Hospital-Based Arrangements: Complex Contracts Require Extra Attention

The number and type of hospital-based physician contracts continue to increase, with arrangements growing in scope and complexity. Payment for hospital-based services continues to be the largest category of hospital spending on physician contracts, according to the MD Ranger database. Many of these agreements are more complex and expensive than medical directorships or ED coverage agreements, and there are additional risks to consider. 

Historically, hospital-based services included emergency medicine, pathology, radiology, neonatology, and anesthesiology. Tertiary and academic medical centers also engaged trauma surgeons and perinatologists. Over the past twenty years, the hospitalist programs have expanded from general hospitalists and intensivists to specialized hospital-based teams to manage neurology, cardiology, psychiatry, OB, neurosurgery, acute care surgery, pediatric hospitalists, and intensivists, and orthopedic surgery. These programs tend to be significantly more expensive than the traditional programs that were largely sustained by professional collections for exclusive contracts. They also differ since there are generally community physicians in the same specialties with admitting privileges.

Source: MD Ranger's Total Facility Benchmarks

Components and Payment Types for Hospital-Based Contracts

Source: MD Ranger's 2022 Benchmarks

Hospital-based contracts typically arrange clinical coverage and administrative oversight of the program and services. Clinical coverage extends to all patients requiring the service; non-emergency and emergency department patients, inpatients, insured and un-insured. While most traditional hospital-based physician contracts are exclusive to one physician group, hospital bylaws vary on non-group admitting privileges, with many hospitals allowing community physicians to choose whether to follow their patients in the hospital or transfer them to care under the hospitalist. Most general hospitalists and intensivists do not maintain private office-based practices and refer patients to community physicians or clinics for follow-up post-discharge.

The definition of "coverage" in hospital-based services is broader in scope than emergency call coverage contracts.  Hospital-based coverage contracts generally specify hours and number of physicians required to be on-site, name specific sites covered (especially for anesthesia and radiology), and include other hospital-related obligations and duties as well as other elements. Hospital-based coverage requirements and costs significantly vary by type of service and size of hospital and program. Anesthesia contracts can be particularly complex and typically specify the number and type of rooms and services the group is required to 'cover' on-site for weekdays, weekends, and holidays, as well as the number of subspecialists, required anesthesiologists (e.g., cardiac or obstetrics). These contracts can be particularly complex in large tertiary centers.

Components typically considered in the analysis of contract terms and hospital payments Include:

·       Scope of services

·       Hours of coverage for each site and service

·       Number of FTEs required to fulfill service schedule

·       Cost of physician FTEs, Including salary, benefits, practice overhead, etc.

·       Professional fee collections

·       On-call coverage requirements

·       Administrative services provided

·       Market and program characteristics

·       Incentive metrics and amounts

There is no “one-size fits all” approach to paying for hospital-based agreements. Most unpaid contracts are for the non-hospitalist programs such as pathology, emergency, and radiology which often generate sufficient professional fees to cover costs. Some contracts only compensate for administrative or call coverage service, while others include detailed payment structures, stipends, collection guarantees, and incentives.

Defining Key Characteristics of Hospitalist Services

Hospitalist services have several unique characteristics due to the narrow, episodic nature of the clinical care they provide. Many contracts are exclusive and require physicians to be in-house and available for a specified number of hours daily. An increasing number of hospitals require 24/7 In-house coverage, particularly for general hospitalists, OB hospitalists/laborists and intensivists. The hospitalist team Is also generally responsible for round-the-clock ED call coverage. This often results in the elimination of call panels for internal medicine, pediatrics, and pulmonary community physicians (as well as psychiatry, neurology, orthopedics, etc. after initiation of a hospitalist program).

Payment components for hospitalist arrangements differ from the more “traditional” hospital-based specialties such as pathology and radiology because most involve payment for services.

Source: MD Ranger's 2022 Benchmarks

Residency and fellowship training programs are now available for general hospitalists, intensivists, acute care surgery/trauma, and OB laborists, though programs often draw from community physicians to cover some shifts. Increasingly, trained and board-certified hospitalists are the norm, particularly for general hospitalists and intensivists programs.

Challenges and Opportunities

Hospital-based contracts, including hospitalists and other services focused on inpatients, are the fastest-growing area of total hospital spending. According to the MD Ranger database, the average hospital spends just over $4 million per year on these arrangements.  Furthermore, facility demographics play a major role in the level of hospital-based contract investment.  As illustrated below, trauma status has a major impact on facility-wide spending for hospital-based arrangements, most likely since it is an indicator of the complexity of care, hospital size and burden of coverage for emergency and poorly insured patients.

