Pay for Performance: A Growing Trend in Physician Contracts?

MD Ranger has discovered that more and more hospitals are incorporating incentives into physician contracts.  While only 11% of the hospital based service contracts include incentive components, they have the potential to comprise a significant portion of contract payments.  The most common metrics for incentive measurement include quality (86%), patient satisfaction (60%), and cost (31%).  Incentives based on quality metrics have grown, while those for cost metrics have decreased.


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Surprising Facts About Hospital-Based Service Contracts

The MD Ranger database has over 9,000 contracts across dozens of specialties and positions.  Our data is from over 300 facilities across 27 states.  Below are some interesting statistics from our database:

  1. Nearly 1 in 5 hospital-based service contracts include payments for uncompensated care.
  2. 19.6% of hospitalist contracts have incentive components, which is one of the most likely specialties to have incentives.
  3. Emergency, Anesthesia, and Hospitalist contracts are the most likely to include incentives.
  4. Quality is the most likely metric for incentives (94%), followed by patient satisfaction (65%) and cost (39%).
  5. Cost incentive components have decreased over time, while incenting for quality has increased.
  6. Most hospital based service agreements include medical direction.  The specialties most likely to include medical direction or administrative payments are perinatology, pediatric intensive care, emergency, and pathology.
  7. All hospitalist and emergency contracts that have incentives are tied to quality.
  8. 36% of hospital-based contracts pay annually or monthly; 20% pay daily (per diem)
  9. Only 7% of contracts have collection guarantees.
  10. More contracts include medical direction (78%) than call coverage (59%).
  11. 20% of hospital contracts are unpaid.


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Costliest Hospital-Based Services

Hospitals typically pay physicians more for hospital based services than any other contracted physician payments.  Because the contract values are so high, ensuring fair market value becomes very important.

According to our database from over 300 facilities across the US, here are the top five costliest hospital based services:


Providing physician-level inpatient care takes the cake, where the median hospital payment is over one million dollars annually. A close second is trauma surgery, which is very costly given the call coverage stipends needed in these agreements.

Let’s not forgot anesthesia, which is a significant percentage of physician payments.

Questions about how to benchmark your hospital-based agreements.  Email me at This email address is being protected from spambots. You need JavaScript enabled to view it..


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Key Considerations for Anesthesia Contracts

Anesthesiology agreements typically cover all sites within a facility that require anesthesia. These include inpatient operating rooms, outpatient operating and procedure rooms, and obstetrical services.  They typically include coverage for a defined number of ORs for specified hours and days of the week.  This is to ensure the availability of an anesthesiologist for both scheduled and unscheduled cases.  Emergency services may be provided by an in-house or on-call physicians.  At minimum, coverage is for general anesthesiology services but may also include subspecialists like cardiac, pediatric, obstetrics, and pain management.  Often, anesthesia contracts can be the largest, most complex physician agreements that a hospital will negotiate.

When analyzing an anesthesia contract for renewal or to create a new agreement, here are the most important factors to consider:

  • What are the total number of surgical cases, births, operating rooms, covered sites, and hours of on-site coverage required? Make sure you know the entire scope of the agreement so that the negotiated rate makes sense.
  • Is in-house coverage required after 7pm and on weekends?  Restricted call rates are typically higher, as is weekend/holiday coverage.
  • Does the contract require anesthesiologists with specialized training and certification in fields such as cardiac or pediatric anesthesiology?  If so, this might impact rates.
  • Is the proportion of Medicare, Medicaid, or unsponsored patients extraordinarily high or low?  Some contracts include payments for uncompensated care.
  • What are the average number of cases per day, per year, per room, and per physician, and how do they compare to industry benchmarks?
  • For contracts based on collections or unit value guarantees, are the annual per physician compensation amounts or unit values based on fair market value assumptions for those values?
  • Are both the aggregate and the per physician per diem payments reasonable?  Have you compared them to industry benchmarks?


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