Using Market Data for Commercial Reasonableness in Call Coverage Agreements

MD Ranger published our new physician contracting benchmarks for 2017 in April, and since then we’ve analyzed the more than 28,000 contracts in our database to highlight the key takeaways from our release. In this post, we’re going to focus on looking at which specialties are most likely to be paid call coverage and how that information can be used to evaluate commercial reasonableness.

When figuring out if it is commercially reasonable to pay call coverage for a given service, it’s important to consider how frequently other, similar organizations are paying for the service. One slice of data that proves useful in this analysis is MD Ranger’s benchmark for the percent of subscribers who report paying call for specialties. For example, if you discover that only 2% of hospitals are paying for podiatry call coverage, you may need to rethink paying call for that service at your own organization or to document why the situation warrants the unusual arrangement, given the compliance risk.

Most Likely Paid Specialties for Call Coverage

As you can see, Orthopedic Surgery is the specialty most likely to be paid call coverage, and it has featured as a constant in the top 5 most paid specialties over the past several years. In fact, all of our most likely to be paid specialties, including General Surgery, Urology, Obstetrics/Gynecology, and Neurology, were in the most likely paid services in 2016 reports as well.

The stability of these services remaining in the top 5 year over year shows that hospitals are not being forced to significantly alter which services they are paying for call coverage. This stability allows compliance professionals to feel confident in evaluating new call coverage contracts for commercial reasonableness by using MD Ranger’s percent paying statistic.

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Reasons Your Physician Contracts Need Long-Term Attention

By Pascale Dargis, guest blogger from Ludi

Physician contracts have a variety of nuances that make it difficult to manage them over time. From a compliance standpoint, this means that even if the agreement has been properly written and signed by all necessary parties, there is still a lot of maintenance work to be done until the agreement expires. Here are the ways in which these living documents should be better managed once they’ve been co-executed.

Request and review time log submissions. The agreements should clearly outline a process for physicians to submit their time. It can be done on a templated piece of paper or excel file, but ideally it will be done through an application that can be used in real-time. The contract should say how often the submissions of time should be made. This makes it easier for all levels of approval to review the details of the submission with the details in the original document. Without these submissions, it’s impossible to know if a physician is being paid correctly and on time. This process should occur on a realistic schedule, but should take place until the contract ends.

Understand and approve duties. Any lawyer will tell you why it’s critical to clearly define duties within an agreement. This is great practice and helps all parties understand the functional role a physician will be working on. Duties can, however, be a double-edged sword since they are 100% necessary, but can be so complex, it’s nearly impossible to verify and pay out correctly. For example, let’s take an on-call agreement.

If a physician receives one payment amount to be on-call during weekdays and is paid a higher amount during weekend shifts, how is this being reconciled using the time log submissions? If the approval process is to review the original agreement next to the time log and also look at the on-call calendar to verify the physician actually worked that day, there is a lot of room for error but also for improvement. Simplifying duties to better manage them over time will help immensely, though they still need to be submitted on a time log and adjudicated for payment.

Make more accurate payments. Treating physician administrative agreements like living documents will without a doubt make your payments to physicians more accurate. If you’re going through the appropriate approval process using the original contract alongside time logs and accurate duties, the math becomes simpler.

Have a defined ‘audit trail’. By simply including the request for a time log submission, your organization is building up a ‘paper trail’ that can be tied back to the original contracts and can be used to in case of an audit, but also to think through the kinds of changes you can make to agreements. An example here might be that a physician receives a monthly stipend payment for 10-hours of work, however he continuously submits 8-hours on average. Perhaps a determination would be to amend the original agreement so that only 8-hours are being paid to the physician for his time.

Revisit the Fair Market Value. When you negotiated the contract, hopefully, you documented that the payment was FMV for the services being provided and considering your organization’s characteristics. As part of treating the arrangement as a living document, as the needs for physicians change, be sure that the contract still fits within the FMV definition that was approved when the contract was put into place.

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If a Service Doesn't Implicate Stark Law, How Do You Determine FMV?

During a recent webinar, an attendee asked, "If a physician is providing a service that does not implicate Stark and anti-kickback, what is the best way to define FMV? Can a "willing buyer" really pay what the "willing seller" will charge?"

We ask our Founder and EVP Michael Heil to answer the question, here's what he said:

For any hospital-physician business relationship, it is best to assume that one or more of the legal standards that require assuring consistency with fair market value are always applicable. If the hospital is a not-for-profit entity, payment for any service or product cannot be greater than fair market value without violating tax law for non-profits (private inurement). For both not-for-profits and investor-owned organizations, there is a very high likelihood that either Stark or AKS, or both, will be applicable.

For a physician who leases real estate to a hospital or a physician providing accounting services to a hospital, payment greater than fair market value would violate Stark, AKS or both. Contracts with physicians from specialties that are not normally thought of as those who “refer” patients (for example, anesthesiologists) careful review almost always shows that they do or can refer patients. In the anesthesiology example, anesthesiologists refer business when they order ECGs in during pre-op evaluation or order pharmaceuticals during surgery. In order words, it is best for the parties to any hospital-physician business arrangement to assume that compensation may not be greater than fair market value.

The broad applicability of the need to assure payments are not greater than fair market value does not mean that a formal fair market value opinion needs to be obtain from a valuation expert for every arrangement. Reasonable judgment should be used to determine how to document compliance. For simple, incidental and/or low cost arrangements, a brief memo to file citing market data or documenting a bidding process may suffice. For most common and straightforward arrangements like medical directors and call coverage a high-quality market database like MD Ranger can be used to document compliance. For arrangements that are high-cost, complex and/or unusual, it is best to obtain a fair market value and commercial reasonableness opinion from an independent valuation expert.

The fact that both the buyer and seller are willing is not sufficient to establish that the amount paid is consistent with fair market value. All of the elements of the federal definitions (as shown below) must be met and meeting that test requires both judgment, data and analysis.

“the price at which the [service] would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of relevant facts.1

1 Estate Tax Reg. 20.2031.1-1(b); Revenue Ruling 59-60, 1959-1

... [T]he value in arm’s-length transactions, consistent with the general market value. ‘General market value’ means ... the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party ...2

2 42 CFR 411.351 (emphasis added)

--Michael Heil, CVA

Michael Heil is EVP and founder of MD Ranger. Prior to MD Ranger, he founded consulting firm HealthWorks, Inc., where he specializes in fair market value analysis and management consulting for hospitals and health care providers. Michael has 35 years of experience in health care management and consulting. He has served as president of California Shock/Trauma Air Rescue (CALSTAR) and in management engineering positions in industry and hospitals. Michael received a B.S. in Industrial Engineering from Lehigh University and a Masters degree in Hospital and Health Services Administration with distinction from the Graduate School of Business at Cornell University. He is a Certified Valuation Analyst in the National Association of Certified Valuation Analysts.

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Comparing Stark and the Anti-Kickback Statute

We often have users who get confused between Stark and AKS. Even those who are very familiar with the regulations sometimes forget which regulation is criminal and which is civil. Stark Law and AKS are often discussed in tandem. While the two have some similarities, there are also some key differences.

Comparing AKS and Stark


Anti-Kickback StatuteStark Law
Prohibits soliciting or offering anything of value for referrals to any Federal program Prohibits a physician from referring Medicare/Medicaid patients to an entity that has a financial relationship with that physician
Referrals from anyone (e.g. practitioner, supplier, facility) Referrals from a physician
Applies to a referral for any service or item Only applies to referrals for Designated Health Services1
Criminal law Civil law

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