Physician Contract Strategy

Selecting a Valuation Firm – Key Questions to Ask

If you are looking for a valuation firm to support your organization’s compliance program, you’re going to want to do a thorough investigation of each firm under consideration before making your decision. The following guide will help ensure you get the essential information you need.

Credentials

The National Association of Certified Valuation Analysts (NACVA) provides two types of credentials: the Certified Valuation Analysts (CVA) and Accredited Valuation Analysts (AVA) credentials. Take note of the credentials of the consultants you are considering.

Experience

Ask direct questions about a valuation consultant’s experience in your field. How many opinions have they done? Do they have healthcare-specific experience? This is important! Each industry is different, and healthcare compliance comes with numerous unique complexities. The valuation firm you choose should be knowledgeable and experienced when it comes to physician valuations.

Evaluate Their Work

Don’t be afraid to put a consultant to the test. Can they talk about their methodology and how they reached their conclusions? Are you comfortable with that methodology? Do they explain themselves in a clear and concise way? Be wary of too much jargon; a trustworthy expert will be straightforward with you. It is an asset if they are willing to talk to a counterparty, such as a physician, during negotiations. In the case of an audit or an external investigation, it is vital that your organization is working with a firm that can defend and justify its work.

Look at Examples

Ask for a redacted valuation. Is the opinion well-written, focused, and concise?

Disclaimers

Examine the firm’s disclaimers. They should be sensible and minimal, without too many caveats.

Ask all of the preceding questions, and you should have a strong sense as to whether a valuation firm will be a reliable fit for your organization. If you have further questions, email us at This email address is being protected from spambots. You need JavaScript enabled to view it.. We’re happy to help!

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Selecting a Valuation Firm – Identifying a Good Cultural Fit

Compliance is a non-negotiable priority for hospitals and hospital systems, and the valuation firm you choose plays a big role. Your organization should be working with a valuation firm that is compatible with your company culture. In order to ensure that you are getting the quality opinions you require, you should be working with experts who understand your organization’s unique needs. But what does “cultural fit” mean, in this case? Here are some MD Ranger guidelines for considering whether the valuation firm you are considering will make for a reliable, cooperative, and honest compliance sidekick.

First, consider communication style. Do you feel like you are on the same page when discussing your organization’s goals? Are they honest and open with you about what they can offer? Do they use a lot of jargon, or are they clear and concise when discussing their work? Think over your past conversations. Did you get the sense that your expectations were aligned, or did you doubt whether they understood your needs? If you have any insecurities here, dig deeper. Don’t get caught up in a situation in which your priorities are not being heard or respected. Communication style can tell you a lot about the potential of a relationship; notably, is your organization in attentive and trustworthy hands? Your compliance program needs to be boosted and supported by the valuation experts with which you work.

Work quality standards are extremely important. Do the firms you are considering meet your expectations? Do not settle here. In order to appropriately analyze, negotiate, and document FMV for physician agreements, you need high quality work done on the valuation side.

Are your philosophies aligned? It might sound unrelated to physician contract compliance, but it isn’t. It boils down to the same question of values that all organizations consider. When one organization looks to work with another, the strength of the relationship depends on a similar philosophical approach to the work at hand. During a valuation firm’s pitch to your organization, listen for their “why.” Why are they determined to serve you? What principles drive them? It’s not hard to tell when someone performs their work with integrity. Choose that person.

Finally, find out if the valuation experts you’re talking to have walked in your shoes. Although not a reason to cross someone off your list, it’s a bonus when someone has had similar experience. They will likely show more empathy for the challenges you face and be more attentive and communicative about their work for you.

If you have further questions, email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to find out how we can help. We look forward to hearing from you.

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Read This Before Your Next Physician Contract Negotiation

Negotiations with physicians can be difficult no matter how positive the relationship between the physician and the organization may be. Conversations about compensation take time and effort to plan and do not always go as anticipated. By preparing carefully for these discussions, you can take strides to achieve the best possible outcome for all parties.

Review all prior and existing agreements

Start by reviewing the contract that is up for negotiation as well as prior contracts with the group or individual. If it is a current agreement that is expiring, review the key terms and scope of services. If it is a new arrangement, familiarize yourself with what has already been offered to the provider and the proposed scope of services. Check and see if additional contracts exist for the physician or group in question. Multiple contracts with the same physician or group could result in overpayment that is sometimes referred to as “stacking”. It may be reasonable to have multiple agreements with the same physician for different services, but you should keep careful documentation of total payments to ensure that the aggregate amount does not exceed market rate compensation for an individual. For example, if an oncologist with a clinical practice is paid to be the medical director of an infusion service as well as the chief of staff and the director of the cancer center and the aggregate hospital payments exceeds the compensation for a full time oncologist, there could be an issue if her clinical revenues reflect a full time practice as well.

Establish goals and objectives

Before beginning a contract negotiation, determine the ideal outcome of the contract in terms of payment and work expectations. Know when you can compromise and when you can’t before any talks with the other party begin. Strategize with others to determine what the physician or group’s goals are; set realistic expectations for the arrangement. Are the expected number of hours realistic? Does the physician have the leadership skills needed to be effective?

Research the Market

Always perform due diligence before starting negotiations. Commercial reasonableness is an important aspect of physician contracting, especially for a new position. Consider if the position is truly necessary for your organization or results in measurable quality improvement, and that it makes good business sense independent of any referrals by the physician or group.

Know reasonable payment rates for the specialty and the service in question. High quality market data is a great resource. While you should be familiar with the entire range, we recommend targeting rates between the 25th and 75th percentiles of market data. It is important to remember that statistically someone must be paid above the 90th percentile and someone must be below the 25th – and there should be reasons and documentation for those payment 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 and trauma status can make a difference in the appropriate payment rate, as can national reputation and the credentials of a particular physician.

Consider alternatives

In many negotiations, you will encounter pushback. Think about alternative payment options and how you can compromise. Prepare several alternatives for obtaining and paying for the service that satisfy your goals and objectives. Discussing alternative approaches can often yield savings or more efficient ways of achieving the same objectives, and provides an opportunity to discuss each party’s objectives and challenges.

Document compliance

Documenting compliance is essential for your compliance program; however, fair market value rate documentation can also facilitate negotiations. Demonstrating that you take compliance seriously 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.

Review your organization’s contracting and compliance guidelines

If your organization has written compliance guidelines for payment rates, review them so that both you and the physicians with whom you negotiate 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 approval process. Having guidelines creates an objective standard of payment and limits feelings of favoritism among physicians.

Gather all documents you may need in one place

Depending on the size of your organization or the time of year, you may be preparing for many contract negotiations. By keeping all the documentation and notes for each contract together, you can stay organized and reduce confusion and unnecessary missteps. Since many of these documents also support compliance, keeping them centralized can streamline the compliance process after the contract is signed.

Have a draft job description and contract prepared

Creating or reviewing the job expectations internally with staff who will be involved in the program helps to define expectations and parameters for effective leadership. It helps the physician to understand what the position entails and can preclude conflicts during negotiations or later when time records are reviewed.

If you would like to learn more about physician contracting best practices, we have many more resources here.

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Contracting for Pediatric Services? Read This First.

Acutely ill children sometimes require a pediatric subspecialist. But because most pediatric subspecialists practice at tertiary medical centers and not the community hospital close to the family’s home, access to care can be a challenge.

Many community healthcare organizations address this need by contracting with a children’s hospital or academic medical center. Several specialty physician companies also provide pediatric physician services. Contracts may involve onsite hospitalists, telehealth consultations, emergency call coverage, diagnostic test interpretations, medical directorships, specialty clinics or services, or combinations of services for pediatrics, newborns, and high-risk deliveries.

When should organizations seek contractual inpatient pediatric services?

Hospitalization rates for children have plummeted in recent years, and like all primary care physicians, the number of community pediatricians managing inpatients has declined. At the same time, specialization in hospital medicine, including pediatrics, has emerged as an independent specialty.

For community hospitals with high emergency or obstetrical volume and who are far away from a children’s hospital or academic medical center, contracting for pediatric hospitalists or subspecialty back-up may be an option to place highly trained physicians in your facility. A partnership can enhance your hospital’s profile in the community, providing quality oversight and patient management when an independent practice may not be financially viable.

What does a pediatric hospitalist service provide?

Pediatric hospitalist duties often include a number of services, generally dependent on case volume at the community hospital. Services may include:

  • Attendance at deliveries
  • Rounds in the nursery
  • Emergency department call coverage for general pediatrics
  • Management of inpatient pediatric patients, sometimes including neonates in the nursery
  • Consultation on inpatient pediatric patients
  • Potential 24/7 in-house attending physicians and daily rounding

What are other contracted pediatric professional services?

We have seen a broad scope of contractual pediatric services among our subscribers, including:

  • Neonatology (most common)
  • Pediatric intensivist
  • Pediatric surgery
  • Cardiac surgery
  • Diagnostic test interpretations like echocardiography and EKG
  • Retinopathy of prematurity
  • Outreach clinics in developmental pediatrics, cardiology, transplant, high risk OB
  • Telemedicine consultations in:
    • Psychiatry
    • GI
    • Nephrology
    • Cardiology
    • Endocrinology

How does an organization determine if these partnerships make sense?

Contract scope varies from onsite staffing to telemedicine consultations to occasional clinics. These arrangements are very different in nature and often require a jointly developed business plan or analysis. However, important contract terms to discuss across nearly all services include:

  • Number and types of patients requiring services
  • Regulatory and medical staff bylaw requirements
  • Physician availability and depth of coverage
  • Number of hours on-site or on-call
  • Response times
  • On-site facilities to support the contracted physicians
  • Billing arrangements
  • Follow-up care arrangements for post-discharge or post-procedure/diagnosis

What are payment rates?

