Disclaimer · Robert Michalski, CHC, CHPC, CHRC Chief Compliance Officer Disclaimer “Please note that this presentation is for informational purposes only. The opinions expressed

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Mergers and Acquisitions: Factors to Consider When

Restructuring a Compliance ProgramHCCA Compliance Institute, Orlando, FL

April 21, 2015

Robert Michalski, CHC, CHPC, CHRC

Chief Compliance Officer

Disclaimer

“Please note that this presentation is for informational purposes only. The opinions expressed in this presentation and on the following slides are solely those of the presenter and do not necessarily represent the official policy or position of Baylor Scott & White Health.”

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Outline

Mergers and Acquisitions in Health Care

Background on Baylor Scott & White Health

Compliance in the Due Diligence Process

Organizational Structure and Board Relationships

Operational Considerations

Leadership Expectations

Perspectives from Other Mergers and Acquisitions

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• Government policies, including health care reform initiatives, market conditions, and hospital-specific factors are driving mergers and acquisitions.

• Hospitals across the country are merging – both with other hospitals and with other health care entities such as clinics, rehab facilities and even health insurance companies.

• Hospitals and health systems look toward consolidation to deal

with excess capacity/lower occupancy and

financial pressures by taking advantage

of greater operating efficiency and risk

diversification.

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Hospitals in Health Systems

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Mergers 1998 - 2013

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Significant Hospital Mergers in 2013 and 2014

• Community Health Systems and Health Management Associates

• Tenet and Vanguard

• Highmark and West Penn Allegheny Health System

• Trinity Health and Catholic Health East

• Advocate Health Care and NorthShore University Health System

• Conemaugh Health System and Duke LifePoint Healthcare

• Catholic Health Initiatives and St. Luke's Episcopal Health

• Banner Health and the University of Arizona Health Network

• Baylor Health Care System and Scott & White Healthcare

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• Hospitals and health systems are not just buying

each other, but are also forming more joint

ventures and strategic alliances.

• Cleveland Clinic's Cardiovascular Specialty

Network now includes Baylor Scott & White Health; North Shore-

LIJ Health System; and MedStar Health.

• Whole hospital joint ventures; Ancillary joint ventures; Specialty hospital joint ventures; Physician investors and For-profit joint ventures.

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• The largest not-for-profit health care system in Texas, and one of the largest in the United States, Baylor Scott & White Health was born from the 2013 combination of Baylor Health Care System and Scott & White Healthcare.

Background on Baylor Scott & White Health

Baylor Scott & White: Our Numbers

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• Should Compliance have a seat at the merger/acquisition due diligence table? Yes, the earlier the better

• Evaluation of the compliance program can say a lot about the culture of an organization.

• What sinks most mergers? Cultures that don’t align.

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Due Diligence Checklist: Compliance

1. Include copy of compliance and internal audit plans/programs.2. Identify compliance officer(s). Identify chief audit executive.3. Include copy of Code of Ethical Conduct.4. List and include copy of all compliance department policies.5. Describe structure and list composition and members of management or board

committees for Audit and/or Compliance.6. Include copy of organizational chart of the corporate compliance and internal audit

structure.7. List and include copy of any corporate integrity agreements imposed by regulatory

agency.8. List and include copy of any other government settlement agreements.9. List and describe (with copy) any regulatory agency citations during the past 3 years.10. List and describe any government investigations currently underway.11. Include copy of business ethics/conflict of interest disclosure policies. Copy of

disclosures and resolutions for past three years.12. Include copy of independent party reports, surveys, etc. used for compliance efforts over

past 5 years (e.g, fair market rental rates, appraisals of medical practices or property).

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Due Diligence Checklist: Compliance

13. Include copy of all letters from regulatory agencies such as the OIG, DOJ and AG for the past 3 years.

14. List and describe all financial relationships with physicians not set forth in responses to other items.

15. Describe compliance initiatives undertaken in the past 12 months, including copy of any internal audit reports prepared in the past 12 months.

