We will consider the most common compliance issues in hospital-based agreements. We discuss: --Defining hospital-based services --Trends and components of hospital-based contracts and types of payments (such as coverage payments, overall stipends, and income guarantees) --Compliance pitfalls to avoid --FMV and documentation options

1. 1
COMPLIANCE PITFALLS OF
HOSPITAL-BASED CONTRACTS
OCTOBER 27, 2015

2. 2
Outline:
• Defining hospital-based services
• Components of hospital-based contracts
• Types of payments
• Compliance pitfalls
• FMV and documentation options

3. 3
MD Ranger
MD Ranger is a market data company that collects complete 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, thereby
addressing not just fair market value, but also commercial
reasonableness.
• Benchmarks for more than 160 services for hospital-physician
contract rates, including 15 hospital-based services
• Comparison data to help hospitals analyze their internal
physician contracting costs
• Contract details that enable data-driven negotiations of
competitive rates with physicians
• Market rate data for documentation of FMV and compliance with
Stark.

4. 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+ emergency call coverage services
• 15 hospital-based services (pathology, hospitalists, etc.)
• Diagnostic and testing services: EEG, EKG, stress, autopsy, etc.
• Other contract data to inform decision-making, like frequency of
payment, number of positions, types of contracts, incentive
payments and total facility spending
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5. Introducing Allison
5
• Nine years experience in healthcare
consulting and technology;
specializing in physician marketing,
recruitment, engagement,
compensation, negotiations
• Helps MD Ranger subscribers
leverage data, analyze internal costs

6. 6
DEFINING HOSPITAL-BASED
SERVICES

7. Key characteristics of hospital-based
physician contracts
• Restricted Coverage: In-house for a defined period (such as 12
or 24 hours) plus on-call coverage for the rest of the day
• Specialization: At the least some of the panel members are
primarily based at the hospital
• Patient Base: Contractual obligation to treat a specified set of
hospital patients – e.g. ICU, pediatrics, neonatal or emergency
• Recognition: Not limited to certain specialties but should be
specialties for which there is at least the beginning of
recognition in the industry that it’s an emerging hospital-based
model of practice
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8. Evolution of services
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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)
• OB hospitalists or “Laborists”
• Pediatric intensive care
• Orthopedic surgery hospitalists
• Surgicalists
• Neurology
• Cardiology
MD Ranger uniquely provides
benchmarks for hospital-based
services

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COMPONENTS OF HOSPITAL-
BASED CONTRACTS AND
PAYMENT OPTIONS

10. Many hospital-based contracts have
several defined payment components
81% of subscribers have hospital-based contracts
with payment components (including directorships
and coverage per diems)
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11. Payments
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Direction Only
Coverage Only
Stipend Only
Medical
Direction and
Coverage Only
Stipend and
Other
Unpaid
HOSPITAL-BASED CONTRACTS BY PAYMENT STRUCTURE
Source: MD Ranger, Inc.

12. Lots of variety in terms
More than in other types of services
Anesthesia:
• Total annual payments (stipends), per diem equivalents, call
coverage rates, collection guarantees (total and per wRVU),
administrative/directorship services
• Scope of service (general, cardiac, OB, pain management, etc.)
• Payments for unsponsored patients (not as common)
• Incentive components (cost, quality, and patient satisfaction
being most common)
• Pro fee schedule and departmental coverage:
• Annual, monthly, daily, hourly
• Per episode or test or delivery
• Unit guarantee or collection guarantees
• Percentage of Medicare (fee for service)
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13. Payment structures
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Direction Only
14%
Coverage Only
27%
Stipend Only
10%
Medical Direction
and Coverage Only
10%
Stipend and
Coverage or
Direction
11%
Unpaid
28%
PERCENT OF CONTRACTS BY PAYMENT STRUCTURE FOR
ANESTHESIOLOGY

14. Another example
Pathology:
• Total annual payments (stipend), administrative/directorship
fees
• Contract terms (histology, autopsy, blood bank)
• Compensation methods
• Clinical lab fees (who bills fees, retains fees)
• Technical service billing (who bills Medicare and Medicaid, who
bills other payers)
• Less likely to be paid
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15. Payment structures
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Direction Only
49%
Coverage Only
2%
Stipend Only
23%
Medical Direction and
Coverage Only
4%
Stipend and Coverage or
Direction
4%
Unpaid
18%
PERCENT OF CONTRACTS BY PAYMENT STRUCTURE FOR
PATHOLOGY

16. Coverage and administrative services
• Coverage only
• Administration only
• Both (most common)
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0% 20% 40% 60% 80% 100%
Administrative
Leadership
Coverage
Direction
SERVICE TYPES INCLUDED IN HOSPITAL-BASED CONTRACTS
Source: MD Ranger, Inc.

17. Stipends and collections guarantees
• These are payments to a physician group (beyond
professional fee collections) to cover a service and
for a variety of duties, including administrative,
scheduling, coverage, and medical direction
• Payments could result in a group earning more or
less than its “opportunity cost”
• If this is a specified amount per year or month we call it a
stipend
• If the hospital makes up the difference between professional
fee collections and a target it is called a collections
guarantee
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18. Incentives
• Growing more common (MD Ranger saw 10% increase between 2012 and
2013 Reports, leveled off in recent years)
• Most contracts incent physicians on at least two of the below components
• Value of incentive averages 10-15% of contract value, but we’ve seen as
high as 100%
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0% 10% 20% 30% 40% 50% 60% 70%
Other Component
Quality Component
Patient Satisfaction Component
Cost Component
IncentiveType
INCENTIVES IN HOSPITAL-BASED CONTRACTS
HOSPITAL-BASED CONTRACTS WITH ANY INCENTIVE: 23%
Source: MD Ranger, Inc.