These contracts are compensated in a variety of ways. We see fixed monthly stipends, collection guarantees, fee-per-consults, and medical directorship payments.

It can be difficult to find pediatric subspecialty contract data. MD Ranger works with academic medical centers and children’s hospitals to collect this data, as well as community hospitals that have these partnerships. Given our growing subscriber base, we have pediatric benchmarks for pediatric hospitalists, pediatric surgery, PICU, perinatology, and retinopathy of prematurity. We advise our subscribers to use adult subspecialty rates when there is not a pediatric subspecialty benchmark available.

What are important considerations for negotiating contract rates?

When negotiating any physician contract, carefully analyze hours, hourly rates, and annual payment terms. Pediatric contracts often require additional consideration of qualifications of the parties, coverage demands versus billing opportunities, and overhead costs.

These contracts often blend professional services with administrative and coverage duties, hence analysis of collection potential, the cost of maintaining a clinical practice and back-up coverage may be relevant. With many academic medical centers, additional fees are sometimes part of the cost of physician services, such as ‘Dean’s taxes’, which are imposed on all revenue of the medical school as part of the overhead structure. These fees may or may not be negotiable.

As with other hospital-based physician services and services purchased from tertiary centers, the cost will vary by specialty, scope, and even individual physician. The community hospital should also discuss how it can use the contracting institution’s name in its public materials, and how the contracted physicians will interface with community physicians. Often continuing education, dedicated referral phone numbers, and timely correspondence with local physicians are essential to successful contracts.

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Does Geography Influence Physician Contract Rates?

Our subscribers frequently ask how much physician contracting rates vary by region. We often hear from providers who think their area is unique, with physician rates either higher or lower than national benchmarks. MD Ranger analyzes the impact of geography on rates across the entire database each year and runs custom reports for various subscribers several times a year to evaluate the issue.

The Evidence
With the growth of its customer base, MD Ranger has considerable geographic diversity, with hospital contracts from 30 states covering dozens of metropolitan, rural, and urban areas. To investigate the significance of location, we pool data from the 30,000+ physician contracts and supplement it with data from various state and federal agencies, including CMS cost report data, Bureau of Labor Statistics (BLS) Occupational Employment Survey, and various BLS price indices. A multivariate approach models contract rates on hospital, contract, and market characteristics, using both linear and nonlinear techniques. After extensive testing of a variety of geographic clusters defined by MSA’s and combinations of MSA’s, along with urban/rural distinctions, MD Ranger data scientists found no statistically significant geographic variation. This is not to say that MD Ranger has not found characteristics that significantly influence rates. Trauma status, whether the hospital is urban or rural, and its size, measured by both number of beds and average daily census – all of these factors exhibit significant, and consistent, impact on rates.

Regional Variance: Not as Impactful as You'd Think
Craig Paxton, Ph.D., chief statistician and economist at MD Ranger, summarizes, “Based on dozens of analyses over five years of data, we conclude that geographic variation, if it is meaningful at all, is so only in markets smaller in size than MSA’s.”

What does this mean for executives negotiating physician contracts? While your competitor down the street may decide to compensate doctors above fair market value (FMV), according to government regulations, these payment rates should not affect your organization’s rates. It may be unfortunate that your biggest competitor is the hospital that pays above the 90th percentile, but it doesn’t mean if you join them in that practice that your rate can be deemed to be within FMV. In practical terms, this underscores the importance of identifying the appropriate range that is consistent with your hospital characteristics from a compliance standpoint. Because hospital attributes like bed size and trauma status matter more, the most relevant market data benchmarks for your organization should be from a sample of organizations most like your facility, regardless of regional geography. This is why MD Ranger Benchmarks provide data slices for bed size, ADC, trauma status, urban/rural location, and payer mix. If you find yourself in a competitive situation, you may need to engage an FMV consultant to evaluate other methods for documenting FMV, such as a cost method analysis, or identification of other market characteristics that are truly unique, such as a very small pool of physicians, extreme extenuating circumstances, etc.

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7 Tips for Effective Contract Negotiations

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, careful preparation can help you achieve your desired outcomes.

Research. Know the reasonable payment rates for the specialty and the service. High quality market data is particularly helpful with this initial step. While you should be familiar with the entire range, MD Ranger recommends focusing your targeted rates between the 25th and 75th percentiles of market data. It is important to remember, while not everyone can get paid at the 90th percentile, statistically someone must be above the 90th percentile and someone must be below the 25th. 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 and trauma status can make a difference in the appropriate payment rate, as can national reputation and the credentials of a particular physician.

Establish objectives and define how you can compromise. After you have a sense of contract payment rates and ranges, define the scope of work and expectations of the position and determine what you are willing to negotiate. Your negotiation objectives should be consistent with fair market value, as well as your hospital's overall financial commitments for physician services. Data are now available to allow a hospital to see how the cost of each contract fits into its overall physician costs, which can be particularly helpful for overall physician strategy.

Consider the scope of the agreement, not just how much to pay. Hospitals and physicians often assume the scope of service should either be the same as the expiring agreement, or whatever the scope that the physician suggests. For example, a medical directorship contract might not carefully assess the number of hours of service, and instead focus negotiations on the hourly rate. Unsure what's appropriate for your service? Market data are available on the number of hours per year for more than 80 administrative and leadership positions, including ad hoc committees, quality initiatives, medical staff leadership and medical directorships. Providing your negotiating parties with objective information during negotiations helps to set expectations and ensure the final contract terms are within reason. If the situation legitimately warrants an exception, document your reasoning in the contract and keep track of hours for future audits.

If the situation is complex, acknowledge it. Situational details (such as intensity of workload, payer mix, trauma status, etc.) may distinguish a contract from most other contracts within the same service. If that's the case and if these factors haven't been considered in the payment rate, you might be under or over paying. Agreements like these carry compliance risks—particularly if the service has a comparatively lower workload than the average contract in the market, or if your contract results in significantly more professional revenue. Not even the very best market data survey can cover all situations. Also, if it is an exclusive contract, such as for a hospital-based service, there are special considerations for the value of the franchise. Experience and judgment are important to assessing risk and knowing when to bring in an internal or external consultant to document compliance.

Consider alternatives. Before entering a negotiation, prepare a list of alternatives, both for obtaining the service and paying for the service. Anticipating and responding to pushback will make a smoother negotiation process. Discussing alternative approaches can often yield savings or more efficient ways of achieving the same objectives, and provides an opportunity to discuss each party's objectives and challenges. The definition of fair market value includes the provision that "the price...between a willing buyer and a willing seller, neither being under a compulsion to buy or sell". A good fair market value evaluation will simulate what would result from an actual competitive process, even if there isn't one.

If the agreement grants exclusivity, consider the privilege's economic value. It is well established that exclusivity—effectively a limited monopoly—has economic value. Not only is it a core principle of economics, federal regulators cite it specifically in the context of hospital physician contracting. There are two methods to estimate the value of exclusivity. One is to compare compensation between exclusive and non-exclusive agreements, which can be shown through market data. The other is to have a valuation expert measure cost reductions and economies of scale in a cost model of the practice of interest.

Document your process for compliance. Documenting compliance is essential for your compliance program; however, fair market value rate documentation can also facilitate negotiations. By demonstrating that you take compliance very seriously and that these efforts are protecting all parties, you will be well on your way to earning the respect of your colleagues across the table. You can find more information on how to document compliance here.

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Multi-Campus Physician Contracts: Impact on Payment Rates and Time Requirements

With ever-shrinking margins and pressure to decrease costs, many hospitals and health systems seek the clinical and operational advantages that centralization creates. MD Ranger data strongly suggests the benefits of multi-facility physician contracts as an important strategy for controlling costs. Hospitals and health systems with more than one campus or facility can save money and streamline both physician emergency coverage and administrative services through multi-facility agreements.

Replacing single facility physician contracts with multi-facility arrangements can have positive, measurable impacts. Although payments to physicians whose duties span multiple facilities are higher than single facility contracts, they are less costly than separate, individual facility arrangements when the duties are assigned to a single physician. MD Ranger's subscriber-based comprehensive reporting system provides an unparalleled opportunity to evaluate the frequency and benefit of these types of arrangements, providing insight into the payment rates and time differentials of single versus multi-campus contracts. These data can be helpful in providing guidelines for documenting fair market value and commercial reasonableness for situations that, on the surface, appear to exceed common benchmarks.

MD Ranger subscribers include numerous multi-campus hospitals and multi-hospital health systems. These contracts include medical directorships and administrative services agreements that span two or more facilities, as well as call coverage arrangements when facilities are located close to one another.

Determining fair market value (FMV) for these types of multi-facility contracts can be a challenge. Most published benchmarks, and most physician contracts, are for a single hospital or campus. Our data demonstrate that although there is decidedly more work to cover multiple facilities, the amount of work (measured in number of hours and annual payment rates) is not proportionate to the number of facilities. Furthermore, multi-campus roles can be designed to streamline operations and reduce costs across the system. After analyzing the MD Ranger database and reviewing all multi-facility contracts, our statistical findings provide guidance that hospitals and health systems can use to determine appropriate compensation for coverage, medical directorships, and administrative service agreements that span two or more facilities.

Call Coverage Agreements
When two facilities in the same health system are physically nearby and when the emergency department volume is such that the call burden for one physician is not overwhelming, it is possible to have one physician covering both facilities. The physicians in the call panel must have medical staff privileges at all of the facilities. This can be financially advantageous, especially when contracting with specialties that are infrequently called. At times a named second call position is desirable to address infrequent conflicting demands. After analyzing the MD Ranger database, we have found that adding a second campus to one coverage position increases the cost of a single agreement by 26%. For example, if two hospitals are each paying $100 for coverage by two physicians and they decided to only have one physician cover both campuses, the appropriate rate would be $126, a 37% savings per campus.

