Understanding Market Data

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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Apply Market Data to Find Appropriate Physician Payment Ranges

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Apply the market data to find an appropriate payment range.

Once you have determined that it is commercially reasonable to pay a physician and you have found the most appropriate benchmark, you can proceed with using market data to find a range for the rate. Straightforward call coverage, administration, and medical direction payment rates can be determined using market data in most cases. For more sophisticated hospital-based agreements, market data is a great place to start for budgeting and planning. A more robust analysis could be required for these complex arrangements.

MD Ranger provides benchmarks for many facility characteristics – including hospital size, trauma/non-trauma, urban/rural, average daily census, Medicare disproportionate share, and payer mix. MD Ranger also offers specific benchmarks for a broad range of administrative positions, call coverage, and medical staff officer positions, as well as meeting attendance and ad hoc services such as IT/EHR and quality initiatives. These data slices allow you to precisely match your contracts with market data, to get insight into your payment levels and to provide reliable FMV documentation.

Check back next week for the fifth step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Check the Scope of Services in Physician Contracts

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Determine if the scope of services match the scope of services described by the benchmark rates.

Everyone knows that if you’ve seen one physician compensation agreement, you’ve seen one physician compensation agreement. Though no physician contract is alike, it is important to compare positions to like positions. Seemingly small differences between positions could have an impact on rates. A good example is comparing a physician who is restricted while they are on call to a benchmark that includes both restricted and unrestricted positions (i.e. restricted from doing surgery while on call). The burden of taking call that is restricted is typically higher, and often results in higher payment rates.

Likewise, if the duties for a medical directorship require more hours than benchmarks suggest, carefully document the basis for the additional hours through historical time records or schedules for meeting requirements, training, etc. Certain types of administrative roles have broad ranges of required hours depending on their scope. For example, a quality initiatives or EHR champion may require more hours than the committee chair for a single quality initiative, particularly during an implementation period.

If you find that the market data does not have a similar scope of service, you may want to consider a full-scale valuation to ensure the new contract is FMV.

Check back next week for the fourth step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Comparing Apples to Apples While Using Market Data

Market data can be a fast, reliable, and cost effective way for hospitals and health systems to benchmark their contract rates.  

It is important to assess the comparability of market data to the job description of the benchmarks and your facility’s position.  A broad dataset of specialties, directorships, and administrative positions allows better documentation of market rates.  Leadership positions, such as chief of staff or EHR/IT implementation, often do not vary by specialty.  Using a rate for a specialty-specific directorship might set a rate that is not fair market value.  MD Ranger reports dozens of medical directorships and coverage positions as well as leadership positions and ad hoc positions such as committees, teaching, and quality initiatives–giving its subscribers the opportunity to make accurate comparisons.

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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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Defining Outlier Payments and Negotiating Compensation

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.

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.

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Distribution of Rates in Market Data

Market data can be a fast, reliable, and cost effective way for hospitals and health systems to benchmark their contract rates.  

The distribution of payment rates can be revealing, depending on the attributes of the sample size and specific data set.  When looking at a distribution of market rates, observe the variance in the data.  If the distribution is fairly concentrated and there’s not much difference between rates, this could suggest that rates are very consistent across markets and facility types. However, even if quantile ranges are narrow, it doesn’t mean that there aren’t significant and meaningful outliers.  In a robust data set the outliers don’t impact the range significantly; however, in a large dataset the facilities over the 90th percentile sometimes represent special circumstances that may be valid reasons for higher pay.  Examples might include highly specialized or nationally recognized leaders or physicians with scope of services and hours that are significantly different.  If there is a much larger distribution of rates, it could mean many things.  If the sample size isn’t large and the rates are widely distributed, it could indicate poor quality data or disparate situations.  If the sample size is satisfactory or even large, variation could indicate many things, from a less-competitive market to variations in the types of organizations included in the data.

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Document FMV Compliance

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Document compliance.

