Planning Services and Payer Contracting

Healthcare Strategic Planning

Merging Two Community Hospitals

Client Profile: A 200 bed community hospital and a 25 bed critical care access hospital serving a common service area Project Type: Mergers, Acquisitions and Collaboration Challenge: To analyze and validate a contemplated merger between two hospitals serving the same community and similar service areas. After several years of discussion, the hospitals had developed a preliminary memorandum of understanding outlining the organizational framework of a potential affiliation. The larger hospital offers a full range of primary and general tertiary healthcare services and maintains a large, diverse medical staff. The smaller hospital provides basic critical access services and maintains a small osteopathic medical staff of mostly primary care physicians. The hospitals sought identification of revenue enhancement and cost saving opportunities, as well as advice and recommendations pertaining to the organization, management and medical staff structures, and other aspects of the definitive agreement. DGA Solution and Results: DGA worked with the client to define the areas to be evaluated in relation to the merger. These included governance and management structure, medical staff integration, clinical programs, operations and use of capital resources and financial/economic outcomes. DGA then developed a detailed understanding of the two organizations and the proposed affiliation structure through a review of documents and data and by conducting in-depth interviews with key board, management and medical staff stakeholders. Each of the core areas were then evaluated within the context of the potential affiliation structure. More detailed analysis was devoted to unique challenges of the affiliation, including:

medical staff credentialing and integration
department-specific operational efficiencies and cost savings
the development of financial estimates for annual capital investment for facilities and infrastructure
potential incremental operating expenses
potential incremental savings

Pursuit of an Integrated Delivery System Strategy

Client Profile: A regional insurer in a competitive Mid-Atlantic market Project Type: Financial Feasibility and Modeling; Mergers, Acquisitions and Collaboration and Strategic Planning Challenge: To support the insurer in defining a new, strategic approach to financing and delivering healthcare through the creation of an Integrated Delivery System (IDS). The health plan sought strategic planning services with financial projections for acquiring and integrating a provider network—physicians, hospitals, and ancillary providers—with its insurance operations to create a regional IDS. DGA Solution and Results: DGA worked closely with a client project team to plan an approach to forming the IDS. After first identifying opportunities, we determined the costs of acquiring the necessary IDS components and the impact of having those components. We assessed how these acquisitions would affect insurance operations given improved care mechanisms and a new model of integrated delivery. More specifically, DGA worked with the health plan to:

Identify optimal approaches to pursue regional clinical integration through health plan physician acquisition, employment, and other methodologies
Quantify the investment required to obtain the various components of an IDS, including the acquisition of a strategically important health system
Develop prospective financial analyses for each entity based on historical performance, projected utilization, and various other market considerations
Determine the impact of the proposed IDS on health plan utilization, payment rates, and membership, including how the creation of the IDS affects relationships with other providers in the market
Articulate a new approach to operating the acquired health system within an overarching IDS vision, more generally.

Conclusions from these analyses were integrated into an implementation plan, which DGA developed in conjunction with health plan leadership. We formulated conclusions and provided the necessary analysis to support a board decision. The board approved the health plan’s effort to acquire the health system and creation of an IDS.

Medical Staff Planning for an Expanding Community Hospital

Client Profile: Community hospital associated with a major teaching hospital Project Type: Medical Staff Planning and Community Need Challenge: To determine medical staff needs for the hospital over a five year horizon as it transitions from its current facility to a new, larger facility with enhanced clinical capabilities. Develop implementation strategies by specialty to meet these medical staff needs and financial estimates to fulfill the plan. DGA Solution and Results: DGA worked with the hospital to estimate the optimal size and specialty profile for the new facility medical staff, based on the strategic and programmatic objectives for the new hospital. Physician gaps were identified at the specialty level for the five year planning period. Through assessment of the current physician landscape in each specialty and discussion with hospital management, implementation strategies were selected to fill each physician need, including alignment with existing practices, new practice development and employment. DGA developed high level financial estimates for the medical staff plan based on the strategy, specialty, and timeframe for each identified need.

