While many hospital organizations spend millions of dollars on non-employed physician contracts, many don’t proactively manage this growing expense. According to MD Ranger’s 2021 Facility Totals Benchmarks, hospitals spend on average $8.9 million on physician contractual arrangements per year.
If you don’t know how much your hospital spends on physician services, you aren’t alone, but you could be missing opportunities to improve financial performance and reduce costs. Small changes to the way you approach physician contracts could result in meaningful cost savings. Performing a centralized, ‘big picture’ review of physician contracting can yield savings and improvements incompliance. Here are four actionable ways to reduce physician contract costs.
I. Reconsider the need to pay
Not all physician agreements warrant compensation. Before paying any physician or group for a non-clinical service, the organization must ask itself two questions: is payment commercially reasonable, and are there alternatives to paying? Some services are much more commonly paid than others.
To help determine commercial reasonableness, MD Ranger provides a “percent paying” statistic for every service based off its database of 45,000 contracts and growing. 79% of MD Ranger subscribers report paying for Urology ED call coverage, while only 9% report paying for Oncology/Hematology ED call coverage. While market data may not be sufficient in all cases to document commercial reasonableness, it can be an important part of the analysis or negotiation for payment. Determining the commercial reasonableness of paying for a service is not only necessary from a compliance standpoint, but also financially prudent.
Serving on a hospital’s call panel for the emergency department used to be an explicit unpaid requirement for medical staff privileges, and it remains a condition in many medical staff bylaws or in many hospital-affiliated medical groups. Some hospitals only pay for uncompensated care, often at Medicare rates, or they only pay for ‘excess’ call, e.g., when a physician is on call more than a certain number of days per month.
There has been a steady increase in payment amounts and the number of services paid for call coverage, the variation across hospitals is high as shown by the chart below.
Depending on the situation, there could be less costly alternatives to call coverage per diems that are more appropriate and cost-effective for some services or hospitals. An option for services that are called in less frequently is to pay an activation, per-episode, or per-procedure fee.
For more information on determining commercial reasonableness, you can access our Commercial Reasonableness Toolkit here.
II. Set FMV guidelines with care
When it comes to defining the appropriate benchmarks and ranges for FMV documentation, MD Ranger recommends a conservative or scaled approach. The 50thor 75th percentiles are common FMV boundaries. For those who choose P75,remember that “rate creep” can put long-term financial pressure on your organization if benchmarks have changed when the contract renews. Contracts tend to migrate towards the upper bounds of whatever guidelines you set. Therefore, using a lower percentile like P50 as the primary guideline can help control costs.
The difference between setting FMV at the median versus the 75th percentile could save you thousands of dollars in per diems on many contracts and save the organization hundreds of thousands – if not millions – of dollars each year. You can still use P75 for certain contracts with set criteria that must be met and documented, such as higher burden of call due to a physician shortage or unique skill sets such as ERCP or orthopedic trauma certification. Be sure your organization fits the most appropriate benchmark. Trauma status often commands higher pay due to higher volume, higher acuity, and restricted coverage requirements. For example, ED coverage payments for Orthopedic Surgery for non-trauma and smaller hospitals are substantially lower than trauma and larger hospitals.
To learn more about rate creep and how to factor it into your contracting process, check out our webinar on what to do when you’re out of FMV range here.
III. Benchmark total spending
Unfortunately, many hospital organizations don’t know how much they’re spending on physician arrangements in aggregate. Take advantage of benchmark data to compare your organization’s spending to similar hospitals and determine if the money you spend on physician contracts makes sense. This type of analysis can help your hospital assess if it needs to rein in spending. Total spending benchmarks can also reveal potential compliance risks across types of agreements or service lines. Paired with an annual audit that compares all your contracts to benchmarks, a total spending analysis can provide powerful, actionable data to guide negotiations and renewals.
To learn more about benchmarking total facility spending you can access MD Ranger’s Facility Total Benchmark Report here.
IV. Perform a medical director audit
Many hospitals don’t realize when they are paying for too many medical directors. Performing a medical director audit is a quick and easy way to discover cost savings opportunities. MD Ranger benchmarks the number of paid medical directors by service that our subscribers report. 43% of MD Ranger subscribers report paying for two Cancer Center medical directors, but none report paying for more than one medical director of General Surgery. If you are paying for multiple directors for a service that typically only has one, then be sure the total payments and hours do not exceed the benchmarks for a single position unless you can document the unique needs of your program or organization.
Health systems can sometimes save money by consolidating administrative positions across a region or establishing medical directorships that cover more than one facility. While consolidating administrative positions could lead to higher rates due to more hours required for the new position, it likely will reduce overall costs. The latest MD Ranger statistical analysis across several hundred hospitals found that multi-campus arrangements for medical directorships result in savings of between 10-20%.
For more information on determining if you are paying for too many medical directors, you can access our MD Ranger Insight piece here.
Even with the complexity of physician contracting, there are steps you can take to lower overall spending at your organization. Key actions to consider are:
- Look for alternatives to payment
- Set prudent FVM policies with thresholds based on appropriate market ranges for your facility/market characteristics
- Benchmark total spending
- Perform a medical director audit
Taking any or all these steps is a great way to build a more financially sustainable physician contracting program for your hospital or health system.
If you have questions or are interested in learning how MD Ranger can drive better financial performance at your organization, contact us at firstname.lastname@example.org.