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Kevin Kennedy, Principal

I. Naya Kehayes, Principal

November 18, 2015

Optimizing Strategy for the New Realities

of Hospital Surgical Services

1

Meet Our Presenters

Kevin Kennedy

A 25-year consulting career has given Kevin a unique

understanding of shifting trends in the healthcare industry.

A member of ECG's Board of Directors and head of the

firm's Northwest Healthcare practice, Kevin has guided

hospital executives and physician leaders through periods

of dramatic change, and he is highly regarded for his

informed perspective on the industry's changing conditions,

new models of care, and the business arrangements

required to achieve clinical integration.

Principal

Naya Kehayes

0100.015\347250(pptx)-E2

Principal

With 18 years of experience in consulting and over 25 years of

experience in the healthcare industry, Naya is the Ambulatory

Surgery Practice Leader and Founder of Eveia Health, a division

of ECG. She has effectively directed projects and served as a

strategic adviser to clients in ASC operations, surgery

reimbursement, business analysis, and contract

negotiations. She has a proven track record of success and has

provided direction on engagements resulting in financial

performance improvements, including the generation of millions

of dollars in revenue for multiple clients.

About ECG

2 0100.015\347250(pptx)-E2

ECG partners with providers to create the strategies and solutions that are

transforming healthcare delivery. With more than 40 years of service to the

healthcare industry, we can help organizations thrive in a value-based world.

Earlier this year, ECG and Eveia Health joined forces to create a firm with

unparalleled domain expertise in ambulatory surgery in addition to our skills in

strategy, finance, operations, and technology.

Agenda

3 0100.015\347250(pptx)-E2

Introduction

Current Environment

Migration of Surgery

Strategic Considerations

Appendix A — Case Mix Considerations

Appendix B — CMS Approved ASC List Growing

4

Introduction

0100.015\347250(pptx)-E2

Observations on Recent Hospital Behavior

5 0100.015\347250(pptx)-E2

» Sutter Health owns six ASCs in Southern California, which are hundreds of miles from its

hospitals in Northern California.

» Tenet Healthcare invested in a JV with USPI to create “the leading U.S. short-stay surgery

platform.”

» A health system located on the east coast is in negotiations to buy at least 16 ASCs

(confidential).

» A large urban health system has a business plan to develop 20 ASCs over the next 4 years

(confidential).

» A multihospital health system seeks in-house ASC development and management capability,

with a goal of building 20 ASCs in the next 4 years (confidential).

So why the sudden interest?

Value-Based Enterprises

6 0100.015\347250(pptx)-E2

As payment reform and other pressures continue the push toward a value-based

industry, organizations need to develop the right framework to operate as successful

value-based enterprises (VBEs).

Value-Based Enterprises Becoming an Effective VBE

7 0100.015\347250(pptx)-E2

To become an effective VBE, an organization needs to establish a strong foundation

and drive improvement across four key functional areas. Care delivery changes are

a particularly difficult part of this process, but the increasing importance of ASCs

will help drive meaningful change.

Organizational Foundation ORGANIZATIONAL FOUNDATION

VBE

CARE

DELIVERY

TRANS-

FORMATION

PAYMENT

MODELS

CLINICAL AND

BUSINESS

INFORMATICS

PROVIDER

NETWORK

Medicare Shared Savings

Medicare Advantage

Commercial ACOs

Employer Direct Contracting

State Employee Direct Contracting

Pay-for-Performance

Bundled Payments (incl. CCJR)

MACRA

PA

YM

EN

T

MO

DE

LS

New Hospital Priorities

8 0100.015\347250(pptx)-E2

In progressive organizations that are serious about population health, the dialogue

around surgical services has changed dramatically.

» The ORs are the most profitable part of the hospital.

» Most hospital strategies and tactics are geared toward

increasing the volume of highly profitable surgical

cases.

OLD

PARADIGM

» The ORs are the most expensive part of the hospital.

» Many of the strategies used to fill ORs are at odds with

becoming a VBE.

NEW

PARADIGM

(we’re not

there yet)

EVOLUTION:

Health Systems Thinking About Surgery

New Hospital Priorities (continued)

9 0100.015\347250(pptx)-E2

Several pressures are changing the way hospitals think about surgery.

All of these issues

support a greater

investment in ASCs

by health systems.