Benchmarking a contract for FMV documentation isn’t the end of the process. Your organization needs a systematic approach for the archives and audits. Organizations often approach compliance documentation differently. As long as a consistent process is in place and is followed methodically for every new contract, you can avoid costly and time consuming challenges in the event of an audit. MD Ranger subscribers develop a system which integrates predetermined distribution ranges and MD Ranger’s online reporting functionality to show proof of adherence to regulations. These reports outline critical information from the physician contract, most importantly the rate and proof that the rate is within FMV. Usually, a responsible executive signs off on these documents for the organization’s records.

If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Does Geographic Region Matter?

Do regions affect physician payment rates?  While many hospital executives answer with a resounding yes, consultants with nationwide practices often feel that variance by region is overplayed.

With the growth of its customer base, MD Ranger has considerable geographic diversity, with hospital contracts from 27 states covering dozens of MSAs, rural and urban areas. To investigate possible systematic variation, we pooled all MD Ranger’s contract data, over 10,000 records, and then joined it to data from various state and federal agencies, including CMS cost report data, BLS Occupational Employment Survey, various BLS price indices, etc. A multivariate approach modeled contract rates on hospital, contract, and market characteristics, and both linear and nonlinear techniques were employed. After extensive testing of a variety of geographic clusters defined by MSA’s and combinations of MSA’s, along with urban/rural distinctions, MD Ranger data scientists found no statistically significant geographic variation. More important factors influencing rates are trauma status, whether the hospital is urban or rural, and its size.

Want to read more?  Download our guide on geography here.

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Evaluating Physician Compensation Survey Quality

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.

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Hospital-Based Data: Is It Relevant and Useful?

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).

Here's proof:

 

MD Ranger is the only company collecting hospital-based data like this. Could you use access to high-quality benchmarks for your hospital-based agreements? Email me at This email address is being protected from spambots. You need JavaScript enabled to view it. to find out more about our reports.

allison

How Does Geography Influence Physician Contract Rates?

Our subscribers frequently ask how much physician contracting rates vary by region. We often hear from providers who think their area is unique, with physician rates either higher or lower than national benchmarks. MD Ranger analyzes the impact of geography on rates across the entire database each year and runs custom reports for various subscribers several times a year to evaluate the issue.

The Evidence
With the growth of its customer base, MD Ranger has considerable geographic diversity, with hospital contracts from 28 states covering dozens of metropolitan areas, rural and urban areas. To investigate the significance of location, we pool data from the 14,000+ physician contracts and supplement it with data from various state and federal agencies, including CMS cost report data, Bureau of Labor Statistics (BLS) Occupational Employment Survey, and various BLS price indices. A multivariate approach models contract rates on hospital, contract, and market characteristics, using both linear and nonlinear techniques. After extensive testing of a variety of geographic clusters defined by MSA's and combinations of MSA's, along with urban/rural distinctions, MD Ranger data scientists found no statistically significant geographic variation. This is not to say that MD Ranger has not found characteristics that significantly influence rates. Trauma status, whether the hospital is urban or rural, and its size, measured by both number of beds and average daily census – all of these factors exhibit significant, and consistent, impact on rates.

Regional Variance: Not as Impactful as You'd Think
Craig Paxton, Ph.D., chief statistician and economist at MD Ranger, summarizes, "Based on dozens of analyses over five years of data, we conclude that geographic variation, if it is meaningful at all, is so only in markets smaller in size than MSA's".

What does this mean for executives negotiating physician contracts? While your competitor down the street may decide to compensate doctors above fair market value (FMV), according to government regulations, these payment rates should not affect your organization's rates. It may be unfortunate that your biggest competitor is the hospital that pays above the 90th percentile, but it doesn't mean if you join them in that practice that your rate can be deemed FMV. In practical terms, this underscores the importance of identifying the appropriate MD Ranger "range" that is consistent with your hospital characteristics from a compliance standpoint. Because hospital attributes like bed size and trauma status matter more, the most relevant market data benchmarks for your organization should be from a sample of organizations most like your facility. This is why MD Ranger Benchmarks provide data slices for bed size, ADC, trauma status, urban/rural location, and payer mix. If you find yourself in a competitive situation, you may need to engage an FMV consultant to evaluate other methods for documenting FMV, such as a cost method analysis, or identification of other market characteristics that are truly unique, such as a very small pool of physicians, extreme extenuating circumstances, etc.

