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:
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.
Critical Care agreements represent formally organized services staffed by intensivist physicians with special training (usually pulmonary and/or critical care) to manage acutely ill patients in a critical or intensive care unit. Physicians are contractually obligated to spend a portion of each day on-site in the ICU serving as the primary attending physician for patients receiving critical care in the hospital. Critical and intensive care coverage contracts are most common in larger hospitals. Many hospitals only pay for medical direction for critical care units, but some pay for coverage.
Key Factors to Consider in Contract Analysis:
- What is the average daily census of patients covered by the service and what fraction of the hospital’s total ICU census is attended or covered by the contracted physicians?
- For those patients not attended by contracted physicians, is there a payment arrangement with the hospital?
- Are the contracted physicians required to be board-certified in critical care, pulmonary critical care, or surgical critical care?
- Is there an electronic ICU (eICU) service that provides back-up or after-hours coverage?
- Is the in-house coverage requirement for less than 6 hours per day or 42 hours per week?
- Is the proportion of Medicaid, Medicare, or unsponsored patients extremely high or low?
Many if not most hospital-based agreements grant exclusivity. The OIG confirms that exclusivity has economic value in the following case study from the OIG:
"We are aware that hospitals have long provided for the delivery of certain hospital-based physician services through the grant of an exclusive contract to a physician or physician group, which includes management, staffing, and other administrative functions, and in some cases limited clinical duties. These exclusive arrangements affect the cash and non-cash value of the overall arrangement to the respective parties. Depending on the circumstances, an exclusive contract can have substantial value to the hospital-based physician or group, as well as to the hospital, that may well have nothing to do with the value or volume of business flowing between the hospital and the physicians. By way of example only, an exclusive arrangement may reduce the costs a physician or group would otherwise incur for business development and may eliminate administrative costs otherwise incurred by the hospital. In an appropriate context, an exclusive arrangement that requires a hospital-based physician or physician group to perform reasonable administrative or limited clinical duties directly related to the hospital-based professional services at no or a reduced charge would not violate the anti-kickback statute, provided that the overall arrangement is consistent with fair market value in an arm's length transaction, taking into account the value attributable to the exclusivity. Depending on the circumstances, examples of directly-related administrative or clinical duties include, without limitation: participation on hospital committees, tumor boards, or similar hospital entities; participation in on-call rotation; and performance of quality assurance and oversight activities. Notwithstanding, whether the scope and volume of the required services in a particular arrangement reasonably reflect the value of the exclusivity will depend on the facts and circumstances of the arrangement. "
The important bit to note is the bold sentence. So, now that we know that exclusivity has an economic value and the OIG cares about it, is there a generally accepted way to quantify the economic value? Unfortunately, no. However, here are three good approaches to handling the economic value of exclusivity:
- Have the FMV documentation (internal documentation or valuation opinion by consulting expert) recognize the exclusivity and that this has value
- Seek to negotiate a compensation level at discount or lower point in the FMV range— than would otherwise be the case
- Most ranges from the market approach will already include the discount for exclusivity
- Most ranges from the cost approach will not include the discount
- Include a discount in the range of 5% to 10% to reflect value of exclusivity
Emergency medicine contracts are for the professional staffing and physician oversight of hospital emergency departments. High volume and high census hospitals and more likely than lower volume hospital to pay for medical directorship services. Many emergency medicine contracts include not just emergency room call coverage, but also urgent care and employee health services.
Key factors to consider in negotiating your next emergency medicine hospital-based contract:
- What is the annual volume of visits?
- Is this a designated trauma center?
- What are the collections per required full-time equivalent physician? How do collections compare with industry benchmarks for collections and compensation per FTE physician?
- What is the average wait time for patients?
- How many physicians are required to be in-house at any given time?
- Are physician extenders used for supplemental staffing?
- Is the proportion of Medicaid, Medicare, or unsponsored patients extremely high or low?
- Does the scope of service include multiple sites or multiple levels of care, such as urgent care or occupational health?