Risk-based payments will

make it profitable to deliver

care in lower-cost settings.

PRIORITIES

COST

SERVICE

AND

CUSTOMER

EXPERIENCE

COMPETITION

CLINICAL

DELIVERY

ALIGNMENT

Partnership

opportunities exist

with key physicians.

There is a longer

list of eligible

services every

year. Total joint

replacements are

becoming more

common.

The happiest

patient may be one

who never sets foot

in your hospital.

If you can’t beat ‘em…

Things to Consider…

10 0100.015\347250(pptx)-E2

» ASC case mix and

ownership

» Value of

hospital-ASC JVs

» CMS-approved ASC

list growth

» Medicare versus

commercial payors

» Operations and CMS

changes

» Surgery pricing and

transparency

» Market dynamics and

physician

relationships

» Financial

considerations and

managed care

CURRENT

ENVIRONMENT

MIGRATION OF

SURGERY

STRATEGIC

CONSIDERATIONS

11

Current Environment

0100.015\347250(pptx)-E2

ASC Case Mix and Ownership

12 0100.015\347250(pptx)-E2

Medicare Case Volume by Specialty ASC Ownership

Dermatology 4%

Orthopedics 8%

Gastro-enterology

31%

Opthal-mology

28%

Other 7%

Pain Management

22%

Physician 65%

Hospital 2%

Corporation-Physician

8%

Corporation 6%

Corporation- Hospital- Physician

6%

Hospital- Physician

17%

Source: http://www.ascassociation.org/advancingsurgicalcare/aboutascs/industryoverview/apositivetrendinhealthcare

Value of Hospital-ASC JVs

13 0100.015\347250(pptx)-E2

ASC

POSIT ION

HOSPITAL

POSIT ION

» Is there potential for increased

reimbursement?

» Hospital JVs may or may not

result in a favorable impact to

reimbursement.

» Physicians desire to maintain their

independence.

» Hospital JVs can enhance

physician relationships.

» There is an increased demand for

ambulatory care networks.

» Transparency is becoming more

important.

» Value-based pricing opportunities

are emerging.

» There are increased operating

margins for select services.

» The gap is closing on

reimbursement for HOPDs versus

ASCs.

14


0100.015\347250(pptx)-E2


15 0100.015\347250(pptx)-E2

I N PAT I E N T H O P D A S C

Advancing clinical technologies that allow smaller incisions and shorter stays

Medicare and commercial payor cost pressures

Physician motivation—financial and efficiency

K E Y D R I V E R S :

High-Acuity Cases and SOS Shift

16 0100.015\347250(pptx)-E2

CMS approval of high-acuity codes for ASC setting increases threat of migration of

high-value cases to ASC setting (see APPENDIX B).

ORTHOPEDICS

S P I N E

TO TA L J O I N T

R E P L A C E M E N T S

» Laminotomy/laminectomy

» ACDFs

» Lumbar fusions

» Knee arthroplasty (uni-knee)

» Total wrist

» Total elbow

High-Acuity Cases and SOS Shift (continued)

17 0100.015\347250(pptx)-E2

CMS approval of high-acuity codes for ASC setting increases threat of migration of

high-value cases to ASC setting (see APPENDIX B).

G Y N E C O L O G Y

» Hysterectomies

C A R D I O L O G Y

» Pacemakers

E N T

» Cochlears

» Bahas

Payor Implications for Ambulatory Surgery

18 0100.015\347250(pptx)-E2

M E D I C A R E

» Inpatient to HOPD code approval

» HOPD to ASC code approval

» OPPS for HOPDs and ASCs

» Closure of gap on reimbursement methods and rates

» Device intensive codes

» Bundling logic

C O M M E R C I A L

PAY O R S

» CMS approvals to HOPD validate medical director

approvals for ASC lists

» Expansion of commercial payor ASC-approved lists is

growing beyond CMS-approved list

» Inpatient to outpatient cost savings opportunities with

outcomes data validate medical director approvals

» Alignment of commercial payors with ASCs to move volume

19

Strategic Considerations

0100.015\347250(pptx)-E2

Why is There an Increased Demand for

Hospital-ASC JVs?

20 0100.015\347250(pptx)-E2

OPERATIONS AND

CMS CHANGES

SURGERY PRICING AND

TRANSPARENCY

» Efficiency equals reduced cost

» Physician access to incremental income

» Physician management control

» No labor unions

» ASCs must know their cost!

