When it comes to physician contracting expenses at hospitals and health systems, call coverage contracts often make up a significant percent of the total spending. As common sense would suggest, larger facilities pay more for call coverage than smaller facilities.
The smallest facilities (fewer than 50 beds and typically critical access hospitals) pay significantly less than all other sizes of hospital. The largest hospitals (more than 450 beds) pay significantly more than other facilities for call coverage, since these facilities will typically have more emeregency department service lines to cover.
Interestingly, the spending trend of increased bed count correlating to increased call coverage spending is most fluid with midsize hospitals, those facilities with around 100 to 200 beds. One possible reason the trend doesn't follow a completely linear path in this instance may be due to the perception that being close to the 100 or 200 bed mark means contract negotiators round to the nearest hundred beds when considering rates to pay. This rounding adjustment may overshoot what is actually necessary to compensate physicians for the true number of beds needing coverage.
Physician contracting programs at Children's Hospitals contain a number of key differences that distinguish these specialty facilties from General Acute Care hospitals. Pediatric facilities understandably have a specific set of patients and, as a result, they have different physician contracting needs than most hospitals.
MD Ranger's physician contracting benchmarks collect data on position count at hospitals, broken down by type of physician contract. As the graph shows, Children's Hospitals contract for significantly more Medical Direction positions than a general acute care facility.
One major reason for this differential is the need for medical directors of pediatric service lines. Children's Hospitals are also frequently affiliated with Academic Medical Centers, and AMCs typically contract for more administrative and direction positions to help oversee education and research programs.
While cases where physician compensation benchmarks change rapidly from year to year certainly garner more attention, it can be insightful to examine when the opposite is true as well. Over the past 9 years of MD Ranger's physician contract benchmark reports, the call coverage rate for General Surgery has remained relatively stable amidst the broader trend of physician spending increases.
Over time, the general surgery rates have not sharply risen or fallen, across all percentiles. The 90th percentile benchmark rate has been $1500 for the last 6 years for General Surgery call coverage. While the benchmarks do change slightly year to year, none of the percentile rates have fluctuated by more than $100 between any two years since 2011.
Even with a relatively stable benchmark like General Surgery call, gradual trends can still change the rate given enough time. The 2018 median rate is up to $1000 per diem, which would have been at the 75th percentile back in MD Ranger's 2010 reports!
The number of hospital-based physician arrangements has changed and grown significantly over the past decades. Ten years ago, most hospitals contracted with radiology, emergency, anesthesia, and pathology groups. Now there are a growing number of hospitalists, intensivists, laborists, trauma surgery, and specialty hospitalists contracts. While these arrangements benefit patients, physicians and healthcare organizations, they are usually complex and require careful attention to payment and service requirements.
Prior to the 1990s, private community physicians attended most hospital patients and hospitals only contracted for anesthesiology, radiology, pathology, neonatology, and emergency to ensure continuous coverage of basic hospital services. Over the next two decades, a transition in how physicians work in and out of hospitals occurred, with more contractual arrangements to care for specific populations of inpatients, including:
- Internal medicine/general hospitalists
- Pediatric hospitalists
- Critical care
- Pediatric intensivists
- Trauma surgery
- OB hospitalists/laborists
- Orthopedic, surgical, neuro and other specialty hospitalists
Negotiating these contracts is challenging since hours of coverage, payer mix, service mix, average daily census, and quality initiatives are all relevant factors in establishing a fair price for the services. Scope of services may include administrative and directorship duties, emergency coverage as well as in-house physician requirements. Here are some of the most common mistakes we see health care leaders and physicians make when entering into these partnerships.
1. Paying for a service without objective assessments.
Not every hospital-based agreement needs a collection guarantee, stipend, or payments for call coverage. Determining if payments are commercially reasonable is a crucial first step that is not always straightforward. Market data like MD Ranger’s “Percent Paying Benchmarks” allow organizations to see who else reports paying for services, which is helpful to include in commercial reasonableness assessments. Establishing commercial reasonableness of a contract before determining how much to pay isn’t just a good idea: it’s a must.
2. Ignoring the economic value of exclusivity.
Does your hospital-based contract specify exclusivity? The OIG has determined that exclusivity has economic value in certain situations:
“Depending on the circumstances, an exclusive contract can have substantial value to the hospital-based physician or group, as well as to the hospital, that may well have nothing to do with the value or volume of business flowing between the hospital and the physicians”.1
Unfortunately, there is no generally accepted way to quantify the value of exclusivity, but three good approaches are:
- Have FMV documentation, either internal documentation or an external valuation, that specifically recognizes the value of exclusivity.
- Seek to negotiate a compensation level that is lower in the FMV range of market benchmarks. Note that market ranges inherently include the discount for exclusivity while some cost approach ranges may not incorporate the discount.
- Include a discount over the ‘estimated cost’ of the service in the 5-10% range to reflect the value of exclusivity.
3. Not specifying level of service.
Be specific in the contract language in regards to the service and staffing levels required by your facility to ensure both parties understand the scope of resource requirements. Vague and nonspecific terms in the contract can lead to understaffing, lack of backup coverage, lower quality service, poor patient satisfaction, and unhappy, stressed staff.
4. Stacking payments.
Stacking is a hot topic, as it can be easy to miss if contract negotiations and maintenance are not centralized. To avoid this problem, identify all the payments and contracts with each physician or group, especially medical directorship and other administrative positions. While one position can be within fair market value, when more positions and payments are added, the overall payment can become commercially unreasonable and/or above fair market value. Pay special attention to services such as “Nighthawk”, malpractice insurance, certified nurse assistants, or nurse practitioners the hospital reimburses a medical group, which can add up to compensation that exceeds FMV.
5. Ignoring physician collections.
Depending on the physician group and the payer mix, the amount physicians collect while providing the contracted services may drive whether the overall payment from a hospital contract and professional fee collections are above or below fair market value. It is the combined receipts that must go into determining whether hospital payments are above fair market value. On the other hand, a hospital may be ‘underpaying’ a physician group if collections are low or service requirements are greater than needed. A good example is asking an anesthesia group to staff more operating rooms than the volume or surgeries justifies.
6. Failing to determine and document FMV.
Market data benchmarks can help hospitals scope the value of hospital-based contracts, and, in many cases, market data can be sufficient to determine and document FMV. They can also help inform negotiations when hospital characteristics such as trauma status or number of births or surgery cases is a significant variable. Complex hospital-based agreements, particularly ones with little or no comparable market data available or ones on the higher end of the market ranges, may need more analysis and an independent FMV opinion.
1“OIG Supplemental Compliance Program Guidelines for Hospitals” Published in Federal Register Vol 70, No 19. Monday January 31, 2005.