CAO Corporate Update - November 2016
CAO Physicians and Administrators,
To start off, I want to thank everyone who attended the Third Annual Meeting in October to help make it a successful event. We enjoyed a record turnout this year, and as I will discuss in more detail below, the presentations, keynote address, and collegial subspecialty and administrator breakout sessions are a strong statement on how we have matured as an organization over the last year.
I hope that all of you had a safe and happy Thanksgiving. And as we get ready to continue the holiday season and turn the page on 2016, I’m proud to report that The Centers for Advanced Orthopaedics has never been stronger. Through your tireless efforts to improve our young company, we continue to move towards becoming a unified company, both in our internal communication and external patient-focused branding. Consequently, we will move into 2017 as one of the most powerful orthopaedic groups in the country, utilizing our collective strengths to build collaborative relationships with payors, launch bundled payments, maximize the value of our PT facilities, and positively influence how orthopaedic care is delivered.
Below, please find brief summaries highlighting the work that is underway in The Centers’ corporate office.
Malpractice Insurance
As many of you are aware, with the help of our Medical Malpractice insurance broker, Marsh, we evaluated our options for malpractice insurance with the goal of leveraging our size to once again drive savings for CAO. This extensive process started with an actuary study of our projected losses and included putting our coverage out to bid in the commercial market. As a result of the bidding process we received nine proposals from qualified firms. After careful analysis of all the proposals Marsh presented the two leading proposals for malpractice coverage to the Board on October 19th. One of the proposals was from ProAssurance, our incumbent carrier, and the other was from Connecticut Medical Insurance Company Risk Retention Group (CMIC).
Although CMIC’s proposal was significantly more advantageous to CAO than was ProAssurance’s, out of respect and appreciation for our partnership with ProAssurance, the Board voted to extend ProAssurance the courtesy of what the insurance industry calls a “last look.” Through this process, which included providing ProAssurance with the terms of CMIC’s proposal, ProAssurance was not able to match CMIC’s terms. At the same time, we obtained answers to a number of questions the Board raised about CMIC’s proposal and gained additional background on CMIC, all of which resulted in the Leadership Team’s decision to put the move to CMIC to a formal vote of the Board of Managers. Through an electronic vote, the Board voted to approve moving forward with CMIC as our malpractice insurance partner. The new policy will go into effect on Wednesday, November 30th.
CMIC has an AM Best Rating of A-, which is categorized as Excellent. Highlights of CMIC’s coverage proposal include CMIC agreeing to provide 40 free retirement tails immediately, and, after three years with CMIC, all CAO doctors will be provided prepaid tails. The value of these prepaid tails is estimated to be between $3 million and $6.5 million, a substantial windfall for CAO and all individual CAO doctors. With all prior acts covered, CAO’s cost of malpractice insurance in the fourth year will be dramatically reduced, and, whether we decide to continue to insure our malpractice risk commercially or to create our own captive insurance company, the decision of the Board to move to CMIC was very sound.
CAO Email Domain
For a company of our size and in our industry, a secure email system is a necessity, as it will greatly facilitate effective HIPAA-compliant communication and provide standardized and industry-leading cyber security protocols. So, as I discussed during the Annual Meeting, we are taking a big step in our efforts to increase internal communication by launching a company-wide email domain.
Led by Effie Hernandez from the Montgomery Orthopaedics care center, the Information Systems Committee reviewed proposals from several capable vendors before we signed an agreement with Thrive Networks, a leader in the field of email domains and management. Within the next few weeks the folks at Thrive will be reaching out to schedule an initial discovery call with each care center.
Once we move to the new CFAOrtho.com email domain, it will be critical to the success of this initiative that all CAO doctors and staff use their company email for all company-related communications. That way, we can confidently ensure that all communications, including sharing patient records and collaborating both inside and outside of CAO, are HIPAA-compliant.
Virginia Regional Director of Development
It has been encouraging to see our Virginia divisions leading the charge on brand conversion over the last year, embracing The Centers across every patient touch point. As a natural next step, they have hired Tom Shallow, who served as a consultant to CAO over the last several years, to fill the newly created position of Regional Director of Development for the Virginia care centers.
In addition to continuing to consult with corporate on a variety of initiatives, Tom’s new role will focus on key areas of growth to help expand The Centers’ presence in Virginia, forge stronger relationships with other healthcare groups in the market and identify underserved areas where CAO’s footprint can be expanded in the Northern and Central Virginia regions. In this role, Tom will be working closely with our Virginia administrators as together they identify their common strategic goals, which will help to inform his work building our Virginia footprint.
