S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Physician Groups And Faculty Practice Planshospitals, ambulatory care, surgery, and emergencycenters, other professionals and payors,such as HMOs and insurance companies; and■ Breadth and nature of managed care contractsand relationships.LeadershipStandard & Poor’s meets with physician and nonphysicianleadership during the rating process. It isimportant to understand the strategic goals of thephysicians and administration to ensure that theyare compatible. Standard & Poor’s looks for strongleadership from the board of trustees and prefersgovernance to be community oriented and not consistingsolely of physician group members.Management should be appropriately credentialed,with ample experience in the management ofphysician group practices. In areas with high managedcare penetration, a professional devoted tocontracting practices and monitoring adds strength.The review includes:■ Management tenure and qualifications;■ Review and discussion of strategic planning issues;■ Compensation, financial, and operating policies;■ Finances and operations of other subsidiary orsister corporations; and■ Influence of university management and policieson faculty practice plans.Institutional relationshipsGroup practices have many opportunities to cooperate,join, and contract with hospitals, universities,insurance companies, and other payors. In addition,partners ranging from hospitals to large for-profitspecialty companies are joint venturing with physiciansin a variety of projects from ambulatory centersto specialty hospitals. Standard & Poor’sexamines formal and informal relationships thatexist with other institutions.For stand-alone group practices Standard &Poor’s reviews:■ Operational relationship with primary admittinghospitals;■ Financial contracts and/or joint ventures to sharecosts, revenues, or overhead; and■ Managed care contracting practices.When evaluating faculty practice plans, issues surroundinguniversity and medical school finances aswell as the dean’s tax are explored. To the extent thatthe university hospital has forged alliances with othercommunity providers, the relationship between thefaculty group and local physicians will be discussed.Information systemsTo manage a health care enterprise efficiently andprofitably, integrated information systems are necessary.Standard & Poor’s will review the medicalgroup’s plans for development of an electronic medicalrecord either on its own or in conjunction withlocal partners such as nearby hospitals. In additionStandard & Poor’s will assess the group’s ability tomeet and monitor any required quality metrics aspart of its reimbursement agreements. Standard &Poor’s will also look for the group’s ability to generatecertain key reports from its information systemssuch as:■ Managed care members profile, benefit plan, utilization,and cost per member per month;■ Encounters per full time equivalent (FTE) physicianby new and existing patients;■ Hospital inpatient use rate and cost per patientper month versus regional averages;■ Revenue and expense by physician, payor, andservice;■ Analysis of clinical outliers and out-of-area utilization;and■ Physician profiling reports including any reportsneeded to meet pay for performance targets.FinancesStandard & Poor’s will review five years of auditsbased on the accrual method of accounting as astarting point in the financial analysis. Althoughaccrual-based accounting is preferred, Standard &Poor’s recognizes that it may not be available forsome faculty practice plans, based on their financialintegration with universities. Management letters,reimbursement issues, research commitment, fundraising, working capital needs, and future financingplans also are explored. The revenue and expensecomponents of the income statement are examinedto assess overhead levels and allocation, physiciancompensation, sources of revenue from outside payors,and sources of revenue from clinical departmentsand research. Questions concerning thebalance sheet include trends in accounts receivableand collection rates, adequacy of malpracticereserves, level of cash reserves and restricted fundsfor research and capital investment, strategic androutine capital needs, and other liabilities.Information requested includes:■ Five years of financial statements, most recentinterim statements, and if available, projections,including flow of funds to and from associateduniversity or medical school, if applicable;■ Utilization information—patient visits, newpatient growth, covered lives, and encounters perphysician;■ Payor mix as a percentage of revenues;■ Research grants, expenses, and subsidies;■ Joint-venture documents;www.standardandpoors.com171