19. Hospital-based services are costly
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$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
General Surgery
Orthopedic Surgery
Critical/Intensive Care
Pediatric Hospitalists
Anesthesia
Neurosurgery
Non-General Hospitalists
Obstetrics Hospitalists
General Hospitalists
Trauma Surgery
TOP 10 SPECIALTY CONTRACTS
Median Annual Payments
Anesthesia
Neurosurgery
Hospital-Based
Non Hospital-
Based
Source: MD Ranger, Inc.

20. 20
COMPLIANCE PITFALLS

21. Pitfall: Exclusivity
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• Did you specify exclusivity in your contract?
• Should the contract be exclusive in the first place?
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

22. Is there a generally accepted way to quantify
the economic value of exclusivity?
• Unfortunately, no; however, to ignore its economic value
increases risk
• Three good approaches:
1. Have the FMV documentation (internal documentation or expert valuation
opinion) recognize the exclusivity and acknowledge that it has value
2. Seek to negotiate a compensation level that is at a lower point in the FMV
range than typically used by the hospital, although
Most ranges from the market approach will already include the discount for
exclusivity
Some ranges from the cost approach may not include the discount
3. Include a discount in the range of 5% to 10% to reflect value of exclusivity
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23. Pitfall: Not specifying level of service
Be meticulous when drawing up a contract for a
hospital-based service. Vague, non-specific terms could
lead to:
• Understaffing
• Not having proper back-up
• Lower quality
• Patient satisfaction
• Staff discontent (nursing, tech and physicians)
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24. Pitfall: Not taking into account all
payments to a physician or group
across contracts
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• Called either “stacking” or “double dipping”, it is when
the hospital hasn’t properly considered the
cumulative value of all payments to a physician or
group, e.g.:
• Medical directorships
• Administrative payments
• Emergency call payments
• This is quite easy to overlook
• Payments like medical directorships can easily “get
lost” within the scope of a complex hospital-based
agreement

25. Pitfall: Not taking into account all
payments to a physician or group
across contracts
• When paying a physician group a stipend, always
consider:
• Other payments to group and/or members of group (directorships,
coverage)
• Pro fee collections
• Any “services” reimbursed (e.g. Nighthawk services, malpractice,
CNAs, NPs)
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26. Pitfall: Ignoring physician collections
• Understanding the economics of the physician groups you
partner with will help you determine if stipends or collection
guarantees are needed
• Sometimes hospitals provide a stipend when it’s not needed,
resulting in physician incomes exceeding market norms
• Other times, a hospital may underpay a physician group if
collections from payers are low due to poor payer mix, inefficient
or excessive coverage requirements (e.g. asking a group to staff
more operating rooms than the volume justifies)
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27. Pitfall: Failing to investigate insurance
contracts and collection rates
• Benchmark professional collections rates from
commercial payers to ensure that the physician group
you contract with is getting reimbursed fairly
• Hospitals can end up subsidizing suboptimal rates
from insurance companies or poor collection
practices
• If you discover badly negotiated rates action should
be taken as soon as possible, however, recognize
that it could take a substantial amount of time
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28. Pitfall: Paying for a service without
objective assessments
• Ultimately, not every hospital-based service needs a
collection guarantee, stipend, or even additional
payments for call coverage
• Use benchmarks to determine if paying for a service
could be appropriate, and then follow up with due
diligence
• Commercial reasonableness is a key and necessary
finding for contract compliance
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29. 29
FMV DOCUMENTATION
OPTIONS

30. Additional resources online
Check out our FMV documentation and compliance
resources at www.mdranger.com
• Webinar: Defining, Determining, and Documenting
FMV
• Using Market Data for FMV: Our Six Step Guide
• Webinar: Building a Cost-Effective Physician
Contracting Compliance Program Using Market Data
• Video: Navigating Hospital-Based Contracts
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31. Two ways to determine FMV
• Market method
• Cost method
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32. Using market data
• Benchmarks can help with scoping and planning for
contract terms and negotiations
• In many cases, particularly for call and direction
agreements or other specific contract elements,
market data will suffice for FMV documentation
• More complex hospital-based agreements,
particularly ones with little to no market data available
or ones near the conventional market range limits,
might need more analysis (external or in-house)
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33. But…is using market data for FMV
okay?
• Absolutely!
• The OIG’s Advisory Opinion 07-10 (published
September 2007)
• Fraud Alert issued June 9th, 2015: the government is
scrutinizing physician compensation arrangements,
and no wonder—millions are recovered each year!
• Both the hospital and the physician may be at risk,
whatever method you choose.
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34. Documenting FMV
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• Establish a contracting compliance program with staff
that oversee day-to-day management
• Define 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

35. Your turn
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Do you have lingering questions about hospital-based
contracts?
Does your organization have a difficult hospital-based
service contract negotiation on the horizon?
Call me: 650-692-8873
Email me: apullins@mdranger.com