Medical Directorships and Administrative Agreements
Medical directorships and administrative positions that span multiple facilities also save time and money. MD Ranger analysis found that although there is no significant difference in the hourly rates of pay for physicians with multi-facility positions, there is a significant difference in the number of hours required for multi-campus arrangements and in the annual payments. These findings apply to hospitals with more than one campus, whether as a distinct licensed facility or a single consolidated license with emergency departments on different campuses (note that for MD Ranger one campus is considered a facility with a separate emergency department within the MD Ranger database, regardless of license status). We have found that, on average, a single physician contract for the same services across two campuses costs 37% more than a single campus position. Each additional campus commands an average 10.7% increase in the number of hours up to five or more campuses.

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How Much is Granting Exclusivity Worth?

Most economists, as well as the OIG, believe that an exclusivity clause has economic value that should be considered in a valuation. When a hospital contracts with a hospital-based group to provide a service like pathology or anesthesiology, the opportunity to provide the service is often granted on an exclusive basis. This means that only the contracted group is authorized to provide the service to patients at that facility. Frequently this also means that the facility’s medical staff is “closed” to other physicians in that specialty.

When physicians with an exclusive contract seek payment for services, determining fair market value can be a challenge. In addition to volume, payer mix and scope of service considerations, it is important to consider the value of the “franchise” they have been granted.

The Value of Exclusivity

In general economic principles, as well as in those of business valuation, monopolies and therefore contract exclusivity have value--even in health care. In the case of physician contracts, the OIG has specifically noted that exclusivity has value:

Depending on the circumstances, an exclusive contract can have substantial value to the hospital-based physician or group, as well as to the hospital, that may well have nothing to do with the value or volume of business flowing between the hospitals and the physicians.1

Note the phrase “depending on the circumstances”; it signals the importance of documenting the basis for FMV determination, with particular consideration of the costs and benefits to both the hospital and the physician group of the exclusive relationship.  

What is Exclusivity Worth?

There is no consensus or official OIG guideline for determining the economic value of an exclusive physician agreement. Possible approaches to estimating and acknowledging the value of exclusivity for FMV documentation include:

  1. Negotiate a compensation level at a lower point in the market range than you might have if there were no exclusive rights to the service. Most market surveys for hospital-based specialties include contracts with exclusivity in their data. This is one of the advantages of the market approach to valuation over the cost approach. Employing a valuation assessment using the cost approach might not include the exclusive value of the arrangement; work with your valuation consultant or an expert to ensure that the exclusive nature of the contract is taken into proper consideration.
  2. Include a “rule-of-thumb” discount of perhaps 5-10% below a non-exclusive rate to specifically acknowledge and document the value in a quantitative way.

Documenting FMV of Exclusivity

In the contract’s FMV documentation, clearly state that consideration has been given to the economic value of the exclusivity provisions of the contract, even if a specific value is not cited. For compliance purposes, outline the process your organization took to consider the value of exclusivity in your documentation process.

Advantages and Disadvantages to Exclusive Agreements

Exclusive contracting for hospital-based services often has intrinsic value to a facility, including:

  1. establishing a single point of accountability for administrative and quality performance
  2. streamlining scheduling
  3. ensuring coverage for basic services
  4. improving continuity and quality of care

Exclusivity may also reduce a hospital's costs. Nonetheless, it is important to protect the facility from anti-trust challenges by physicians who may be excluded from practicing at the facility. Hence it is important to follow the guidance of legal counsel and adopt an appropriate decision-making process to close the medical staff and document of the process and FMV of the contract and all of its provisions. Furthermore, be familiar with your facility’s medical staff bylaws to ensure the proper process is followed if the intent is to close the medical staff for that specialty.

Before approaching a new or renewal negotiation for a hospital-based physician group, hospital administration, and medical staff leadership should meet to determine the need for exclusivity and the process for determining what exclusivity is worth.

1“OIG Supplemental Compliance Program Guidelines for Hospitals” Published in Federal Register Vol 70, No 19. Monday January 31, 2005

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When Specialty Doesn't Matter, How Much Should You Pay?

Payment and hours of service benchmarks for medical directorships are available from several sources. However, in today’s health care environment, facilities need physicians for a number of reasons, and it can be difficult to convince a physician to give up time to sit on a committee, serve as a medical staff officer, train for CPO or EHR, help with peer review or participate in quality initiatives. Establishing a fair and compliant payment rate for a position that does not need a particular type of specialist can be a challenge!

Be Wary of Opportunity Cost

In positions where specialty is not a requirement for the role, such as EHR implementation, quality initiatives, utilization review, or chief of staff, many valuation experts advise that opportunity cost should not be considered a factor in physician payment rates, and FMV for clinical services may differ from administrative services.

Federal Register comments on Stark III regulations state:

A fair market value hourly rate may be used to compensate physicians for both administrative and clinical work, provided that the rate paid for clinical work is fair market value for the clinical work performed and the rate paid for administrative work is fair market value for the administrative work performed. We note that the fair market value of administrative services may differ from the fair market value of clinical services.

Hours Vary

Many hospitals and health systems set a standard hourly rate for all physician administrative contracts, sometimes paired with a FMV opinion on that rate. This can be an effective policy, however, it does not negate the need to define and monitor the hours associated with each position since total payments must also be reasonable. Ensuring that the job description justifies the hours, and that time records are kept, collected, and reviewed is essential to a robust compliance process.

Hours among non-director positions tend to vary since the variety of assignments is broad. Meeting frequency, residency or teaching duties, nature and scope of quality initiatives or intensity of training for IT, POE or other training programs each vary by institution, subject and physician role, hence good recordkeeping is essential. Committee chairs and administrative/initiative leaders of non-clinical initiatives often require more hours than non-leaders as well.

How Do Hours Differ Between Leaders and Non-Leaders?

Median annual payments are higher for leaders (committee/initiative chairs and directors) than for non-leaders. For Case/Care/Utilization Management, the annual payments for chairs and directors are more than double the annual payment for non-chairs in Case/Care/Utilization Management. These differences reflect the time and effort required for managing or leading a process compared to members of a committee or task force, or one-time training compensation.

What is the Best Payment Method for Non-Clinical Administrative Contracts?

Hourly payment rates may not be the best method to pay for one-time events or short-term assignments like training, meeting attendance, or task forces. Per meeting payments or monthly stipends may be easier to administer than keeping and submitting time records for some initiatives or training sessions. If the per meeting payment is reasonable, the need for a one-off time card may not be as crucial if minutes or other records of participation are kept.

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Addressing Outlier Physician Payments

Most physician payment rates fall within a reasonable market range. But in some cases, a payment rate may be well beyond the norm. These unusual payment rates, which can sometimes impact benchmark calculations, are outliers. Understanding how outliers affect market data and what to do if your contract falls outside market ranges is an important aspect of a physician contracting compliance program.

Evaluating Data Quality

The distribution of payment rates can reveal market trends or anomalies. If the distribution between benchmark quantiles is fairly concentrated, this could suggest that rates are consistent across markets and facility types. Even if quantile ranges are narrow, it doesn’t necessarily mean that there aren’t meaningful outliers within the sample; however these outliers are not affecting the benchmark values. Good examples are medical directorship hourly rates. If the majority of hourly rates of a cardiology medical directorship are $150 per hour, but there are several facilities that pay $250 per hour, the facilities that are paying more may be paying fair market value for the duties being performed, but they do not affect the benchmark values because they are accounting for the values above the 90th percentile.

If there is a wide distribution of rates, it could indicate several things. If the sample size isn’t large and the rates are widely distributed, it could indicate inadequate data. It could also represent contracts that are not comparable, either because scope of services varies or hospital characteristics are too different (e.g. rural versus trauma or academic medical center). If the sample size is adequate, variation could indicate real differences between individual circumstances or types of organizations.

Even within a large sample size, contracts over the 90th percentile sometimes represent special circumstances that justify higher pay rates. Examples might include highly specialized or nationally recognized physicians, a broader scope of service, and/or higher hours due to program start-ups etc. Most FMV experts consider payment rates under the 75th percentile to be reasonable, assuming adequate justification of the position and time spent. However, payment rates over that level are not by definition inappropriate, they just require particular documentation of the reasons why a higher payment is justified.

Defining “Outlier”

An outlier is a data point that is either much greater or smaller relative to the sample. Outliers can be influential in a small data set, but in a robust sample they rarely have an effect. For compensation data, particularly physician contract data, there are two types of outliers: those that do not compensate for a service (zero value) and those that represent either a very low or very high dollar value. MD Ranger addresses the “zero” data points by reporting the percent of subscribers who pay for a service instead of including zeros in the quantile calculations. This statistic can help facilities determine commercial reasonableness of a service. We advise first determining if payment is necessary, and if it is, then the benchmarks reflect the range of market payment rates. We also validate outliers with our subscribers to ensure there were no input errors with the survey process.

In large data sets like MD Ranger’s, an outlier will have little or no effect on the quantiles. For example, in a dataset with 50 data points where no provider represents more than 25% of the contracts, each data point holds only a 2% weight in the percentile calculation. The opposite is also true: in a small data set, each data point has a large effect on the percentile calculations and an outlier could greatly affect the percentiles. In small samples, the addition of a single data point at the high or low end of the market ranges can have a major impact on the benchmark ranges.

Here’s an example. If five different providers independently negotiate a rate of $150 per hour, then we would report all four percentile values as $150. If the data consisted of four values of $150 and one of $500, then we would report $150 for the 25th, 50th, and 75th percentiles, and $325 for the 90th percentile (325 is midway between 150 at 0.80 cumulative weight and 500 at 1.0). Here’s a graph showing the effect:

Graphical representation of quantiles when one contract is higher than all others.

