Insights from Ludi

A wise person once told me there are only 2 levers in business. You can do one of two things to succeed profitably. You can increase your revenue or decrease your expenses.  It’s really that simple.  To improve profitability you must either increase your revenue or decrease your expenses. I’ve personally been part of organizations that were growing as well as those that were not growing, even shrinking in revenue. Let’s start with growth though.

Health care organizations pay physicians for a variety of duties that are not patient care based, but are more administrative or perhaps task based activities that are for the benefit of the company, not necessarily the physician. These activities are not defined as productive time, meaning the physician cannot bill insurance companies or a patient for this time. It is work being performed on behalf of another organization, not a patient. Over time, health care organizations such as hospitals, device companies, large physician groups, pharmaceutical companies have had to pay physicians a fair hourly rate for all the hours asked of physicians.

So your organization has a contract management system, meaning your physician contracts are covered right? WRONG.

Contract management systems do a great job of managing the development of new physician contracts, executive approval, and any redline changes that are made on the various versions. Once signed, the contract management system is not the best place to manage the activity on these contracts. The day-to-day management falls to the operational and financial side of the house.

The regulatory environment dictates that hospitals who contract with physicians meet specific conditions in order for the contract to be legal. The conditions are meant to ensure the physician payment is not based on volume or value of business because it can lead to overusing services and increasing overall costs of care. Technically violating your own contracts can lead to multi-million dollar settlements.

Hospitals pay a plethora of physicians in a variety of ways. Some are employed. Some manage the clinical components of service lines in tandem with hospital leadership in co-management arrangements. Some are service line leaders. Some provide on-call coverage for the hospital. Some teach residents or interns at the hospital.

Physician agreements are complex with tremendous detail around how the relationship will be governed, what duties are included and how compensation will work. While most organizations are quite proficient in the setup of these agreements, few are very good at managing the complexities of the agreement after they are executed.

Physician contracts should, in theory, be created using templates as a best practice. The reality is that physician contracts are like snowflakes: it’s difficult to find two that are alike. In practice, having too much variation in your physician contracts can be detrimental to the organization. High level of variation can lead to operational problems while trying to execute agreements.

Ludi has had the pleasure of reading close to 7,500 physician contracts in the last three years. From this experience comes a tip sheet on how to construct the optimal physician contract.

Over the last five years, the industry has been largely focused on ensuring physicians have an Electronic Medical Record (EMR) in their private practices to capture clinical practice time. There has been a focus on capturing the work flow to collect the clinical documentation and to ensure the appropriate variables are accurate for billing. These systems are expensive and time consuming to implement.

The four top areas for regulatory risk for hospitals include: Patient privacy, coding, quality, and physician agreements. Physician agreements tend to have the most opportunity for points of failure due to the process, structure, and people involved in making sure agreements are appropriately written and managed over time.

Read through the following 5 tips and consider them a guideline to lower your risk related to physician agreements:

The regulatory environment is deep with rules governing how healthcare organizations (HCO) behave. One particularly strict law is the Stark Law, governing how HCOs interact with referring physicians. The law prevents HCOs from paying physicians unless a safe harbor is met. Assuming the HCO takes proper care in setting up this agreement, problems can still arise in how the agreement is operationally managed over time. If not followed exactly as written, the organization may fall outside the safe harbor rendering the organization in violation. Because the law is non-intent based, the OIG will not be swayed if the HCO inadvertently violates the law. Meaning, even if there is a technical violation of the law, the full wrath of the law applies.