Easy Ways to Improve Physician Contract Compliance

The OIG remains active in its pursuit of Stark compliance. Recent settlements and advisories offer a number of lessons to help shape effective contract compliance programs. Use these nine tips to thoroughly review your physician contract compliance process and policies:

1. Ensure each physician position or service has a contract.

Organizations must document all contractual arrangements with physicians, with payment terms set in advance that are unrelated to volume of services. This includes both compensated and uncompensated services. Work with administrators and chiefs of staff to ensure all contracted positions have signed agreements that include payment rates, defined services and time requirements, the expiration date, and a method for regular monitoring. Remember: even though the Stark Final Rule doesn’t mandate having a contract, you must have a signed arrangement in place, and it is still a best practice to have a formal contract.

Although call coverage agreements are expensive and often command the most attention, previous OIG settlements and Fraud Alerts demonstrate that special attention should be given to medical director, leadership, and other administrative services arrangements. If your organization is not documenting both commercial reasonableness and fair market value for administrative positions, you may be putting the organization at risk. Ensure that you have policies in place for determining FMV for all arrangements and for archiving the necessary documentation.

2. Store all contracts in a centralized location.

When you deal with hundreds, or even thousands, of contracts that renew throughout the year, organization is critical for successful and timely renegotiations and audits. If your organization doesn’t have a contract management system, obtain or make one. Create an automated process for renegotiation beginning three to six months before the expiration date. Decide on a consistent process for addressing and executing renewals across all contracts, including updated FMV analysis. Benchmark values change, and not always to the upside.

3. Develop a rigorous, consistent process for determining FMV.

How does your organization determine fair market value? Do you employ external consultants? Does your team produce internal FMV opinions and document methodology? Whatever method, document the rationale and approval process and stick to a consistent method. Some organizations use high-quality market data to determine FMV for most (80% or more) physician contracts, and tap into consultants to provide guidance for complex and/or high cost contracts that exceed a specified benchmark level. This method reduces FMV costs by reducing the number of individual FMV opinions. Do your research and feel confident that your method supports compliance best practices.

4. Create or update guidelines for handling exceptional agreements.

When your organization determines it must compensate a physician above your standard for fair market value, create a standardized process for reviewing such exceptional contracts. Stark doesn’t prohibit paying physicians above a certain threshold, but organizations must have justification for the rates. When developing a step-by-step process to address exceptions, have specific goals in mind.  What criteria define a true exception? How do you enforce that definition? Who needs to sign off on exceptions? What happens to renewals? Most strong compliance programs require senior executives to sign off on exceptional agreements and many require board approval or at least review by an executive or finance committee of the board.

5. Designate staff responsible for daily management of physician contracting.

Given the complexities of managing physician relationships and contracting, designating a point person on your team to handle contract management, documentation and the approval process is a solid investment. While this person may 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 them view and organize contracts, and a formal process to document FMV. They should also have a reporting relationship to a senior executive.

6. Keep abreast of Stark and Anti-Kickback enforcement actions and regulations.

Stark is a strict liability statute, meaning you don’t have to intend to violate the law to be held liable. Many organizations unfortunately aren’t aware of the regulations' intricacies or severe penalties. Not only are monetary penalties high, but failure to comply can mean loss of Medicare reimbursements. CMS audits are extremely costly and can run into the millions of dollars for penalties and fees.

7. Educate physicians, as they too are at risk of potential violations.

Starting in 2015 with the Yates Memorandum, the OIG made it clear that physicians are also at risk for noncompliant arrangements. The OIG published a Fraud Alert which warns physicians that they could take on personal risk under the Anti-Kickback Statute for noncompliant compensation arrangements.

8. Audit all contracts and the internal review process annually.

An annual audit of contract compliance will identify potential patterns of noncompliance or outliers that have not been properly documented for fair market value or commercial reasonableness. The audit process should include a review of key contract terms and timesheets as well as the approval and compliance documentation process. A good contract management system or comprehensive benchmarking tool can simplify the audit process, particularly if it compares the terms of your contracts with external benchmarks.

9. Get into the OIG’s mind: review recent CIAs.

If you are overwhelmed by physician contracting compliance, or are unsure what elements are essential in a good compliance process, a great way to create structure is to review requirements outlined in recent corporate integrity agreements (CIAs). CIAs are the settlement agreements reached between the OIG and a noncompliant provider that outline the steps required to remedy violations. CIAs are often the best and clearest means of interpreting Stark regulations and they can be used to help structure a well-functioning contract compliance program and contract terms that may prevent future issues with improper payments.

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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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Considerations for Paying Medical Staff Officers

Every hospital has a medical staff that functions as an indispensable partner in quality oversight, credentialing, accreditation, and operations. The medical staff elects officers to represent its physicians. Payment for medical staff officers varies by facility and position. Although historically positions were funded by medical staff dues, a growing number of hospitals are paying, or splitting the cost of stipends with the medical staff, at least for Chief of Staff positions--an acknowledgement of the time commitment required. Such payments are subject to the same FMV requirements as other physician contracts, yet few benchmarks are available to document market rates.

The medical staff typically makes the decision to pay or not to pay its officers. Historically, positions were voluntary or modest stipends were paid from medical staff dues. However, many factors account for the trend toward higher payments and requests for the hospital to help fund the positions.

