Evolving payment mechanisms in administrative physician contracts

Hospitals contract with physicians to fulfill a variety of administrative roles that advance the organization's clinical agenda. In order to conform to the regulatory environment, the payment mechanisms for these agreements have become increasingly complex, perhaps too complex.

Today's organizations don't always have the people, processes and structure required to ensure the agreement is being followed as written.

Setup of physician agreements
Hospitals give much care to setting up physician agreements within all the rules of the regulatory environment at the start, by hiring attorneys and investing significant dollars in getting the physician agreements setup with the safe harbors. The challenge is not the setup of the agreement but once it is live collecting the appropriate documentation and paying the physician exactly as intended.

Payment mechanisms
Narrowing the discussion to agreements for non-patient care activities, (i.e., medical directorships, co-management, committee participation, teaching, research, and on-call services) there is a wide variety in the payment mechanism underlying the compensation. It may be derived from an hourly rate(s), from a unit of service, include a minimum or maximum threshold, may have quality bonus provisions. Further complexity is introduced with applying this mechanism to a daily, weekly, bi-monthly, monthly or annual limit. With the ongoing shift to value-based payment models, the need to compensate physicians for non-patient care activity has increased precipitously. In an effort to stay ahead of the regulatory environment, the complexity is increasing exponentially.

Examples of evolving payment mechanisms:

Combining multiple payment mechanisms in the same agreement. Physician will be paid $150 per hour of administrative leadership, $70 per hour of rounding with residents in the hospital, and $60 per hour of rounding with residents in outpatient setting. Total payment per month not to exceed $2,500.
Unit of service minimum and maximum. Physician must take 2, 24-hour on-call shifts per month as part of employment agreement, but will be paid for shifts 3, 4 and 5. Not to be paid for shifts over 6.
Unit of service daily maximum. Physician will be reimbursed if called into the hospital and will be paid to appear in the hospital. Physician will be paid for up to 2 appearances within a 24-hour period.
Incentive payments. Physician will be paid an incentive payment quarterly if threshold quality goals are met. Payment not to exceed 50% of medical directorship total payment.

Three words of caution – people, process and structure
Who is checking the math on each physician payment? How are they checking, do they have a copy of the agreement in hand as the math is checked? Are they expected to check against a spreadsheet of contract details maintained in Excel on a shared drive somewhere? What is the organization's process for administering these complex payment structures? Who ultimately oversees this payment process? Is there a process to catch errors?

After reading the examples above, it is apparent why the payment is so complex and how manual errors may result without strong checks and balances. Todays' organizational structures have not caught up. Hospitals lack the structure and ownership of the necessary process to administer these payments properly.

Suggested approach
The first step is to recognize that someone at a high level within the organization needs to own the physician payment administration. Each new complex agreement carries a risk of process failure. Provide owners of this process with the tools to administer the agreements. Streamline and remove manual steps where errors are most likely to occur. Standardize the processes being used across the organization. The risk of facing a legal settlement for physician payment violations could be greatly detrimental to an organization's success. If processes are manual, vulnerabilities exist.

As the great architect Louis Sullivan said, "Form Follows Function". Hospitals that pay attention to the structure of the organization and provide those managing this function with tools to properly administer physician agreements will be in the best shape to achieve goals, properly maintain their physician relationships and successfully navigate the regulatory waters.

Gail Peace is president and CEO of Ludi. Ludi works with healthcare organizations to strengthen physician alignment and administer the complex financial arrangements that are the infrastructure of healthy physician integration strategies. Pairing technology with deep industry knowledge, Ludi offers software as a service (SaaS) solution, DocTime Log®, as well as consulting services to build the trust and efficiency into the relationship between organizations and their physician partners.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.​

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