No compliance professional wants to be blindsided by Stark, Anti-Kickback (AKS), or False Claims Act violations. However, getting a handle on your physician contracting compliance program is a daunting task. While making significant changes or implementing new policies requires time and slow approval processes, there are some tactical improvements you can make today.
Do the right people in your organization know the details and penalties of Stark Law and Anti-Kickback Statutes, as well as the fines and penalties for non-compliance?
If the administrators who are negotiating physician contracts or any member of your compliance team is not fully aware of the penalties for violating Stark and AKS, familiarize yourself now.
The Physician Self Referral Law, commonly referred to as "Stark Law" is Section 1877 of the Social Security Act, 42 U.S.C. 1395.nn and was first enacted in 1989. The law restricts physician self-referrals. A physician (or a physician's immediate family member) who has a direct or indirect financial relationship with an entity that provides "Designated Health Services" (DHS, i.e. a hospital, surgery center, imaging center, etc., cannot refer patients (Medicare/Medicaid) to that entity for DHS, and the entity cannot submit a claim for services unless the financial relationship is within a Stark exception.
Violating Stark Law comes with serious penalties:
- Stark is a strict liability statute, so intent to violate the law doesn't have to be proven.
- Technical violations of the law are still violations.
- No payment will be made for claims involving a violation.
- Civil monetary penalties for each service ($15,000) plus an assessment of up to three times the claim.
- Penalties up to $100,000 for "circumvention schemes".
- Organizations and physicians could be excluded from participating in CMS programs.
Violating AKS is a serious crime:
- Criminal penalties are up to $25,000 plus up to a five-year prison term per kickback violation. Hospital administrators have gone to jail for these violations.
- Additional civil penalties are as much as $50,000 per kickback violation in addition to three times the amount of damages sustained by the government.
- Providers can be excluded from all federal healthcare programs.
There are numerous examples of violations, in 2014, Halifax Health settled for $85 million regarding allegations they had violated Stark Law and the False Claims Act. King's Daughter's Medical Center paid $40.9 million, with allegations including Stark Law violations. Saint Joseph Health System agreed to pay $16.5 million regarding allegations of Stark Law, Anti-Kickback Statute, and False Claims Act violations.
Does your organization have contracts for all paid services/positions?
It's essential to document all financial arrangements with physicians, with payment terms set in advance and unrelated to volume of services. Work with administrators and chiefs of staff to ensure that all contracted positions have signed agreements that include payment rates, defined services and time requirements and expiration date. Remember: it's a violation of the law to pay a physician for services without a contract in place.
Do you track or automate contract expiration dates?
Because the law requires physician contract rates to be set in advance, identify all expired contracts within your organization and prioritize them for renewal. If your organization doesn't have a contract management system, consider building or purchasing such a system. The contracting department should be automatically notified of upcoming contract expirations with ample time to review and negotiate the contract or sign an extension. Allow at least 3-6 months for the renewal process (sometimes longer for complex arrangements like hospital-based service agreements).
Identify and segment your high-risk contracts.
Simply reviewing your contracts doesn't take highly sophisticated policies, nor does it take a lot of resources. Annually reviewing contract terms against published benchmarks can be a simple way to identify potential areas of concern.
The typical call coverage or medical direction agreement will attract little attention unless it is significantly outside the bounds of fair market value. However, if your organization has negotiated contracts that are risky or high profile in your community, these deals may require more stringent documentation, especially if services are paid above the 75th percentile of market ranges or hours are excessive. Other risk indices include multiple contracts with the same physician or for similar services. If your organization flags such contracts and creates strict guidelines around negotiation and renewal, you can protect your organization from potential pitfalls.
If you have access to payment rate benchmarks, familiarize yourself with them. Learn about how the data are collected, how the benchmarks are broken down, and what categories apply to your facility or facilities. Examine where each contract falls on the range and flag those that are above the 75th or the 90th percentile.
Does your organization have a system for handling exceptions that fall at the high end of the market data?
When your organization decides to compensate a physician above or below fair market value for whatever reason, do you have a process for granting and documenting the reasons for such exceptions? Stark doesn't prohibit paying physicians above a certain threshold, but organizations must have justifications for additional compensation. Research whether your organization has developed a process to review and address exceptions. If you find no guidelines for exceptions, make a note that the upcoming revision or creation of a compliance program should include a process for handling these situations.
