Compliance

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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Addressing Outlier Physician Payments

Most physician payment rates fall within a reasonable market range. But in some cases, a payment rate may be well beyond the norm. These unusual payment rates, which can sometimes impact benchmark calculations, are outliers. Understanding how outliers affect market data and what to do if your contract falls outside market ranges is an important aspect of a physician contracting compliance program.

Evaluating Data Quality

The distribution of payment rates can reveal market trends or anomalies. If the distribution between benchmark quantiles is fairly concentrated, this could suggest that rates are consistent across markets and facility types. Even if quantile ranges are narrow, it doesn’t necessarily mean that there aren’t meaningful outliers within the sample; however these outliers are not affecting the benchmark values. Good examples are medical directorship hourly rates. If the majority of hourly rates of a cardiology medical directorship are $150 per hour, but there are several facilities that pay $250 per hour, the facilities that are paying more may be paying fair market value for the duties being performed, but they do not affect the benchmark values because they are accounting for the values above the 90th percentile.

If there is a wide distribution of rates, it could indicate several things. If the sample size isn’t large and the rates are widely distributed, it could indicate inadequate data. It could also represent contracts that are not comparable, either because scope of services varies or hospital characteristics are too different (e.g. rural versus trauma or academic medical center). If the sample size is adequate, variation could indicate real differences between individual circumstances or types of organizations.

Even within a large sample size, contracts over the 90th percentile sometimes represent special circumstances that justify higher pay rates. Examples might include highly specialized or nationally recognized physicians, a broader scope of service, and/or higher hours due to program start-ups etc. Most FMV experts consider payment rates under the 75th percentile to be reasonable, assuming adequate justification of the position and time spent. However, payment rates over that level are not by definition inappropriate, they just require particular documentation of the reasons why a higher payment is justified.

Defining “Outlier”

An outlier is a data point that is either much greater or smaller relative to the sample. Outliers can be influential in a small data set, but in a robust sample they rarely have an effect. For compensation data, particularly physician contract data, there are two types of outliers: those that do not compensate for a service (zero value) and those that represent either a very low or very high dollar value. MD Ranger addresses the “zero” data points by reporting the percent of subscribers who pay for a service instead of including zeros in the quantile calculations. This statistic can help facilities determine commercial reasonableness of a service. We advise first determining if payment is necessary, and if it is, then the benchmarks reflect the range of market payment rates. We also validate outliers with our subscribers to ensure there were no input errors with the survey process.

In large data sets like MD Ranger’s, an outlier will have little or no effect on the quantiles. For example, in a dataset with 50 data points where no provider represents more than 25% of the contracts, each data point holds only a 2% weight in the percentile calculation. The opposite is also true: in a small data set, each data point has a large effect on the percentile calculations and an outlier could greatly affect the percentiles. To learn more about how we calculate benchmarks, see “Our Approach to Calculating Benchmarks and Market Data”. In small samples, the addition of a single data point at the high or low end of the market ranges can have a major impact on the benchmark ranges.

Here’s an example. If five different providers independently negotiate a rate of $150 per hour, then we would report all four percentile values as $150. If the data consisted of four values of $150 and one of $500, then we would report $150 for the 25th, 50th, and 75th percentiles, and $325 for the 90th percentile (325 is midway between 150 at 0.80 cumulative weight and 500 at 1.0). Here’s a graph showing the effect:

Graphical representation of quantiles when one contract is higher than all others.

Negotiating an “Atypical” Rate

Most physician payments are straightforward per diem or hourly rates. However, many organizations have a few contracts that exceed the comfort zone set by the compliance policy. Whether the complexity arises from market conditions, such as limited supply or burdensome call, the scope of services of the position in question, or the credentials and experience of a program director, your organization is responsible for finding an appropriate and fair payment rate.

After evaluating the sample size and variation of available market data, as well as the specific requirements of the contract, you may be able to determine if payment rates can or should be documented with market data. It could be the case that using another valuation method or engaging an expert who can objectively document the FMV for the particular situation is required.

If you have concerns about using market data for compliance documentation, email us at This email address is being protected from spambots. You need JavaScript enabled to view it. and we would be happy to discuss your questions.

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An MD Ranger Case Study: Neurosurgery Call Coverage

We recently had a subscriber have an interesting commercial reasonableness challenge.  A community hospital that is a Level II trauma center was paying for three-deep neurosurgery call coverage. Three deep coverage means paying for two backup physicians to be on-call in addition to the restricted on-call physician.

According to the ACS, two-deep neurosurgery coverage is required for the high volume of trauma that this facility experiences, being a Level II.  However, the ACS also suggests that the simultaneous need for three physicians on-call is negligible because of the low likelihood that an additional surgeon is needed during the coverage period.

A special study conducted using MD Ranger data and a special study found that no other Level II, let alone Level I trauma center in its database had three-deep neurosurgery call coverage.  After these findings, the hospital discontinued the third slot for neurosurgery call coverage.

This case study shows the importance of not only determining if rates are fair market value, but first determining if it is necessary to pay for the service in the first place.

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Analyze Physician Contracts in Aggregate

MD Ranger 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 these tips to create a successful compliance program to help prevent Stark violations. 

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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Approaches to Internal Audits

With the beginning of a new year, organizations have the opportunity to turn over a new leaf and get their policies and procedures in order. Your physician contracting program may be a prime candidate for review.

An internal audit can provide valuable information on contracting practices and identify opportunities to implement change. Internal audits are periodic, methodical examinations of all contracts and the approval process. They provide an excellent way to document your organization's commitment to compliance. Even if a contract was approved when it went into effect, vague language, complex formulae, lax recordkeeping, and physician relationships can make adherence to your compliance protocols and standards challenging. A periodic, objective and disciplined review of contracts is always a good idea. MD Ranger provides subscribers with web-based tools and reports to make internal audits more efficient and effective.

Approaches to Auditing

The Bottom-up Audit
The bottom-up approach is the most traditional an audit method, entailing a review of each contract for adequacy of FMV documentation, time records, and renewal/approval process.

The MD Ranger contract summary report provides subscribers with a line-by-line report of where each of their contracts fall compared to MD Ranger benchmarks. This provides a quick way to identify higher risk contracts. Several MD Ranger subscribers use this report annually to document their internal compliance review of physician contracts.

The Top-down Audit
The top-down auditing approach looks at an organization's contracts and physician contracting compliance process as a whole to assess whether there may be underlying issues with the process, such as duplicate or excessive payments to individual physicians or groups. The process can be an effective tool for financial management and budgeting, as well as providing support for negotiations through comparisons in rates across specialties, consistencies, etc.

A few suggestions if you audit in aggregate:

  • Review how much is being spent per service (Neurology, Cardiology, etc.) across all types of agreements (administrative, call coverage, leadership, etc.).