Primary Care Referrals
The Leadership Team continues to make progress in our conversations with Privia Health, an organization with more than 1,000 primary care physicians and an impressive growth rate of adding three new physician groups each week. No longer only dominating the Virginia market, Privia has begun a big expansion throughout Maryland. As you can see by the attached map comparing our footprint to Privia, there are incredible opportunities for synergy between our companies.
In October, we had a productive meeting with Lauri Rustand, Market President at Privia, and her colleague Corey Purdue, Director of Specialist Network Development. Armed with CareFirst’s red, yellow, green assessment of CAO’s physicians, , during the discussion we highlighted how 88 percent of our physicians fall within the yellow or green category. Privia is impressed with our organization’s size and forward-thinking strategies, particularly as they relate to bundled payments. With the stated goal of establishing CAO as their preferred referral partner, Privia has told us that they want to quickly move forward with next steps to solidify a mutually beneficial relationship.
EMR/Practice Management Systems
As I discussed in my Annual Meeting remarks, over the last 18 months our physician- and administrator-led EMR/PM task force vetted numerous vendors before narrowing down the list to Athena Health. During the September 21st Board of Managers meeting, the Leadership Team received approval to continue negotiating with Athena in earnest.
Currently seven of our care centers, representing about 30% of our net revenue, use Athena; four to six care centers are awaiting a final Board decision as we continue to evaluate Athena. We have already negotiated with Athena to achieve a fair and low rate, and we are working diligently to improve all other terms. We plan to bring Athena’s final proposal to a vote of the Board at its meeting on December 14th.
While transitioning to a common EMR/PM system will not be a mandate, we recognize that there is value and efficiency in use of a unified corporate-wide system. In addition, Privia utilizes Athena, and having more of our care centers on Athena will help expedite the flow of patient information and referral process.
QuickBooks Transition
In order to improve the quality of our reports and consistency of accounting, all care centers will be converting to QuickBooks Online on January 1, 2017. Our Master Loan Agreement with BB&T Bank requires we provide a compiled tax basis set of financials, and switching to the cloud-based QuickBooks accounting system will greatly aid the efforts of JP Melvin to ensure CAO is in compliance with our debt covenants. With this central repository of all accounting information, which still maintains confidentiality among care centers, we will also be able to provide more timely tax returns. JP Melvin is leading this charge and will be working with our administrators and care center accountants to ensure a successful rollout of QuickBooks. If you have any questions regarding the transition.
Payor Negotiations
With many of our payor contracts renewing on February 1, 2017, payor contracting is a priority for CAO. So, we’ve established a Payor Contracting Committee to begin discussions and negotiations with CareFirst, Anthem, Cigna and United about our fee-for-service contracts. Although the marketplace is tightening for fee-for-service renewals, due to our size we are a critical component of all our payors in network provider list and are finding our conversations with payors to be more productive. By presenting CAO as a well-managed group of informed physicians, we offer a very compelling value proposition to payors, but we also present payors with the best opportunity to develop bundles that will drive down their costs while also providing an opportunity for additional revenues for our physicians.
CAO will continue to negotiate for increases in our fee-for-service reimbursements while at the same time positioning the organization to thrive in the new healthcare dynamic, where value-based payment models represent the future of how we will be paid. We anticipate that our contracts with CareFirst, United, Cigna and Anthem will be in place by February 1, 2017.
Physical Therapy
As we have discussed many times, our PT operations represent a big growth opportunity for The Centers. Following our PT Summit on Saturday, October 1st, where Tom Melvin outlined the many advantages of consolidation and the options for how to move forward with this process, corporate believes more than ever that a great deal of value can be added by standardizing our best practices and growing this service line.
Once we have a consensus on the best model for enhancing our PT operations, we will move forward with this endeavor. With all of us rowing in the same boat in the same direction, we will be able to expand into underserved markets and brand ourselves as a patient-focused PT group with the best clinical and overall patient experience. Equally important as we move forward with bundled payments, having control over PT — which represents a substantial piece of the episode of care — will allow us to further control costs and reap additional benefits.
Largest Orthopaedic Group in the Country
Becker’s Spine Review recently confirmed our impression that CAO is the largest orthopaedic provider in the country by number of physicians: 174, and by number of locations: 65. You can find the relevant articles here: “31 of the Largest Orthopedic Groups in the US by Number of Physicians” and “17 of the Largest Orthopedic Practices by Number of Office Locations.”
It’s worthwhile to take a moment to consider how far we’ve come in just under four years. When we launched in January of 2013, we were impressively large, with 128 physicians and about 1,200 employees. But now, with 174 physicians and over 1,600 employees, our growth is also impressive and a testament to our operating model and the hard work of our doctors, administrators, and staff. In addition, our doctors are affiliated with 41 hospitals and 56 surgery centers and we serve patients in five states and 42 ZIP codes.