Do you know how many physician contracts your organization currently has?
On average, MD Ranger has found that community hospitals have between 50-60 physician contracts. For larger organizations or health systems, physician arrangements can spiral to hundreds or even thousands. Understanding the scope and market position of your physician contracts and payment rates will help you identify potentially risky contracts before they become a problem. Knowledge of total physician contract expenditures and how that compares to like organizations can help with budgeting, planning, and other financial activities down the road.
Being aware of the federal regulations that affect physician contracting is vital to compliance and strong management. While creating and implementing a physician contracting approval and compliance process may seem daunting, it is crucial to avoid possible multi-million dollar fines down the road with the OIG. There are many steps that can be taken today to begin to get your physician contracts in tip-top shape.
Hospital-based physician contracts are often hospitals' most expensive and complex contracts. Finding comprehensive benchmarks and market data can be a challenge because these contracts have many different components, from compensation method to treatment of technical fees to incentives.
In the top fifteen most costly physician services, hospital-based contracts lead the pack.
Hospital-based physician services encompass specialties and services that are most often only provided in the hospital setting, with little or no separate independent or officebased practice. The MD Ranger Hospital-Based Benchmarks include the following hospital-based services:
- Emergency Medicine
- Pathology/Clinical Laboratory
- Pediatric Hospitalists
- Radiation Oncology
- Trauma Surgery
Hospital-based agreements include different types of services, ranging from clinical services, emergency coverage, and leadership/administrative functions. The graph below illustrates common types of services included in hospital-based arrangements, and the frequency in which they occur.
Organizations compensate physician groups for these types of services in different ways, adding further complexities to the contracting process. Furthermore, 20% of MD Ranger subscribers do not pay anything for these types of services. As you can see from the chart below, there is no uniform payment system for physician services, and the scope of many contracts requires responsibility for all coverage and administrative duties needed by the hospital for that service.
MD Ranger discovered that a growing number of hospitals are incorporating incentives into physician contracts. While only 11% of the hospital-based service contracts include incentive components, they have the potential to comprise a significant portion of contract payments. The most common metrics for incentive measurement include quality (86%), patient satisfaction (60%), and cost (31%). Incentives based on quality metrics have grown, while those for cost metrics have decreased since MD Ranger began collecting data in 2009.
Payments for providing uncompensated care are yet another element of hospital-based agreements. 19% of hospitalbased service contracts in our database include payments for uncompensated care.
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
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.
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.
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.
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.
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.
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.
More Nuanced Factors
While it is straightforward to identify whether your facility is a trauma center or how many beds it has, there are other factors that influence physician rates that will need to be considered on a contract-by-contract basis. These factors may have to do with the particular situation, like the credentials of a physician or the size of a service, or even the local market where your facility is located.
Burden of Call
In smaller facilities and for less emergent services, the burden of call coverage may be lower. In these situations, you may be able to negotiate a lower per diem rate or even consider paying per episode. Conversely, in larger hospitals with high volume emergency departments, it may be necessary to pay physicians a higher rate for the larger burden of call coverage.
Granting exclusive rights to a physician group to provide a hospital-based service does have economic value, a factor cited by the US Office of Inspector General in several Stark settlements. In general, there are three possible approaches to determining what value exclusivity has in hospital-based agreements:
- Perform a cost valuation of the contract and include exclusivity as a consideration in determining the rate(s).
- Negotiate terms with the group that are in the lower range of fair market value. This helps account for the exclusivity of the terms.
- Discount payments between 5-15% to reflect exclusivity.
The market for physicians is just like any other market: when the supply is low, you may have to pay more to acquire services. Though overall economic conditions are beyond control, it is important to understand the market as you negotiate a contract. Low supply can mean a higher call burden, but it also means a physician or group is able to demand a higher price. In these situations, you may need to go to bid to other groups in the region to document that the payment rate is reasonable. Further, consider overall market conditions on a case-by-case basis; if there is a short supply of gastroenterologists, that doesn't necessarily mean that there is also a shortage of trauma surgeons.
Not all physicians are the same: some physicians have strong community or national recognition that bring value to a program. Exceptional credentials or a unique program may justify higher pay rates. Documentation of those characteristics will be important to document compliance of the appropriate payment rate.