Developing a Hospital-Physician Alignment Initiative for a Rural Medical Center

Client Profile: 100-bed rural hospital in New York State Project Type: Physician Engagement Strategy Challenge: To develop a shared strategic vision and plan for hospital-physician alignment, including clarification of the specific business model(s) the hospital should pursue in key specialties. Changes in policy and reimbursement had contributed to declines in the size and satisfaction of the voluntary medical staff. Existing practices lacked the resources and the risk tolerance to recruit and employ new physicians. Certain specialties were under-represented. Hospital leadership concluded that it must be more proactive in developing the medical staff. DGA Solution and Results: In collaboration with our strategic partner, Bader & Associates, Governance Consultants, we educated the board, physicians and senior management about the environmental pressures driving physician-hospital alignment. We helped them to understand the characteristics of successful integrated systems and the business model options for aligning hospitals and physicians, so that leadership would fully understand the strategic and financial implications of the alignment options. To develop a strategy for physician-hospital alignment, DGA spoke with members of the board, physicians, and senior management about their goals for alignment, including those for specific specialties and hospital service lines. We then developed a recommended plan, including a vision and preferred organizational model that will ensure that the medical staff of the future meets the needs of the hospital, the community, and potential regional partnerships. We developed consensus and support among key stakeholders, including the Board and physician leadership, for the optimal strategies. The result was high-level consensus among administration, medical staff, and board, on an alignment initiative, leaving the hospital ready for detailed due diligence, business planning, and implementation.

Comprehensive Assessment of Physician Community Needs

Client Profile: Multi-hospital system serving a population of 1.2 million Project Type: Medical Staff Planning and Community Needs Challenge: Conduct specialty-specific community physician need assessment to support the client’s physician recruitment initiatives. The client’s strategic plan identified a recruitment goal of 113 physicians in various specialties over a five year period. The client’s intent was to structure financial assistance arrangements, when necessary and appropriate, to support selective recruitment efforts while complying with federal guidelines for community need determination. DGA Solution and Results: DGA conducted 15 separate specialty-specific community need studies requested by the client. Our standards-based methodology resulted in a finding of physician deficits in all of the studies conducted. Based on our findings, the client is proceding with physician recruitment efforts. Financial assistance is being provided to support recruitment in selected cases. We also prepared a policy document and methodology to guide the future assessments of community need for physicians, in order to maintain compliance with federal regulatory guidelines. This document has been adopted by the system’s board of directors as the guiding instrument in on-going physician recruitment efforts.

Medical Staff Planning for a Regional Referral Center and a Hospital under Construction

Client Profile: A mid-Atlantic regional healthcare system anchored by a 400-bed acute care regional referral center, with construction underway for a new 100-bed acute care community hospital Project Type: Medical Staff Planning and Community Need Challenge: Assist the client to determine its medical staff needs both for its expanding role as a regional referral center with several clinical centers of excellence, and for the opening of a new 100-bed hospital in a rapidly growing adjacent community. DGA Solution and Results: DGA conducted a comprehensive quantitative analysis of the services area’s overall need for physicians, and a qualitative assessment of the System’s internal physician resource needs based upon strategic goals, clinical program needs and physician staffing requirements for the new community hospital. We employed extensive physician and management interviews and surveys to better understand perceptions of community and hospital need and to confirm strategic initiatives and program priorities. We utilized existing inpatient utilization projections for the new hospital to estimate physician staffing requirements. Within the flagship hospital, targets for specialty-specific physician recruitment were developed for each of the new Centers of Excellence as well as other existing clinical programs. The recruitment targets took into account estimated deficits in community physicians, as well as specific program needs and expected physician retirements. We laid out specialty-specific recruiting priorities by year for a five-year planning period for both hospitals, with over 156 physicians. In addition, DGA estimated annual physician development costs (salary subsidies less revenue offsets) based on the recommended recruitment schedule. As a result of this engagement, the client has initiated an aggressive recruitment effort that is based upon a comprehensive physician development blueprint. Healthcare Financial Feasibility and Modeling