Source: MD Ranger's Total Facility Benchmarks

The growth in hospital-based agreements parallels the growing bifurcation of office-based outpatient and inpatient hospital medicine. The split began in internal medicine with the birth of hospitalists. Today most hospitals with more than 200 beds have a hospitalist program as do many smaller hospitals. This trend is driven both by physician choice and hospitals seeking more effective utilization and resource management.

This shift is not without its challenges. The cost of physician services to provide hospital-based programs is rising as their scope expands. Changes In physician fee schedules, laws such as the No Surprises Act, and demands such as COVID are impacting contract rates. Furthermore, hospitals must find new ways to engage community physicians as the time they spend at the hospital declines. Traditional referral relationships have been disrupted, and the cost of call coverage may rise as community physicians seek to optimize office productivity and have less vested in remaining active in hospital medical staff issues.

Structuring and valuing hospital-based contracts requires meticulous work. Vague, non-specific terms can lead to understaffing, adverse outcomes, poor patient satisfaction, and discontent among both physicians and staff if response times, adequate coverage, on-site services, and quality initiatives are not well-defined and monitored.  Stark Law compliance issues also can arise if a contract does not specify the expected level of service.  Payments should match required staffing, expected workload, and outcomes like patient satisfaction, waiting times, discharge, and readmission metrics. For these reasons, It is also important to re-evaluate payment terms, staffing and collections at each contract renewal to ensure terms are still relevant and compliant.

Another potential issue, particularly when a community physician or group holds a contract, is “stacking” – i.e., not considering payments to physicians or groups that when accumulated across different agreements is higher than fair market value.  We recommend that any physician contract review begins with the identification and analysis of all current and recent contracts with the counterparty.  Annual contract audits should identify and assess all contracts with a single group collectively.  Reviews of time records for physicians with multiple contracts should be included and put in the context of clinical workload to ensure contracts do not commit a physician to more hours than realistic.

Another common challenge when negotiating a hospital-based physician contract is documenting the commercial reasonableness of when and why it is appropriate to supplement a physician or group’s practice income. Several OIG cases stress the 'value' of an exclusive franchise for a service to a group and suggest little or no payment is necessary for coverage services, particularly for traditional hospital-based services like pathology and radiology. Understanding the staffing requirements and economics of the physician groups you partner with is essential to determining payments (if needed) for stipends or collection guarantees. Underpayment can lead to group instability or inadequate staffing, and overpayment can represent a compliance risk.

FMV Documentation of Hospital-Based Payments

First and foremost, some type of FMV documentation is advised for all physician transactions.  Defining a standard set of policies and procedures for contract review and approval is crucial. A strong compliance program should include a designated team that includes a member of the organization’s leadership team to oversee the program.  Most organizations also have compliance committees comprised of hospital executives and board members.    

FMV documentation should verify that payment rates are commercially reasonable and of fair market value. Hospital-based contracts, particularly ones that involve multiple physicians in non-emergency coverage arrangements, are often trickier to evaluate since they contain multiple duties, collection guarantees, and complicated staffing requirements. Your FMV process should include documentation for all contracts, including hospital-based arrangements. Market data can be extremely useful when developing and reviewing physician contracts since it can also be used for scoping, budgeting, and FMV documentation. Because complex agreements require more extensive documentation and analysis of complex data, a more formal valuation by an outside consultant may be needed.

MD Ranger benchmarks total hospital-based payments for 14 services, representing stipends, administrative services, and coverage requirements. These benchmarks, coupled with comparisons of collections, productivity, and compensation at the FTE and overall services level, can provide valuable comparisons to market rates for comparable services and providers. Both hospitals and physicians can benefit from reviewing the relevant benchmarks and incorporating them into a business plan or staffing model. At a time when physician recruitment and retention is increasingly challenging, knowing the right benchmarks is crucial to forging an effective partnership.

Source: MD Ranger's Automated Market Rate Documentation

As the growth of hospital-based specialty programs continues, the need for market data specific to these types of programs is increasing. If you have questions about how to structure your FMV process, build a physician contracting compliance program, or the services MD Ranger benchmarks, please email us at info@mdranger.com or visit our website: www.mdranger.com.

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