Documentation of Unique Circumstances
If negotiations result in rates that exceed market benchmarks, the need for documentation increases. Issuing a credible Request for Proposals to outside groups for the contracted service may be needed to demonstrate that the hospital went through a competitive process to get the best rate. The RFP should be sent to several groups if possible and all responses should be reviewed. If your local group is the only respondent, then that may be the best price available, but it is important to extensively document the process for your files for future audits and compliance reviews. Seeking a third party to conduct the process, or prepare an independent FMV analysis of the situation may be your only option for some difficult situations.
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.
Physician contracting is a complex process and it is challenging to engage physicians to assist in administrative and quality initiatives that benefit health care facilities. From properly leveraging market data to composing legal agreements, it is resource-intensive. A dimension that often gets overlooked is evaluating whether your organization has too many physician contracts. An annual or periodic review of all contracts against industry benchmarks can help identify risky situations or opportunities to save costs. It also helps to document commercial reasonableness of the positions you have in place.
How do hospitals end up with too many medical directors?
Hospitals don’t intend to have too many medical directors, but a lack of checks and balances can result in such a situation. Some examples of situations that could lead to too many medical directors:
- Negotiating individual contracts without considering the organization’s broader goals.
- Challenging physician relationships that lead to expectations for pay.
- Not having a centralized physician contracting process.
- Not requiring timesheets or having poor coordination with accounts payable.
How many is enough?
MD Ranger collects data on all of a subscriber’s physician contracts which allows us to produce a distribution of the number of paid administrative positions per hospital by service. Some services have a higher frequency of multiple positions than others, as illustrated by this sample from 81 administrative benchmarks reported by MD Ranger:
A good compliance practice is also to review the total number of paid medical directorships and administrative positions at your organization. Larger and more complex organizations generally have more positions, and there may be times when more is justified, such as during an EHR implementation. However, if you are on the high end of the scale, you may want to review your list of positions more carefully.
How much is too much?
Too many medical directors could put your organization at a compliance risk based on either paying too much or not meeting a commercial reasonableness test. Many organizations have a handful of contracts that are paid at or above the 90th percentile, due to the hours required or the credentials of the individual physician. However, if individual or aggregate payments are routinely high and/or there are a larger than average number of positions that is a compliance red flag. MD Ranger publishes total spending by contract type to provide organizations with some guidelines of reasonable payments. Based on MD Ranger’s 2017 Facility Totals Benchmarks, the total expenditure on medical direction and administration is:
Ways to Avoid Having Too Physician Administrative Contracts
A few best practices to minimize the risk of paying too much for administrative positions:
Require and check timesheets
Be meticulous about collecting and reviewing physician timesheets. Take the time to cross-reference the duties outlined in the contract with the duties listed on the timesheet.
Centralize the physician contracting process
By keeping track of your physician contracts in a single location and having a team responsible for drafting, negotiating, documenting, and renewing these contracts, you lower the risk simply by knowing what’s going on. Think critically to ensure that duties are not being duplicated amongst physicians.
Conduct Periodic Audits
Annually or more frequently review all physician contracts for compliance with market rates and hours. MD Ranger provides reports and tools that allow subscribers to easily identify more risky contracts compared to benchmarks, review number of positions by service and compare total expenditures for a hospital or a system to other subscribers.
A Case Study
MD Ranger can be extremely helpful to organizations who might suspect they have a systemic compliance issue. One subscriber suspected it had too many medical directors. We showed them how to use our tools and benchmarks to compare their administrative positions with comparable organizations.
The organization found that they had 120 medical directors across the organization compared to comparable organizations which were closer to 70. That’s a lot of medical directors! The number alone does not make them non-compliant, but we advised them to further investigate and document the need for so many positions.
We strongly recommend that organizations perform this kind of analysis. Our whole hospital, service line specific and specialty specific benchmarks that can help with this. There are some services that by nature will have more than 2 or 3 medical directors – for example, cardiology of has directors for different program components. However, there are many other services where multiple positions are not typical, hence documentation of hours and rationale is important to comply with commercial reasonableness standards. We help our subscribers investigate situations like these so they can better mitigate compliance risks.