Assessing a Major Initiative for an Academic Medical Center

Client Profile: A nationally-known academic medical center Project Type: Healthcare Strategic Planning and Business Planning; Financial Feasibility and Modeling Challenge: To help the client make a decision about the purchase and operation of a proton beam accelerator for tens of millions of dollars. The high investment requirements had to be evaluated in the context of the organization’s commitment to clinical and research leadership. DGA Solution and Results: Getting the latest technology is often presented as an imperative for a leading institution. Our analysis was designed to bring the uncertainty surrounding the decision to an acceptable level through a thoughtful and structured process. This allowed the institution to evaluate the likely financial realities in the context of its need to maintain its clinical and research leadership position. Because the initiative would have a long lead time, we assessed the direction and pace of technological development to assure that it would still be state-of-the-art when completed. We assessed the financial implications of several different equipment vendors and financing mechanisms. We modeled the implications of specific hospital partners in the initiative. This allowed the hospital to compare its options objectively. DGA engaged a range of internal constituencies, including clinical and research leaders, administration and the Board. Given this client’s situation, we concluded that they should not purchase the equipment at this time, but should treat patients at another facility through an affiliation. When technology and reimbursement questions settle, the client will reconsider acquisition.

Exploring the Options for a Distressed Hospital

Client Profile: A financially distressed New England community hospital Project Type: Merger and Acquisition; Financial Feasibility and Modeling Challenge: To guide a struggling acute care hospital with long-standing community ties in an affiliation exploration process, and to analyze its financial viability as an independent entity. After several years of increasing financial pressure, the hospital was reluctantly forced to consider affiliation. The client requested that we clarify the situation, determine available approaches and engage the board on criteria for affiliation. The client also sought accurate financial projections of its performance if it were to remain independent, including its ability to service debt under scenarios including potential conversion to Medicare critical access status. DGA Solution and Results: DGA facilitated an education and planning session to guide the affiliation process, in conjunction with ACCORD, a strategic partner. We evaluated several potential partners for fit with criteria identified by the board through planning sessions, interviews, extensive research and data analysis. DGA projected future financial performance in the absence of affiliation, based on a baseline scenario for utilization, payment, and expense levels developed in conjunction with hospital management. This analysis included assessing the impact of health reform and the scheduled sale of an unsuccessful subsidiary. We facilitated management working sessions to identify reasonable expense reductions that would increase funds available for debt service. Our projections ultimately showed overall expenses outpacing revenues even in the most optimistic scenario. These findings gave management the information needed to negotiate revised repayment terms with creditors. We also simulated the results of operations if the hospital were designated a "Critical Access Hospital" under Medicare regulations, finding that this would allow the hospital to meet current debt service requirements. The hospital is considering additional analysis that would precede a formal application for CAH status, while continuing to engage with potential affiliates on options and approaches.

Assessing Debt Capacity During an Economic Downturn

Client Profile: Community hospital Project Type: Financial Feasibility and Modeling Challenge: To evaluate the ability of the hospital to finance a contemplated capital renovation, based on projected volumes, profitability and overall financial position. As a result of the economic downturn, capital availability was extremely limited, even to financially solvent entities. DGA Solution and Results: The hospital had plans to launch new and enhanced product lines, which would directly impact utilization and profitability. DGA worked with the Hospital to develop patient volume estimates which reflected historical trends, current and recent developments in care patterns, strategic and programmatic plans and the facility plan for the renovation project. We developed prospective financial estimates for three different scenarios, a comprehensive financial ratio analysis and comparison to industry benchmarks. DGA provided the client with a succinct summary of the financial impact of the capital renovation project, prospective financial ratios and position for the institution and its likely overall creditworthiness. As a result, the hospital’s management and board were comfortable with moving forward on the project. Determining Feasibility of a Surgical Specialty Hospital Joint Venture Client Profile: Middle Atlantic multi-hospital system with major hospital facility in no-growth downtown location and significant competition in the growing suburbs. Project Type: Financial Feasibility and Modeling Challenge: Determine the feasibility of joint development of a surgical specialty hospital with local physicians. This bold strategic move would, if feasible, allow the health system to create additional capacity and strengthen its market position in a growing suburb by building on an extremely successful ambulatory care presence. DGA Solution and Results: DGA supported the facility planning, deal structuring, and financial analysis for development of a 44 bed surgical specialty hospital. DGA coordinated input from architects and managed the planning process to determine project cost and integration of the existing ambulatory care facility. We estimated market demand based on detailed discussions with physicians, and determined facility size based on these estimates. DGA performed several financial analyses, working closely with the system's finance staff, to estimate revenues based on the mix of actual cases treated by the likely physician participants. We built detailed budgets for the operation to determine expenses. Our financial analysis gained credibility with the system board by considering both the income from the new facility and the negative impact of shifting cases out of the old facility. DGA lead the joint venture effort to bring the physicians and the system into a balanced and equitable partnership for the ownership and operation of the new hospital. We proposed the initial deal terms and worked with outside counsel to translate these terms into the final documentation needed to close the transaction. The board approved the project, and DGA has assisted by developing the financial estimates for the offering memorandum.