Negotiating an “Atypical” Rate

Most physician payments are straightforward per diem or hourly rates. However, many organizations have a few contracts that exceed the comfort zone set by the compliance policy. Whether the complexity arises from market conditions, such as limited supply or burdensome call, the scope of services of the position in question, or the credentials and experience of a program director, your organization is responsible for finding an appropriate and fair payment rate.

After evaluating the sample size and variation of available market data, as well as the specific requirements of the contract, you may be able to determine if payment rates can or should be documented with market data. It could be the case that using another valuation method or engaging an expert who can objectively document the FMV for the particular situation is required.

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Five Tips for Making Physician Contracting More Efficient

MD Ranger subscribers are constructing order out of the complex processes of contract organization, negotiation, and approvals by creating a more structured, efficient, and informed system. Physician contracting and documenting FMV doesn’t have to be an expensive headache.

Here are our top five tips for streamlining your physician contracting process this year.

  1. Make sure your physician contracts are all in one place, organized by expiration date.

    When hospitals have dozens of physician contracts that renew throughout the year, keeping organized is critical for successful and timely renegotiations. If your hospital or facility doesn’t have a contract management system that allows for easy retrieval, review, and analysis of physician contracts, consider getting one. This can help to automate the renewal process quickly. Using your contract management system to analyze your data will help you understand the scope of physician services you’re currently paying for, as well as identify potential gaps or duplicative services. MD Ranger provides comprehensive and summary reports and hospital-specific benchmarks to allow you to see contracts and costs across the entire organization.5Tips Bloggraph 1

  2. Prepare for negotiations at least three to six months in advance.

    Knowing the timing of negotiations across the year is essential to keeping your physician contracting process running smoothly. If your staff proactively manages upcoming contract renewals, you will have the upper hand in negotiating more advantageous contracts. If you know the scope of payments across your organization in advance, you can prioritize contracts, set budget goals, and conduct informed negotiations.

  3. Empower a member of your staff to manage the process day-to-day, and designate an executive responsible for strategic leadership decisions.

    Given the complexities of physician contracting, designating someone on your team to handle data, contract management, and documentation of FMV is a solid investment. Without staff involvement, it is easy for contracts to slip through the cracks, creating a situation that could bring major compliance issues to your organization. While this person might not handle physician contracts full time, she should have access to internal contract data, benchmarks, or market data to support decision-making, a tool to help her view and organize contracts, as well as a process to document FMV and compliance. She should have a reporting relationship with the director or executive responsible for physician contracting at a senior level. Having an executive in charge of all physician contracts who annually reviews costs and renewals will provide greater control over this major cost category. MD Ranger provides the tools and executive reports that make periodic facility-wide reviews simple, as pictured below.5Tips Bloggraph 2

    Smaller organizations may designate the CEO or CFO to lead; organizations with more resources may choose to place physician contracting under compliance or legal. Whomever your organization chooses, it is critical that the executive be aware of federal regulations and penalties for non-compliance. They should also oversee the compliance and documentation process. If an audit occurs, an executive will need to be very familiar, comfortable, and confident with the compliance process.

  4. Create or review your physician contracting process.

    If you are starting from scratch and want to create a functioning physician contract compliance process, as you assemble your team and your organization’s contracts, define how your organization will determine and document fair market value. Do you employ external consultants? Does your team produce internal FMV documentation? Whatever method your organization decides, document it and stick to a consistent method. If using market data, or a product like MD Ranger, decide when outside help is needed and define those circumstances as best you can. Depending on your resources, there are many methods for lowering FMV costs.

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  5. Use market data and tools to quickly segment contracts and document FMV.

    The most efficient organizations use high-quality market data to identify market ranges for physician contract rates, saving consultants for complex or unique situations. If you segment your contracts in advance, you can plan and budget for ad hoc FMV while using market data for straightforward agreements. Systems can gain even greater value by setting standards and processes for contract rates. Some benchmark systems, such as MD Ranger, provide contract-specific reports that summarize a specific contract to the appropriate benchmarks for use in review and documentation processes. Do your research, and feel confident that your method will support good decision-making.

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Easy Ways to Calculate Opportunity Costs in Physician Contracts

Should a physician contractor be paid based on market benchmarks or on foregone clinical income, also called ‘opportunity cost’? How influential should opportunity cost be when considering payment rates? Are there risks to opportunity-based payments? Should you pay a neurosurgeon the same as a pediatrician for the same work?

We’ve seen hospital administrators struggle to determine what is appropriate for their organization. The truth is that opportunity cost can be difficult to measure and document.

Defining Opportunity Cost

Opportunity cost is a determination of value based on the value of an alternate use of the same resources, which for our purposes is a physician’s time. For physicians contracting with a hospital to take emergency coverage shifts or to spend hours a month on administrative tasks, the opportunity cost is generally considered to be the income lost from their private practice while on call or performing non-clinical duties.

When to Use Opportunity Cost

For call coverage and administrative services contracts, opportunity cost may be appropriate to consider if a physician’s activities are restricted during a coverage shift or administrative duties are required during a time when they would typically be able to see patients. The physician’s opportunity cost would be the net professional fees billed less the cost of overhead for the amount of time performing the contracted duties.

Opportunity cost shouldn’t be factored into every situation—even if the physician’s specialty is generally higher paid. A physician who has slowed down their practice because they are close to retirement should not get a higher hourly rate to serve as a medical director simply because they are a neurosurgeon.

Additionally, specialty may not be important for some administrative positions, such as directors of EMR implementation, quality initiatives, utilization review, or chief of staff. For these types of positions, opportunity cost generally isn’t factored into contract rates because it’s not necessary to have a physician of a high cost specialty in the role.

Potential Risks

The Office of the Inspector General advises in Opinion 07-10 to use caution when considering the opportunity cost:

Moreover, depending on the circumstances, problematic compensation structures that might disguise kickback payments could include, by way of example: (i) ‘lost opportunity’ or similarly designed payments that do not reflect bona fide lost income…

As with other physician contracts, it is important to document the fair market value parameters used when opportunity cost has been factored. Include the calculations used to determine the value as well as why opportunity cost is important to the particular situation. Although the OIG opinion cited was written about an emergency call agreement in question, the OIG’s guidelines can be reasonably applied to other types of physician contracts.

Despite the risks, it doesn’t mean that you shouldn’t consider opportunity cost when there is valid justification. However, exercise caution and don’t forget to document all the steps taken in your decision-making process.

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Best Practices for Negotiation Prep

How should your organization prepare for negotiations and contract conversations with physicians and groups? Here are some best practices to integrate into your preparation strategy.

Do your research.

Before starting any sort of negotiations, have a good idea of what the market ranges of payment for the specialty and service in question. When entering into negotiations, you should have a good idea of how your institution and the physician compare to the “typical” provider.

Consider agreement scope.

All positions are not created equal and should not be considered equal when determining payment. Consider the scope of what is included in the agreement.

Acknowledge the nuances of the situation.

Situational details of the position (intensity of workload, exclusivity) or of the hospital (payer mix, trauma status, hospital size) may distinguish a contract from other contracts.

Identify where you can compromise.

Before you begin negotiations with the physician or group, discuss internally what you are willing and able to pay and where you can compromise to reach an agreement.

Consider alternatives.

Discussing alternative approaches can often yield savings or more efficient ways to achieve the same objectives. It can also open the door for both your organization and the physician to discuss their challenges and needs.

Document, document, document.

One of the most important aspects of compliance and protecting your organization is thorough documentation. Always air on the side of more rather than fewer supporting documents about how and why you reached the conclusion.

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Recent OIG Action Summary

The OIG actions of the past two years illustrate the risks of noncompliant contracts to healthcare organizations and individuals who do not have a comprehensive compliance program for review and documentation of physician contracts. Health systems under investigation or under consent decrees report that an OIG investigation looks for consistent review processes, regular monitoring, internal audits and defined compliance guidelines. How confident are you that your physician contracts are 100% compliant with documentation of FMV on file?

We urge our subscribers to perform annual physician contract audits in addition to using consistent guidelines and documentation procedures throughout the year. Take advantage of a new month and plan a physician contract audit.

Links to Excellent 2015 Articles on These Topics:

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From AHLA’s 2015 Annual Meeting: Complex Fair Market Value/Commercial Reasonableness Compensation Issues

Speakers: Robert Wade, Partner at Krieg DeVault, Rud Blumentritt, Partner at Horne LLP

While most of us understand the risks associated with the Stark Law and the Anti-Kickback Statute, and if you don’t, we have your back. There are always cases that are in the grey areas or are just downright complicated.

While at the American Health Lawyers Association Annual Meeting, I attended a session geared toward just the problem of handling complex fair market value and commercial reasonableness issues.

There are three different perspectives to looking at fair market value:

  • The bystander approach
  • The professional appraiser approach
  • The legal and regulatory approach

With any approach, it is important to consider the specific market conditions in your area for the specific specialty in question. For example, it may be necessary, and reasonable, for your organization to pay at the higher end of the market range for anesthesiology based on the localized supply of physicians, however that does not mean that it is necessarily reasonable to pay at the higher end of the market range for gastroenterology.

When documenting FMV, it is also a best practice to document the commercial reasonableness of paying for the position in the first place. MD Ranger helps our subscribers get an idea for whether is is commercially reasonable to pay for a service through our Percent of Subscribers Who Report Paying for a Service and Paid Administrative Position Count tables. While commercial reasonableness is subjective, having benchmarks to inform your decision can help to justify paying, or not paying.

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Calculating Opportunity Cost in Physician Contracts

Should a physician contractor be paid based on market benchmarks or on foregone clinical income, also called ‘opportunity cost’? How influential should opportunity cost be when considering payment rates? Are there risks to opportunity-based payments? Should you pay a neurosurgeon the same as a pediatrician for the same work?