A major factor in higher payments is increased time demands of the positions. Joint Commission requirements for review of physician credentials and outcomes, technology and quality initiatives, peer review, dispute resolution, and board and committee responsibilities have all grown while the pool of physicians interested in committing significant time to non-billable duties has fallen.

Another factor is the growing divergence of hospital-based medicine from community/office-based medicine. The traditional role of the medical staff as a social structure and source of referrals and cross-consultations is transitioning as medical groups get larger, inpatients are managed by hospital-based specialists, and insurers or medical groups dictate referrals.

Lastly, economic factors, including lower reimbursements, larger group practices with productivity incentives, more part-time and employed physicians, and competing internal governance demands of a practice are likely reducing the pool of physicians interested in committing time without reasonable payment for their time. More physicians are reluctant to volunteer and run for office if it results in lower revenue and fewer patients, or if duties impinge on either clinical or after-hours activities.

When to pay for a leadership position

As with other physician contract payments, the first question is always, “Is it reasonable to pay for this position?” There are no hard and fast requirements for payment unless the facility’s Medical Staff Bylaws specify payment. However, if finding volunteers to run for office is a challenge, or if the duties of a position involve a significant time commitment that can reasonably be expected to impact a physician’s clinical practice, payment may be justified. Adopting a formal hospital policy that defines which positions are paid and the formula for payment that also is endorsed by the medical staff is advisable. Among MD Ranger subscribers, chiefs of staff are more frequently paid than other positions, hence it may not be necessary to pay for all medical staff officers, or extra documentation may be needed when payment is requested.

Sometimes, a specific initiative or issue, such as a medical staff merger, a major quality initiative, or Electronic Health Record implementation, may warrant a higher than normal payment. Hospital size and complexity also may impact the need for pay and amount of payment. Documentation of the particular circumstances, background, and demands of the position are essential to a strong compliance program.

For certain positions, the time commitment could result in the equivalent of very low or very high estimated hourly payment rates if a fixed stipend is paid. All payments to physicians that are made by health care facilities should comply with Internal Revenue Service, Stark and Anti-kickback rules. Therefore, documentation of the time commitment, commercial reasonableness and FMV of the payments is essential.

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Market Conditions Contributing to Commercial Reasonableness

When it comes to market conditions contributing to commercial reasonableness, some contributing factors are organization-specific, but others are influenced externally.

Six typical factors that play a role in determining commercial reasonableness are to:

  1. Determine the duties and responsibilities of the physician.
  2. Consider the physician's background and experience, as well as her knowledge of the business.
  3. Does a physician have to perform the service, or can it be done by another clinician or professional?
  4. Is it necessary to have a physician of a certain specialty in the position?
  5. Consider the economic conditions of the marketplace.
  6. Is this a service that hospitals typically pay physicians to provide?

The first four factors can be handled internally. People within your organization are best equipped to address the scope of the position and whether a given physician is qualified. You may find that for whatever reason, it is necessary to pay for a position. However, the last two points above are external factors outside the organization's control, and may strongly influence the need to pay for a position in question. Benchmarking can be a powerful tool to understand the market and determine answers to these questions.

Economic Conditions
Physician demand should be a factor in determining commercial reasonableness for particular positions. Overall economic conditions are not something you can control, yet it is important to be in tune in order to know when you may need to pay more to align with high-quality physicians. Consider what type of hospital you are, and how that affects physician payments. For example, if you are a trauma center and have more strict requirements for emergency coverage, paying physicians to help you meet these requirements simply must be done. MD Ranger suggests comparing your facility to similar organizations to determine both whether or not compensating a position is commercially reasonable, and to set the most appropriate payment rate if the position should be paid. Look for market data that allows you to perform more sophisticated drill-downs into types of facilities to get the best comparisons for your organization.

Do hospitals generally pay for this service?
There are numerous factors contributing to whether hospitals typically pay for a position or not. Consider the size of the panel, and how likely the physician is to get called to the hospital during a shift. A particularly burdensome call schedule or a small panel could be a good reason to pay. A poor payer mix, or a high likelihood of indigent care could also be a reason to compensate physicians. Lastly, consider if the physician is restricted from revenue generating activities while on call, or if the physician is required to be on-site during the shift. These two factors most definitely contribute to higher per diems.

In order to help hospitals determine commercial reasonableness, MD Ranger collects data on the frequency that a particular service is paid. Because MD Ranger collects hospital contract data holistically, it can determine the percent of hospitals who report paying for a service. This market data allow hospital leaders to make informed decisions when they are determining commercial reasonableness.

A critical consideration for physician administrative and directorship positions is how many paid positions for the specialty exist at your facility and across the organization. When your facility is considering paying for a role in a specialty that already has paid administrative roles, what is being proposed might be commercially unreasonable. For example, in pathology, 45% of MD Ranger subscribers report having one paid administrative position and 32% report having two. Three or more directors is quite rare. If your facility has four or five paid administrative positions in pathology it could be justified; however, you will need documentation for why the additional positions are necessary. It isn't the same across all specialties or positions. For example, paying four or five administrative positions in cardiology is about as common as paying one position.

Because there is variation across specialties, it is important to benchmark your directorship and administrative positions. MD Ranger has found that some hospitals simply have too many medical directors. Not only does this problem affect your financial position, it also increases your compliance risks significantly.

Above all, while determining whether it is reasonable to compensate a doctor at your organization, it is important to look at all the factors that play into commercial reasonableness. In order to make smart decisions, facilities need access to data-driven information about the market as well as when other facilities generally pay for a position or not.

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