» Payors see the opportunity for savings

» Increased commercial payor acceptance

of approval of codes beyond the

Medicare list

» CMS closure of the gap on HOPD- and

ASC-approved CPTs on APC list

» APC bundling logic and device-intensive

procedures

» ASCs typically represent 30% or more in

savings to payors

» ASC pricing can be 50% less than a

hospital

» Charge transparency trending toward

mandatory

» Payor, employer, and consumer

perspective on pricing competition for

outpatient surgery

» Value-based pricing/gain-sharing

arrangements

» Bundled payments in ASCs?

Factors That Impact the Success of a

Hospital-ASC JV

21 0100.015\347250(pptx)-E2

MARKET DYNAMICS AND

PHYSICIAN ALIGNMENT

FINANCIAL CONSIDERATIONS

AND MANAGED CARE

» Hospital equity position

» Asset versus stock purchase

» CON implications

» Market competition

› ASCs

› Hospitals

› Payors

» Physician relationships

› Hospitals retain physician alignment

with ASCs

› Hospitals recruit new physicians via

ASC partnerships

» Economic implications of moving surgery

› Excess capacity

› Demonstrating winners and losers

› Partnership distributions

» Case mix (see APPENDIX A)

» Payor methodologies and cost

» Affiliate language

» Payor contracting considerations

› HOPD versus ASC rates

› Historical focus on inpatient rates

› Shift in SOS

› Impact on rate negotiations

A major national payor is launching a

plan to contact patients before

authorizing a surgery to educate them

on the benefits of ASCs and inform

them about out-of-pocket differentials.

Two Anecdotes We Expect to Become Trends

» In a Western market, a health plan

has agreed to pay an orthopedic

group double-digit rate increases

for several years, contingent upon

them moving total joint

replacements out of the hospital

and into their ASC.

» The hospital is not aware of this

agreement.

22 0100.015\347250(pptx)-E2

So What Should You Do? A Six-Step Program

23 0100.015\347250(pptx)-E2

Be aware of what

commercial payors are doing

in your market. In most

areas, they are more

aggressive than Medicare.

Payor Market

Awareness

How will these trends impact

your other plans around

value-based care, new

payment models, physician

alignment, and clinical

integration?

.

Internal

Alignment 3 1 ASCs are different than

hospital ORs. Have a plan.

Fill Gaps in

Expertise 5

A meaningful portion of your

inpatient surgery cases will

transition to ASCs in the

coming years. Do the math.

Understand the

Implications

Can you ride it out? Can you

develop your own ASCs or

enter into JVs? Explore

ways to mitigate the financial

hit while positioning for the

future.

Develop a

Strategy 4 2 Execute! 6

24

Questions & Discussion

Kevin Kennedy

[email protected]

Naya Kehayes

[email protected]

0100.015\347250(pptx)-E2

25

Appendix A Case Mix Considerations

0100.015\347250(pptx)-E2

Case Mix Considerations

A-1 0100.015\347250(pptx)-E2

THIS IS A DPC NOTE

DO NOT DELETE

Per consultant: DPC-

note there are no errors

on the surgery lists-

spellcheck does not

recognize all of the

medical terminology

O RT H O P E D I C S

» General orthopedics

› ACLs

› Rotator cuff

repairs

› Athroscopies

» Total joint

replacements

S P I N E

» Laminectomies

» ACDFs

» Lumbar fusions

E N T

» Sinus surgery

» Tymps and tubes

» Cochlear implants

» Bahas

MOST FAVORABLE CASE TYPES IN ASCs

Case Mix Considerations (continued)

A-2 0100.015\347250(pptx)-E2

OPHTHALMOLOGY

» Cataracts

» Corneal transplants

» Retina

PAIN

MANAGEMENT

» Epidurals

» Pain pumps

» Trials

» Generators

GENERAL

SURGERY

» Hernia repairs

» Breast Reconstructions

» Lap choles

» Lap bands


Case Mix Considerations (continued)

A-3 0100.015\347250(pptx)-E2

G I

» Endoscopy

G Y N

» Hysteroscopy

» D&C

» Hysterectomies

U R O L O G Y

» Cystos

» Needle biopsies

» Bladder slings


29

Appendix B CMS Approved ASC List Growing

0100.015\347250(pptx)-E2

CMS ASC Approved List Growing:

Spine Examples

B-1 0100.015\347250(pptx)-E2

NOTE: CPT codes presented are examples of codes that have moved to ASC list by specialty and are not representative of

the entire list of codes that are approved on the CMS ASC list applicable to each specialty category.