We recently looked at both call coverage and medical direction analysis from MD Ranger’s 2017 physician contracting benchmarks. Let’s examine hospital-based service contracts and what components make up these sorts of agreements.
As the graph displays, the plurality of hospital-based service contracts for all services pay for only medical direction, with 33% of agreements involving only this component in the contract. However this component type breakdown varies significantly by service. For instance, stipends are the most common payment type for Hospitalists, Laborists, and Intensivists. For some services, such as Emergency, Pathology, and Radiology, agreements with only medical directorship payments or unpaid agreements are common.
The percent of contracts in each component combination have remained stable year over year in our benchmarks. The largest drop we have seen this year, when compared with 2016, is a drop in coverage only components from 16% to 8%.
Conversely, hospital-based contracts involving stipends saw slight increases since last year. Stipend only components jumped from 19% up to 23% while agreements containing stipends and other components rose from 13% to 17%.
Sometimes we get pushback from hospital executives who believe that hospital-based contracts are too complex and unlike each other to pull out meaningful marketing data.
The fact is: hospital-based data has a similar amount of variability to call coverage data. If you're using market data to establish rates for call coverage, which most hospitals are, then you could use hospital-based data without hesitation (as long as the data are high quality).
Some of the growth in physician expenditures appears to be the result of continued growth in the number and scale of hospital-based programs and services.
Prior to the 1990s, private community physicians admitted most patients and hospital-based physician contracts were limited to anesthesiology, radiology, pathology, neonatology, and emergency to ensure continuous coverage of basic hospital services (often without hospital compensation/subsidy). Over the last 20 years, there has been a huge transition in how physicians work in and out of hospitals, with a continuing expansion of contractual arrangements for specific populations including: general hospitalists, pediatric hospitalists, critical care, trauma surgery, OB hospitalists/laborists, and orthopedic, surgical, neuro, and specialty hospitalists.
Hospital-based service stipends often cost hundreds of thousands of dollars annually; MDR has seen growth in both the number of hospital-based contracts and the size of those contracts. One of the fastest growing types of programs is OB hospitalist/laborist programs. Between 2015 and 2016, there was a 25% increase in median annual payments (excluding medical direction), to $800,000.
Increased cost of hospital-based programs could be driven by a number of factors, including increased scope of work, a rise in the number of quality, outcome, and pay-for-performance related initiatives driven by regulatory and accreditation organizations, falling census and reimbursement rates, aging physicians, and physician shortages.
MD Ranger collects hard-to-find information on hospital-based services like anesthesiology, pathology, radiology, etc. While it is hard to define what services count as hospital-based due to the current shifts in the practice of medicine and healthcare as a whole. Hospital-based services should have the following characteristics:
- Recognition: The service should be generally recognized as hospital-based either by professional organizations or by emerging trends in medicine.
- Specialization: At least some of the panel members have most or all of their practice in a service that is hospital-based.
- Restricted Coverage: The contracts requires 24-hour coverage which may be in-house for part or all of the day.
Here are the median rates for the highest paid hospital-based services in our database:
To find out more about paying hospital-based services, check out the hospital-based section of our blog.
Hospital-based services often have more complicated contracts than other services. These physicians typically only provide services in the hospital setting (i.e. anesthesiologists, pathologists, trauma surgeons). Agreements with these physicians cover clinical coverage and administrative services for all patients in the hospital requiring that service.
The graph below shows what percent of hospital-based contracts have payments for call coverage, medical direction, or a stipend to cover broader obligations.
Unlike the majority of call coverage, leadership, and medical direction contracts, hospital-based agreements often include incentive payments. Having previously looked at what types of position are commonly contained within hospital-based agreements, let’s examine what sorts of incentives are most common to these hospital-based contracts using MD Ranger’s 2017 Physician Contract Benchmarks.
As we can see in the graph, the percent of hospital-based contracts that include incentive payments has nearly quadrupled since 2013, with almost 40% of contracts now including some type of incentive. The three most common indicators that hospitals use for incentive payments in hospital-based contracts are cost, quality, and patient satisfaction.