Feasibility and Structuring of an Orthopedics Joint Venture

Client Profile: A 250-bed independent community hospital in Pennsylvania Project Type: Financial Feasibility and Modeling Challenge: To respond to market challenges caused by a competitor's new ambulatory care facility, the loss of the hospital's primary orthopedics group, and other competitive threats to the hospital's market position. DGA Solutions and Results: DGA recommended several ambulatory/physician office strategies. We identified a premier orthopedics group and negotiated an arrangement for a satellite of the group to locate at the hospital. To ensure the arrangement's financial success, DGA completed a detailed financial analysis, including assessing the market opportunity and analyzing the financial benefits for multiple scenarios. We helped define the structure of the deal, ensuring that the different components of the affiliation met the required fair market value standards. The hospital has now transformed devastating losses in its orthopedics service line into a significant improvement in the hospital's quality, patient volume, finances and an improved image for the hospital in its community. Academic Medical Centers

Determining Fair Market Value for Leasing a New Cardiac Care Technology

Client Profile: Mid-west academic medical center Project Type: Healthcare Business and Medical Practice Valuation and Fair Market Value for Physician Compensation Challenge: Develop a fair market value assessment for a new cardiac care technology that the client proposed to offer to small to medium-sized cardiology practices on a mobile basis. The practices would be unlikely to be able to obtain this technology on their own due to the high cost of equipment and operations, the need for trained technologists and a lack of experience in interpreting the exams. The hospital developed a business model designed on the premise that the cardiology groups would want to have access to this technology through leasing arrangements. DGA was asked to develop an opinion on the fair market value and commercial reasonableness of the contemplated lease arrangements and on the value of related services to be provided by the hospital and by the cardiology groups. DGA Solution and Results: Our work considered the revenue generating capacity of the new service, as well as how payers were likely to treat the service. We also considered the costs that each physician group would incur including:

Space on which to park the mobile unit
Electricity and telecommunications required to operate the equipment
Supervising physician services
Nursing services

DGA completed the valuation and concluded that the business model was a fair market value and commercially reasonable arrangement. The hospital pursued development of the mobile business model.

Medical Staff Planning to Grow Primary Care

Client Profile: An East Coast academic medical center located in a densely populated metropolitan market Project Type: Medical Staff Planning and Community Need Challenge: Develop a medical staff plan that would grow loyal primary care practices and close specialty departments with an over-supply of physicians to new appointments DGA Solution and Results: DGA compiled and analyzed an inventory of over 3000 community-based physicians during the study. Our recommendations led the hospital to initiate an aggressive program to redirect primary care referrals and to recruit and seed new practitioners into the service area.

Physician Compensation Benchmarking

Client Profile: Urban tertiary care teaching hospital affiliated with a major medical school Project Type: Fair Market Value: Physician Compensation, Directorships and PSAs Challenge: This hospital takes a very proactive position on legal compliance with federal regulations for physician compensation. DGA was engaged to provide an independent review of compensation for the hospital’s 176 compensated physicians, against reliable and current market-based data. Compensation levels of physicians exceeding the hospital’s identified "safe harbor" threshold needed to be audited and solutions proposed to bring their compensation within a fair market value range. DGA Solutions and Results: We assessed compensation using published data from five national surveys and DGA’s private market datasets. Our projections indicated that all but nine physicians were receiving fair market compensation. These "outlier" physicians were interviewed to determine whether special factors justified their higher compensation. Where the compensation level could not be supported, recommended solutions including freezing compensation levels until market data supported their level and restructuring compensation into base compensation and incentive arrangements tied to measurable goals. We recommended that the hospital establish time and effort reporting for all compensated physicians and begin developing base plus incentive compensation arrangements for the majority of employed physicians. As a result of this engagement, the client has a strong compensation framework that will guide all future hiring, provide a basis for negotiations with physicians and control exposure to regulatory risk.