More Data, More Experiments
At MD Ranger, more is always better when it comes to data. Every new subscriber brings new data, and we evaluate this data for consistency with current and previous analyses, including geographic sensitivities. Our database and subscriber list is growing each year, resulting in increasing stability in benchmarks, a growing list of services, and more robust statistical analysis. We will continue to evaluate the importance of geography and report if the findings change.

Consequently, when you become a subscriber and receive your customized MD Ranger report, you can be confident there is an appropriate range for your market, specific to what is most important for "fair market".

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Is the Market Data Collected Consistently and Comprehensively, and Is It Routinely Audited?

Market data can be a fast, reliable, and cost effective way for hospitals and health systems to benchmark their contract rates.  

Database construction and maintenance can mean the difference between accurate and inaccurate benchmarks.  Does the survey firm have rigorous collection and verification standards, and do they audit reported data?  How often do they survey?  Do they survey a variety of physician and hospital ownership types? Is all of a facility’s contract data collected or only ad hoc data? Look for consistent reporting methods, comprehensiveness across specialties and positions, thorough explanations of statistical calculations, and readily available demographic information on hospitals reporting data.  As a subscriber-based survey, MD Ranger collects all of a facility’s data, meaning we report on percent of facilities paying, as well as ensure that a variety of facility types are represented in our benchmarks.

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Market Data or FMV Opinion? A Handy Flowchart

Click on the image below to see our Market Data or FMV Opinion flowchart.

flowchart apr2014

When you’re negotiating or renegotiating a physician contract, one of the first things to consider is the payment rate.  What’s the best way to figure out how much to pay for the particular service?

Though hiring a consultant to write a fair market value opinion is an option, it might not necessary. Using high quality market data, like MD Ranger, could be all you need to reach a fair, appropriate rate.

The flowchart above outlines how you can think about using market data for setting rates for a particular service.

Questions?  Reach out and let us know: This email address is being protected from spambots. You need JavaScript enabled to view it.

allison

Market Data Should Include the Most Helpful Benchmarks

Market data can be a fast, reliable, and cost effective way for hospitals and health systems to benchmark their contract rates.  

If the most important statistics go unreported, market data can be misleading and difficult to apply.  When you know what types of organizations are included within a particular data set, you can find facilities that pay physicians for comparable services.  When looking at surveys, make sure the hospital characteristics that are reported influence payment rates.  MD Ranger has found that the most significant factors influencing rates are trauma status, in-house coverage, and facility size. Urban and rural status can also make a difference.  Additionally, reporting down to the most specific physician specialty is very important.  Within surgical specialties, there is a huge variation in call pay, and some variation in medical director/administrative pay.

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Navigating Negotiations for Complex Physician Contracts

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 factored in to 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 tips on a complex a contract from an expert? Call our office at (650) 692-8873.

allison

Our Approach to Calculating Benchmarks and Market Data

Stark Law requires hospitals to pay doctors fair market value.  The appropriate fair market value can be determined by utilizing benchmarks calculated from robust market data.  We have found that many hospital executives who are charged with making sure these compensation rates are compliant don’t have information on how benchmarks are calculated and what the best benchmark for their situation could be.

Federal Antitrust Safety Zone guidelines require that market data collects from at least five different “providers”.  Many market data surveys interpret this as meaning five physicians.  MD Ranger interprets the Antitrust guidelines conservatively and takes this to mean five different health systems or corporations/owners.  This ensures a particularly large, robust data set that often includes scores of individual physicians.

The Antitrust guidelines also mandate that no more than 25% of the data in each statistic come from one provider.  MD Ranger again considers that no more than 25% of the data come from any one health system, as opposed to an individual physician.  If a given health system has more than 25% of the data, MD Ranger weights these data points to make up only 25% of the statistic.

