6 Elements Affecting Hospital-Based Physician Service Contracts

Contracts for hospital-based physician services are common among hospital-based specialties, with groups contracting to provide care and services that guarantee coverage and physician oversight. MD Ranger's 2010/2011 Physician Contract Benchmarks Report delves into the factors driving specialty group contracts, including hospital size and trauma status, payor mix and physician responsibilities. Here Penny Stroud, CEO of MD Ranger, discusses six factors that impact the level of compensation provided for hospital-based physician services.

1. Medicare percentage. If a hospital has a particularly high percentage of Medicare or indigent patients, payments for hospital-based physician services will likely be higher, Ms. Stroud says. This extra payment helps hospitals attract and retain key providers despite the low Medicare reimbursement rates for professional services. For anesthesia services, for example, Medicare ASA conversion factors are so low that many hospitals assist providers with extra payments to recruit and retain enough physicians.

2. Number of physicians per group. Payments in a group service contract will most likely be higher if the hospital is engaging a large number of physicians through the contract, Ms. Stroud says. The MD Ranger survey found the median payment for group anesthesia service contracts was $773,309 a year, a number that suggests the payments were frequently made to large groups providing substantial coverage. "With that $773,000, you are ensuring that you have enough anesthesiologists to cover all your operating rooms, your minor procedure rooms and your pain management service," she says. "It's a coverage requirement that may exceed the ability of that physician group to generate enough professional fees to provide market rate compensation to all its doctors."

3. Number of physicians in the community. Service contract payments will also be higher if the community suffers from a shortage of physicians. "In order to keep an adequate number of doctors on staff to provide required hospital services and prevent them from going elsewhere, you have to make sure they make market-rate compensation," Ms. Stroud says.

4. Amount of on-call coverage.
Physician groups that provide more on-call coverage are more likely to receive higher payment for doing so, Ms. Stroud says. This difference in coverage may account for the difference in compensation between different specialties. For example, radiation oncology receives a median annual payment of $40,566, while trauma surgeons receive on-call coverage payments of $2,379 per day at the median. "Radiation oncology is a scheduled service, and one or two physicians can cover the whole service," she says. "There's very little on-call. Pathology is the same issue, where you've got relatively few doctors covering a service."

5. Hospital trauma status. The MD Ranger study has found that a hospital's trauma status has a significant impact on the level of compensation for services. Ms. Stroud says trauma status is important because the scope of services required is often broader than with non-trauma hospitals, and payor mix for trauma hospitals is often worse because of a high number of uninsured and Medicare patients. "It's also a function of demand," she says. "There may be a bigger call burden, and you're more likely to be called in because trauma centers tend to have busier emergency rooms and serve as regional centers for specialty services"

6. Presence of incentive payments. Across all types of contracts, only 7 percent included incentive payments, with only anesthesia providers, hospitalists and intensivists receiving incentive payments in more than 20 percent of cases. "Incentive payments were typically geared toward quality criteria — things like readmission rates and infection rates," Ms. Stroud says. Other criteria used to incentivize contracting physicians were related to patient satisfaction, and a smaller number were related to cost. Incentive payments can help group physicians focus on efforts that help the hospital meet its strategic goals.

Read more on compensation:

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-Compensation Rose 8% in 2011 for Orthopedic Surgeons, Neurosurgeons

-Criticism Launched at Dr. David Feinberg, UCLA's "Million Dollar" Executive

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