Strategic and Financial Assessment of Surgical Department

Client Profile: Northeastern academic medical center Project Type: Academic Department Assessment Challenge: Conduct an objective assessment of a surgical department for leadership of the department, hospital and medical school, while respecting the concerns and sensitivities of all stakeholders. The department was plagued by high turnover among clinical faculty, below market faculty compensation levels, uncertain institutional financial support, operational problems within the clinical practice and a changing strategic and market environment. DGA Solutions and Results: DGA analyzed operational data (productivity, compensation, work flow, capacity), financial data (program support, direct and indirect expenses) and market data. We interviewed key department physicians, medical school and hospital stakeholders and conducted observations of the clinical environment.The resulting strategic assessment of the department confirmed certain perceptions in the institution and dispelled others. Our conclusions and recommendations included:

Organizational restructuring, reflecting:
Change in the structure of physician leadership
Creation of a new non-physician clinic director position with responsibility for clinical operations
Creation of clinical patient care teams in which physicians are paired with nurses to support their practice
Two separate and distinct strategic directions
Development of a three-year program to increase physician compensation levels, funded through increased program support from the hospital, and increased clinical revenues
DGA’s conclusions and recommendations provided leadership with an objective framework for evaluating program development and funding requests from the Department

Financial Modeling for a Specialty Hospital Being Built at an Academic Medical Center

Client Profile: Mid-Atlantic academic medical center Project Type: Financial Feasibility and Modeling Challenge: Develop projections of the financial performance of a new orthopedics specialty hospital and the impact on the existing hospital. The new hospital, envisioned as a teaching and research center, was to be developed in partnership with a market-leading orthopedics group. DGA Solution and Results: DGA started the financial modeling process by clarifying the likely organizational structure and financing plan for the new orthopedics hospital. We estimated volumes and revenues from historical data, building in growth projections. Through facilitated meetings of a project team, we worked closely with hospital operations staff to determine how the new facility would operate and to estimate detailed operating expenses. We then estimated the impact of shifted cases on overall hospital financial performance. Finally, our consolidated financial model integrated this information into a single estimate of financial impact. Alternative locations were considered, and their financial results were modeled. Medical center leadership had the clear financial estimates needed to assess its options, negotiate terms with the physician group, obtain board approval, and to begin to plan the new facility.

Fair Market Value Compensation Analysis for Teaching Program

Client Profile: Urban academic medical center with both full-time faculty and voluntary medical staff Project Type: Fair Market Value: Physician Compensation, Directors and PSAs Challenge: To provide the academic medical center with expert opinion documenting the scope and amount of AS&T effort required for its multi-million dollar orthopedic surgery teaching program and to determine a commercially reasonable fair market value (FMV) compensation range for the specified services to be used in re-negotiating a new contract for continuation of the program. The program comprises over 30 residents and numerous sub-specialty surgery fellowship programs. All of the program’s administrative, teaching and supervision (AS&T) requirements are provided under contract with a large affiliated private practice orthopedic group; more than 15 surgeons actively participate in the program’s AS&T activities. DGA Solution and Results: DGA developed a detailed fair market value analysis of the AS&T service arrangement between the medical center and the orthopedic group. We reviewed position descriptions for each existing director position and created several new position descriptions. We conducted interviews with individual surgeons to understand and document their respective AS&T duties and to develop estimated effort levels for each activity. Based on this analysis, we benchmarked effort levels against published compensation surveys for five orthopedic sub-specialties to develop hourly rate benchmarks. Individual surgeons were benchmarked against their respective sub-specialty compensation benchmarks. An opinion letter with supporting documentation was prepared and presented to academic medical center leadership that determined a commercially reasonable annual fair market compensation range for all AS&T services provided by the orthopedic group. The opinion letter was used by the medical center to successfully re-negotiate the contract for the continuation of the orthopedic surgery residency and fellowship programs. Academic Medical Centers

Determining Fair Market Value for Leasing a New Cardiac Care Technology

Space on which to park the mobile unit Electricity and telecommunications required to operate the equipment Supervising physician services Nursing services

DGA completed the valuation and concluded that the business model was a fair market value and commercially reasonable arrangement. The hospital pursued development of the mobile business model.