We’ve seen hospital administrators struggle to determine what is appropriate for their organization. The truth is that opportunity cost can be difficult to measure and document.

Defining Opportunity Cost

Opportunity cost is a determination of value based on the value of an alternate use of the same resources, which for our purposes is a physician’s time. For physicians contracting with a hospital to take emergency coverage shifts or to spend hours a month on administrative tasks, the opportunity cost is generally considered to be the income lost from their private practice while on call or performing non-clinical duties.

When to Use Opportunity Cost

For call coverage and administrative services contracts, opportunity cost may be appropriate to consider if a physician’s activities are restricted during a coverage shift or administrative duties are required during a time when she would typically be able to see patients. The physician’s opportunity cost would be the net professional fees billed less the cost of overhead for the amount of time performing the contracted duties.

Opportunity cost shouldn’t be factored into every situation—even if the physician’s specialty is generally higher paid. A physician who has slowed down her practice because she is close to retirement should not get a higher hourly rate to serve as a medical director simply because she’s a neurosurgeon.

Additionally, specialty may not be important for some administrative positions, such as directors of EMR implementation, quality initiatives, utilization review, or chief of staff. For these types of positions, opportunity cost generally isn’t factored into contract rates because it’s not necessary to have a physician of a high cost specialty in the role.

Potential Risks

The Office of the Inspector General advises in Opinion 07-10 to use caution when considering the opportunity cost:

Moreover, depending on the circumstances, problematic compensation structures that might disguise kickback payments could include, by way of example: (i) ‘lost opportunity’ or similarly designed payments that do not reflect bona fide lost income…

As with other physician contracts, it is important to document the fair market value parameters used when opportunity cost has been factored. Include the calculations used to determine the value as well as why opportunity cost is important to the particular situation. Although the OIG opinion cited was written about an emergency call agreement in question, the OIG’s guidelines can be reasonably applied to other types of physician contracts.

Despite the risks, it doesn’t mean that you shouldn’t consider opportunity cost when there is valid justification. However, exercise caution and don’t forget to document all the steps taken in your decision-making process.

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5 Hospital and Contract Characteristics That Influence Contract Rates

Negotiating a new physician contract payment rate or even renewing an existing contract can be challenging. While there are benchmarks available to help you determine FMV, it can be difficult to decide what market range is most appropriate for a particular service and facility. Many factors affect physician contract rates. While some factors may be fairly straightforward and discretely measurable, others may be more nuanced and require closer evaluation.

Particular Hospital and Contract Characteristics

Drawing from the MD Ranger database of over 14,000 contracts in 2014, we analyzed the effect of discrete hospital characteristics on payment rates. Trauma status, hospital average daily census (ADC), the number of facilities the contract covers, if the hospital is independent, and whether the physician is restricted while on call all have a statistically significant impact on payment rates.

Trauma Status
When it comes to call coverage per diems, being a trauma center costs more. Trauma center certification requires more restrictive call coverage and quicker response times than non-trauma centers, and the burden of call is typically higher. On average, trauma centers paid 32% more than non-trauma centers for call coverage per diems.

Call Coverage Per Diems Trauma 2

Restricted Call
When a physician's activities are restricted while on call, they agree not to perform other clinical duties. This restriction may result in an economic hardship if clinical revenues suffer. A general surgeon who is on a restricted call coverage shift may not schedule and perform procedures, missing out on valuable income opportunities. A typical restricted call coverage contract pays 50-100% more than a non-restricted contract.

Hospital Size
Size matters when it comes to both coverage and administrative contracts. Higher emergency room volume results in higher call burdens. Additionally, a larger facility likely indicates more work for medical directors which often requires more hours and higher pay. For every 100 additional beds in a hospital's ADC, expect to pay 25% more for call coverage and 14% more for medical direction.

ADC Total Annual Payments 2

Independent Hospitals
Independent, stand-alone facilities typically pay a premium for call coverage. On average, MD Ranger found that independent hospitals pay 26% more for call coverage contracts than hospitals owned by health systems. Some theories as to why health systems pay less are that they benefit from economies of scale as well as they may have more favorable market conditions or better bargaining position.

Multi-facility Arrangements
For health systems, replacing single-facility physician contracts with multi-facility arrangements can have positive, measurable impacts. We have found that adding a second campus to one coverage position increases the cost of a single-facility agreement by only 26%. For example, if two hospitals are each paying $100 for coverage by two physicians and they decide to only have one physician cover both campuses, the estimated rate would fall to $126, a 37% savings per campus.

Multi-facility medical directorship and administrative agreements also trim costs. A single physician contract for the same service across two campuses typically costs just 37% more than a comparable position for each campus.

A Note on US Regional Geography
Our subscribers frequently ask about the impact of regional geography on payment rates. After extensive testing of a variety of geographic clusters defined by Metropolitan Service Areas (MSAs) MSAs and combinations of MSAs, along with urban/rural distinctions, MD Ranger's data scientists have not found that region significantly influences rates.

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In conclusion, there are a lot of variables that go into negotiating a fair rate for a physician contract. After weighing the many factors involved in determining a rate, it is essential to document the decision and the rationale behind it, including all pertinent benchmarks and relevant information about the specific contract.

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Uncompensated Care Payments for Call Coverage

It is not uncommon for hospitals to experience a cascade effect once they start compensating for call coverage. However, it is generally not commercially reasonable to pay for all services. For example, 75% of hospitals report paying for general surgery while only 3% of hospitals report paying for podiatry call coverage. Just because a physician asks to be paid, does not mean it is commercially reasonable or necessary to pay. Navigating these negotiations can be difficult if the relationships are highly political or tenuous.

Despite the increasing pressure to pay for emergency coverage across multiple specialties, it is possible to find middle ground with physicians on this issue that addresses the physicians' need to be recognized for the time and service and the hospital's need for coverage. Here are some suggestions to consider for your organization.

Uncompensated Care Payments
Consider payment for uncompensated patients. Physicians are often concerned that the burden of carrying a beeper isn't worth the limited revenue associated with coverage. Emergency departments do have a disproportionate number of uninsured and Medicaid patients and in some areas, the burden is particularly high. At facilities where the payer mix is favorable, physicians are more likely to be paid for emergency patients. However, for hospitals where it is challenging to convince physicians to take call, paying for uncompensated care may be an alternative to paying a per diem rate. Hospitals who pay for uncompensated care reimburse physicians for services rendered to uninsured patients. Usually the payment rate is defined as a percentage of Medicare or Medicaid. This method assures physicians reimbursement for services rendered while taking emergency call coverage. MD Ranger subscribers have access to uncompensated care payment benchmarks that are published in our annual Call Coverage Report.

Check back next week for another alternative payment method for call coverage. In the meantime, if you have any questions about what call coverage alternative might be best for your facility, email our team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Alternatives to Call Coverage Per Diems

Before more stringent regulations around emergency coverage were passed in the 1980s (like EMTALA and other state laws), it was common for physicians to voluntarily take call as a requirement for hospital privileges and as a means of growing their private practices. With the growth of hospitalists and large multispecialty medical groups, the benefit of ED coverage has diminished. Additionally, physicians are acutely aware of the increasing numbers of Medicaid and uninsured patients in emergency rooms. This has contributed to fewer physicians being willing to take voluntary call, leaving hospitals no other choice but to pay physicians for coverage to meet regulatory requirements and patient needs.

Over the past decade, spending for physician expenditures as a percent of total hospital operating expenditures has grown over 40% according to OSHPD data. Our data show that the typical hospital spends more than two and a half million dollars per year on coverage. Costs will escalate when a hospital starts to compensate one specialty, which will create a domino effect with others.

Increasing Cost of California Physician Expenditures Graph

It is not uncommon for hospitals to experience a cascade effect once they start compensating for call coverage. However, it is generally not commercially reasonable to pay for all services. For example, 75% of hospitals report paying for general surgery while only 3% of hospitals report paying for podiatry call coverage. Just because a physician asks to be paid, does not mean it is commercially reasonable or necessary to pay. Navigating these negotiations can be difficult if the relationships are highly political or tenuous.

Percent Paying for Call Coverage Graph

Despite the increasing pressure to pay for emergency coverage across multiple specialties, it is possible to find middle ground with physicians on this issue that addresses the physicians' need to be recognized for the time and service and the hospital's need for coverage. Here are some suggestions to consider for your organization.

Ensure the Payment is Commercially Reasonable
Before you make any physician payment, whether it is a per diem or one of the alternatives below, determine whether paying for the service is commercially reasonable. A commercially reasonable agreement means that it is a common business practice for an organization to pay for that particular specialty and service. Establishing what's common generally takes market data, research, or a valuation. Despite the lack of a bright line, determining commercial reasonableness is an important first step before a payment rate is considered. If it's not reasonable to pay a per diem for a particular service but some sort of compensation is needed, you should consider alternatives.