16. List and include copy of compliance program assessments performed, internal or external, in the past 3 years.

17. List and include copy of an internal audit Quality Assessment Review performed in the past 5 years.

18. List and include copy of compliance education program material. 19. List and describe any advice letters/reports of consultants regarding billing/coding.20. Quantify and describe compliance hotline activity for the past 12 months.21. List and describe any EMTALA investigations or actions, current and for the past 3

years.

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• Consider compliance programs for business units you may currently not have like a health plan, skilled nursing facility, home care, hospice, or ambulance providers

• When issues are identified, determine how best to resolve: Require pre‐transaction cure; Self disclosure/repayment; Escrow funds to repay; New Entity will assume the issue and resolution; Change the deal structure; or Cancel the deal.

• Consult with legal counsel for the best approach given the situation.

• Get to know the compliance team. Evaluate their approach to compliance issues, what they resolve and how.

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• Consider a third party audit for high risk areas like clinical documentation, medical necessity, coding and billing

• Consider OIG Compliance Guidance risk areas

• Compare 1099’s to physician contracts disclosed

• Do your own sanction screening of the employees in the entity to be merged/acquired

• Evaluate the Seven Elements of a Compliance Program

• Review any external compliance program assessment findings

• Consider cyber security efforts and investments

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• Evaluate what structure best serves the new organization. May not look like either of the prior structures.

• The Baylor way; the Scott & White way; and the Baylor Scott & White way

• Build a structure that best aligns with the work and operations, not necessarily the talents of those on the current team.

• The larger the organization becomes, the more need for specialization and experts. One person cannot do it all anymore.

• Consider risk areas that may need their own dedicated teams to manage the compliance activities and risks of those areas such as: Revenue Cycle; Health Plan; Privacy; Physicians; Research; etc.

• Consider how other corporate service functions are organizing: centralized, regional, entity assignments, etc. May not work for compliance, but at least evaluate the alternatives

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• Benchmark other organizations.

• Consider size, scope, revenue, beds, employees or other metrics and the number of compliance staff they have to estimate the compliance staff size for the new merged entity.

• Assess talent from the new entity personally. Gather feedback from multiple sources that use the compliance program. Trust but verify.

• Evaluate titles closely. A Vice President or Director in one entity may not mean the same in another entity.

• Use a panel interview process to select the key leaders for the department comprised of individuals from inside and outside of the department that work closely with Compliance.

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• Board oversight for the Compliance program may be the Audit and Compliance Committee, Quality and Ethics Committee, Finance and Compliance Committee, etc.

• Establish the Committee structure in new Board bylaws

Other Documents to Establish with the Board:

Audit and Compliance Committee Charter

Internal Audit Charter

Corporate Compliance Charter

Compliance Committee Charter

Board Resolution for the Establishment of the Compliance Program

Conflict of Interest Policy

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• Get acquainted with the Board members, especially if they are new to you, the organization or serving on a compliance oversight committee

• Provide background on Corporate Compliance in health care if they are new to this function

• Consider inviting the Board Committee members to the HCCA Audit and Compliance Committee Conference or the Big 4 accounting firms have Audit Committee forums

• Meet with each Committee member individually prior to the first Committee meeting if possible; especially the Chair.

• Set expectations for future meetings

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Compliance Resource Material from the OIG

• Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors (4/2/2003)

• An Integrated Approach to Corporate Compliance: A Resource for Health Care Boards of Directors (7/1/2004)

• The Health Care Director’s Compliance Duties: A Continued Focus of Attention and Enforcement (8/29/2011)

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Compliance Committees

• Determine what level and how many management-level Compliance committees are needed for the new entity

• A Compliance Committee that spans the entire new organization will likely include the “Chief” senior leadership: CEO, COO, CFO, CLO, CIO, CHRO, CMO, CNO, etc.

• Recommend still including divisional or regional operations leadership on the top committee so there is a link to daily operations and the committee does not become isolated from operations.