Medical Staff Planning to Grow Primary Care

Client Profile: An East Coast academic medical center located in a densely populated metropolitan market Project Type: Medical Staff Planning and Community Need Challenge: Develop a medical staff plan that would grow loyal primary care practices and close specialty departments with an over-supply of physicians to new appointments. DGA Solution and Results: DGA compiled and analyzed an inventory of over 3000 community-based physicians during the study. Our recommendations led the hospital to initiate an aggressive program to redirect primary care referrals and to recruit and seed new practitioners into the service area.

Physician Compensation Benchmarking

Strategic and Financial Assessment of Surgical Department

Organizational restructuring, reflecting:
Change in the structure of physician leadership
Creation of a new non-physician clinic director position with responsibility for clinical operations
Creation of clinical patient care teams in which physicians are paired with nurses to support their practice
Two separate and distinct strategic directions
Development of a three-year program to increase physician compensation levels, funded through increased program support from the hospital, and increased clinical revenues
DGA’s conclusions and recommendations provided leadership with an objective framework for evaluating program development and funding requests from the Department

Financial Modeling for a Specialty Hospital Being Built at an Academic Medical Center

Fair Market Value Compensation Analysis for Teaching Program

Accountable Care and Payment Innovations

Creating Accountability and Building PHO Revenues with Clinical Integration

Client Profile: PHO associated with a tertiary care teaching hospital Project Type: Payment Innovation, Clinical Integration Challenge: To help a successful PHO adjust to changes in regulations and market conditions by adopting clinical integration and expanding pay-for-performance. DGA Solutions and Results: DGA led strategic planning processes developing new strategies to replace the original contracting focus of the organization. The new strategies included an extensive clinical integration effort and significantly expanded pay-for-performance based on evidence-based clinical protocols and other quality initiatives. DGA also assisted the PHO to enhance its disease management program and develop an electronic medical record strategy. An information technology platform ties these efforts together, reducing fragmentation and increasing efficiency. The new strategies provide value to large payers in addition to the smaller payers that had previously been served by the PHO. This new client base significantly increased PHO revenue based on the true value of the services it was in a unique position to provide. The implementation of evidence based protocols and pay for performance provided the foundation for this PHO to become an accountable care organization (ACO).

Creating a Payer-Provider Collaborative as a New Competitive Platform

Client Profile: Regional health plan in a competitive Mid-Atlantic market Project Type: Strategic Planning; Financial Feasibility and Modeling Challenge: To develop a strategy for the health plan to engage providers in joint accountability for cost and quality DGA Solution and Results: DGA helped the health plan to identify both the "who" and the "what" of a plan for collaboration with providers. We started by developing an understanding of the relationship between the plan and each of the hospital providers, and between the hospitals and their physicians. We inventoried the hospitals/systems to determine which ones had a strong network of employed physicians, which had a PHO and which had strong relationships with physician groups. We identified the providers that the health plan should target for collaborative opportunities, and "reality tested" these recommendations with a client working group. Once desirable strategic provider partners were identified, we developed recommended programs for collaboration. The objective was to find models that improve care and lower utilization and costs while providing bottom-line benefits to both providers and insurers. Building on existing DGA familiarity with payment innovations and clinical integration, we did extensive research on which program models would have the greatest financial impact for the insurer. Selected programs included:

Select Network Product: Creation of a tiered benefit product for a more narrowly targeted hospital network
Patient Centered Medical Home: Extend best practices to additional primary care providers to transform primary care
Transitions of Care: Enhance quality and reduce complications by smoothing transfers upon discharge
ER Follow-Up Care: Provide health plan care managers with rapid access to patients who may need better care coordination

We projected the cost and utilization impact of the four identified programs at each of the proposed collaborative partners, as well as the timing of both costs and impacts. Based on this we estimated savings to the insurer and benefits to the providers. We quantified the additional volume and incentive payments providers could expect, and estimated the financial impact these programs might have on the providers to ensure that the proposed opportunity was appealing from their perspective. DGA is now assisting the health plan and its providers to implement the recommended initiatives. DGA is facilitating two collaborative work groups to define organizational structure and plan the programs to be launched next quarter.

