Navigating Hospital-Based Contracts
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The document discusses the complexities of hospital-based contracts, highlighting the role of MD Ranger in providing valuable market data for physician contracting. It outlines various components of hospital-based services, payment types, compliance tips, and case studies demonstrating practical applications in contract negotiations. Additionally, it emphasizes the importance of fair market value (FMV) documentation and compliance in hospital-based agreements.
Navigating Hospital-Based Contracts
- 1. 1 Navigating Hospital-Based Contracts September 23, 2014 Michael Heil, Founder Allison Pullins, Director
- 2. 2 Outline: • Introducing MD Ranger • Defining hospital-based services • Components of hospital-based contracts, types of payments • Case studies • FMV and documentation options • Compliance tips
- 3. 3 MD Ranger MD Ranger is a market data company that collects non-employed physician contract data directly from hospitals. Our unique approach to capturing all contract data from an organization allows us to not only determine what to pay, but also when to pay. We help hospitals analyze their internal physician contracting costs to enable negotiation of competitive rates with physicians, and documentation of FMV and compliance with Stark.
- 4. 4 MD Ranger Includes: • A secure, web-based Data Tool to collect and organize contract data (uploads via Excel available, too) • Web-based Analytic Tools to benchmark internal data, identify compliance issues, and analyze where dollars are spent • Benchmarks, available as full reports and online service- specific queries, with market data for call, medical direction, administrative services, hospital-based services, uncompensated care programs, and diagnostic testing services • Contract Reports to document FMV compliance • Consultations with our experts
- 5. Our Benchmarks: • 80+ administrative services: hours, hourly and annual rates • Includes hard to find data on: • Committee and meeting attendance • Quality initiatives • EHR and IT initiatives • Department chairs and section chiefs • Medical staff officers and leadership • 50+ positions emergency call coverage, including uncompensated care rates • 15 hospital-based services (pathology, hospitalists, etc.) • Diagnostic and testing services: EEG, EKG, stress, autopsy, etc. • Key contract terms like payment type, scope of service, incentives, etc. 5
- 6. Introducing Michael • 38 years experience as hospital administrator and consultant • Founded two firms: HealthWorks and MD Ranger • Areas of focus include: planning, litigation support, trauma centers, physician contracting/FMV and physician-hospital integration 6
- 7. Introducing Allison 7 • Director at MD Ranger, Inc • Eight years experience in healthcare consulting and technology; specializing in physician marketing, recruitment, engagement, compensation, negotiations • Helps MD Ranger subscribers leverage data, analyze internal costs
- 9. Defining hospital-based services: key characteristics • Restricted Coverage; that is 24-hour in-house or in- house for at least a regularly defined period (such as 12-hours) plus on-call coverage for the rest of the day • Specialization. At the least some of the panel members have most of their practices in the hospital- based service • Recognition. Not limited to certain specialties but should be specialties for which there is at least the beginning of recognition by professional specialties 9
- 10. Emerging trend: bifurcation of practice of medicine in the U.S. • Office-based and hospital-based • System is common in many European countries • Trend driven by: • Physician interest and • Hospital needs • Outcomes from both clinical and cost perspectives are improved with inpatient hospital-based physician model 10
- 11. Specific hospital-based services 11 Classic hospital-based services (pre 1990s) • Emergency medicine • Pathology • Radiology • Anesthesiology Additional services (1990-2000s) • Internal medicine hospitalists • Pediatric hospitalists • Neonatology • Critical care • Radiation oncology • Trauma surgery Examples of emerging specialties (2010s and beyond) • Acute Care Surgery • Pediatric intensive care • Orthopedic surgery • Neurology • Cardiology MD Ranger uniquely provides benchmarks for hospital-based services
- 12. Components of Hospital-Based Contracts and Payment Options 12
- 13. Coverage and administrative services • Coverage only • Administration only • Both (most common) 13
- 14. Stipends and collections guarantees • Payments are made to a physician group (beyond professional fee collections) to cover a service • This group may earn less than opportunity cost by providing specified level of coverage • If this is a specified amount per year it is called a stipend • If the hospital makes up the difference between collections and a target it is called a collections guarantee 14
- 15. Incentives • Growing more common (MD Ranger saw 10% increase between 2012 and 2013 Reports) • Most contracts incent physicians on at least two of the below components 15 0%# 10%# 20%# 30%# 40%# 50%# 60%# 70%# Other#Component# Pa7ent#Sa7sfac7on#Component# Quality#Component# Cost#Component# Incen%ve'Type' Incen%ves'in'Hospital2Based'Contracts' Hospital2Based'Contracts'with'Any'Incen%ve:'21%'
- 16. Case Studies 16
- 17. Exclusivity 17 • Many, if not most hospital-based agreements grant exclusivity • Exclusivity has economic value because: • Generally accepted principles of economics and valuation say that exclusivity (or monopolies) have economic value • The OIG says so
- 18. Exclusivity: a case study from the OIG 18 “OIG Supplemental Compliance Program Guidance for Hospitals,” published in the Federal Register / Vol. 70, No. 19 / Monday, January 31, 2005. 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.
