Many health systems are making big mistakes when it comes to physician contracting. Is yours one of them?
Federal laws require that all physician contract payments must be commercially reasonable and paid at fair market value (FMV), but many health systems struggle to consistently document FMV, particularly in a cost-effective way that is scalable across the entire organization. Obtaining valuations for each position may seem prudent but it can be expensive given the large number of physician contracts at most health systems. Adopting a rule-based approach leveraged with technology can streamline compliance and demonstrate consistency across an organization.
In our experience, we’ve seen many mistakes but here are the most common risks (and how to avoid them).
1. Lacking a system wide FMV policy
Organizations who lack a system wide FMV policy expose themselves to unnecessary regulatory and compliance risk that can result in higher costs.
Streamlining and standardizing the FMV process makes less work for everyone and helps organizations with resource constraints (isn’t everyone resource-constrained these days?). Making benchmarks and policies available across the organization results in greater compliance and consistency in payments.
2. Not understanding your physician market(s)
Knowing your local and regional physician resources and the characteristics and needs of your organization is vital to determining appropriate payment rates. While there is little statistical differences in physician contract rates between major US regions, local market and specific hospital characteristics Impact physician availability and payments.
3. Failing to establish commercial reasonableness
Organizations sometimes fail to begin the contracting process by asking if paying for a position is reasonable in the first place. Just because a physician asks to be paid, doesn’t mean that it is reasonable to pay for a particular position or service.
When payment is requested, never grant it without an analysis. Even if the payment amount appears to be fair, if you shouldn’t be paying for the position, the payment won’t be compliant. An example of this could be if a hospital has too many medical directors for a service or has directors for programs or services that are not typically paid. MD Ranger provides benchmarks on the number of positions by service, as well as the percent of hospitals paying for specific services, that can help with this analysis.
4. Not addressing FMV determination and documentation in a standardized way
Establishing FMV doesn’t have to be a headache or overly complicated but if there is no system in place, FMV documentation may be inconsistent.
Organizations should not assume that historical payments are sufficient to document FMV. Benchmarks and situations change, and prior analyses may not exist or could be inaccurate. It is important to have objective evidence, either market data or a valuation, to demonstrate that the payment rate is FMV at the time the new or renewal contract is signed.
5. Not adopting contract templates for ED call and directorship agreements
All physician agreements should have a uniform structure with clear language and definitions. The payment should be based on an objective element (per diem, per episode, hourly rate, etc.), and the time and duties required should be clearly spelled out, along with the record-keeping requirements.
Furthermore, the agreement should not overlap with other agreements. Paying two physicians to perform the same service may not be compliant unless the position is clearly defined as ‘shared’ and the combined payment does not rise above reasonable payment for a single physician in the same position.
Best practice is to standardize and automate your physician payment and contracting processes to avoid legal and compliance risks. It also makes the process of auditing your contracts for errors and renewal discussions significantly easier.
6. Ignoring stacking risks
‘Stacking’ physician agreements occurs when multiple contracts with the same physician pay individually compliant rates but when combined, the aggregate payments or hours may no longer be reasonable. For example, if a physician is paid for several medical directorships, each with a minimum number of hours, that combined equal more hours than the physician can reasonably provide while fulfilling clinical duties, a stacking situation may result. Another example of a potentially risky situation is an employed physician who draws a full-time salary and is paid to be a director with hours or duties that Interfere with her clinical practice. It is important to require – and monitor –timecards to ensure the contracted hours and duties are necessary and fulfilled before payment.
When reviewing agreements for compliance risks, be sure to audit all contracts with the same physician both separately and in aggregate to be sure the total compensation is appropriate and FMV. Effective time documentation, defined roles, and established policies and procedures for contracting can help ward off the risks of stacking physician agreements.
7. Treating physician contracts like employment agreements
Despite the growth in physician employment over the past decade, most hospital organizations have at least some arrangements with non-employed physicians, particularly in states with corporate practice of medicine laws. 1099 physician contracts are different from employment arrangements and should be treated as such. The regulatory scrutiny over contracted arrangements is high, so it’s extremely important to have policies and procedures on how to handle these arrangements. If HR Is handling both employment and 1099 contracts, they need to understand the unique risks, policies and procedures that apply in both situations.
8. Not integrating market data into your FMV process
Using market data as the foundation of the FMV policy has many benefits. First, it is the most cost-effective way to structure your policies. Many organizations who shift from using outside valuations for all their contracts to a market data-based model observe huge declines in the need for FMV opinions. Furthermore, bringing the process in-house allows staff to spend less time managing consultants and more time on higher priority projects. Using market data also allows your organization to create more consistency from facility to facility. If all hospitals in the system are using the same policies and procedures while applying the same benchmarks you can expect more consistency and faster approvals.
9. Failing to understand compensation benchmarks
Understanding your market and knowing what benchmarks are appropriate for a given position helps with application of survey data. Using a benchmark source with robust user support and a comprehensive scope of benchmarks will help you leverage market data for most positions, though knowing when your organization's unique needs could warrant additional documentation is an important element of the FMV process.
There are precautions your organization should take to safeguard against improper use of benchmarks. If your team doesn’t understand some of the nuances of physician compensation and benchmarking, mistakes can occur. For example, we have seen organizations use “total compensation” benchmarks to justify a physician salary and ignore additional payments for ED call, administrative, and other positions. Doing this could put the physician well above the 90th percentile which would only be appropriate in a very limited number of cases.
10. Not regularly auditing and continually monitoring physician contracts
Compliance-oriented physician contracting programs continuously monitor and regularly audit their arrangements to identify and mitigate risk. Technology can help. MD Ranger Analytics allows users to view contracts across the entire system and see immediately where on the market range each contract falls. Auditing doesn’t have to be a huge annual headache, either. Setting up routine, smaller quarterly or semi-annual audits can help manage the process and make audits less daunting. Sharing summary reports with your compliance committee and/or board builds trust, transparency and support for contracting policies and procedures.