Friday, March 25, 2011

Healthcare CEO Roundtable Insights

I was part of an event yesterday in which 3 Atlanta Hospital CEO’s discussed the health care world from their perspectives. The CEO’s were Michael Young of Grady Health System, Bill Moore of Atlanta Medical Center, and Donny Hyland of Children’s Healthcare of Atlanta (CHOA). I walked away with a new tag phrase and a few interesting facts. Here are my take-aways, followed by a statement about what this has to do with real estate…

My new tag phrase
Hospitals MUST contain costs, and I drew a connection between three of the cost-containment “dots” discussed. Here's the new mantra: The right person has to see a patient at the right place at the right time. When these factors align, money is saved.  When they don't align, waste occurs.

  • The Right Person. The optimal use of Physician’s Assistants (PA’s), Nurses, etc, can drive costs down. The story was told of a health system in Pennsylvania that had 7 endocrinologists managing 700,000 diabetic patients effectively… until 5 of those endocrinologists left to start their own practice. The system was unable to recruit 5 more endocrinologists, so they used PA’s to oversee routine work and the specialists as needed. Patient outcomes actually improved, as did profitability.
  • The Right Place. Per Michael Young, the use of outpatient clinics is huge. At their new outpatient facilities, it costs Grady roughly $150 to see a patient (Flu, for instance). That same patient in the ER? $1,500. Training (or motivating) patients to seek treatment efficiently is crucial.
  • The Right Time. Motivating patients to follow their prescribed regimen AND seek early treatment is critical. A $35,000 spine surgery may be averted through much simpler treatments IF those treatments are prescribed early enough. Diabetics who choose not to take care of themselves are particularly troubling, as their expensive treatments often could have been avoided completely.

A few interesting Facts

Accountable Insurance rates. This is intriguing… Grady has reduced their employee insurance rates by 10% since 2008, primary through 2 mechanisms. First, they vary the employee’s cost burden based upon the employee’s lifestyle choices. Those who choose to smoke or not regulate their blood sugar, for example, pay more. Those who exercise regularly and maintain a healthy weight pay less. Second, they show their employees the costs associated with various medical choices. If one MD charges $8500 for a service and another charges $5000 for the same service, the employee is aware. They’re still free to choose whichever they like, but they’re aware of the impacts on their employer.

Consolidation will continue. Hospitals will merge and acquire, and many physicians will become employees. One CEO said that over 50% of physicians today are employees.

Cost-Shifting is going to have to end. With healthcare reform, there won’t be enough private payers to carry the gap left by low government reimbursements.

Parents don’t like to be told that their kids are obese. With almost 40% of Georgia’s children being obese, Georgia has the 2nd highest childhood obesity rate in the country. CHOA is running a happy, healthy campaign (click here for info) that includes billboards with innovative slogans. Per Donny Hyland, these billboards have become controversial (controversy article here). Per the article, they won’t go away… in fact they’re phase one of a larger initiative.

Capitation, despite its many challenges, does do something well… it pushes providers to insure that their patients follow treatment regimens. The example provided was that the provider who prescribes diabetic treatment will monitor adherence to the treatment regimen much more closely if the money for the [unnecessary] $20,000 surgery resulting from non-adherence will come from that provider’s pool of money.

There’s a Supreme Court case looming out there. The flood of newly insureds may lead to a flood of new litigation. To me this is plausible… many of these newly insureds will bring conditions that have been untreated for some time, and I anticipate that some will be looking for someone to blame. I’m not sure if it’s being implemented or not, but there’s talk that certain providers may one day ask patients to waive their right to sue for malpractice before they’ll agree to treat these patients. It’s an interesting idea, but it’s sure to be challenged heavily.

How does all of this relate to real estate?
Referencing “the right place” comments above, a healthcare-focused real estate team can make a big difference in the effective locating of outpatient facilities. Medical spend data, practice density/distribution, and similar specialized information can be used to land a facility in the most effective place, and an understanding of medical trends and economic drivers can insure that the right buy/lease decisions are made AND that contractual terms are favorable AND in compliance with federal Stark and Anti-Kickback laws.

Call me if I can help!
John
404.547.2009

Thursday, March 10, 2011

Stark and Anti-Kickback Laws: a Real Estate perspective

Stark and Anti-Kickback Laws violations have MAJOR impacts when they occur.  It's important that anyone dealing in medical leasing understand them. 

How major are the impacts?  Becker's Hospital Review recently released an article describing real-world cases from 2010.  The 8 of these cases that drew penalties drew hefty penalties... they summed to over $205 Million. That's right - the penalties averaged over $25 Million each. More on these penalties later.

The Laws
So what is the Stark Law?  It's a federal law stating that a physician cannot refer patients to any entity that pays that physician in any form or fashion.  If the physician sees a benefit, they can't refer.

And what is the Anti-Kickback Law?  It's an adjunct to the Stark Law that makes it a criminal act (personal AND corporate) for a practitioner to allow their personal interests to influence the type of medical treatment a patient receives under a Medicare claim.

Real Estate
What do these laws have to do with real estate?  Many hospitals own real estate, and doctors frequently refer patients to hospitals for services.  It creates a perfect environment for favors to pass back and forth, so a number of special rules have been set in place for such leases.  The real estate rules touch a list of lease aspects that MUST be understood, monitored, and even proactively managed.  A few of the rule topics include:
  • fair market rent value
  • term duration
  • size leased versus industry norms
  • holdover restrictions
  • what entities use the space (and don't)
Violate the rules - knowingly or not - and you're subject to the penalties described below.  I've spoken with attorneys who tell me that even self-reported violators have been hit with penalties.

Penalties
The penalties themselves are not negligible.  For a felony conviction, an individual can be fined as much as $250,000 and a corporation can be fined as much as $500,000... not to mention the potential of up to 5 years in jail.  Commit a misdemeanor, and the fine maxes drop to $100,000 and $200,000 respectively.  BUT... all of these penalties are per incident. And there's one other consideration:  When an investigation occurs, it's going to be very intrusive to both the hospital and practitioner.  Records will be seized.  Systems will be locked down.

In summary, it's critical that these laws be understood and heeded in medical leases.   Ask your commercial real estate agent if they're familiar with the Stark and Anti-Kickback Laws.  If you're not confident in their answer, find a specialist.  If you don't know of one in your area, call our team.  We're national and we'll help you find one.  The stakes are just too high to ignore.

Here's to your success,
John
404.547.2009

Special note: I do not practice law would make a very poor substitute for an attorney.  I'm happy to share my experience and the knowledge that comes through my practice of real estate.  But if you need specific legal advice, you're going to want to rely up on specialized legal counsel.  Feel free to call if you lack such counsel... my team and I are happy to help you find the right resource.