- 19. Exclusivity: a case study from the OIG 19 “OIG Supplemental Compliance Program Guidance for Hospitals,” published in the Federal Register / Vol. 70, No. 19 / Monday, January 31, 2005. 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.
- 20. Is there a generally accepted way to quantify the economic value of exclusivity? • Unfortunately, no • However, to ignore its economic value increases risk unnecessarily • Three good approaches 1. Have the FMV documentation (internal documentation or valuation opinion by consulting expert) recognize the exclusivity and that this has value 2. Seek to negotiate a compensation level at discount 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 3. Include a discount in the range of 5% to 10% to reflect value of exclusivity 20
- 21. Case Study: Friendly Hills Hospital* • Hospital planning a Level 2 trauma center • Business plan assumed an annual call coverage cost for orthopedic surgery of $2,700 per day • This, in turn assumed a non-exclusive panel • Physicians had said they were reluctant to take call for trauma at all • For this reason the business plan called for a relatively high coverage cost • As hospital began to launch the trauma center, the 8 orthopedic surgeons fractured into 2 groups of 4 • Each wanted exclusive rights to trauma coverage • Hospital selected one of the groups based in part of price and ended up with a cost of $2,300 per day—a 15% savings 21 *pseudonym
- 22. Case study: Methodist General Hospital* 22 • 275 bed community hospital contracting for Emergency Medicine services • Facility has 30,000 ED visits per year • Professional collections: $115 per visit • RFP for emergency medicine • Minimum staffing is 1 board certified EM physician at all times; others “as needed for volume” • Three proposals submitted Best proposal: no coverage payment by hospital • Hospital administration thinks no FMV is required because there will be no coverage payment *pseudonym
- 23. Core question is: does the proposal provide sufficient physician staffing?
- 24. Methodist)General) (Proposal)By)Group) Low High Methodist)General) After)FMV Visits)Per)Year 30,000))))))))))))))))))))) 30,000)))))))))))))))) 30,000)))))))))))) 30,000))))))))))))))))))))))) Professional)Collections)Per)Visit 115$)))))))))))))))))))))))) 115$))))))))))))))))))) 115))))))))))))))))) 115)))))))))))))))))))))))))))) Professional)Collections 3,450,000$)))))))))))))) 3,450,000$))))))))) 3,450,000))))))) 3,450,000)))))))))))))))))) Physician)Group)Overhead 800,000$))))))))))))))))) 800,000$)))))))))))) 800,000$)))))))) 800,000))))))))))))))))))))) Physician)Staffing Physician)FTEs 6.9 7.8 9.5 7.8 Physician)Hours)per)Visit 0.40))))))))))))))))))))))))) 0.45)))))))))))))))))))) 0.55 0.45 Physician)Hours)Per)Year 12,000))))))))))))))))))))) 13,500)))))))))))))))) 16,500)))))))))))) 13,500))))))))))))))))))))))) Physician)Compensation)Per)Hour 190$)))))))))))))))))))))))) 190$))))))))))))))))))) 190$))))))))))))))) 190$)))))))))))))))))))))))))) Physician)Compensation)Per)Year 2,280,000$)))))))))))))) 2,565,000$))))))))) 3,135,000$)))) 2,565,000$)))))))))))))))) Physician)Compensation)Plus)Overhead 3,080,000$)))))))))))))) 3,365,000$))))))))) 3,935,000$)))) 3,365,000$)))))))))))))))) Gain)(Loss))Before)Hospital)Coverage)Payment 370,000$))))))))))))))))) 85,000$)))))))))))))) (485,000)$)))))) 85,000$))))))))))))))))))))) Hopsital)Coverage)Payment T$))))))))))))))))))))))))) 250,000$)))))))))))) 250,001$)))))))) T$))))))))))))))))))))))))))) Gain)(Loss))After)Hospital)Coverage)Payment 370,000$))))))))))))))))) 335,000$)))))))))))) (234,999)$)))))) 85,000$))))))))))))))))))))) Methodsist)General)FMV 24
- 25. Case Study: Green Creek Hospital* • 75 bed rural hospital contracts with a radiology group to provide coverage with payments only for medical direction • Group asks for a new contract in which they are reimbursed for the cost of “Nighthawk” • The Group says: • “The money would not go to us so it should not be an FMV concern” • “It benefits patients” • “Most groups use Nighthawk these days” 25 *pseudonym