• May consider additional Compliance Committees at the divisional, regional or entity level

• May consider Compliance Committees based on functional areas such as Revenue Cycle, Privacy, Research, Lab, Pharmacy, Health Plan, Employed Physicians, etc.

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Define roles and responsibilities with departments that work closely with Compliance:

Internal Audit Risk Management Human Resources Legal Patient Relations

• Keep an open mind to consider new ways of providing compliance services to the new entity

• Account for all the compliance staff and determine if some should be aligned with other departments (i.e. Revenue Cycle, RAC, Health Information Management, Information Security, etc.)

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• Be visible and get as much face time with other leaders, especially in the new organization that is being merged or acquired

• Don’t wait to have all the answers before reaching out and visiting with leaders. They will help you learn the new organization and give you the answers.

• Visit and tour the new merged or acquired entities. Meet the leadership teams and get introduced to staff.

• Ask what is working well and what is not. Ask them to describe when Compliance helped them with an issue and when they were not as helpful as they hoped. Will tell you where the department has focused their resources.

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• Communication is key both external and internal to the department

• Both existing and newly merged staff will be anxious

• Communicate as much as you can, as quickly as you can and as often as you can

• Mergers will require significant negotiation and compromise on any meaningful decision

• Look for ways to encourage the blending of the cultures

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• Begin to combine the Mission, Vision, Values and Code of Conduct for the merged entity or quickly communicate these to the acquired entity

• Merge compliance and privacy policies as quickly as you can to show the new organization it is becoming one

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Possible synergies:

• Staffing redundancies• Contracts• Compliance software and

tools• Subscriptions and resources• Hotline services• Sanction screening• Conflict of Interest

management• Audit workpaper tools

Track any synergies that may come from merging or consolidating operations

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• If one entity previously outsourced or co-sourced any compliance or audit efforts, evaluate if the new combined entity now has resources that can perform these services internally less expensively

• Alternatively, perhaps the size and scale of the new entity now justifies external assistance for a task that could previously be managed internally

• Recommend not pursuing an external assessment of the compliance program until a couple years into the new arrangement

• Allow time for both compliance staff and stakeholders/constituents to adjust to a new normal

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• Build alignment and support for the new program the first few years to build a common understanding of the compliance program

• Consider internal assessments for the first couple years to build relationships, gather feedback and make adjustments before bringing in a third party assessment

• Engaging a third party too early can cause division with leaders trying to retain aspects of their respective former programs rather than embracing the new merged program

• Plenty to do to integrate the program and communicate a new vision for Compliance for the first few years

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Compliance Functions to merge or combine:

• Code of Conduct and Compliance policies and procedures• Risk assessment and audit plans• Conflict of Interest management process• Compliance education and orientation content• Compliance hotline• Sanction screening process• Audit and investigation report templates• Employee exit survey analysis• Non-monetary compensation tracking

Don’t just focus on process, policies and procedures to the exclusion of building the relationships that make the compliance program effective

Regardless of policies and programs, compliance is more about relationships, communication and influence

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Strategic Plan

• Consider developing a Strategic Plan for the new compliance program

• Align the Compliance Strategic Plan to the overall organization vision and strategy

• Document how the compliance program supports the organization’s goals

• Embed those into the performance goals for the Corporate Compliance staff

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Corporate Compliance Strategic Planning Process

August 2014 - Defined a new vision and initial strategies to achieve that vision for Corporate Compliance.

September 2014 – Identified our customer as the BSWH Board of Trustees (and its Audit and ComplianceCommittee), evaluated the current state of Corporate Compliance functions and processes, and began to developthe future state.

October 2014 – Evaluated the organizational structure to align with the new vision and future state characteristics.

November 2014 – Completed the BSWH Corporate Compliance Strategic Plan 2020 and new organizationalstructure.

December 2014 – Presented the BSWH Corporate Compliance Strategic Plan 2020 to the BSWH Board ofTrustees Audit and Compliance Committee.