Check back next week for another alternative payment method for call coverage. In the meantime, if you have any questions about what call coverage alternative might be best for your facility, email our team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Document Your Process for Physician Contracting Compliance

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

Document your process for compliance. Documenting compliance is essential for your compliance program; however, fair market value rate documentation can also facilitate negotiations. By demonstrating that you take compliance very seriously and that these efforts are protecting all parties, you will be well on your way to earning the respect of your colleagues across the table. You can find more information on how to document compliance here.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Consider the Economic Value of Exclusivity

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

If the agreement grants exclusivity, consider the privilege's economic value. It is well established that exclusivity—effectively a limited monopoly—has economic value. Not only is it a core principle of economics, federal regulators cite it specifically in the context of hospital physician contracting. There are two methods to estimate the value of exclusivity. One is to compare compensation between exclusive and non-exclusive agreements, which can be shown through market data. The other is to have a valuation expert measure cost reductions and economies of scale in a cost model of the practice of interest.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Consider Alternatives for Negotiation Conversations

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

Consider alternatives. Before entering a negotiation, prepare a list of alternatives, both for obtaining the service and paying for the service. Anticipating and responding to pushback will make a smoother negotiation process. Discussing alternative approaches can often yield savings or more efficient ways of achieving the same objectives, and provides an opportunity to discuss each party's objectives and challenges. The definition of fair market value includes the provision that "the price...between a willing buyer and a willing seller, neither being under a compulsion to buy or sell". A good fair market value evaluation will simulate what would result from an actual competitive process, even if there isn't one.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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If the Situation with a Physician is Complex, Document It

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

If the situation is complex, acknowledge it. Situational details (such as intensity of workload, payer mix, trauma status, etc.) may distinguish a contract from most other contracts within the same service. If that's the case and if these factors haven't been considered in the payment rate, you might be under or over paying. Agreements like these carry compliance risks—particularly if the service has a comparatively lower workload than the average contract in the market, or if your contract results in significantly more professional revenue. Not even the very best market data survey can cover all situations. Also, if it is an exclusive contract, such as for a hospital-based service, there are special considerations for the value of the franchise. Experience and judgment are important to assessing risk and knowing when to bring in an internal or external consultant to document compliance.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

allison

Consider the Scope of Services Provided

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

Consider the scope of the agreement, not just how much to pay. Hospitals and physicians often assume the scope of service should either be the same as the expiring agreement, or whatever the scope that the physician suggests. For example, a medical directorship contract might not carefully assess the number of hours of service, and instead focus negotiations on the hourly rate. Unsure what's appropriate for your service? Market data are available on the number of hours per year for more than 80 administrative and leadership positions, including ad hoc committees, quality initiatives, medical staff leadership and medical directorships. Providing your negotiating parties with objective information during negotiations helps to set expectations and ensure the final contract terms are within reason. If the situation legitimately warrants an exception, document your reasoning in the contract and keep track of hours for future audits.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Establish Objectives for Physician Contracting and Possible Compromises

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

Establish objectives and define how you can compromise. After you have a sense of contract payment rates and ranges, define the scope of work and expectations of the position and determine what you are willing to negotiate. Your negotiation objectives should be consistent with fair market value, as well as your hospital's overall financial commitments for physician services. Data are now available to allow a hospital to see how the cost of each contract fits into its overall physician costs, which can be particularly helpful for overall physician strategy.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Know What Reasonable Physician Contract Rates Are

Preparing for a physician contract negotiation? As you've likely discovered, these conversations take time and effort, and often go differently than anticipated. Discussing compensation, no matter how positive the business relationship may be, can present challenges.

Whether you are a hospital administrator negotiating with a key multi-specialty group, or an independent physician asking for increased call coverage pay, care preparation can help you achieve your desired outcomes.

Research. Know the reasonable payment rates for the specialty and the service. High quality market data is particularly helpful with this initial step. While you should be familiar with the entire range, MD Ranger recommends focusing your targeted rates between the 25th and 75th percentiles of market data. It is important to remember, while not everyone can get paid at the 90th percentile, statistically someone must be above the 90th percentile and someone must be below the 25th. 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 and trauma status can make a difference in the appropriate payment rate, as can national reputation and the credentials of a particular physician.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Exclusivity in Hospital-Based Contracts

Many if not most hospital-based agreements grant exclusivity. The OIG confirms that exclusivity has economic value in the following case study from the OIG:

"We are aware that hospitals have long provided for the delivery of certain hospital-based physician services through the grant of an exclusive contract to a physician or physician group, which includes management, staffing, and other administrative functions, and in some cases limited clinical duties. These exclusive arrangements affect the cash and non-cash value of the overall arrangement to the respective parties. Depending on the circumstances, an exclusive contract can have substantial value to the hospital-based physician or group, as well as to the hospital, that may well have nothing to do with the value or volume of business flowing between the hospital and the physicians. By way of example only, an exclusive arrangement may reduce the costs a physician or group would otherwise incur for business development and may eliminate administrative costs otherwise incurred by the hospital. In an appropriate context, an exclusive arrangement that requires a hospital-based physician or physician group to perform reasonable administrative or limited clinical duties directly related to the hospital-based professional services at no or a reduced charge would not violate the anti-kickback statute, provided that the overall arrangement is consistent with fair market value in an arm's length transaction, taking into account the value attributable to the exclusivity. Depending on the circumstances, examples of directly-related administrative or clinical duties include, without limitation: participation on hospital committees, tumor boards, or similar hospital entities; participation in on-call rotation; and performance of quality assurance and oversight activities. Notwithstanding, whether the scope and volume of the required services in a particular arrangement reasonably reflect the value of the exclusivity will depend on the facts and circumstances of the arrangement. "

The important bit to note is the bold sentence. So, now that we know that exclusivity has an economic value and the OIG cares about it, is there a generally accepted way to quantify the economic value? Unfortunately, no. However, here are three good approaches to handling the economic value of exclusivity:

  1. Have the FMV documentation (internal documentation or valuation opinion by consulting expert) recognize the exclusivity and that this has value
  2. Seek to negotiate a compensation level at discount or lower point in the FMV range— than would otherwise be the case
    1. Most ranges from the market approach will already include the discount for exclusivity
    2. Most ranges from the cost approach will not include the discount
  3. Include a discount in the range of 5% to 10% to reflect value of exclusivity

If you have questions about hospital-based contracts or exclusivity, email our team of experts at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Navigating Negotiations for Complex Physician Contracts

If the situation is complex, acknowledge it.

Situational details (such as intensity of workload, payer mix, trauma status, etc.) may distinguish a contract from most other contracts within the same service. If that’s the case and if these factors haven’t been factored in to the payment rate, you might be under or over paying. Agreements like these carry compliance risks—particularly if the service has a comparatively lower workload than the average contract in the market, or if your contract results in significantly more professional revenue. Not even the very best market data survey can cover all situations. Also, if it is an exclusive contract, such as for a hospital-based service, there are special considerations for the value of the franchise. Experience and judgment are important to assessing risk and knowing when to bring in an internal or external consultant to document compliance.

Want tips on a complex a contract from an expert? Call our office at (650) 692-8873.

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Factors to Consider in Emergency Contract Negotiation

Emergency medicine contracts are for the professional staffing and physician oversight of hospital emergency departments. High volume and high census hospitals and more likely than lower volume hospital to pay for medical directorship services. Many emergency medicine contracts include not just emergency room call coverage, but also urgent care and employee health services.

Key factors to consider in negotiating your next emergency medicine hospital-based contract:

  • What is the annual volume of visits?
  • Is this a designated trauma center?
  • What are the collections per required full-time equivalent physician? How do collections compare with industry benchmarks for collections and compensation per FTE physician?
  • What is the average wait time for patients?
  • How many physicians are required to be in-house at any given time?
  • Are physician extenders used for supplemental staffing?
  • Is the proportion of Medicaid, Medicare, or unsponsored patients extremely high or low?
  • Does the scope of service include multiple sites or multiple levels of care, such as urgent care or occupational health?

Have questions about your facility’s emergency medicine contracts?  Email our team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Key Considerations for Radiology Contracts

These contracts provide for professional staffing and administrative oversight of imaging services for both inpatient and outpatient services. Some agreements include interventional radiology, mammography, and freestanding imaging centers. Volume-related benchmarks include total net annual payments excluding medical direction in ratio to the total number of imaging procedures at the associated facility.

About thirty percent of contracts include payment only for medical direction. Payment of stipends, and the amount of stipends, appears to increase for smaller facilities or those with low average daily census.

Key factors to consider in radiology contract analysis:

  • Is the proportion of Medicaid, Medicare, and unsponsored patients extremely high or low?
  • What are the collections per required full-time-equivalent physician? How do collections compare to industry benchmarks for collections and compensation per FTE physician?
  • Is there a 24-hour emergency interventional radiology requirement?
  • Is in-house staffing required for more than 8 hours per day or 40 hours per week?
  • Is there a teleradiology service, and who pays for it?

Want to know more?  Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Multi-Campus Physician Call and Administrative Contracts: Impact on Payment Rates and Time Requirements

MD Ranger data strongly suggests the benefits of multi-facility physician contracts as an important strategy for controlling costs. Although payments to physicians whose duties span multiple facilities are higher than single facility contracts, they are less costly than separate, individual facility arrangements when the duties are assigned to a single physician.

The frequency of multi-campus arrangements with a single physician or medical group appears to be growing. In 2014, approximately 8% of multi-facility call coverage and 10% multi-facility administrative contracts among MD Ranger subscriber contracts covered more than one facility

When two facilities in the same health system are physically nearby and when the emergency department volume is such that the call burden for one physician is not overwhelming, it is possible to have one physician covering both facilities. After analyzing the MD Ranger database, we have found that adding a second campus to one coverage position increases the cost of a single agreement by 26%.

MD Ranger analysis found that although there is no significant difference in the hourly rates of pay for physicians with multi-facility administrative/medical directorship positions, there is a significant difference in the number of hours required for multi-campus arrangements and in the annual payments. These findings apply to hospitals with more than one campus, whether as a distinct licensed facility or a single consolidated license with emergency departments on different campuses. We have found that, on average, a single physician contract for the same services across two campuses costs 37% more than a single campus position. Each additional campus commands an average 10.7% increase in the number of hours up to five or more campuses.

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Document FMV Compliance

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Document compliance.

Benchmarking a contract for FMV documentation isn’t the end of the process. Your organization needs a systematic approach for the archives and audits. Organizations often approach compliance documentation differently. As long as a consistent process is in place and is followed methodically for every new contract, you can avoid costly and time consuming challenges in the event of an audit. MD Ranger subscribers develop a system which integrates predetermined distribution ranges and MD Ranger’s online reporting functionality to show proof of adherence to regulations. These reports outline critical information from the physician contract, most importantly the rate and proof that the rate is within FMV. Usually, a responsible executive signs off on these documents for the organization’s records.