Total Spending per Medical Service

  • Determine if the number of medical directors for each specialty/service is appropriate and within market ranges.
  • Examine the combined revenues from net professional collections plus stipends for hospital-based services.
  • Review specialties where all administrative or coverage contracts are staffed by a single physician or one practice to be sure payments do not exceed market rates for actual time committed, or if the physician cannot be reasonably expected to dedicate the minimum number of hours while maintaining their clinical practice load.
  • Multi-campus deals need particular documentation for time required.Documentation of competitive bidding and a Request For Proposal process in contentious/excessive situations.

How Often Should Audits Occur?

Your organization may already have a policy for conducting periodic internal audits, thus the initial step is to document that the process is being followed. If there is no policy, investigate how other departments and business functions are audited at your organization. Depending on your facility and how your physician agreement terms are organized, audits can be annual or biennial. Whether routine or ad hoc, an internal audit is a valuable process for documenting a strong compliance process and identifying potential risks to your organization.

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Auditing Contracts with Contract-to-Benchmark Comparisons

MD Ranger produces reports that compare each physician contract that a subscriber has to the benchmarks. This report provides an at-a-glance tool to determine which contracts are potentially risky and may require further documentation. For medical directorships, the hourly rate, annual hours of service, and the annual payment are compared to MD Ranger’s benchmarks.

Subscribers use this report to conduct an annual internal audit and review of all physician contracts and ensure proper supporting documentation.

Contract Summary Report

If you are curious about the Contract-to-Benchmark Comparison report, email This email address is being protected from spambots. You need JavaScript enabled to view it. to learn more.

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Avoiding a CIA: Take Steps to Prevent Violations

If you are not currently involved in an investigation or settlement for Stark or Anti-Kickback violations, don’t rest on your laurels. The OIG is actively investigating potential regulatory violations at healthcare entities. These violations may come to light through routine and programmatic auditing by the OIG or through a whistleblower allegation. By familiarizing yourself with CIAs issued for organizations similar to yours, you can take steps to reduce your organization’s potential violations. Model your compliance program after the requirements outlined in the CIAs so that you can prevent violations.

You can use existing CIAs as a template for a compliance program, as well as a roadmap of what to anticipate if your organization is found to be in violation. CIAs dealing with compliance issues with physician agreements provide insight into what you might be required to do under a CIA. We suggest reviewing several recent CIAs for entities structured similarly to yours. There are a significant number of CIAs available for review, and organizations that have built their compliance programs under a CIA have some of the most robust compliance programs in the industry. Borrow best practices from them!

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Avoiding Anti-Kickback Violations: Tips for Physicians

Though hospitals themselves are under the most scrutiny to have compliant financial relationships with physicians, it is nonetheless important for physicians to be aware of federal fraud and abuse laws.

Avoid violating the Anti-Kickback Statute with the following tips:

  • Don't receive payments from a hospital unless you have a contract with a payment rate negotiated in advance. Unless you have a contract which spells out the nature of the relationship and the services you provide the organization, you should not receive any payments for services. Not having a personal services agreement (or having an expired agreement) violates AKS.
  • Don't accept compensation or gifts from hospitals unless you know they are under the annual limit and being tracked by the hospital for compliance purposes. For 2014, the non-monetary compensation limit is $385 per year. In 2015, it's $392. It's not hard to reach this number. Keep in mind that if a hospital gives you a gift or entitlement worth money that is not given to the entire medical staff, this gift must be tracked with other gifts and the total cannot exceed the maximum. If it does, you will be responsible for paying back the facility.
  • Don't leverage your referral position during negotiations or conversations with a hospital. It is unwise to suggest that you can increase business for a hospital during negotiations. Though this could seem like a small business strategy for you, in reality you are offering and suggesting that the hospital reward you for referrals, which is explicitly forbidden in AKS and breaking the law.
  • Never threaten to stop referring patients to a hospital during a negotiation. Likewise, threatening to stop sending referrals to an organization in retaliation infers that you have been referring patients to the facility for money. Don't put yourself or your administrator in this position.
  • Do not accept payments or remuneration of any kind for referrals. Make sure that all payments a hospital makes to you are within fair market value. Even if the administrator isn't concerned about fair market value, it's important that you be concerned. If you or the hospital gets caught with payments above fair market value, if you are convicted you will most likely lose eligibility to be reimbursed by all government programs, not to mention be thrown in jail for up to five years. If you need help ensuring that your payments are truly fair market value, contact us to obtain data for your specialty.

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Best Practices for Physician Contract Audits

An internal audit can provide valuable information on contracting practices and identify opportunities to implement change. Internal audits are periodic, methodical examinations of all contracts and the approval process. They provide an excellent way to document your organization's commitment to compliance. Even if a contract was approved when it went into effect, vague language, complex formulae, lax recordkeeping, and physician relationships can make adherence to your compliance protocols and standards challenging. A periodic, objective and disciplined review of contracts is always a good idea. MD Ranger provides subscribers with web-based tools and reports to make internal audits more efficient and effective.

Goals of an Internal Audit

An internal audit of physician contract payment rates will:

  • Provide oversight of organization-wide contracting practices. Conducting an internal audit can identify differences in contracting practices and rates across specialties or facilities. It is sometimes difficult to monitor the significance of differences with a large number of contracts that are negotiated by multiple parties; auditing may identify some non-compliant practices within an organization.
  • Uncover potentially non-compliant agreements. An internal audit can help identify contracts which have payment rates above typical market benchmarks or reveal contracts that need better supporting documentation. An audit can bring these contracts or practices to the attention of your legal or compliance team for further review or documentation at renewal. MD Ranger's tools allow sorting of contracts by where they fall on the market benchmarks, making identification of problematic contracts simple and fast.
  • Ensure all agreements have appropriate documentation. Most organizations have at least a few unusual contracts that need additional documentation of FMV or a few that didn't go through the proscribed approval or documentation process. The audit will identify the need to improve documentation to show the source of FMV determination when the contract was negotiated and the timing of extensions and amendments. An audit should include a review of time records from physicians that document actual time spent.
  • Prevent duplicative services. An audit may reveal medical directorship positions than can be justified, either because multiple people provide substantially similar services or a contract calls for more hours than meets the FMV. Investigate how many directors are commercially reasonable for a service, or if some directors may have a more specific title that is not being adequately described. Unsure how many medical directors make sense per specialty? Use MD Ranger's Number of Administrative Positions per Service table for a gut check.
  • Check that approval process is working. Review the records for contract approvals to ensure that all contracts are processed appropriately.
  • Verify all contracts are current. Stark requires payment rates to be set in advance; hence it is important that contract renewals are processed prior to expiration. Be sure extensions are in place if contract negotiations are going to extend beyond the expiration date.

Approaches to Auditing

The Bottom-up Audit

The bottom-up approach is the most traditional an audit method, entailing a review of each contract for adequacy of FMV documentation, time records, and renewal/approval process.