January 2015 – Presented the BSWH Corporate Compliance Strategic Plan 2020 to the BSWH OperationsCouncil and began sharing it with hospital Presidents and leaders. Completed job descriptions for new roles andsubmitted to HR Compensation.

February 2015 – Continued hospital leadership meetings throughout BSWH to share the new CorporateCompliance Strategic Plan 2020. New compliance positions created by HR.

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Corporate ComplianceStrategic Plan 2020

Vision Statement

Initial Strategies

Strategic Initiatives

New Organizational Structure

Expected Benefits

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Corporate Compliance Vision Statement

To be a trusted partner in fostering

integrity, transparency, accountability

and a culture of compliance that protects the

reputation, Mission, Vision and Values of

Baylor Scott & White Health

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Corporate Compliance Initial Strategies

1.) Provide regulatory guidance and education through open collaboration and communication

2.) Develop and strengthen relationships that raise the visibility and engagement of compliance

3.) Provide resources and tools that empower stakeholders to be active partners with compliance

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Corporate Compliance Strategic Initiatives

• Centralized and Regional Focus

• Dedicated Regional Compliance Directors

• Education and Marketing Focus

• Metrics and Scorecards by Entity

• Leadership Accountability and Incentives for Compliance

• Risk Based Operational Monitoring

• Conduct Ethical Culture Surveys

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Strategic Plan Expected Benefits• A distinct outward facing regional compliance team will be dedicated to

maximizing our involvement in local and regional operations

• This leads to trusted relationships with operational leaders to influence the culture of compliance for BSWH.

• The structure is scalable for future growth by adding additional regional compliance staff as needed.

• The structure will also benefit existing Compliance staff by allowing them greater access and engagement with operational leaders and providing them with more career path options via the regional compliance roles.

• This Corporate Compliance Strategic Plan 2020, when realized, will place the BSWH Corporate Compliance Program in the top tier of compliance programs nationally to support the BSWH Vision 2020 to be one of the “Top 3” health care systems in the nation.

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Leadership Expectations• Craft a bold vision for the new Compliance department

• Communicate, communicate, communicate

• Be visible and build relationships with operational leaders to understand their needs

• Use the resources of your team, but be open to a possible third way

• Use the resources of the organization to build support for the new program and structure (i.e. Human Resources, Marketing and Communications)

• Delegation is key as the organization grows through mergers and acquisitions

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• Focus your work as a leader on planning and preparing for the future of the program and less on being the subject matter expert

• Recognize your strengths and compensate for your development areas by partnering or adding people to the team that excel in those areas

• Set expectations and hold your team accountable to them

• Create a culture of candor and open communication to encourage collaboration

• Reward and celebrate successes along the way

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Leadership is the capacity to translate vision into reality – Warren Bennis

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• What if I am not the Compliance Officer, what is my role in a merger/acquisition?

• The main thing the team needs to develop is trust and caring for each other.

• Need compliance professionals that are flexible, adaptable, independent and take the initiative.

• Be receptive to changes, open to new opportunities, jump in and help in any way you can, band together as a new compliance team and support each other.

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• Challenges from secular affiliations with religious organizations

• May require separate Code of Ethics, polices and training by entity

• Separate branding for the compliance programs?

• Can you fully merge the cultures or should you?

• Unions may also influence what can be merged and combined

• May want separate policies for certain groups or entities to separate union divisions

• These scenarios will reduce the efficiencies and synergies that can be obtained from a merger or acquisition

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• Although the focus is on efficiencies and synergies that can be obtained from mergers or acquisitions, sometimes additional costs need to be incurred to provide the same level of services to the newly integrated entity

Examples of new costs that may be added include: Policy software Conflict of Interest management software Learning management systems Contract databases Auditing tools

• Take advantage of a merger/acquisition as a chance to look with fresh eyes and say, “We don’t have to do things this way anymore”. And figure out a way to do them better.

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Robert R. Michalski

Chief Compliance Officer

Baylor Scott & White Health

Phone: 214-820-8888

[email protected]

Questions and Comments?