Building Upon Core Values to Pursue an Accountable Care Strategy

Client Profile: PHO in mid-west affiliated with a 300-bed health system Project Type: Healthcare Strategic Planning; Accountable Care and Payment Innovation Challenge: To develop a strategic plan that delivers value to the multiple constituents of the 750- physician member PHO. The plan needed to balance initiatives to address immediate contracting efforts and finances, while concurrently positioning the organization with the resources to implement innovative contracting strategies in the future. DGA Solution and Results: DGA developed a strategic assessment of the PHO, based on data analyses and a series of interviews with key hospital, physician, and PHO leadership. This assessment was reviewed at an initial retreat facilitated by DGA, we provided education and context on the local market, trends affecting PHOs and the opportunities related to health reform, including ACOs. We collaboratively identified a vision for the PHO as a local physician-driven model of care, with a single consistent approach to how care is provided, negotiating with payers to be rewarded for the value it creates. Retreat participants agreed that an ACO opportunity fit with this vision and might be a viable strategy to pursue. In a subsequent retreat, DGA presented a full assessment of the ACO opportunity, including:

The potential size and savings of the ACO
The PHO’s capabilities to operate the ACO
An estimate of additional and ongoing staffing costs
A schedule of expected investment and return
A strategic vision that combined ongoing contracting efforts with ACO development.

Participants agreed that an ACO strategy should be pursued. Physician leadership is excited about this opportunity and is leading an effort to educate peers. The PHO is continuing with detailed planning and is taking the required steps to position itself for ACO contracting.

Review of Proposed Payer Contracts for Major Health System

Client Profile: Major metropolitan health system with three hospitals Project Type: Payment Innovation Challenge: To evaluate the neutrality of a proposed sweeping change to the current outpatient payment methodology by a major local third-party payer. Instead of being paid on a percentage of charges, the health system was to be paid on the basis of a fixed-fee schedule. The proposed fee schedule was intended to be "neutral" with respect to the previous charge-based payment, and DGA was engaged to test that neutrality. The proposed payment methodology for Emergency Department (ED) and Ambulatory Surgery Center (ASC) services provided a single "episode of care" payment for all services to the patient. For these services, the system would be paid the lower of the fee schedule amount or the actual charges for the service. DGA Solution and Results: DGA obtained payer worksheets provided showing the data and the neutrality calculations, and hospital data showing charges and volume by service code. For ASC and ED, we obtained clinical data that allowed us to determine the "severity" of the case (which established the proper payment) and to group together all related services into each "episode". For each system hospital and department, we computed payment under the current and proposed systems. We discovered that the payer had not properly implemented the "lower of charges or fee amount" rule for the ED. Some low-severity cases would actually be paid at a lower amount than computed by the payer, so that the resulted fee multiplier was below "neutral". When the health system informed the payer of the problems, the payer dropped the rule. The work protected the system from incurring a significant loss of revenue loss in its Emergency Department and Ambulatory Surgery Center. Evaluating a Pay-for-Performance Option for a Health System Client Profile: A five-hospital health system, struggling with the financial burden of a large base of Medicaid and indigent care patients Project Type: Payment Innovation Challenge: Create the tools and methodology to allow the client to choose whether to participate in a quality-based pay-for-performance program, and to provide the data to support them in participating if they chose to do so. DGA Solution and Results: We created a detailed simulation model that let the health system assess the potential impact of the proposed agreement. Based on this assessment, the client decided to move ahead with pay-for-performance, and was able to negotiate for performance metrics and goals that worked to their benefit in determining whether they had achieved quality goals. This client now has the tools and skills to manage the on-going modeling and performance analysis it needs to manage this essential payer contract. The health system has reported highly successful financial and operational performance with this payer agreement. The pay-for-performance program has also boosted morale and public image for some of the hospitals by creating a healthy competition to achieve quality goals.