The Top-down Audit

The top-down auditing approach looks at an organization's contracts and physician contracting compliance process as a whole to assess whether there may be underlying issues with the process, such as duplicate or excessive payments to individual physicians or groups. The process can be an effective tool for financial management and budgeting, as well as providing support for negotiations through comparisons in rates across specialties, consistencies, etc.

A few suggestions if you audit in aggregate:

  • Review how much is being spent per service (Neurology, Cardiology, etc.) across all types of agreements (administrative, call coverage, leadership, etc.).
  • Determine if the number of medical directors for each specialty/service is appropriate and within market ranges.
  • Examine the combined revenues from net professional collections plus stipends for hospital-based services.
  • Review specialties where all administrative or coverage contracts are staffed by a single physician or one practice to be sure payments do not exceed market rates for actual time committed, or if the physician cannot be reasonably expected to dedicate the minimum number of hours while maintaining their clinical practice load.
  • Multi-campus deals need particular documentation for time required.
  • Documentation of competitive bidding and a Request For Proposal process in contentious/excessive situations.

How Often Should Audits Occur?

Your organization may already have a policy for conducting periodic internal audits, thus the initial step is to document that the process is being followed. If there is no policy, investigate how other departments and business functions are audited at your organization. Depending on your facility and how your physician agreement terms are organized, audits can be annual or biennial. Whether routine or ad hoc, an internal audit is a valuable process for documenting a strong compliance process and identifying potential risks to your organization.

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Best Practices to Avoid Stacking

Stacking can be a huge compliance risk for healthcare organizations and physicians. Here are some quick tips to avoid stacking in the first place.

  1. Develop a policy and review process regarding physicians who hold more than one position or perform more than one service with the hospital or affiliated organizations.
  2. If physicians are holding two call positions at the same time, set guidelines around how much they can be paid. If they are effectively an employed physician, set an aggregate payment cap from all sources.
  3. Ask physicians for time documentation that delineates activities for each role. Time tracking should be standard for all physician administrative positions.
  4. As much you can, automate time tracking and coordinate effectively between all parties: physicians, finance, and administration.
  5. Don’t pay a physician to take call for two services at the same time. Common service combinations where stacking most frequently occurs:
    • Orthopedic surgery and hand surgery
    • Plastic surgery and hand surgery
    • Non-invasive and invasive cardiology
    • Stroke and non-stroke neurology
    • Trauma and general surgery
  6. Ask the physician to sign a statement to certify that his or her private practice cannot be rearranged to avoid lost income. Another way is to monitor physicians’ OR utilization to compare elective volume with and without on-call coverage.

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Commercial Reasonableness: Critical Considerations for Physician Contracts

Before paying a physician for services, hospitals should ask whether it is reasonable to pay for such services. Not all coverage or administrative services warrant payment. To be compliant, it is first necessary to determine the need to pay, then to determine how much.

Determining if paying a physician is commercially reasonable can be challenging. This brief interview explores the definition of commercial reasonableness, approaches to making and documenting a determination, and how this differs from "fair market value".

What does "commercially reasonable" mean?
The Department of Health and Human services has defined the term as "a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals" (Medicare and Medicaid Programs; Physicians' Referrals to Health Care Entities with Which They Have Financial Relationships 63 FR 1700 (January 9, 1998)). In the preamble to the Stark interim final rule, Phase II, CMS noted that an arrangement "will be considered 'commercially reasonable' in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS referrals." 69 FR 16093 (Mar. 26, 2004)

Both Stark and the Anti-Kickback Statutes prohibit compensating a physician with money or non-monetary gifts for referring patients to an organization with which the physician has a financial interest. Payments to physicians must remain completely unassociated with the business they bring to your organization. Thus, it is important that every payment you make is justified.

Simply put, commercially reasonable means that it is common business practice for an organization to pay for that particular physician service. A real-life example could be the question of general surgery call coverage. Is it commercially reasonable for your organization to pay for the service? 75% of MD Ranger subscriber hospitals report paying for general surgery coverage, so there is statistical evidence that many organizations compensate for the service. However, dermatology call coverage is another story. Only 1% of MD Ranger subscribers report payment for dermatology coverage. A less clear example is coverage for infectious disease, with only 11% reporting payment. To prove commercial reasonableness of payment for such a service may require extra documentation and research.

Why is being commercially reasonable important?
Despite the lack of a bright line, determining commercial reasonableness is important and should be a part of compliance documentation before a payment rate is considered. Assessing commercial reasonableness is the essential first step when considering a financial relationship with a physician. If it's not reasonable to pay for a particular service, it could be interpreted that your organization is paying the physician for referrals. The repercussions for having either a Stark or AKS violation are harsh. Stark law violations incur a civil penalty and fine, plus owing CMS what you collected under the arrangement with the physician. AKS violations are criminal offenses, and carry fines plus repayment of collections from involved physicians or groups.

How can you determine commercial reasonableness?
The IRS provides guidance on how to evaluate whether an agreement with a physician is commercially reasonable. According to the Internal Revenue Manual, § 4233.27, specific factors should be considered while determining commercial reasonableness:

  • duties and responsibilities of the physician
  • physician's background and experience, as well as knowledge of the business
  • economic conditions of the marketplace

You should also consider:

  • Does a physician have to perform the service, or can it be done by another clinician or professional?
  • Is it necessary to have a physician of a certain specialty in the position?
  • Is this a service that hospitals typically pay physicians to provide?

In addition to reviewing these questions, MD Ranger subscribers turn to our "Percent Paying Tables", which report the frequency of physician payments for over 150 physician services across MD Ranger hospital subscribers. When discussing whether or not to pay for a service, subscribers can access this data immediately and get a first impression of how common paying for the service is. We recommend using this number as a starting point in your physician negotiation process.

How is commercial reasonableness different from "fair market value"?
While fair market value is an "arm's length" negotiated fee for a physician service in the absence of referrals, commercial reasonableness addresses whether or not it is actually reasonable to pay for the service in the first place. A commercially reasonable service could have payment terms that exceed fair market value, and a fee that falls well within fair market value might not be commercially reasonable given certain market conditions. Here are some examples:

Hospital A wants to pay for a second medical director of its Cancer Center. The MD Ranger reports show that 22% of subscribers report paying for a medical director; however 100% of them only report paying for one position. If the second director is a co-director, and the sum of the hours and payments for both positions is with the range for a single director, payment would be reasonable. However, if both directors were paid at the same rate as a single position, and there were not unique, documented program and position requirements to justify a second position, the position and amounts paid may not be commercially reasonable.

Hospital B is asked to pay call coverage per diem rates for bariatric surgery. There are no reported contracts for such a service in MD Ranger; furthermore, as a non-elective service, the physician would be expected to cover his own patients. This would likely not meet a test for commercial reasonableness.

