove both note the need for an effective governance structure. A typical Cath Lab PSA ownership and governance structure is described in Figure 3. The cath lab entity is owned equally (50/50) by the hospital and the cardiologists. If there are multiple cardiology groups and/or multiple hospitals, then each participates in its respective ownership pod. The cath lab entity is managed by a board, with half of the board members appointed by the hospital and half appointed by the cardiologists. The cath lab entity typically hires an administrative manager and a medical director. These two form the dyad management structure.

Financial aspects/managing data. The ACC white paper noted the need for “tools to share accurate, credible data related to cost, quality, use of resources and efficiencies.”¹⁰ This is often the biggest barrier to creating a Cath Lab PSA. If you can’t measure the costs, how can you improve them? To manage our own facilities, we needed per physician, per case, cost and efficiency measures. The hospital systems were all different, and there were many disconnects between the care provider, the cardiologist, and the existing infrastructure of collecting and reporting information. As a result, we developed an in-house tool that reads information charted in the hemodynamic monitoring system, then benchmarks and reports that information.¹⁴ The tool measures and reports efficiencies per physician and per category of service. It syncs with the hemodynamic monitor, then provides reporting of room utilization, labor, supplies, and services, all at a granular level of detail. The key to the puzzle is providing a real-time feedback loop to the physicians. This reinforces physician engagement, which drives clinical and cost initiatives.   

Conclusion

Value-based purchasing of health care services is the future. To compete, hospitals and cardiologists will need to move to an integrated and more efficient business model. Such a model requires teamwork, reliable data, and a blending of cultures. The cardiac cath lab is a high-cost area of a hospital, so why not use physician engagement to maximize value? The Cath Lab PSA offers physicians and hospitals a solution to work together as partners to maximize its contributions. So we are brought back to the original question in our title: “After completing the initial hospital and cardiologist alignment, what’s next?” 

References

1. Truesdell K. Revenue analysis of hospital-based vs. physician office non-invasive diagnostic testing. Cath Lab Digest. 2011 Feb; 19(2). Available online at https://www.cathlabdigest.com/articles/Revenue-Analysis-Hospital-Based-Vs-Physician-Office-Non-Invasive-Diagnostic-Testing. Accessed January 25, 2015. 
2. Andreoli E. Cardiology alignment options. Physician Strategy News. 2011 December. Available online at https://www.health carestrategygroup.com/thought-leadership/articles/cardiology-alignment-options/. Accessed January 29, 2015.
3. Personal correspondence with Joel Sauer, VP - Consulting, MedAxiom. October 27, 2014. 
4. Reiboldt M. Physician-hospital alignment in 2013: 17 trends. Becker’s Hospital Review. 2013 Aug. Available online at https://www.beckershospitalreview.com/hospital-physician-relationships/physician-hospital-alignment-in-2013-17-trends.html. Accessed January 16, 2015.
5. Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. Available online at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf. Accessed January 27, 2015.
6. Bundled Payments for Care Improvement (BPCI) Initiative: General Information. Available online at https://innovation.cms.gov/initiatives/bundled-payments/. Accessed January 29, 2015.
7. Value-Based Purchasing: A Definition From the National Business Coalition on Health’s Value-Based Purchasing Council. Available online at https://www.nbch.org/Value-based-Purchasing-A-Definition. Accessed February 3, 2015.
8. Evans M. Major providers, insurers plan aggressive push to new payment models. Modern Health care. 2015 Jan 28.  Available online at https://www.modernhealth care.com/article/20150128/NEWS/301289934. Accessed February 2, 2015. 
9. Cosgrove T. Value-based health care is inevitable and that’s good. Harvard Business Review. 2013 Sept. Available online at https://hbr.org/2013/09/value-based-health-care-is-inevitable-and-thats-good/. Accessed February 3, 2015.
10. Biga C, Blankenship J, Campbell R, et al. Developing and managing a successful CV service line: an ACC Council on Clinical Practice white paper. American College of Cardiology. 2012. Available online at https://www.medaxiom.com/clientuploads/PDFs/CV%20serviceline%20Whitepaper%20PRINT.pdf. Accessed February 17, 2015.
11. Zismer DK, Brueggemann J. Examining the “dyad” as a management model in integrated health systems. Physician Exec. 2010 Jan-Feb; 36(1): 14-19.
12. Under Arrangements are described in 42 U.S.C. §1395x(w). Definitions are available online at https://www.law.cornell.edu/uscode/text/42/1395x. Accessed February 17, 2015.
13. Physician Self Referral. CMS.gov. https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/index.html?redirect=/physicianselfreferral/. Accessed January 19, 2015.
14. CPLink Cardiovascular Database System^®, Cardiac Partners, Tucson, Arizona.