While our growth has been impressive, we aren’t just large on paper, we are also influential, and our peers and payors are taking notice.
Annual Meeting & Bundled Payments
As I mentioned in my introduction, we set a company record for attendance at our Annual Meeting, and it was a pleasure to see how engaged our physicians and administrators are in the operations and future of CAO. Based on surveys taken by participants, we are glad to hear that attendees found the discussions to be informative and breakout sessions productive.
To commence the meeting, Dr. Jossan provided an overview of CAO’s initiatives and how these activities align with the Strategy Map we developed in 2014. When you review our Mission and Vision statements (below), it’s clear we have stayed true to our core principles as we have grown and taken our organization to new heights:
Mission: To be the national leaders in delivering the highest quality and most compassionate orthopaedic care through the private practice model.
Vision: To become a community of highly engaged physicians and employees positively influencing healthcare delivery and improving patient outcomes.
I followed Dr. Jossan with an overview of CAO’s many accomplishments over the past year and an emphasis on 2017, as well as the many innovative initiatives we plan to continue and new partnerships that will be put in motion.
With bundled payments the focal point of this year’s meeting, Dr. Grosso provided an introduction on bundled payments and the dramatic shift to value-based payment models that is taking place in our industry. This was followed by a talk led by Duncan Sibson, VP at Remedy Partners, as he delved into the mechanics of implementing bundles and highlighted the process of working with payors on data analytics. One important graphic, which is attached to this report, shows the cost breakdown for a typical Medicare FFS LMJ episode of care. As you’ll see, for an episode of care with an entire cost of nearly $28,000, the surgeon’s fees represent only a small sliver of the overall pie. Through our work with Remedy, we aren’t looking to reduce the cost of our surgeon’s fees, but rather we intend to take control of the whole episode to drive efficiencies that will reduce costs in other areas and in turn provide financial rewards for CAO.
We were fortunate to have Dr. Steve Schutzer, Medical Director of the Connecticut Joint Replacement Institute, on hand to deliver an engaging keynote regarding bundled payment models and the importance of clinical culture in the successful adoption of bundles. A central theme was the crucial role of data in the new healthcare landscape, emphasized by a salient quote from W. Edwards Deming, “In God we trust; all others must bring data.” As an orthopaedic surgeon who has experience working within bundled payments, it was encouraging to hear Dr. Schutzer express how CAO is ahead of the curve, even noting how he was envious of how our size allows us to partner with industry-leading firms such as Remedy Partners. To conclude, everyone participated in breakout sessions to collaborate and continue our refinement of best practices, exploring this area from both a clinical and operational perspective.
2016 Presidential Election
We certainly experienced an unprecedented election season, one we will never forget no matter how hard we may try. With an organization as large and diverse as CAO, we encompass many different political perspectives; but, no matter what changes the coming months and years bring to healthcare, we have the wherewithal, resources, and resolve at CAO to stay current on the latest issues and to nimbly respond to whatever adaptation we need to make. While no one knows for certain what changes a Republican President and Congress will bring to the Affordable Care Act, rest assured, we are keenly watching how everything unfolds.
Thankfully, we enjoy good working relationships with key consultants and lobbyists at federal and state levels, our attorneys are well-connected, and our physicians are sought-after experts on the changing healthcare delivery system. For example, Dr. Phil Schneider from the Montgomery Orthopaedics Care Center is on the CMS Technical Experts Committee for MACRA Episode Groups and Resource Use Measures. And we have other physicians in similar capacities at the state level who are being called upon to help influence and improve the direction of healthcare in the states in which we practice.
No matter what direction healthcare takes, we will be at the forefront. And we have unmatched strength to help ensure healthcare remains focused on what matters most — providing the best possible medical experience for our patients.
Conclusion
Reflecting on the exciting growth of The Centers and our promising future, I’m reminded of the Wayne Gretzky quote, “I skate to where the puck is going to be, not where it has been.” This mindset, which was highlighted by Mike McCaslin, principal at Somerset CPAs, during the 2015 Annual Meeting keynote, embodies the driving force for all that we do. We aren’t trying to catch up with the competition, we are thinking ahead and leading the charge for how private practice medicine can — and must — be delivered.
We are entering 2017 with the wind at our back, ready to successfully negotiate with payors, unlock our vast data to improve the quality of our care, pioneer bundled payment models, maximize the value of our PT facilities, and greatly increase awareness for our patient-centered brand.
I would like to thank you for your support and willingness to commit to our organization. We have come a long way and we will continue to accomplish great things together. As always, please email or call with any questions.
Have a great Holiday Season!
Denny