If something is negotiated at fair market value, is it commercially reasonable?
Not always. Just because a service has a fairly negotiated rate in the market, it doesn't necessarily follow that the service should be paid at your facility. One example is ophthalmology call coverage. Emergency needs are small and there are plenty of ophthalmologists in most communities, so payment for coverage is unusual. However, in some circumstances, such as an adverse payer mix or an especially complex trauma facility with large volumes or a lack of providers on the medical staff, it is necessary for a hospital to pay for coverage; hence, there is a market rate for the service. This is why MD Ranger encourages subscribers to always document commercial reasonableness along with the rate negotiated—even if your documentation is a brief summary paragraph identifying reasons that the service must be compensated, along with MD Ranger benchmark data. Another good example is hand surgery. A per diem for hand surgery that is within fair market value is at or under $800 (at the upper end of the spectrum). However, since only 14% pay for hand surgery coverage it's unlikely that you will need to pay for coverage for this service.

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Communicate Your Physician Compliance Plan

MD Ranger 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 these tips to create a successful compliance program to help prevent Stark violations.

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.

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Communicating a Culture of Compliance with Your Medical Staff

Communication, even in the most positive relationships, can be challenging at times. What are the best practices for communicating with physicians?

As a compliance department, you likely have experience with using all different forms of communication for your message to effectively reach different types of people. Not only must you experiment with what works best with physicians at your organization, you will likely need to communicate in different terms and through multiple channels. Even within the medical staff, there will be all different types of learners and communicators.

Another best practice is what we call the “train the trainer” model. For physicians especially, this can be an extremely effective way to disseminate messages throughout the medical staff. First, identify physicians that would make good leaders. Educate them, engage them, and ensure they will carry the most important compliance messages to other physicians. Trust them to talk to their peers and address issues of compliance, while of course giving them the proper tools to do so.

We cannot emphasize enough how important setting the tone from the top of the organization is. If your C-suite doesn’t care about compliance, your physicians will not care about compliance. Culture can make or break an organization when it comes to compliance and legal issues. Work with your executive team to ensure that compliance, safety, and quality are among the most important goals of the organization.

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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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Compliance and Legal Make a Great Team

Compliance and legal should work as a team and jointly make decisions on risk management. Both parties have complimentary skill sets that are best used working together.

Compliance and legal often work hand in hand, but especially when there are potential issues, it is crucial that they present a unified force. Though compliance often discovers potential issues, they should be sure to keep legal updated so as to enact privilege at the right time.

Attorneys can help determine how much to waive privilege on and what should be covered. It is always easier to release privilege, but very hard to go back and put information under privilege.

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Compliance Tips You Can Use Today For Big Impact

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.

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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.

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Consider Alternatives for Negotiation Conversations

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, care preparation can help you achieve your desired outcomes.

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.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Consider the Economic Value of Exclusivity

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, care preparation can help you achieve your desired outcomes.

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.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Consider the Scope of Services Provided

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, care preparation can help you achieve your desired outcomes.

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.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Costliest Hospital-Based Services

Hospitals typically pay physicians more for hospital based services than any other contracted physician payments.  Because the contract values are so high, ensuring fair market value becomes very important.

According to our database from over 300 facilities across the US, here are the top five costliest hospital based services:

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Providing physician-level inpatient care takes the cake, where the median hospital payment is over one million dollars annually. A close second is trauma surgery, which is very costly given the call coverage stipends needed in these agreements.

Let’s not forgot anesthesia, which is a significant percentage of physician payments.

Questions about how to benchmark your hospital-based agreements.  Email me at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Create 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.

If you want to read more key physician contracting compliance tips, check out this article.

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Dealing with Changing Benchmarks

Market data is an efficient and cost effective way to structure a physician contracting compliance program, and is used by hundreds of hospitals across the country. Among the perks of using market data are consistency, accessibility, and flexibility.

As long as the database used to calculate payment benchmarks is both large and diverse, benchmarks typically remain stable from year to year. However, there are several factors that may change benchmarks from year to year, like a significant increase in the sample size or changes in the market. It is always important to document FMV compliance, even if benchmarks shift.

By understanding why benchmarks may change from year to year, you can prepare for these changes within your compliance plan. Having a process in place to deal with potentially challenging conversations will help facilitate the process.

Dealing with Changing Benchmarks:

If the contract was within fair market value when signed, and documentation exists, payment rates can remain as is until the contract expires.
This is when documentation becomes crucial. If you document the benchmark data and that the value of a contract was fair market value when the contract was signed, it is compliant until the contract expires. At this time, if the contract is still below the 75th or the 90th percentile, the payment rate may still be compliant. If the rate is now too high and you cannot negotiate it lower, consider documenting the value of the contract to the organization, general inflation rates, and the changes in the benchmark data.

Be strategic while setting payment rates.
Perhaps your organization has determined that rates at or below the 75th percentile is considered compliant. That doesn't mean that every contract signed should be at the 75th percentile. Allow some wiggle room by negotiating a rate between the 50th and 75th percentile. If rates fluctuate over time, you have some cushion before the rate becomes problematic. This is especially true if the service in question comes from a smaller data set, given that these rates are more likely to fluctuate.

Document why the situation is unique.
A high rate can be justified when the situation is unique. Maybe there are a limited number of physicians in a particular specialty in the area, there is a high burden for taking call, or the payer mix is unfavorable. These can all be legitimate reasons for high rates; after all, someone has to be at the 90th percentile in all benchmarks. However, all payment rates above the 90th percentile need thorough documentation.

Demonstrate the effort to negotiate the lowest possible rate.
Documenting conversations and efforts made to set a payment rate that is fair market value is essential. If you are unable to successfully lower the rate to an amount you are comfortable calling fair market value, take special care to document conversations. Note who met with whom, and explain the attempts made to negotiate lower rates.

If you have any questions, in general or about a specific case, please don't hesitate to email the team at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Determining Commercial Reasonableness

Commercial reasonableness is a crucial consideration when determining payment for a physician service. Many recent settlements for Stark and Anti-Kickback violations stem from failure to meet commercial reasonableness standards or from lack of documentation of an agreement’s commercial reasonableness.

What does "commercially reasonable" mean?

The Department of Health and Human services has defined the term as "a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals"1. In the preamble to the Stark interim final rule, Phase II, CMS noted that an arrangement:

will be considered 'commercially reasonable' in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS [Designated Health Services] referrals.2

This second definition, which is most frequently cited, implies a need to look to the market to identify other entities with similar arrangements, not just the internal needs of the negotiating parties.

Testing for Commercial Reasonableness

Determining commercial reasonableness for a physician service involves asking a series of questions about a payment for the service under consideration.

Business considerations

Determine whether the position makes sense from a business perspective, without consideration of the referrals the particular physician might have to your organization. If the position doesn’t make good business sense for the organization, it probably isn’t commercially reasonable. If instead the position relates to the number or type of referrals this physician or her affiliates make to your organization or its affiliates, it is time to rethink the arrangement.

Ask yourself:

  • Is the service to be provided essential to the operation of your healthcare organization?
  • Is the arrangement reasonably necessary for the healthcare organization from a business or quality perspective?
  • What are the specific benefits to be derived from the position?