Want to know more about how we collect our data?  Click here.

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Outliers: Useless or Critical?

“I don’t see the logic of rejecting data just because they seem incredible.”  –Fred Hoyle

An outlier is an incredible data point, one that is much greater or much smaller than other data points. Outliers can be influential on benchmarks in a small data set, but often they have no effect.  In the case of compensation data, particularly physician contract data, there are two types of outliers:  those that do not compensate for a service (zero value) and those who 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.  This statistic helps facilities determine if they should be paying for a service in the first place.

In a large data set 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 (to learn more about how we calculate benchmarks, see “Our Approach to Calculating Benchmarks and Market Data”), each data point holds only a 2% weight in the percentile calculation.  If the rest of the data falls fairly close together, then the outlier has a small effect on the quantiles.  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.

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Surprising (and Misleading) Facts About Market Data

Though it may have been decades since your college statistics course, being smart when it comes to data and data analysis is very important in business and healthcare.

Statistics can be confusing because it’s not always intuitive.  Given how much we love data at MD Ranger, we compiled a list of some surprising, and often misleading, facts about statistics.

  • It is possible for all the benchmark numbers to be the same except for the 90th percentile.

  • Example: If five different providers independently negotiate a rate of, say, $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 this:
    Untitleddocument-copy

  • Although many specialties have the same hourly rate, the hours can vary drastically, making some medical directorships have much higher annual compensation.
  • It is possible for outliers to be irrelevant.
  • Many organizations don’t pay for a service, which means that any benchmark you find for rates might be too high.  This is why commercial reasonableness is an important first question to ask when setting rates.
  • When the range between each percentile is smaller and you are paying within the range, you are more protected from being non-compliant.  This indicates everyone is paying about the same amount and if you are paying in that range, you are paying market value.
  • Obviously, someone has to be at and above the 90th percentile but, an organization should have a very good reason for paying them that much.
  • The more data points included in a statistic, the higher quality the benchmark is.
  • Median numbers are more stable and less influenced by outliers than the mean.

MD Ranger’s team of statisticians understand the intricacies of calculating accurate benchmarks.  If you’d like to speak with someone on our team regarding physician contract payment market data and how we arrive at our benchmarks, email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Test for Commercial Reasonableness

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Test for commercial reasonableness.

Before you consider using market data or an FMV opinion, decide if it is commercially reasonable to pay for the service in the first place. Market data can be used to help answer this question. MD Ranger collects comprehensive physician contract data from subscribing hospitals, making it possible to publish the Percentage of Subscribers Who Report Paying for a Service table. This table shows how common it is for a very large group of hospitals, representing thousands of physician contracts, to pay for specific services. For example, 75% of subscribers report paying for general surgery call coverage, making it one of the most common services to compensate for emergency coverage. Conversely, only 11% of hospitals report paying for infectious disease.

If your organization is considering paying for a service that’s commonly unpaid, you should determine why you need to pay and what is the appropriate method and amount of payment. A higher level of documentation of the negotiation process and reasons for payment should be included in your files. Reasons such as very limited panel size and adverse payer mix may dictate the need for payment, but it is important to document those reasons in case of an audit.

Check back next week for the second step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Track All Physician Payments, Individually and in Aggregate

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Take into account all payments made to each physician, as well as your organization’s overall strategy for physician compensation.

If the physician you are considering compensating is already being paid several medical director stipends, reconsider whether all payments are necessary. Review his or her overall payments to ensure the total amount paid is reasonable. Additionally, MD Ranger recommends that organizations benchmark how much they spend on physician services in total and by specialty. Monitor increases in physician spending, particularly if your organization spends more than your peers, to help identify potential compliance issues. MD Ranger has aggregated data useful for this type of benchmarking. Its Total Facility Payments reports detail how much hospitals pay for physician services, broken down by attributes like service and hospital demographics. Also available through MD Ranger are summary tables on total number of positions reported by each hospital. This is particularly helpful when determining whether or not you have too many medical directors.

