Book Review—The Adviser’s Guide to Healthcare, Second Edition

An Era of Reform—The Four Pillars, Volumes I and II

Since 1950, the U.S. population has doubled from just more than 152 million to an estimated 320 million. In this same period, the average life expectancy has increased from approximately 68 years to over 78 years. This increased life expectancy and accompanying rise in the incidence and prevalence of diseases, conditions, and injuries is driving demand for healthcare services. Cost concerns and a rapidly evolving regulatory and legal environment have created new opportunities in healthcare consultancy for large and small firms. This two-volume set is designed to serve as a reference guide for those seeking a more in-depth knowledge of the healthcare marketplace, a working and applied understanding of the forces that affect the industry, and a primer regarding how consulting services may be offered to existing and emerging enterprises. For those already working in the industry, the guides provide an invaluable point of reference, an opportunity to better serve existing clients, and expand services.

Since 1950, the U.S. population has doubled from just more than 152 million to an estimated 320 million.  In this same period, the average life expectancy has increased from approximately 68 years to over 78 years.  This increased life expectancy and accompanying rise in the incidence and prevalence of diseases, conditions, and injuries is driving demand for healthcare services.  Cost concerns and a rapidly evolving regulatory and legal environment have created new opportunities in healthcare consultancy for large and small firms.  This two-volume set is designed to serve as a reference guide for those seeking a more in-depth knowledge of the healthcare marketplace, a working and applied understanding of the forces that affect the industry, and a primer regarding how consulting services may be offered to existing and emerging enterprises.  For those already working in the industry, the guides provide an invaluable point of reference, an opportunity to better serve existing clients, and expand services.

In November 2010, Robert Cimasi, MHA, ASA, FRICS, MCBA, CVA, CM&AA, published the first edition of The Adviser’s Guide to Healthcare.  This three-volume set established a framework for CPAs, business valuation professionals, healthcare attorneys, c-suite executives, and healthcare providers, to explore the foundational, complex, and interrelated issues concerning the reimbursement, regulatory, competition, and technology environment of the healthcare industry.  Since 2010, the following has occurred:

• The implementation of the Patient Protection and Affordable Care Act of 2010 (ACA);
• The U.S. Supreme Court affirmed the constitutionality of the ACA in both National Federation of Independent Business v. Sebelius (2012) and King v. Burwell (2015);
• The imposition of a tax on individuals who do not have qualifying health insurance coverage—the Individual Mandate (aimed at an estimated 57 million people younger than 65 who do not have insurance to take effect in 2014);
• The expansion of Medicaid to 32 states (increased from 30 at the time of publication);
• A continuing shift from volume-based to value-based reimbursement models;
• The advent of emerging healthcare organizations (EHOs), commercial accountable care organizations (ACOs), clinically integrated networks (CINs), and the resulting focus of healthcare providers on population health data and analytics driving changes that result in more cost efficient care while maintaining or improving quality;
• The reduction of Medicare reimbursement to hospitals with high readmission rates, as well as to hospitals that have relatively high rates of hospital acquired conditions along with the continuing trend of reductions in inpatient hospital service utilization, increases in outpatient service utilization, and technological advances in telehealth;
• Passage of the Medicare Access and CHIP Reauthorization Act (MACRA) legislation with the impact of sustainable growth rate (SGR) fix on future physician quality initiatives, reimbursement and implementation of the ICD-10, and new chronic management billing codes;
• A significant increase in the number of providers that utilize (and have achieved “meaningful use” of) electronic health records (EHR) and the advent of internet or electronic physician visits for patient care;
• The increasing purchase of many physician practices by hospitals and subsequent employment of these physicians;
• Healthcare providers developing their own insurance plans or joint venturing with existing health plans in order to gain direct access to insurance premium dollars;
• Health insurance plans acquiring healthcare providers;
• The emergence of patient medical information and data hacking and the resulting private lawsuits, government enforcement of the Health Insurance Portability and Accountability Act (HIPAA), and privacy laws; and
• The continued emphasis on enforcement with more reliance on private qui tam actions.

The above developments are considerable and in this guide, the authors, Mr. Cimasi and Todd Zigrang, have received considerable input from healthcare attorneys (including David Gauer, Esq. of Jones Day), Health Capital Consultants (HCC) professionals, and healthcare professionals, making this a most valuable guide for existing and new healthcare consultants.

Volume 1 is comprised of six chapters; it is 445 pages long, excluding the Glossary and Index.  Chapter 1 presents historical developments in the practice of medicine.  Chapter 2 covers Reimbursement, discussing the multitude of fee agreements, capitation, the prospective payment system (PPS), and the revenue cycle.  The revenue cycle is broken down into a step-by-step discussion.  The first step is volume management.  Volume management is critical to a successful practice because the main objective of an appointment scheduling system is to have a continuous succession of patients each day.  The second step in the revenue cycle is patient encounter forms.  Here, before services are coded for the billing process, providers must note the principal and related diagnoses and must document, with specificity, the nature and scope of services rendered during a patient encounter.  The purpose and use of EHRs is made clear.  The third step in the revenue cycle is diagnostic coding and procedural coding and the difference between these two forms of coding is explained.  The differences between ICD-9 and ICD-10 and reasons for adopting the latter are also defined.  In addition, this chapter goes into detail discussing the Current Procedural Terminology (CPT) system and its six sections:

• Evaluation and management (E/M);
• Anesthesiology;
• Surgery;
• Radiology, including nuclear medicine and diagnostic ultrasound;
• Pathology and laboratory; and
• Medicine, excluding anesthesiology.