 

Facility considerations

Not all services are needed at every healthcare facility. A critical access hospital probably doesn’t need a director of bariatric surgery. Step back and think about whether the proposed position is justifiable, necessary, and appropriate for your specific facility.

Ask yourself:

  • Does the volume of patients justify the service?
  • Does the proposed position duplicate other services covered by other physicians or administrative staff under contract?

 

Provider considerations

Consider the candidate and be sure the particular physician meets the requirements and is the best fit for the proposed position.

Ask yourself:

  • Do the services covered by the arrangement require a physician or could a midlevel provider or administrator perform the services?
  • Does the specialty of the physician matter for performing the services?
  • Is the amount of time outlined for the services both reasonable for providing the services and reasonable to demand of the physician within the context of her clinical practice?

 

Payment considerations

Determining whether or not a service warrants payment is the most important aspect of determining commercial reasonableness. Ensuring that the payment rate is appropriate is also key.

Ask yourself:

  • Does your organization’s market necessitate paying a physician for the position?
  • Are there less costly or more creative payment solutions that may serve be more appropriate for your organization?

 

MD Ranger’s percent paying statistic helps organizations determine how often other facilities pay for specific positions.

Percent of MD Ranger Subscribers Who Report Paying for Service
General Surgery Call Coverage
61%
Pathology/Clinical Lab Medical Direction
49%
General Cardiology Call Coverage
35%
Family Practice Medical Direction
12%
Plastic Surgery Medical Direction
7%
Podiatry Call Coverage
4%

Next week, we will look at how to document commercial reasonableness.

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1Medicare and Medicaid Programs; Physicians' Referrals to Health Care Entities with Which They Have Financial Relationships 63 FR 1700 (January 9, 1998)

269 FR 16093 (Mar. 26, 2004)

Determining Commercial Reasonableness and FMV for Physician Payments

MD Ranger 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 these tips to create a successful compliance program to help prevent Stark violations. 

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 the approach and record the step-by-step process.

Consider:

  • 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 your compliance:

  • Written FMV opinions
  • Contract-specific benchmark comparisons (e.g. MD Ranger individual contract reports shown with market range and specific contract’s rate) Click on the image below to enlarge it.
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  • Internal certification document with market data
  • Combination of the above

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Do You Have Guidelines for Handling Exceptional Physician 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.

If you want to read more key physician contracting compliance tips, check out this article.

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Do You Have Too Many Medical Directors?

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:

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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.

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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:

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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.

Let us know if you want to discuss the number of medical directors at your facility with an expert? Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call the office at (650) 692-8873.

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Do Your Research: The First Step in Contract Negotiations

Physician contract negotiations can be tricky, no matter how positive the relationship between the hospital and physician is. Start the process by doing your research.

Review all prior and existing agreements

Start by reviewing the contract that is up for negotiation as well as prior contracts with the group or individual. If it is a current agreement that is expiring, review the key terms and scope of services. If it is a new arrangement, familiarize yourself with what has already been offered to the provider and the proposed scope of services. Check and see if additional contracts exist for the physician or group in question. Multiple contracts with the same physician or group could result in overpayment that is sometimes referred to as “stacking”. It may be reasonable to have multiple agreements with the same physician for different services, but you should keep careful documentation of total payments to ensure that the aggregate amount does not exceed market rate compensation for an individual. For example, if an oncologist with a clinical practice is paid to be the medical director of an infusion service as well as the chief of staff and the director of the cancer center and the aggregate hospital payments exceeds the compensation for a full time oncologist, there could be an issue if her clinical revenues reflect a full time practice as well.

Research the Market

Always perform due diligence before starting negotiations. Commercial reasonableness is an important aspect of physician contracting, especially for a new position. Consider if the position is truly necessary for your organization or results in measurable quality improvement, and that it makes good business sense independent of any referrals by the physician or group.

Know reasonable payment rates for the specialty and the service in question. High quality market data is a great resource. While you should be familiar with the entire range, we recommend targeting rates between the 25th and 75th percentiles of market data. It is important to remember that statistically someone must be paid above the 90th percentile and someone must be below the 25th – and there should be reasons and documentation for those payment levels. 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.

After you are familiar with the situation, take a step back and look at the organizational impact. We will cover that process next week.

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Document Your Process for Physician Contracting Compliance

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, care preparation can help you achieve your desired outcomes.

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.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Documenting Commercial Reasonableness

Documentation of the steps you take to determine commercial reasonableness is important. Carefully document conversations and research/data surrounding the decision. Keep supporting documentation with the contract. In the event that you are audited, you will need to demonstrate that commercial reasonableness was carefully considered along with FMV. Types of documentation that have helped in commercial reasonableness audits include:

  • Information and statistics about the hospital and the surrounding community that indicate the appropriateness of the position under consideration
  • Benchmarks from published market data or other surveys
  • Analytical reports that document difficulties in meeting hospital obligations or quality initiatives that cannot be met without the proposed resources
  • Meeting minutes
  • Email threads
  • Memos between negotiating parties

Commercial reasonableness is just as important as fair market value when documenting contracts for compliance. Although a ‘gut check’ is a good place to start, documentation of market rates and organization needs is key to a strong compliance program. Commercial reasonableness doesn't have to be a mystery; using tools like MD Ranger's percent paying tables and carefully analyzing physician payments will help solve even the most difficult situations.

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Does Every Physician Position at Your Organization Have 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, the OIG’s 2015 settlements and Fraud Alert 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.

If you want to read more key physician contracting compliance tips, check out this article.

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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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Establish a Rigorous Contract Management Process for Physician Compliance

MD Ranger 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 these tips to create a successful compliance program to help prevent Stark violations. 

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 ones)
  • 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.

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Establish Objectives for Physician Contracting and Possible Compromises

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, care preparation can help you achieve your desired outcomes.

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.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Executive Oversight in Physician Contracting Compliance Programs

It's important to place a senior-level executive in charge of overseeing the physician contracting process. This individual should be accountable for both strategic and contractual decisions, as well as ensure that the day to day operations of the program run smoothly. This person should be responsible for reporting to both the CEO and Board of Directors regarding any physician compliance issues. Consider the following for oversight of your program:

  • Carefully consider the best leader to fill the role. Executives or administrators we have seen perform particularly well in the role are:
    • Compliance Officers
    • Chief Finance Officers
    • Key attorneys or General Counsel
  • The executive's responsibilities should include:
    • Overall management of the program, as well as all physician contracting-related decisions
    • Setting physician contract rates or rate guidelines
    • Managing all exception requests
    • Directing the staff who are responsible for day-to-day management (like a contracting director/manager)
  • Involve your compliance committee on a quarterly or half-yearly basis. Update them through:
    • Discussing key contracts for renewal
    • Additional requests for compensation not currently provided
    • Total physician contract spending across the organization, highlighting trends

If you have questions about constructing your physician contracting compliance program, email our experts at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Federal Regulations and the Risk to Physicians

Recent actions by the OIG make it clear that they are investigating physicians as well as hospitals when they suspect a physician contract violates Stark, Anti-Kickback, or False Claims Act regulations. The OIG recently published a Fraud Alert, which warns physicians that they could take on personal risk under the Anti-Kickback Statute for noncompliant compensation arrangements. This debunks the common misconception that the government only prosecutes hospitals for noncompliant contracts.