CPT Long Description

2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

22551

Arthrodesis, anterior interbody, including disc space preparation,

discectomy, osteophytectomy and decompression of spinal cord and/or

nerve roots; cervical below C2 $10,224 $10,052 $7,844

22612

Arthrodesis, posterior or posterolateral technique, single level; lumbar (with

lateral transverse technique, when performed) $10,224 $8,451 $7,844

63030

Laminotomy (hemilaminectomy), with decompression of nerve root(s),

including partial facetectomy, foraminotomy and/or excision of herniated

intervertebral disc; 1 interspace, lumbar $4,113 $4,128 $2,254

63056

Transpedicular approach with decompression of spinal cord, equina and/or

nerve root(s) (eg, herniated intervertebral disc), single segment; lumbar

(including transfacet, or lateral extraforaminal approach) (eg, far lateral

herniated intervertebral disc) $4,113 $4,026 $2,254


Total Joint Examples

B-2 0100.015\347250(pptx)-E2


2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

24361 Arthroplasty, elbow; with distal humeral prosthetic replacement $10,224 $17,390 $7,844

24363

Arthroplasty, elbow; with distal humerus and proximal ulnar prosthetic

replacement (eg, total elbow) $10,224 $15,740 $7,844

24365 Arthroplasty, radial head; $10,224 $8,680 $7,844

24366 Arthroplasty, radial head; with implant $10,224 $9,089 $7,844

24370

Revision of total elbow arthroplasty, including allograft when

performed; humeral or ulnar component $10,224 $11,951 $7,844

24371

Revision of total elbow arthroplasty, including allograft when

performed; humeral and ulnar component $10,224 $13,619 $7,844

25446

Arthroplasty with prosthetic replacement; distal radius and partial or

entire carpus (total wrist) $10,224 $14,597 $7,844

27438 Arthroplasty, patella; with prosthesis $10,224 $9,385 $7,844

27440 Arthroplasty, knee, tibial plateau; $10,224 $9,863 $7,844

27442 Arthroplasty, femoral condyles or tibial plateau(s), knee; $10,224 $11,452 $7,844

27443

Arthroplasty, femoral condyles or tibial plateau(s), knee; with

debridement and partial synovectomy $10,224 $8,819 $7,844

27446

Arthroplasty, knee, condyle and plateau; medial OR lateral

compartment $10,224 $11,484 $7,844


Hysterectomy Examples

B-3 0100.015\347250(pptx)-E2


2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

58550

Laparoscopy, surgical, with vaginal hysterectomy, for uterus 250 g or

less; $5,479 $5,341 $3,002

58563

Hysteroscopy, surgical; with endometrial ablation (eg, endometrial

resection, electrosurgical ablation, thermoablation) $3,979 $3,252 $1,813


Cardiology Examples

B-4 0100.015\347250(pptx)-E2


2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

33206

Insertion of new or replacement of permanent pacemaker with

transvenous electrode(s); atrial $9,493 $10,500 $7,853

33207


transvenous electrode(s); ventricular $9,493 $9,571 $7,853

33208


transvenous electrode(s); atrial and ventricular $9,493 $11,333 $7,853

33210

Insertion or replacement of temporary transvenous single chamber

cardiac electrode or pacemaker catheter (separate procedure) $6,545 $4,748 $5,651

33212 Insertion of pacemaker pulse generator only; with existing single lead $6,545 $7,633 $5,651

33213 Insertion of pacemaker pulse generator only; with existing dual leads $9,493 $9,091 $7,853

33214

Upgrade of implanted pacemaker system, conversion of single

chamber system to dual chamber system (includes removal of

previously placed pulse generator, testing of existing lead, insertion of

new lead, insertion of new pulse generator) $9,493 $11,615 $7,853

33216

Insertion of a single transvenous electrode, permanent pacemaker or

implantable defibrillator $6,545 $5,173 $5,651

33217

Insertion of 2 transvenous electrodes, permanent pacemaker or



Cardiology Examples (continued)