The data show significant spikes in all 3 main types of incentives from only 2016 to 2017. Cost component incentives jumped from 6% to 12%. Quality component incentives rose from 15% to 22%. Patient Satisfaction component incentives grew from 12% to 19%.
The increase in hospital-based agreements that include any incentive payments grew from 28% in 2016 to 39% in 2017. This serves as more evidence of the impact of pay-for-performance standards in hospital-based agreements.
Most of these contracts offer exclusive rights to perform the service in question at the hospital. Because exclusivity has economic value, you need to document what that value is, and why it's within fair market value.
Documenting these types of agreements is straightforward. Document the value of exclusivity of the contract. You should have gone through this exercise before creating the contract, but in case you haven't, check out this blog post to get ideas for how other organizations determine the economic value of exclusivity (link to above post). When you file the contract away, include the documentation and reasoning for not needing to compensate for the service. This could be as simple as "professional collections sufficient", with economic exclusivity.
Unsure about an unpaid arrangement? Call our office at 650-692-8873.
It can be challenging to define hospital-based services given current shifts in the practice of medicine and healthcare in general. Hospital-based contracts are often complex contracts that can integrate many different types of services within the specialty, and can differ widely between services and even within services.
Despite the lack of a bright line, here are three defining characteristics of all hospital-based agreements:
- Recognition: the service must be generally recognized as a hospital-based service, either through professional organizations or through developing trends in the practice of medicine. Examples of these services, though they are changing, are pathology, radiology, and anesthesia. Newcomers to hospital-based medicine include hospitalists, neonatology, and orthopedic surgery.
- Specialization: At least some of the panel members have most of their practices in a service that is mostly, if not all, hospital-based.
- Restricted Coverage: the contract demands 24 hour coverage, either in-house for the entire day or at least during a defined period. Additionally, emergency coverage will be provided for the rest of the day.
Anesthesiology agreements typically cover all sites within a facility that require anesthesia. These include inpatient operating rooms, outpatient operating and procedure rooms, and obstetrical services. They typically include coverage for a defined number of ORs for specified hours and days of the week. This is to ensure the availability of an anesthesiologist for both scheduled and unscheduled cases. Emergency services may be provided by an in-house or on-call physicians. At minimum, coverage is for general anesthesiology services but may also include subspecialists like cardiac, pediatric, obstetrics, and pain management. Often, anesthesia contracts can be the largest, most complex physician agreements that a hospital will negotiate.
When analyzing an anesthesia contract for renewal or to create a new agreement, here are the most important factors to consider:
- What are the total number of surgical cases, births, operating rooms, covered sites, and hours of on-site coverage required? Make sure you know the entire scope of the agreement so that the negotiated rate makes sense.
- Is in-house coverage required after 7pm and on weekends? Restricted call rates are typically higher, as is weekend/holiday coverage.
- Does the contract require anesthesiologists with specialized training and certification in fields such as cardiac or pediatric anesthesiology? If so, this might impact rates.
- Is the proportion of Medicare, Medicaid, or unsponsored patients extraordinarily high or low? Some contracts include payments for uncompensated care.
- What are the average number of cases per day, per year, per room, and per physician, and how do they compare to industry benchmarks?
- For contracts based on collections or unit value guarantees, are the annual per physician compensation amounts or unit values based on fair market value assumptions for those values?
- Are both the aggregate and the per physician per diem payments reasonable? Have you compared them to industry benchmarks?
Neonatology agreements are for professional staffing and physician oversight of licensed neonatal intensive care units. These agreements provide clinical coverage and administrative oversight of Level 2 or Level 3 neonatal intensive care units, or NICUs, by physicians trained in neonatology. In some hospitals general pediatricians may provide some staffing, although in such instances a neonatologist is available for consultation at all times. May contracts in the MD Ranger database pay medical direction only (78%).