From a business standpoint, if physicians are not employed by the hospital, the IRS considers them to be independent businesses that enter into contracts with hospitals. Much like when you sign a contract with a contractor to remodel your house, there are negotiations on price—you want the cheapest price for the highest quality work and the contractor wants the most money, but also wants to be hired for the job. However, when you hire the contractor to do the remodel, the government does not have anything to say about how much you pay the contractor. In the hospital business, they do because the government has a vested interest in the hospital either as a payer (Medicare, Medicaid), as the grantor of a tax exemption, and a protector of consumers from kickbacks, price-fixing, and inurement.

Although most health care executives understand FMV restrictions imposed by the Stark regulations, Anti-Kickback statutes and False Claims Act, many physicians do not. Hence it is often important to come to a negotiation armed with market data to support or help structure a discussion on payment rates as well as other regulatory requirements such as prohibitions on payments tied to volume, signed agreements set in advance, and limitations on contract length.

The new OIG advisory “encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.”1 If the OIG finds that a physician is violating Stark or the Anti-Kickback Statute, the settlement and associated legal fees could have severe financial implications for the physician.

In 2014, 12 Texas physicians settled with the OIG for $50,000 to $195,000, or exclusion from Medicare, to resolve allegations that they entered into medical directorship agreements with Fairmont Diagnostic Center and Open MRI, Inc. The government alleges that these medical directorship payments took into account the volume or value of referrals.2

An essential part of any negotiation should be educating the parties about the risks of noncompliance for both the facility and physicians as well as the behaviors that the OIG has targeted. Understanding the gravity – and reality – of these risks may help as you explain why you cannot pay whatever is asked—and why they can’t accept a payment that doesn’t meet the test of fair market value.

To read more about the topic, here are some helpful analyses:

1 http://www.fcaupdate.com/files/2015/06/Fraud_Alert_Physician_Compensation_06092015.pdf 2 https://oig.hhs.gov/fraud/enforcement/cmp/kickback.asp

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Finding the Best Market Range for FMV

Using market data to document fair market value for physician contracts can be a cost effective way to standardize compliance efforts. However, it still can be tricky to determine the most appropriate market range to use for an overall standard or when a variation is justified. Choice of benchmark may even be difficult for some contracts. Many providers adopt a single benchmark quantile as the standard. Nonetheless, there are times when a higher rate is justified or a job description doesn’t quite fit the available benchmarks.

Commercial Reasonableness

The first question to ask when paying for physician services is whether it is reasonable to make the payment. Are other providers paying for the service? Is the service needed and payment necessary? Not all services warrant payment. Compliance requires a determination of both commercial reasonableness and fair market value. To be compliant, it is first necessary to determine the need to pay, then to determine how much.

The IRS provides guidance on how to evaluate commercial reasonableness. According to the Internal Revenue Manual, §4233.27, specific factors to consider include:

  • Duties and responsibilities of the physician
  • Physician's background, experience, and knowledge of the particular engagement
  • Economic conditions of the marketplace

Other factors may include:

  • Does a physician have to perform the service or can a less costly person do it?
  • Is a specific specialty required for the position? Clearly the director of a dialysis center should be a nephrologist. But, does specialty matter for the Chief of Staff or chair of utilization management?
  • Do other facilities pay for the service or pay for multiple positions within a particular specialty?

Which service?

Finding an appropriate benchmark for some positions can be a challenge. MD Ranger has more than 300 physician contract benchmarks, yet we still regularly work with subscribers to find the most appropriate benchmarks for less common situations. Is a neurology directorship the same for accredited and non-accredited stroke programs? Can an adult subspecialty benchmark be used for pediatric subspecialties if no pediatric benchmarks are available?

Sometimes it helps to triangulate across multiple benchmarks. For example, for an adult congenital heart center medical director it could make sense to use the heart center, the cardiology, and the cardiovascular/cardiothoracic surgery benchmarks or number of hours, depending on the size and regional draw of the center. If the proposed contract rates fall below all of the selected benchmarks, documentation may be sufficient for compliance purposes.

How Close to the Percentile Should Rates Be?

Benchmarks can shift from year-to-year hence setting rates right at a maximum percentile can be risky. Shifts are generally small, especially with a large survey database, however you can take steps to mitigate the risk of having to reduce a contract at renewal because a benchmark declined.

Be strategic while setting payment rates.

Perhaps your organization has set its FMV standard at or below the 75th percentile. That doesn't mean every contract should be exactly at the 75th percentile. Different rates may be more appropriate for some positions or physicians. Allowing some wiggle room by negotiating rates between the 50th and 75th percentile anticipates rate fluctuations over time. This is especially recommended when the benchmark in question comes from a smaller data set since such rates are more likely to fluctuate.

If the contract was within fair market value when signed, and documentation exists, payment rates can remain as is until the contract expires.

This is why documentation is crucial. If you document that the contract rates were below a benchmark value when the contract was signed, it is compliant until the contract expires. Upon expiration, if the benchmarks are no longer valid, extra documentation will be needed. This may include written analysis of the value of the program, the particular credentials of the physician, the time spent fulfilling contract duties, inflation rates and comparisons to old and new benchmarks. This is one reason the government advises against ‘evergreen’ contracts and suggests contract terms of no more than two or three years.

All contracts should not be above average.

A higher rate may be justified for unique situations, but factors should be well documented. Relevant factors may include a limited number of physicians in a particular specialty, high call burden, unfavorable payer mix or, a program director who is one of the top specialists in the U.S. with documented credentials. These all can all be legitimate reasons for high rates; after all, someone has to be above the 90th percentile in all benchmarks. However, all payment rates above the 90th percentile need thorough documentation and they should be reserved for unusual situations, not the standard for all physician contracts at an organization.

Demonstrate efforts to negotiate the lowest possible rate.

Documenting the negotiation process and basis for rates is a compliance necessity. If you are unsuccessful in reaching agreement on a rate within your benchmark standard, take special care to document negotiations. Note who met with whom and explain the attempts to negotiate lower rates. In some situations, it may also be necessary to issue an RFP for the service to document that you were unable to procure the needed services for a lower rate.

Documentation is everything and some situations will require a formal valuation to validate the need for higher than “market” rates. A strong compliance program will build a process that depends on smart use of market data, intelligent and consistent analysis and documentation of exceptional situations.

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Five Can't Miss Physician Contracting Compliance Tips

These quick compliance tips are a great starting point for hospital and health system executives dealing with physician contracts for administrative, leadership, call coverage, and hospital-based services. These tips can 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 AKS 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.