If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Use Market Data to Document FMV

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Use the market data to document FMV.

Your compliance team should develop a standardized process for determining what is considered a ‘safe’ benchmark for FMV documentation at your organization. Systems using MD Ranger often select a threshold payment benchmark, e.g. the 50th or 75th percentile, beyond which a request to a higher administrative or corporate review is required. We believe each organization should decide how to determine what system makes sense for their circumstances.

Organizations often adopt a ‘stepwise’ approach to FMV documentation, starting with the most basic ‘all hospital’ benchmarks for hours, hourly rates and annual compensation for directorships or per diem rates for call, and allowing further refinements by specific hospital characteristics when needed.

Check back next week for the sixth step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Apply Market Data to Find Appropriate Physician Payment Ranges

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Apply the market data to find an appropriate payment range.

Once you have determined that it is commercially reasonable to pay a physician and you have found the most appropriate benchmark, you can proceed with using market data to find a range for the rate. Straightforward call coverage, administration, and medical direction payment rates can be determined using market data in most cases. For more sophisticated hospital-based agreements, market data is a great place to start for budgeting and planning. A more robust analysis could be required for these complex arrangements.

MD Ranger provides benchmarks for many facility characteristics – including hospital size, trauma/non-trauma, urban/rural, average daily census, Medicare disproportionate share, and payer mix. MD Ranger also offers specific benchmarks for a broad range of administrative positions, call coverage, and medical staff officer positions, as well as meeting attendance and ad hoc services such as IT/EHR and quality initiatives. These data slices allow you to precisely match your contracts with market data, to get insight into your payment levels and to provide reliable FMV documentation.

Check back next week for the fifth step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Factors to Consider in Determining Commercial Reasonableness

We always say that before you ask yourself what to pay for a contract, you should determine if it is appropriate to be paying in the first place.  This notion is called commercial reasonableness.  Many of our subscribers struggle with how to document commercial reasonableness.  While CMS and Stark law provide their thoughts on commercial reasonableness, the IRS provides a list of factors to consider in determining whether it is commercially reasonable to pay:

  1. “The nature of the employee’s duties;
  2. The employee’s background and experience;
  3. The employee’s knowledge of the business;
  4. The size of the business;
  5. The employee’s contribution to the profit making;
  6. The time devoted by the employee to the business;
  7. The economic conditions in general and locally;
  8. The character and amount of responsibility of the employee;
  9. The time of year when compensation is determined;
  10. The relationship of shareholder-officer’s compensation to stock holdings;
  11. Whether alleged compensation is in reality, in whole or in part, payment for a business or assets acquired; and
  12. The amount paid by similar size business in the same area to equally qualified employees for similar services.”

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Check the Scope of Services in Physician Contracts

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Determine if the scope of services match the scope of services described by the benchmark rates.

Everyone knows that if you’ve seen one physician compensation agreement, you’ve seen one physician compensation agreement. Though no physician contract is alike, it is important to compare positions to like positions. Seemingly small differences between positions could have an impact on rates. A good example is comparing a physician who is restricted while they are on call to a benchmark that includes both restricted and unrestricted positions (i.e. restricted from doing surgery while on call). The burden of taking call that is restricted is typically higher, and often results in higher payment rates.

Likewise, if the duties for a medical directorship require more hours than benchmarks suggest, carefully document the basis for the additional hours through historical time records or schedules for meeting requirements, training, etc. Certain types of administrative roles have broad ranges of required hours depending on their scope. For example, a quality initiatives or EHR champion may require more hours than the committee chair for a single quality initiative, particularly during an implementation period.

If you find that the market data does not have a similar scope of service, you may want to consider a full-scale valuation to ensure the new contract is FMV.

Check back next week for the fourth step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Paying for More Physician Administrative Positions Than You Think?

Because MD Ranger collect holistic data from hospitals, we are able to report the number of paid administrative positions by service.  While many services within a hospital necessitate only one paid administrative position, sometimes the hospital structure or the specific service dictate a need for more than one paid position.  If you don’t have justification for having multiple paid administrative positions, it may not be commercially reasonable to pay.  This could be a compliance red flag.

In the graph below, we can see that 45% of MD Ranger subscriber facilities pay just one administrative role for pathology while 32% have two paid positions, 18% pay three positions, 3% pay four positions, and 2% of facilities pay five or more positions.

Blog-7.8.2014-Graph

Where does your facility fall in this pie chart?

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Track All Physician Payments, Individually and in Aggregate

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Take into account all payments made to each physician, as well as your organization’s overall strategy for physician compensation.

If the physician you are considering compensating is already being paid several medical director stipends, reconsider whether all payments are necessary. Review his or her overall payments to ensure the total amount paid is reasonable. Additionally, MD Ranger recommends that organizations benchmark how much they spend on physician services in total and by specialty. Monitor increases in physician spending, particularly if your organization spends more than your peers, to help identify potential compliance issues. MD Ranger has aggregated data useful for this type of benchmarking. Its Total Facility Payments reports detail how much hospitals pay for physician services, broken down by attributes like service and hospital demographics. Also available through MD Ranger are summary tables on total number of positions reported by each hospital. This is particularly helpful when determining whether or not you have too many medical directors.

Check back next week for the third step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Test for Commercial Reasonableness

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Test for commercial reasonableness.

Before you consider using market data or an FMV opinion, decide if it is commercially reasonable to pay for the service in the first place. Market data can be used to help answer this question. MD Ranger collects comprehensive physician contract data from subscribing hospitals, making it possible to publish the Percentage of Subscribers Who Report Paying for a Service table. This table shows how common it is for a very large group of hospitals, representing thousands of physician contracts, to pay for specific services. For example, 75% of subscribers report paying for general surgery call coverage, making it one of the most common services to compensate for emergency coverage. Conversely, only 11% of hospitals report paying for infectious disease.

If your organization is considering paying for a service that’s commonly unpaid, you should determine why you need to pay and what is the appropriate method and amount of payment. A higher level of documentation of the negotiation process and reasons for payment should be included in your files. Reasons such as very limited panel size and adverse payer mix may dictate the need for payment, but it is important to document those reasons in case of an audit.

Check back next week for the second step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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MD Ranger’s 2014 Reports: Total Hospital Spending

Because of MD Ranger’s unique holistic approach to collecting a hospital’s contract data, we can report the total amount that hospitals are spending on physician compensation contracts.  While we recognize that every hospital is unique, these benchmarks allow you to identify if your facility is spending in the same ballpark as other similar hospitals.

There was only slight decrease from 2013 to 2014 in terms of the median payments across all hospitals for call coverage.  In 2013 call coverage spending represented 66.7% of spending on contracted physician spending whereas in 2014 it represented 63.3%.  Even with this decrease, we can agree that $2.4 million for call coverage contracts is no small number.

The percentage of spending on hospital-based contracts increased slightly from 11.4% in 2013 to 14.6% in 2014 while direction and administration contracts held steady at about 11%.

Blog-Grpah-6.17.2014

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MD Ranger’s 2014 Reports: Incentives Growing?

Last week, we released our 2014 Reports.  One observation we made is that the number of hospital-based contracts with incentive components grew from 10% in 2013 to 21% in 2014.  We wondered in October of 2013 if incentives were a growing trend in physician contracts.  We thought it might be a good time to revisit this question with fresh data.

Of the contracts with incentives, the number with quality components of incentives are down compared to 2013 (62% in 2014 versus 86% in 2013) and have been edged out by other components (66% in 2014 versus 48% in 2013) as the most common metric in determining incentive payments.  Cost components of incentives remain unchanged (31%) while patient satisfaction components were down slightly (60% in 2013 to 52% in 2014).

Blog-graph-6.3.2014

Do you need help benchmarking your hospital-based agreements?  Email me at This email address is being protected from spambots. You need JavaScript enabled to view it. and I’d be happy to assist.

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Signs Your Physician Contracts are Risky

We’ve stumbled on organizations we suspect have major physician contract compliance issues.  What are the clues that give away these hospitals?  Here are some red flags that suggest your organization take a closer look at physician contracts.  

Always assuming youneedto pay physicians.

Hospitals that never push back on physicians that ask for payment when it’s perhaps not warranted are at risk.  Just because a doctor demands payment for call coverage doesn’t mean she should receive it. You must ensure the request to compensate a physician is commercially reasonable, and back it up with data or a valuation.  Saying no to a physician is never easy, however, improper payments can expose your organizations to potential Stark or AKB violations.  Explore alternative ways to compensate beyond a “per diem” payment with physicians, if it’s a call pay issue.  Considering an unsponsored payment rate to make up for a poor payer mix.

Negotiating consistently high rates across all types of physician specialties and services.

As you audit your contracts, you may start to see trends.  A trend that you don’t want to see is consistently high rates.  There might be good reasons to have rates on the higher side, though never as a trend.  If you are in the beginning stages of a compliance program, review all your physician contract rates and determine where in the market data each one falls. Consistently high rates might need revision or a plan to lower rates.