Key Factors to Consider While Analyzing Neonatology Contracts:
- Is the in-house coverage requirement greater than six hours per day or 42 hours per week?
- Is the proportion of publicly sponsored or uninsured patients extremely high or low?
- Are physician extenders used and provided by the physician group?
- Are professional services provider for inter-facility transports to the NICU?
- Are outreach services provided to other facilities?
- Are teaching services required and included for academic training programs?
Pathology agreements with hospitals are for professional staffing and physician oversight of both anatomic pathology and clinical laboratory services. The clinical laboratory service may include “outreach” laboratory services as well. Note that outreach services often compete with commercial laboratory firms, providing services to physicians’ offices, industry, long-term care facilities or other entities thus encompassing a broader scope of service than a hospital-only service.
MD Ranger collects information on volume-related benchmarks that include total annual net payments excluding medical direction in ratio to the total number of anatomic pathology cases. We note that a large proportion of MD Ranger pathology contracts pay for medical direction services only. Payment of stipends, and the amount of stipends, appears to increase with a higher percentage of government payers.
Key Factors to Consider in Contract Analysis
- Is the number of surgical cases below 2,500 per year?
- Is there an outreach laboratory, and if so, do the tests from that service represent more than 30% of total tests?
These contracts provide for pediatric hospitalist services, most frequently provided by board-certified pediatricians. The contracts provide physician staffing for dedicated programs in which at least one physician is available or on-call at all times to:
- Provide general attending coverage for pediatric inpatients
- Serve patients who require a consultation or admission, and who do not have a primary pediatrician or whose pediatrician does not have privileges at this facility
- In some hospitals, the pediatric hospitalist staff attend newborns following delivery
- Provide consultation services requested by physicians in other services
In addition, pediatric hospitalists may provide attending physician management services for private patients whose physicians elect to use a hospitalist service for inpatient management. Many contracts require at least one physician to remain in the hospital at all times. In low-volume programs, after-hours and weekend coverage may be provided on an on-call basis, generally with daily rounds. Many services require attendance at high-risk births, as requested, as well as first-responder service to the neonatal intensive care unit when a neonatologist is not in-house.
Volume-related benchmarks include total net annual payments excluding medical direction in ratio to average daily census of the whole hospital.
Key Factors to Consider in Contract Analysis:
- Is coverage on site 24 hours per day? Are weekends included?
- How many physicians are required to manage the case load?
- What is the average daily census attended by the hospitalist service?
- What are the professional fee collections per physician? How do collections compare to industry benchmarks?
- What is the frequency of call or coverage for the participating panel?
- Is the in-house coverage requirement less than 6 hours per day or less than 42 hours per week?
- Is the proportion of Medicaid or public patients extremely high or low?
These contracts provide for professional staffing and administrative oversight of imaging services for both inpatient and outpatient services. Some agreements include interventional radiology, mammography, and freestanding imaging centers. Volume-related benchmarks include total net annual payments excluding medical direction in ratio to the total number of imaging procedures at the associated facility.
About thirty percent of contracts include payment only for medical direction. Payment of stipends, and the amount of stipends, appears to increase for smaller facilities or those with low average daily census.
Key factors to consider in radiology contract analysis:
- Is the proportion of Medicaid, Medicare, and unsponsored patients extremely high or low?
- What are the collections per required full-time-equivalent physician? How do collections compare to industry benchmarks for collections and compensation per FTE physician?
- Is there a 24-hour emergency interventional radiology requirement?
- Is in-house staffing required for more than 8 hours per day or 40 hours per week?
- Is there a teleradiology service, and who pays for it?
Since 2010, MD Ranger has collected hard-to-find market data on hospital-based service contracts like anesthesiology, pathology, radiology, etc. Our data collection method is unique because we get our data directly from hospitals.
We collect data on ten different hospital services. In addition to gathering payment rates, we also collect information on incentives, compensation methods/payment structure, unsponsored payments, and sites of service included in contract.