This chapter is detailed and lengthy and underscores the point that there continues to be a major paradigm shift taking place in the healthcare reimbursement environment.  The impact on healthcare providers, patients, and state and federal government payors is made clear to the reader.

Chapter 3 of Volume 1 focuses on the Regulatory Environment.  The U.S. healthcare industry is replete with overlapping state and federal regulations that shape the practice of medicine and delivery of healthcare services.  A significant number of regulations apply to both physician and non-physician practitioners.  While regulation has traditionally been directed at physicians and allied health professionals, regulation of mid-level providers has increased, resulting from the expanding scope of services provided under their own Medicare and Medicaid provider numbers.  This chapter discusses the general provisions of federal and state regulations, noting whether they apply solely to medical professionals or to allied health professionals and mid-level providers too.  The chapter, of course, also dissects the Anti-Kickback and Stark provisions, federal antitrust laws, private benefit, excess benefit transactions, tort reform, and a discussion of the Physician Payments Sunshine Act (now known as the Open Payments Program), which was part of the ACA and impacts manufacturers of medical devices and drugs.

Chapter 4 is dedicated to the Impact of Competitive Forces.  The authors answer: why is competition in healthcare unique?  Why is competition in healthcare sometimes considered a restraint to the availability and accessibility to quality care?  Will new competition emerge?  How will the rise of consumer driven healthcare (CDHC) change the way in which healthcare professionals practice?

Chapter 5 covers Technology Development.  Messrs., Cimasi and Zigrang note that healthcare accounts for 17.4% of GDP and that this grew by 3.6 percent in 2013.  They further observe that growth is driven, in part, by the “perpetual technological advancement; dynamic availability of the most accelerated technologies; fear of potential malpractice suits; and efforts to procure economic gain that support the necessary supply factors to perpetuate this invincible expansion.”  Will this trend continue?  What factors will drive, or slow, costs and technological growth?

The final chapter of Volume 1 is Healthcare Reform: Past as a Prologue to the Future.  The authors discuss challenges to small, physician or provider-owned, independent private practices, as well as the business model of captive practices within larger integrated health systems.  The authors see the changes and challenges as an opportunity for advisors and informed managers.

Volume 2 focuses on Consulting Services.  Chapter 1 is Healthcare Consulting.  Consulting services may be offered through several different modalities, i.e., on a continuous basis, annually, or episodically on a case-by-case basis.  Typically, the nature and scope of the required service determines the modality of the consulting activity, e.g., management consulting often requires continuous monitoring, but tax issue consulting typically requires attention only once a year.  Healthcare consultants will also find an array of discrete engagements based on one-time needs of professional practice clients; for example, implementation of an electronic health records (EHRs) system or the valuation of a practice upon its dissolution.  The chapter includes a table containing a description of the different areas and modalities in which consulting services may be offered.  The chapter suggests these authors are “bullish” on the opportunities for consultants in this industry and do not believe the opportunities are limited to large national or regional firms.

Chapters 2, 3, and 4 are respectively Benchmarking, Compensation and Income Distribution, and Financial Valuation of Enterprises, Assets, and Services.  This latter chapter is over 100 pages long and provides an overview of the valuation steps, tenets, approaches, and classification, as well as valuation of healthcare services.

Chapter 5 is called Organizational Structure.  The authors transition to discuss office-based vs. hospital-based structure and the transformation of each and also distinguish EHOs from ACOs.

In Chapter 6, Emerging Models, the authors remark that “Marcus Welby, M.D., is dead—not just the popular television series of the 1960s and 1970s—but also the entirety of the ‘cottage industry’ compromising the independent practice of medicine.”  Messrs. Cimasi and Zigrang opine that the drivers or emerging trends in healthcare can be traced to three factors.  They observe the, “healthcare economic environment is largely a product of: 1) trends in the demographics and health outcomes of the U.S. population; 2) transitions in the healthcare workforce and professional practice dynamic; and 3) the impact of healthcare reform.  The interplay of these factors will define the roadmap for future development of EHOs.”

Volume 2 then dedicates a separate chapter for physician practices (Chapter 7), mid-level provider practices (Chapter 8), technicians and paraprofessionals (Chapter 9), allied health professionals (Chapter 10), and alternative medicine (Chapter 11).  Each of these practices presents unique issues as components of the healthcare industry.

Chapter 12, Healthcare and Small Business is the final chapter.  A small business, as defined by the ACA, is a business having no more than 50 full time equivalent (FTE) employees.  How are small employers, if at all, affected by the ACA?  How can a small business manage healthcare costs?  What tax credits are available to small businesses?  How can CPAs and other professionals assist small businesses providing or offering healthcare to its employees?  Shareholders?  Again, the authors address the opportunities and challenges here too.

In conclusion, Messrs. Cimasi and Zigrang provide new and seasoned practitioners a current and useful guide to the healthcare industry.  The combined volumes are over 1,000 pages in length and provide substantive and actionable information needed to work in the industry.  This two-volume set is a must-have resource!

Roberto Castro, Esq., MST, MBA, CVA, CMEA is Technical Editor of QuickRead. Mr. Castro is a Washington State attorney with a focus on business, bankruptcy, exit and succession planning, wills, probate, trusts, gun trusts. He is a member of WealthCounsel. Mr. Castro is also managing member of Central Washington Appraisal, Forensics and Economics, LLC and a business broker with Murphy Business.

Mr. Castro can be contacted at (509) 679-3668 or by e-mail to rcastro@rcastrolaw.com.