Negotiations with physicians can be challenging no matter how amicable the relationship. Conversations about compensation take time and effort to plan, discuss, come to an agreement, and implement. Preparing carefully for these negotiations is essential to achieving optimal outcomes for all parties and avoiding questions of commercial reasonableness, stacking or out-of-range payments. Here are best practices to help any hospital leader approach negotiations confidently.
1. Know Your Market and Organization
Familiarize yourself with reasonable payment rates for the specialty and service in question. High quality market data is a great resource to determine what is being paid and the standard range of fair market value. While you should be familiar with the entire range, and with your organization’s policy for compliance documentation, values that fall outside the 25th and 75th percentiles of market data should be reviewed carefully.
Although it is important to remember that statistically someone must be paid above the 90th percentile or below the 25th, there should be good reasons and documentation for payment at those levels. You should enter the negotiation with quantitative evidence of the range you can support, as well as how your institution and the particular physician(s) compare to the ‘typical’ provider. Factors such as hospital size, trauma status and urban location can make a difference in the appropriate payment rate, as can national reputation and the credentials of a particular physician. Using benchmarks that inform those factors can be invaluable in setting the right rate for your organization.
2. Identify All Current and Previous Arrangements
Preparation should begin with identification and review of current or prior contracts for the service as well as other contracts with the group or individual. If it is a current agreement that is expiring, review the key terms, scope of services, time records (if appropriate) and any prior compliance documentation such as FMV opinion or benchmarks that were used.
If it is a new arrangement, familiarize yourself with the status of the negotiations and any contracts with prior physicians for the same service or related services and the proposed scope of services. If other contracts exist for the physician or group in question be sure and calculate total payments and time commitments to ensure contract terms are reasonable and realistic.
3. Establish Commercial Reasonableness
Always perform commercial reasonableness assessments before starting negotiations and writing the full job description. Commercial reasonableness is an important aspect of physician contracting. Consider if paying for the position is truly necessary for your organization and if it is expected to result in measurable improvement of quality or communication. Commercial reasonableness should also be considered when setting the hours for a position, not just total pay. Consulting benchmarks on the percent of hospitals paying for a service, they typical number of hours required, and other standards can help as you set or negotiate terms. You should be seeking an arrangement that makes business sense for your organization independent of any referrals by the physician or group.
4. Prepare or review the Job Description
Creating the job expectations internally with staff who will be involved in the program helps to define time commitments and parameters for effective leadership. If accreditation or survey participation is part of the job, that should be clearly stated. It helps the physician to understand exactly what the position entails and can ward off conflicts during negotiations or later when performance and time records are reviewed. If this is a contract renewal, review time records to ensure they accurately portray physician activity, and that the work is a) needed by the institution b) included in the job description c) does not duplicate work performed by someone else.
5. Avoid Stacking
Multiple contracts with the same physician or group could result in overpayment which is referred to as “stacking”. It may be reasonable to have multiple agreements with the same physician for different services, but careful documentation of work effort by position and total payments is necessary to ensure that the aggregate time and compensation do not exceed market rate compensation for an individual. With affiliated medical groups it is also important to compare clinical time and payment with other contractual commitments. Although there are some physicians who can and do work six or seven days a week or ten-hour days, they are the exception not the rule.
6. Review Internal FMV Guidelines
If your organization has written compliance guidelines for payment rates, review them so that both you and the physician(s) know the ground rules. If your organization doesn’t have written guidelines, consider creating them. Many organizations don’t pay above the 50th or 75th percentile without a rigorous documentation and approval process. Having guidelines creates an objective standard of payment and limits feelings of favoritism among physicians, and not following guidelines can be a red flag both to regulatory agencies but also to other physicians who may seek comparable pay.
7. Set Objectives for the Outcome
Before starting a contract negotiation, determine the ideal outcome in terms of payment and work expectations. Know when you can compromise and when you can’t before initiating talks with the other party. Strategize with others to determine the goals of the physician or group, along with your organization's goals to set realistic expectations for the arrangement. Is the number of hours realistic? Does the physician have the leadership skills to be effective? Have you identified any duplicate service arrangements? Increasingly health care organizations are setting aside a portion of compensation for achieving quality, patient satisfaction, or regulatory metrics for medical directorships and hospital-based contracts, in addition to physician salaries.
8. Identify Options and Alternatives in Advance
Pushback is normal so it’s important to identify your limits and alternative payment options before starting a negotiation. Options such as including per episode or per activation rates, weekend or holiday pay, or even telemedicine back-up can save a difficult negotiation. Physician supply for specialists who are willing to take call or hospital administrative dues is very constrained in many markets and creative solutions can sometimes resolve a difficult situation. Prepare several alternatives for obtaining and paying for the service that satisfy your goals and objectives. Suggesting alternative approaches can often yield savings or more efficient ways of achieving the same objectives, while also proving an opportunity to discuss each party’s objectives and challenges.
9. Document FMV Compliance
Once a payment rate is agreed upon and negotiations conclude, your work is not yet finished! Documenting compliance is essential for your risk management program and physicians should understand that they too are responsible for negotiating – and implementing - compliant arrangements. Accurate time records, making payments only for documented time and monitoring performance are all part of the contract management and oversight process. Demonstrating a culture of compliance and reminding physicians that they too can be investigated and fined for Stark and Anti-Kickback violations can earn the respect of your physicians, administration, and board.
10. Organize Your Documentation
A typical hospital has 47 non-salary physician contracts. Maintaining systematic documentation of compliance with your institution’s contracting policies and contract terms is essential. By keeping all the documentation and notes for each contract together, you can stay organized, reduce confusion and unnecessary missteps, and avoid last minute negotiations. Since many of these documents also support compliance, keeping them centralized with a contract management system or filing system that you and others can access may help streamline the compliance process during and after the contract is signed. Having a consistent source and tools for benchmarks and documentation that is accessible across the organization facilitates negotiations and a culture of compliance.