Here are median pay rates for the highest paid hospital-based services we collect:
Last week, we released our 2014 Reports. One observation we made is that the number of hospital-based contracts with incentive components grew from 10% in 2013 to 21% in 2014. We wondered in October of 2013 if incentives were a growing trend in physician contracts. We thought it might be a good time to revisit this question with fresh data.
Of the contracts with incentives, the number with quality components of incentives are down compared to 2013 (62% in 2014 versus 86% in 2013) and have been edged out by other components (66% in 2014 versus 48% in 2013) as the most common metric in determining incentive payments. Cost components of incentives remain unchanged (31%) while patient satisfaction components were down slightly (60% in 2013 to 52% in 2014).
Hospital-based services can be the most intricate of contracts. Since 2010, MD Ranger has been collecting data on these arrangements. These agreements often contain features other than just a payment rate; we collect information on incentives, compensation methods/payment structure, unsponsored care payments, and sites of services included in the contract.
These hospital-based contracts can add up to be a significant portion of a hospital’s physician expenditures. Here are the top three highest paid based on the mean total annual payment.
Do you need help determining what fair market value for your hospital-based contracts is? Call us today, 650-692-8873.
MD Ranger has discovered that more and more hospitals are incorporating incentives into physician contracts. While only 11% of the hospital based service contracts include incentive components, they have the potential to comprise a significant portion of contract payments. The most common metrics for incentive measurement include quality (86%), patient satisfaction (60%), and cost (31%). Incentives based on quality metrics have grown, while those for cost metrics have decreased.
The MD Ranger database has over 9,000 contracts across dozens of specialties and positions. Our data is from over 300 facilities across 27 states. Below are some interesting statistics from our database:
- Nearly 1 in 5 hospital-based service contracts include payments for uncompensated care.
- 19.6% of hospitalist contracts have incentive components, which is one of the most likely specialties to have incentives.
- Emergency, Anesthesia, and Hospitalist contracts are the most likely to include incentives.
- Quality is the most likely metric for incentives (94%), followed by patient satisfaction (65%) and cost (39%).
- Cost incentive components have decreased over time, while incenting for quality has increased.
- Most hospital based service agreements include medical direction. The specialties most likely to include medical direction or administrative payments are perinatology, pediatric intensive care, emergency, and pathology.
- All hospitalist and emergency contracts that have incentives are tied to quality.
- 36% of hospital-based contracts pay annually or monthly; 20% pay daily (per diem)
- Only 7% of contracts have collection guarantees.
- More contracts include medical direction (78%) than call coverage (59%).
- 20% of hospital contracts are unpaid.
At MD Ranger and our affiliated consulting firms, we're seeing interesting trends emerge regarding the location of where medicine is practiced. These trends follow what's been seen in other developed countries' over the past 2-3 decades.
Physicians used to practice medicine in both the office and hospital setting and were generally comfortable with following their office patients to the hospital and vice versa. We now observe that across a growing number of specialties, physicians are beginning to either work exclusively in the hospital setting, or remain at their office practice and not follow patients who are admitted to the hospital for an acute episode.
Specialties that first began experiencing this bifurcation in the 90s were internal medicine (calling the new emerging physician a "hospitalist"), neonatology, critical care, radiation oncology, and trauma surgery.
Specialties that we see increasingly bifurcate are:
- acute care surgery (trauma surgeons who perform general surgery when no trauma patients are present in the OR)
- pediatric intensive care
- orthopedic surgery
Sometimes, hospitals make payments to physician groups beyond professional fee collections in order to provide a service at the hospital. Depending on the level of coverage and other case-by-case factors, the group may earn less than the cost of covering the service. Hence, given the lack of economic incentive, the hospital must pay to have the service covered at the organization.
There are two general ways to pay these groups:
- If there is a specified amount per year, it's called a stipend
- If the hospital makes up the difference between collections and a specific target, it's a collections guarantee.
MD Ranger is the only resource that benchmarks hospital-based service stipends.