Consider:

  • 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 (e.g. 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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FMV Benchmark Range: What Percentile is Best?

Our subscribers frequently ask us where the majority of their physician contracts should fall within the market ranges. When setting standards and procedures, which rates are compliant with Stark and which ones aren’t?

While Stark doesn’t explicitly outline what market range is off limits, it is an industry-wide standard to avoid entering into a contract above the 75th percentile. Generally speaking, if you are compensating a physician at or below that level, you have little cause for concern in justifying the rates at which you pay her. Allow that payment to creep over the 75th, and you may have cause for concern if you haven’t properly justified and documented your reasons for compensating more.

However, consider the situation of your hospital. While all health care providers in the US have important things in common, each and every facility is unique in some way.  Is there are aspect of your organization, community, or region that might affect physician recruitment or compensation?  Are you attempting to reduce costs, therefore setting compensation no higher than the 50th percentile?

We’re curious: what is your standard for contracts?

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FMV is not the end of the road, you still have to enforce the contracts

When our subscribers ask about physician contract compliance best practices, we caution them to be sure that the annual payment, the hourly rate, and the hours of service are compliant, and that contract performance and payments are tracked. Negotiating compliant terms and filing documentation isn’t enough. An effective compliance program also requires ongoing documentation that the work being performed is appropriate for the payments being made. Physician contract compliance is not complete after fair market value is documented.

New settlements for Stark, Anti-Kickback, or False Claims violations are being reported with growing frequency. Many of the parties had compliance policies in place that were not being followed. Violations that led to settlements, include:

  • Automatically paying a physician the same amount each month without verification of work completed
  • Continuing to pay a physician after the contract end date
  • Not verifying physician time logs for accuracy
  • Not confirming that reported activities are compensable
  • Incomplete or missing time logs

 

These violations often result from the lack of automation or insufficient internal processes. Keeping time records is an essential, but often irritating task for physicians and administrators that has long been begging for a solution.

One solution to the challenge is a mobile app to replace paper time logs. One example of such an app is DocTime Log®, which allows physicians to report administrative duties via their cell phone or tablet while software automates and streamlines the reporting and payment process for approvers of the time logs. While MD Ranger’s Physician Contract Benchmark Reports help hospitals determine and document FMV, DocTime Log® matches reported time and activities to the contract terms, thereby simplifying the documentation and payment process.

Another tool that facilitates compliance is an easy-to-use contract management system that provides notification of end dates. MD Ranger provides a tool that includes effective dates and benchmarks each contract against current MD Ranger rates. Used in conjunction, these types of tools should increase your organization’s compliance and improve the workflow of your compliance team.

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From AHLA’s 2015 Annual Meeting: Complex Fair Market Value/Commercial Reasonableness Compensation Issues

Speakers: Robert Wade, Partner at Krieg DeVault, Rud Blumentritt, Partner at Horne LLP

While most of us understand the risks associated with the Stark Law and the Anti-Kickback Statute, and if you don’t, we have your back. There are always cases that are in the grey areas or are just downright complicated.

While at the American Health Lawyers Association Annual Meeting, I attended a session geared toward just the problem of handling complex fair market value and commercial reasonableness issues.

There are three different perspectives to looking at fair market value:

  • The bystander approach
  • The professional appraiser approach
  • The legal and regulatory approach

With any approach, it is important to consider the specific market conditions in your area for the specific specialty in question. For example, it may be necessary, and reasonable, for your organization to pay at the higher end of the market range for anesthesiology based on the localized supply of physicians, however that does not mean that it is necessarily reasonable to pay at the higher end of the market range for gastroenterology.

When documenting FMV, it is also a best practice to document the commercial reasonableness of paying for the position in the first place. MD Ranger helps our subscribers get an idea for whether is is commercially reasonable to pay for a service through our Percent of Subscribers Who Report Paying for a Service and Paid Administrative Position Count tables. While commercial reasonableness is subjective, having benchmarks to inform your decision can help to justify paying, or not paying.

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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.

If you want to read more key physician contracting compliance tips, check out this article.

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HCCA: Compliance in the Post-Acute Environment

On Sunday morning, I attended the session “Compliance in the Post-Acute Environment”. Given that MD Ranger serves an increasing number of these types of organizations, I looked forward to learning more about compliance in this particular space.

The speakers first tackled the tough reality that, while compliance programs for post acute facilities have been mandated by ACA, we still don’t know the specific requirements of these programs. This presentation addressed how compliance officers in the post acute world can “predict” what the OIG and CMS will care about, and structure their compliance program and procedures accordingly.

Overall, it’s safe to say that many elements of an acute care organization’s compliance program translate on the post acute care side of the industry. The speakers emphasized the importance of an easy to understand code of conduct (or compliance policies), as well as a compliance officer that has the resources and authority to do her job. Sanction screening, internal monitoring, enforcement, and measures to address non-compliance were all important elements of post acute compliance programs.

Despite the fact that a lesser number of physicians are involved in post acute care, the speakers took care to mention that a thorough review of your physician contracts is essential to preventing risks like AKB violations or Stark violations. Reviewing agreements with all referral sources can help you document your compliance with federal regulations and ensure that all contracts are fair market value. Integrating physician agreements with your formal compliance program is key.  From our perspective at MD Ranger, we couldn’t have said it better ourselves. Because post acute care organizations are so heavily dependent on referrals from key physicians, documentation of FMV becomes even more critical.

Post acute organizations:  how do you handle physician contract auditing at your facilities?

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HCCA: What’s FMV Got to Do with It?

Monday, I attended the session “What’s FMV Got to Do with It?: The Role of Fair Market Value in Physician Employment Arrangements”.  While MD Ranger doesn’t benchmark employed or salaried physician data, it is very closely related to the contracted physician arrangement.  Because of the recent developments in the Halifax case, this session revolved much around this example.

Much of the debate over the Halifax case, according to this session, stems from whether the physician arrangements in question were employment arrangements or not.  Employment and contracted physician arrangements are held to different standards under Stark and AKB.  It is important to note that when you have a bona fide employee, you can pay them for referrals but, a contracted physician is subject to the referral regulations and penalties from violations under Stark law and AKB.

How do you document employment of physicians or the FMV for contracted physician arrangements in your organization?

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Hot Compliance Tip: Identify and Segment Your High-Risk Physician Contracts

All hospitals have at least one incredibly challenging, contentious relationship with a physician or a physician group.  How does your organization keep track of these hot-button contracts, ensuring that there is plenty of time to negotiate before the contract expires? How do you make sure that their compensation is compliant with Stark and within fair market value?

It’s important to get your physician contracting team organized.  Straightforward policies and procedures guide operations, as well as provide consistency that’s important for compliance. Set alerts in your contract management tool, or task one person on your team to stay on top of expiring contracts at least six to eight months before their anniversary date.