B-5 0100.015\347250(pptx)-E2


2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

33218

Repair of single transvenous electrode, permanent pacemaker or


33220

Repair of 2 transvenous electrodes for permanent pacemaker or


33221

Insertion of pacemaker pulse generator only; with existing multiple

leads $16,407 $13,138 $12,518

33224

Insertion of pacing electrode, cardiac venous system, for left

ventricular pacing, with attachment to previously placed pacemaker or

implantable defibrillator pulse generator (including revision of pocket,

removal, insertion, and/or replacement of existing generator) $9,493 $11,202 $7,853

33227

Removal of permanent pacemaker pulse generator with replacement of

pacemaker pulse generator; single lead system $6,545 $7,595 $5,651

33228


pacemaker pulse generator; dual lead system $9,493 $8,553 $7,853

33229


pacemaker pulse generator; multiple lead system $16,407 $15,445 $12,518

33230

Insertion of implantable defibrillator pulse generator only; with

existing dual leads $22,917 $25,532 $20,292



B-6 0100.015\347250(pptx)-E2


2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

33231


existing multiple leads $30,818 $30,042 $27,212

33233 Removal of permanent pacemaker pulse generator only $6,545 $3,973 $5,651

33234

Removal of transvenous pacemaker electrode(s); single lead system,

atrial or ventricular $2,347 $3,412 $1,286

33235 Removal of transvenous pacemaker electrode(s); dual lead system $2,347 $4,158 $1,286

33240


existing single lead $22,917 $26,266 $20,292

33241 Removal of implantable defibrillator pulse generator only $2,347 $2,554 $1,286

33249

Insertion or replacement of permanent implantable defibrillator system,

with transvenous lead(s), single or dual chamber $30,818 $33,814 $27,212

33262

Removal of implantable defibrillator pulse generator with replacement

of implantable defibrillator pulse generator; single lead system $22,917 $22,076 $20,292

33263


of implantable defibrillator pulse generator; dual lead system $22,917 $24,248 $20,292

33264


of implantable defibrillator pulse generator; multiple lead system $30,818 $29,221 $27,212



B-7 0100.015\347250(pptx)-E2


2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

33270

Insertion or replacement of permanent subcutaneous implantable

defibrillator system, with subcutaneous electrode, including

defibrillation threshold evaluation, induction of arrhythmia, evaluation

of sensing for arrhythmia termination, and programming or

reprogramming of sensing or therapeutic parameters, when performed $30,818 N/A $27,212

33271 Insertion of subcutaneous implantable defibrillator electrode $6,545 N/A $5,651

33273

Repositioning of previously implanted subcutaneous implantable

defibrillator electrode $2,347 N/A $1,286


ENT Examples

B-8 0100.015\347250(pptx)-E2

CPT Long Description Short Description

2015 Area-

Adj CMS

HOPD Rate

2015 CMS

HOPD

Hospital

Cost

July 2015

Medicare Area-

Adj. ASC

Payment Rate

69711

Removal or repair of electromagnetic bone conduction hearing device

in temporal bone Remove/repair hearing aid $3,730 $2,180 $2,044

69714

Implantation, osseointegrated implant, temporal bone, with

percutaneous attachment to external speech processor/cochlear

stimulator; without mastoidectomy Implant temple bone w/stimul $10,224 $9,087 $7,844

69715

Implantation, osseointegrated implant, temporal bone, with

percutaneous attachment to external speech processor/cochlear

stimulator; with mastoidectomy Temple bne implnt w/stimulat $10,224 $15,393 $7,844

69717

Replacement (including removal of existing device), osseointegrated

implant, temporal bone, with percutaneous attachment to external

speech processor/cochlear stimulator; without mastoidectomy Temple bone implant revision $3,364 $4,920 $1,843

69718

Replacement (including removal of existing device), osseointegrated

implant, temporal bone, with percutaneous attachment to external

speech processor/cochlear stimulator; with mastoidectomy Revise temple bone implant $10,224 $29,326 $7,844

69930 Cochlear device implantation, with or without mastoidectomy Implant cochlear device $29,718 $30,829 $27,886

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Optimizing Strategy for the New Realities of Hospital ... · 0100.015\347250(pptx)-E2 ... Total joint replacements are becoming more ... » Total wrist » Total elbow . High-Acuity