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Rural Hospital? Here Are Some Things to Consider for Your Unique Physician Contracting Situation

Being a rural hospital brings unique challenges and opportunities.  Most rural hospitals operate with limited resources, smaller budgets, and poor payer mixes.  CEO’s of these facilities tend to be shorter staffed than their urban or suburban peers, and often have physician recruiting, relationships, and contracting under their purview.  What should rural hospitals keep in mind while partnering with physicians?  Here are some thoughts from us:

  • Always establish that compensating for coverage is commercially reasonable.  This is particularly important when you are struggling to find a physician to take emergency call, and unfortunately many rural hospital executives find themselves in this position.
  • However, just because it’s difficult to recruit a physician or pull together a call panel doesn’t mean you can pay a doctor whatever they demand.  Unless you are entering an employment agreement with a physician, paying her fair market value for taking call still applies.  When trying to establish the best rate, consult market data that can be drilled down to rural/urban status.
  • Having high quality, objective market data at hand will strengthen your position when in negotiations.
  • Invest as much time as you can to create a straightforward and efficient way to handle physician contracts and document FMV.  Not only will it help your organization understand how much it is paying physicians for these types of services, it will also help in case of an audit.

Attending NRHA’s annual conference in Vegas this week?  Check out MD Ranger at Booth 332.  We want to learn more about your physician contracting challenges.

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Make Physician Contracting Efficient: Prepare in Advance and Use Market Data

Physician contracting and documenting FMV doesn’t have to be an expensive headache. 

Prepare for negotiations at least three to six months in advance.

Knowing the timing of negotiations across the year is essential to keeping your physician contracting process running smoothly.  If your staff proactively manages upcoming contract renewals, you will have the upper hand in negotiating more advantageous contracts.  If you know the scope of payments across your organization in advance, you can prioritize contracts, set budget goals, and conduct informed negotiations.

Use market data and tools to quickly segment contracts and document FMV.

The most efficient organizations use high-­quality market data to identify market ranges for physician contract rates, saving consultants for complex or unique situations.  If you segment your contracts in advance, you can plan and budget for ad hoc FMV while using market data for straightforward agreements.  Systems can gain even greater value by setting standards and processes for contract rates.  Some benchmark systems, such as MD Ranger, provide contract-specific reports that summarize a specific contract to the appropriate benchmarks for use in review and documentation processes.  Do your research, and feel confident that your method will support good decision-­making.

Click on the image below to see how MD Ranger can provide specific contract documentation.

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What Specialties are Least Likely to Be Paid for Call?

This month, we’ve discussed call coverage topics at length.  Given that physician contracting dollars are, on average, 4-6% of a hospital’s operating budget (excluding employed physicians), providing emergency coverage is a huge expense.

Hospital administrators must be very careful when it comes to coverage spending, because it adds up quite quickly across your medical staff. Deciding whether or not to pay at all could be the most important decision you make, not what per diem rate you’ll pay.

What specialties are the least likely to be compensated for call?  Check out the graph below, where we’ve outlined the top ten services that most commonly are not paid for emergency coverage they provide. Why is this important? Establishing commercial reasonableness is the critical first step in your physician contract compliance process, and the services below might not be commercially reasonable to pay (further analysis is suggested). Click on the graph below to see more details about the specialties.

Least-Likely-to-be-Paid-Graph

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Make Physician Contracting Efficient: Create or Review Your Compliance Process

Physician contracting and documenting FMV doesn’t have to be an expensive headache. 

Create or review your physician contracting process.

If you are starting from scratch and want to create a functioning physician contract compliance process, the new year is an excellent time to do so.  As you assemble your team and your organization’s contracts, define how your organization will determine and document fair market value.   Do you employ external consultants?  Does your team produce internal FMV documentation?  Whatever method your organization decides, document it and stick to a consistent method. If using market data, or a product like  MD Ranger, decide when outside help is needed and define those circumstances as best you can.  Depending on your resources, there are many methods for lowering FMV costs.

Click on the image below to see how MD Ranger provides easy contract by contract analysis.

Pic-4

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Make Physician Contracting Efficient: Empower Your Staff

Physician contracting and documenting FMV doesn’t have to be an expensive headache. 

Empower a member of your staff to manage the process day-to-day, and designate an executive responsible for strategic leadership decisions.

Given the complexities of physician contracting, designating someone on your team to handle data, contract management, and documentation of FMV is a solid investment. Without staff involvement, it is easy for contracts to slip through the cracks, creating a situation that could bring major compliance issues to your organization. While this person might not handle physician contracts full time, she should have access to internal contract data, benchmarks, or market data to support decision­-making, a tool to help her view and organize contracts, as well as a process to document FMV and compliance.  She should have a reporting relationship with the director or executive responsible for physician contracting at a senior level. Having an executive in charge of all physician contracts who annually reviews costs and renewals will provide greater control over this major cost category.

MD Ranger provides the tools and executive reports that make periodic facility-wide reviews simple; click on the image below to see more.

Pic-2

Smaller organizations may designate the CEO or CFO to lead; organizations with more resources may choose to place physician contracting under compliance or legal. Whomever your organization chooses, it is critical that the executive be aware of federal regulations and penalties for non-­compliance. They should also oversee the compliance and documentation process. If an audit occurs, an executive will need to be very familiar, comfortable, and confident with the compliance process.

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Make Physician Contracting Efficient: Organize Your Contracts

Physician contracting and documenting FMV doesn’t have to be an expensive headache. 

Make sure your physician contracts are all in one place, organized by expiration date.

When hospitals have dozens of physician contracts that renew throughout the year, keeping organized is critical for successful and timely renegotiations. If your hospital or facility doesn’t have a contract management system that allows easy retrieval, review, and analysis of physician contracts, consider getting one. This can help to automate the renewal process quickly.  Using your contract management system to analyze your data will help you understand the scope of physician services you’re currently paying for, as well as identify potential gaps or duplicative services.  MD Ranger provides comprehensive and summary reports and hospital-specific benchmarks to allow you to see contracts and costs across the entire organization.

Click on the image below to take a closer look at MD Ranger’s physician contract management system.

blog-picture-1

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Must-Read Tips for Physician Contract Negotiations

Are you preparing for what may be a difficult negotiation with a medical group or physician for either a new service or a renewal of an existing agreement? Here are some quick tips to help things move along smoothly:

 

1.      Establish a negotiating objective.  Know the market range that is applicable to the service of interest.  Consider the entire market range, in particular the range between the 25th and 75th percentile.  Remember: “Not everyone can get paid at the 75th percentile.”  Enter the negotiation with a quantitative negotiating objective in mind.  The objective should be consistent with fair market value, as well as your hospital’s overall financial resources.  Data are now available to allow a hospital to see how the cost of each contract fits into its overall physician costs, which are a part of MD Ranger’s Total Hospital Spending Benchmark Reports.

2.      Take care to avoid relying on market data alone when the situation is complex.  The metrics of the service (such as intensity of workload, payer mix and professional revenue, etc.) may distinguish the contract in question from the contracts reflected in the market data.  If that’s the case, unbeknownst to you, could result in an “apples and oranges” comparison.  This could cause compliance risks—particularly if your contract has significantly less intense workload than the contracts in the market benchmarks or if your contract results in significantly more professional revenue than are in the contracts in the market benchmarks.  Not even the very best market data survey can cover all situations.  Care and experience are required to avoid this risk and to know when to undertake a different approach  with the help of a valuation consultant or an internal expert.

3.   Demonstrate and document that alternatives have been considered.  Even if you would much prefer to wrap up the negotiation quickly, advise your counterparty that you need to at least consider alternatives.  In only a fraction of agreements is there a RFP or other competitive process.  Remember that the definition of fair market value includes the provision that “the price …between a willing buyer and a willing seller, neither being under a compulsion to buy or sell…”[1]  A good fair market value evaluation will simulate what would result from an actual competitive process.

4.      Consider what scope of service you want to contract for, not just how much to pay.  Often, hospitals assume that the scope of service is either the same scope as in the expiring agreement or that it is the scope that the physician or group tells you should be provided.  In the case of a medical director position, for example, this could mean that the number of hours of service is not carefully assessed and the focus of the negotiations is on the hourly rate.  However, there are now market data available on the number of hour per year for most medical director positions.  This can provide you with objective basis to make sure the number of hours is unusually high—without a particular situation-specific exceptions.

5.      Document your process for assuring compliance.  Documenting compliance is essential for your compliance program, as our compliance materials (link to compliance page) at MD Ranger echo.  However, documentation of paying a fair market value rate can also come handy during negotiations.  By demonstrating to physicians that you take compliance very seriously and that these efforts are not only protecting your hospital but also protecting them, you will be well on your way to earning physicians’ respect (if you haven’t already).

6.      If the agreement grants exclusivity to the group, consider and estimate the economic value such a provision.  It is well established that exclusivity—effectively a limited monopoly—has economic value.  Not only is it a core principle of economics, federal regulators cite it specifically hospital physician contracting.  There are two methods to estimate the value of exclusivity.  One is to compare compensation between exclusive and non-exclusive agreements.  Data now exist to measure this, available through MD Ranger.   The second is to have a valuation expert measure cost reductions and economies of scale in a cost model of the practice of interest.

Need help before a tough negotiation?  Email me at This email address is being protected from spambots. You need JavaScript enabled to view it., and I can help.


[1] Estate Tax Reg. 20.2031.1-1(b); Revenue Ruling 59-60, 1959-1, C.B. 237

--Michael

Key Considerations for Pathology Contracts

Pathology agreements with hospitals are for professional staffing and physician oversight of both anatomic pathology and clinical laboratory services. The clinical laboratory service may include “outreach” laboratory services as well.  Note that outreach services often compete with commercial laboratory firms, providing services to physicians’ offices, industry, long-term care facilities or other entities thus encompassing a broader scope of service than a hospital-only service.

MD Ranger collects information on volume-related benchmarks that include total annual net payments excluding medical direction in ratio to the total number of anatomic pathology cases. We note that a large proportion of MD Ranger pathology contracts pay for medical direction services only.  Payment of stipends, and the amount of stipends, appears to increase with a higher percentage of government payers.

Key Factors to Consider in Contract Analysis

  • Is the number of surgical cases below 2,500 per year?
  • Is there an outreach laboratory, and if so, do the tests from that service represent more than 30% of total tests?

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