Analyze your physician contracts and segment by type.  A straightforward way is by service (emergency call, administrative, hospital-based service, hospital-based clinics, etc).  If your organization is a large health system, classifying by region or by state could be helpful. Classify the dollar amount (high value or low), as well as the quality of the relationship with the physician or group. Don’t be afraid to create a grading system to rate the security of the contract and the quality of the relationship with the hospital. Segmenting your contracts by relationship strength can help you quickly determine the number of physicians and number of contracts that might need TLC. Segmentation helps as you analyze the market rate for the contracts, and helps prioritize the most important contracts your organization holds.

Need more help with contract management and organization? Download our compliance checklist here: https://go.pardot.com/complianceriskchecklist

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Hot, Actionable Compliance Tips

How does your organization ensure that its financial relationships with physicians are compliant with federal regulations? Here are just a few tips to help you get started today.

1. Is your organization fully aware of Stark Law and Anti-Kickback statutes, as well as the fines and penalties for non-compliance?

Many organizations we find who are non-compliant with federal regulations aren’t aware of the severe penalties. Physicians themselves hold considerable risks, both financial and to their reputation. However, given hospital’s reliance on CMS, the penalties can have a huge impact. Sanctions for hospitals violating Stark law include inability to bill to CMS, refunding payments (up to three times the amount of the initial payment), and denial of payments. Audits can be extremely costly to an organization and will run into the millions of dollars for penalties and fees. In early 2013, Intermountain Healthcare paid a $25 million settlement involving 209 physicians.  In 2012, HCA settled a case involving imaging referrals for $16.5 million.

2. Does your organization have contracts for all contracted services/positions?

It’s important to document all financial arrangements with physicians. This is easier said than done, especially when it comes to contracting for call coverage or medical directorships. Work with administrators and chiefs of staff to ensure that all contracted positions are well-documented and contracted, with payment rates and expiration dates clearly articulated.

3. Do you track or automate contract expiration dates?

When organizations deal with hundreds of contracts that renew throughout the year, keeping organized is critical for successful and timely renegotiations. If your organization doesn’t have a contract management system built internally or contracted externally, obtain or create one. Automate the process of renegotiation once a contract is three or six months from expiration, and decide on a consistent process for addressing and executing renewals.

For more compliance tips, check out our Compliance Risk Checklist.

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How Can You Protect Your Organization from AKS Violations?

Health care regulations governing hospital-physician contracts are highly technical, which makes deciphering them difficult. However, knowing the details is essential to preventing your organization from getting dinged with large fines. The two most important regulations to understand are the Stark Law and the Anti-Kickback Statute. While this post focuses on the Anti-Kickback Statute, if you would like more information on Stark law,watch our 11-minute video.

Have a contract for every physician you engage, with or without a regular payment

Having a written and signed contract with terms and payment rates outlined prior to a physician initiating services ensures that the terms are understood before entering into the relationship. It is a good idea to have contracts for unpaid positions as well, just to make sure you are covered.

Be specific about the duties covered and expected for the position

Describe the services to be provided in detail in the contract. Keep in mind that if a duty is not specifically listed in the contract, it is not technically covered by that contract, and the hospital should not be paying for it as if it were. For administrative position contracts, specify the expected and maximum number of hours that will be reimbursed. Monitor the physician time records to check that the responsibilities and time spent are consistent with the contract.

Document non-monetary compensation

If you provide any non-monetary perks, make sure they are appropriately documented and objectively provided based on non-volume or revenue criteria. These might include: parking spaces, meals, EHRs, technology, infrastructure, etc.

Set rates at FMV

Ensure your negotiated contracts include FMV and commercial reasonableness documentation. If there isn’t documentation, flag the contract for immediate review. If the documentation doesn’t provide clear justification for paying the rate outlined in the contract, flag it as needing additional documentation. Have a consistent method for documenting FMV such as a set of reference benchmarks or outside opinions.

Don’t do anything that could be construed as payment or reward for referrals!

Paying for referrals or bribing physicians in any way is illegal. Make sure when you review physician contracts that no payments take into account number of patients, revenue, or anything that could be construed as a referral.

The regulations that guide physician contracting can be confusing and overwhelming, but it is imperative that you understand the rules and the consequences for violating them.

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How Do Hours Differ for Leader and Non-Leader Roles?

Payment and hours of service benchmarks for medical directorships are available from several sources. However, in today’s health care environment, facilities need physicians for a number of reasons, and it can be difficult to convince a physician to give up time to sit on a committee, serve as a medical staff officer, train for CPO or EHR, help with peer review or participate in quality initiatives. Establishing a fair and compliant payment rate for a position that does not need a particular type of specialist can be a challenge!

How Do Hours Differ Between Leaders and Non-Leaders?

Median annual payments are higher for leaders (committee/initiative chairs and directors) than for non-leaders. For Case/Care/Utilization Management, the annual payments for chairs and directors are more than double the annual payment for non-chairs in Case/Care/Utilization Management. These differences reflect the time and effort required for managing or leading a process compared to members of a committee or task force, or one-time training compensation.

Annual Payment Ranges for Leaders and Non-Leaders

Are Payments Increasing Over Time?

Payments in 2015 are higher than either 2013 or 2014 across all quantiles.

Non-Clinical Administrative Annual Payment Rates

To learn more about paying leaders and non-leaders, email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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How to Talk to Physicians about Compensation as it Relates to Compliance

This is admittedly a tricky topic. Physicians can become suspicious when hospitals talk about FMV and think it’s an excuse for hospitals to pay them less. This often is because of lack of education. If this is the case at your organization, you must work hard to mythbust.

We recommend being straightforward about the definition of FMV and give real-world examples of what that means. Talk about ways to determine FMV: market data, valuation methods, and your organization’s preferred method. Give case examples. Try writing up some FAQ’s relating to FMV, Stark Law, and the Anti-Kickback Statute for doctors.

When it comes to discussing methods to determine specific doctor’s compensation, organizations take one of two positions. Some choose to share their methodology, data, and research with physicians on how they are determining their compensation. Others choose not to reveal sources. There are legitimate reasons for each position. We recommend that whatever approach your organization chooses, be consistent. Always explain your reason(s) why.

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If the Situation with a Physician is Complex, Document It

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, care preparation can help you achieve your desired outcomes.

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.

Want to discuss your organization's contract negotiation process with an expert? Email the team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Ignoring Physicians in Your Compliance Program is a Bad Idea

If you’re a compliance officer or work in compliance or legal at your organization, ask yourself if you know any physicians who work at your hospital. If the answer is no, or only a few, you have some work to do.

At its core, physician engagement is about building relationships. You are extremely busy, as are physicians, so how do you find time to invest in building these important relationships? Try asking for physician input when revising compliance procedures, training, or policies. Build a physician steering committee for compliance-related issues. Ensure that at least a physician or two is on your organization’s compliance committee. Lastly, try walking the halls of your organization and introducing yourself to your physician colleagues.

Put a friendly face on compliance for your physicians, and you are one step closer to ensuring compliant and high-quality care at your organization.

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