When Should Hospitals Use Per Episode or Per Activation Payments?
If market data benchmarks for physician call coverage appear too high for your hospital, it may be appropriate to compensate physicians only when services are provided, i.e. on a per episode or per activation basis. These rates can either be in lieu of the more common per diem rates paid to physicians providing coverage to a hospital’s emergency department or in some situations as a combination of per diem and per episode or activation. Sometimes for small hospitals or specialties with a low volume of actual calls a periodic payment may be appropriate and less costly than a higher per diem rate. This Bullseye explains what these rates are and how they are typically used.
Per Activation Rates
An activation fee is a rate paid to an on-call physician only when they are required to respond to a call from the emergency department. The hospital continues to maintain a coverage schedule that requires availability of a specific physician (who “carries the beeper”) but if that physician does not get called, they receive no compensation for that day. Activation rates often only apply to instances when a physician must come to the hospital, though sometimes physicians are paid on a ‘per telephone consult’ as well. Often hospitals place a daily limit on the total number of activations that can occur during a single day.
Per Episode Payments
Per episode payments are made when an on-call physician sees a patient in the emergency department, or provides a procedure to a patient originating in the emergency department. A payment is made for each patient that is examined or treated by the on-call physician. Some per episode compensation arrangements cap the overall daily payment. This payment type is most often used for services that may result in a procedure like obstetrics, ENT, or GI, and for low volume specialties like ophthalmology or urology.
Combined Payment Types
Some hospitals pay per diem rate plus per activation or episode rates. In these situations, the per diem rate is generally set well below standard per diem market rates. This approach may reduce coverage costs in some hospitals with lower volume or in response to demands for pay increases. Some physicians may be more receptive to this compensation structure than a strictly per activation arrangement, since they receive some compensation for “carrying the beeper”, regardless of whether they respond to an on-call event during the day.
Effect on Fair Market Value
The FMV of per activation and per episode payments should take into account market rates for those payment types as well as the total annual cost of the coverage services. In addition, it is useful to compare your institution’s annual coverage costs for a special to the total annual costs that would be incurred if more common per diem payments were made. This algorithm can be applied to combination rates as well. For example, for ophthalmology coverage, the following comparison could be made, assuming the Median Per Diem Coverage Benchmarks from MD Ranger’s 2018 reports:
Median Per Diem Rate ($300) x 365 days = $109,500 annual cost for ED coverage
Option One: Proposed payment rate: Median activation rate ($500) x Number of activations/year (45) = $22,500 annual cost
Option Two: Per Diem Rate ($150) x 365 days + $500 per activation (45) = $77,250
Both per episode and per activation rates are higher for surgical specialties than medical specialties, with the exception of procedure-based specialties such as GI and cardiology.
Fair market value, and the method and amount of payment for coverage services should take into consideration a number of factors that go into the ‘burden’ of call such as:
- Frequency of activation (both by telephone and onsite)
- Frequency of call duties (fewer physicians increases the burden)
- Payer mix
- Complexity of patient mix (trauma or uninsured cases may require more time)
- Coverage requirements, such as response time, onsite hours, etc.
Profile of Hospital Coverage Payment Arrangements
Hospitals across the country are being asked to develop emergency coverage payment for a growing number of specialties. Using a combination of payment methods may present a middle ground with physicians that addresses the physicians' need to be recognized for their time and service and the hospital's need for coverage.
According to MD Ranger's database of more than 33,000 physician contracts, more than 70% of call coverage contracts pay physicians exclusively per diem rates.
Only 3% of coverage contracts use per episode and per activation payment structures, partly because these methods are most commonly used for less common paid coverage services. Nonetheless, using these payment methods may provide cost-savings and result in greater physician satisfaction in many situations.
MD Ranger collects and reports market rate benchmarks for both per episode and per activation emergency coverage payment rates that can be useful in finding compliant solutions.