Check back next week for the third step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Understanding Market Data: Consider Sample Size and Participant Characteristics

Market data can be a fast, reliable, and cost effective way for hospitals and health systems to benchmark their contract rates.  

To be effective, market data should be based on an adequate sample size.  OIG Stark guidelines suggest that market data should include a minimum of five providers.  Some surveys interpret five providers to mean five individual physicians; however, MD Ranger takes a more conservative approach that results in a more robust data set.  We only report benchmarks comprised of at least five different hospital owners/corporations, regardless of the number of facilities they own.  This results in benchmarks based on larger, more diverse, and more reliable datasets for setting physician contract rates.  Many of our benchmarks include dozens of hospitals that represent rates paid to hundreds of physicians.  Regardless of the data source you choose, a large sample size with diverse participants is key.

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Use Market Data to Document FMV

Most organizations don’t need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data, in turn creating a more efficient, cost-effective system.

Use the market data to document FMV.

Your compliance team should develop a standardized process for determining what is considered a ‘safe’ benchmark for FMV documentation at your organization. Systems using MD Ranger often select a threshold payment benchmark, e.g. the 50th or 75th percentile, beyond which a request to a higher administrative or corporate review is required. We believe each organization should decide how to determine what system makes sense for their circumstances.

Organizations often adopt a ‘stepwise’ approach to FMV documentation, starting with the most basic ‘all hospital’ benchmarks for hours, hourly rates and annual compensation for directorships or per diem rates for call, and allowing further refinements by specific hospital characteristics when needed.

Check back next week for the sixth step.  If you have any questions email This email address is being protected from spambots. You need JavaScript enabled to view it..

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Why Benchmarks Can Change from Year to Year

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.

Why Benchmarks Can Change:


Benchmarks can change from year to year, significant shifts are uncommon.
83% of median compensation benchmarks didn't change by more than 10% from MD Ranger's 2013 report to the 2014 report. Overall, we have found that the average change for any benchmark, whether that be compensation or hours worked, at the 50th or 75th percentile is 5%. This 5% change in contracts can often be accounted for by:

  • General salary inflation and cost of living increases.
  • Shift in responsibilities for a physician role, whether that be increased or decreased responsibilities.
  • Change in hospital characteristics. For example, if a hospital adds more beds or moves from a level 3 trauma center to a level 2 trauma center, the burden of call is going to be more significant and likely will require a higher payment.
  • New counterparty in a contract.

It is also important to take into account that most contracts have 2-3 year terms. This means that contract values do not increase or decrease in a linear fashion, the contract value changes in steps up or down.

In some cases, adding one contract can change the benchmarks.
Even in large sample sizes, when contract values are clustered at multiple different values, sometimes adding one new contract can shift the benchmarks considerably. This is best illustrated by an example. If we have five contracts with values of $150, $150, $150, $1,000, and $2,000, the 75th percentile is calculated as $787.50, as seen below. MD Ranger would round this benchmark to $790. If we are evaluating a contract with the value of $650, it would fall below the 75th percentile in this case.

If we add a fourth contract with the value $150, then the 75th percentile drops to $575. Now, that same $650 contract is above the 75th percentile and could be considered risky.

Even in a large sample size, if the contract values are clustered, one new contract can shift the benchmarks.

Sample size.
A data set which has a larger, diverse sample size will be less volatile than a data set with a small sample size. Sometimes data sets can appear larger and more diverse than they actually are. For example, if the data are collected from physicians, it is important to look not only at the number of physicians included but how many medical groups are represented. Medical groups often negotiate a single payment rate with a hospital, thus making the data set less diverse than it seems.

If the data is collected from hospitals, make sure that there are data from at least five health systems and/or independent facilities included. Typically, dozens of individual physician contracts are included in a sample from this many hospitals. Since physicians from the same medical group may get paid the same rate, or a health system may have a policy to pay physicians the same amount for call coverage or medical direction, it's important to ensure a good sample of hospital corporations or systems in the data. The larger the data set, the more safeguards you have for ensuring high quality data.

Next week, we will discuss how to deal with a change in benchmarks.

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