Physician Compliance Tips You Can't Miss

MD Ranger has prepared a quick list of compliance tips for hospital and health system executives dealing with physician contracts for administrative, leadership, on-call, and hospital-based services. These tips will help shape a new physician contracting compliance program or refine an existing program. Apply them to create a successful compliance program to help prevent Stark and Anti-Kickback Statue violations.

1) Establish a rigorous contract management process and assign staff to oversee day to day management of your physician contracts.

Contract management may be straightforward in terms of processes and best practices, but the trick is ensuring proper execution and consistent application of procedures. Every compliance program should be incorporating the following contract management elements:

  • Have a contract for all physician arrangements (even non-monetary arrangements)
  • Organize your contracts by date, party, and expense
  • Alert your team to expiring contracts well in advance of expiration
  • Establish a renewal process that includes:
    • Reviewing or updating a contract
    • Checking the rate against relevant benchmarks
    • Negotiation strategy
    • Necessary approvals
    • Strategic contract management

It is also important to identify and prevent the development of silos that mask overall payments to individual physicians or groups for similar services. Contract management teams should work across the organization as a true cross-functional team so that there is a comprehensive appreciation of contracting costs.

2) Create a document that defines your physician contract compliance program and your process for establishing FMV.

In this document, describe the procedures for screening physician contracts and, most importantly, the steps you will take to ensure and document compliance for all physician financial arrangements. Within the document, outline:

  • Accountable executive(s)
  • Day-to-day staff and their responsibilities
  • Strategic goals
  • FMV documentation process
  • When to seek outside review

3) Communicate your compliance process with stakeholders and employees who are involved.

Ensure that there is an accountable executive for the program, and that they have communicated the compliance process to anyone involved in physician contracts. Encourage transparency, and follow up on any concerns expressed by staff.

4) Determine how you'll establish and document FMV and commercial reasonableness for physician payment rates.

We recommend having a discussion to define what's best for your organization while considering cost, consistency, and efficiency. Research your options for published benchmarks, tools, and consultants, within the context of your organization's goals and budget objectives. After you've made a decision, document your approach and record the step-by-step process.


  • Cost, efficiency, and scope of data (services, hours, percent paying, tools)
  • What percent of hospitals are paying for comparable services?
  • How many and how complex are your contracts?
  • What are your corporate, compliance, and cost reduction objectives?

The three options for establishing FMV are:

  • Market Data
  • Internal or external proprietary formulas
  • Internal or external ad hoc FMV opinions (valuations)

Options to document compliance:

  • Written FMV opinions
  • Contract-specific benchmark comparisons (for example, MD Ranger individual contract reports shown with market range and specific contract's rate)
  • Internal certification document with market data
  • Combination of the above

5) Analyze your contracts in aggregate to understand if you're overspending or consistently setting rates that are too high.

Use benchmarks to compare your organization's total expenditures to overall spending by peers. MD Ranger publishes data on total hospital spending annually by service for physician contracts and provides each of our subscribers with a report of their facilities' contracts and how they compare to our benchmarks.

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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.

    5Tips Bloggraph 4


  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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Five Questions to Ask Before Using Market Data

Many hospitals and health organizations choose market data to benchmark their physician contracting rates. It’s fast, reliable, and cost effective.

However, understanding and properly applying market data isn’t always straightforward. Below are five essential questions leaders should ask as they set rates or review physician contracts.

  1. Consider sample size and participant characteristics

    To be effective, market data should be based on an adequate sample size. OIG Stark guidelines suggest that market data should include a minimum of five providers. Some surveys interpret five providers to mean five individual physicians; however, MD Ranger takes a more conservative approach that results in a more robust data set. We only report benchmarks comprised of at least five different hospital owners/corporations, regardless of the number of facilities they own. This results in benchmarks based on larger, more diverse, and more reliable datasets for setting physician contract rates. Many of our benchmarks include dozens of hospitals that represent rates paid to hundreds of physicians. Regardless of the data source you choose, a large sample size with diverse participants is key.

  2. Is the data collected consistently and comprehensively, and is it routinely audited?

    Database construction and maintenance can mean the difference between accurate and inaccurate benchmarks. Does the survey firm have rigorous collection and verification standards, and do they audit reported data? How often do they survey? Do they survey a variety of physician and hospital ownership types? Is all of a facility’s contract data collected or only ad hoc data? Look for consistent reporting methods, comprehensiveness across specialties and positions, thorough explanations of statistical calculations, and readily available demographic information on hospitals reporting data. As a subscriber-based survey, MD Ranger collects all of a facility’s data, meaning we report on the percent of facilities paying for a given service, and we ensure that a variety of facility types are represented in our benchmarks.

  3. Are the most helpful, relevant statistics reported?

    If the most important statistics go unreported, market data can be misleading and difficult to apply. When you know what types of organizations are included within a particular data set, you can find facilities that pay physicians for comparable services. When you are looking at surveys, make sure the hospital characteristics that are reported influence payment rates. MD Ranger has found that the most significant factors influencing rates are trauma status, in-house coverage, and facility size. Urban and rural status can also make a difference. Additionally, reporting down to the most specific physician specialty is very important. Within surgical specialties, there is a huge variation in call pay, and some variation in medical director/administrative pay.

  4. What is the distribution of rates within the data?

    The distribution of payment rates can be revealing, depending on the attributes of the sample size and specific data set. When looking at a distribution of market rates, observe the variance in the data. If the distribution is fairly concentrated and there’s not much difference between rates, this could suggest that rates are very consistent across markets and facility types. However, even if quantile ranges are narrow, it doesn’t mean that there aren’t significant and meaningful outliers. In a robust data set the outliers don’t impact the range significantly; however, in a large dataset the facilities over the 90th percentile sometimes represent special circumstances that may be valid reasons for higher pay. Examples might include highly specialized or nationally recognized leaders or physicians with scope of services and hours that are significantly different. If there is a much larger distribution of rates, it could mean many things. If the sample size isn’t large and the rates are widely distributed, it could indicate poor quality data or disparate situations. If the sample size is satisfactory or even large, variation could indicate many things, from a less-competitive market to variations in the types of organizations included in the data.

  5. Am I comparing apples to apples?

    It is important to assess the comparability of market data to the job description of the benchmarks and your facility’s position. A broad dataset of specialties, directorships, and administrative positions allows better documentation of market rates. Leadership positions, such as chief of staff or EHR/IT implementation, often do not vary by specialty. Using a rate for a specialty-specific directorship might set a rate that is not fair market value. MD Ranger reports dozens of medical directorships and coverage positions as well as leadership positions and ad hoc positions such as committees, teaching, and quality initiatives--giving its subscribers the opportunity to make accurate comparisons.

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