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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