- 26. • Even though payments would go just to Nighthawk it is just another way to provide off hours staffing (group keep fees) • What payments in radiology group contracts in MD Ranger say they are intended for— • Medical direction • General coverage including general emergency coverage • Interventional radiology coverage • “Nighthawk” • No definition • So, the best way to test FMV for radiology is to test using “total annual payments” 26 Case Study: Green Creek Hospital* *pseudonym
- 27. Case Study: Big Tree General Hospital* • Big Tree has contracted with an anesthesia group to provide a typical range of services • The FMV analysis shows that everything appears OK • But, buried in the analysis are commercial collection rates that are too low 27 *pseudonym
- 28. Case Study: Big Tree General Hospital* Many hospitals and their hospital-based groups “leave money on the table” • The hospital is, in effect, subsidizing the for profits commercial health insurance companies • This creates a compliance risk on commercial reasonableness • The hospital could reduce its costs without reducing physician income and • Might be able to reduce its costs and help move the physicians to a more competitive part of the FMV range. 28 *pseudonym
- 29. 0 1 2 3 4 5 6 7 8 9 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 Number of Health Plans Payment Per ASA Unit Frequency Distribution of Rates for Paid Claims Services Provided in 2011 at Big Tree General Hospital By moving to more competitive rates, an anesthesiology group stands to increase revenue by $700K to $875K per year, translating to reduced contract costs for the hospital and/or increased income to group. All Paid Proprietary Median $64 Network Published Median $61 Contracts of Concern $30 and $37 Case Study: Big Tree General Hospital* *pseudonym 29
- 30. Experience shows that significant progress can be made • For many hospitals this issue can involve many millions of dollars across several hospital based groups • Three strategies have been shown to be successful 1. Data-driven negotiations with health plan 2. Free group to become non-participating 3. Propose mediation 30
- 31. Compliance and Documentation of Hospital- Based Payments 31
- 32. Compliance tips • Establish a contracting compliance program at your organization, with staff that can oversee day-to-day management. • Outline a standardized FMV process for all contracts. All hospital-based contracts, even “no cost” contracts, should have FMV documentation. • Documentation should be a valuation either using market data, the cost method, or a combination of both. 32
- 33. Using market data • Benchmarks can help with scoping and planning for the contract. • In some cases, market data will suffice for FMV documentation. • More complex hospital-based agreements, particularly ones with no market data available, will need a formal cost valuation. 33
- 34. Myth-buster 34 Overall pattern of variability for hospital-based groups and conventional on call is similar BUT the dollar amounts are much higher—thus compliance risk is higher when relying only on market data instead of market approach plus cost approach Myth: market data for hospital-based groups are more “scattered” than conventional call- coverage Reality: very similar amount of variability 0%# 5%# 10%# 15%# 20%# 25%# 30%# 35%# 40%# 0# 0.1# 0.2# 0.3# 0.4# 0.5# 0.6# 0.7# 0.8# 0.9# 1# %"of"Contracts" "At"Each"Coefficient" Level" Measure"of"Variability:"Coefficient"of"Varia;on" Call#Coverage# Hospital#Based#Groups#
- 35. Is a cost valuation needed? 35
- 36. Your turn 36 Do you have lingering questions about creating hospital- based contracts? Does your organization have a difficult hospital-based service contract negotiation on the horizon? Call us; we can help: 650-692-8873 Email Allison: [email protected]