25 August 2008

Contracting with your hospitals

I don't know that there are many (any?) ED directors or practice managers that read this blog, but if there are some ER docs reading, there is a good chance that there are some future ED directors reading this, and one part of the job is negotiating and maintaining the contract with your hospital clients. I'll throw out a quick disclaimer here: I'm not a lawyer and do not purport to have detailed knowledge of contract law. I can speak from some experience and from my own knowledge base, and take of that what you will. Make sure you have good counsel when contracting.

Care and Feeding

While in this PC era we refer to our patients as "customers" or "clients," from a business perspective the hospital is the ED physician's client. They are the ones who are providing you with access to your patients and the revenue they represent, and they have the ability to replace you with another vendor, should they choose. Unless your practice is in a particularly distressed market, the chances are that there are a dozen contract management groups (CMGs) out there that would love to have your contract. So you need to pay attention to your contract as your group's fundamental and irreplaceable asset. A lamentable tendency of physicians is to view and treat the hospital administrators as adversaries, especially when the "suits" are non-physicians. It is true that some administrators are clueless or hostile, and in those cases you have to play the hand you've been dealt. The key to contract security is to cultivate the relationship between your group's leadership and the key decision-makers in your hospital. To neglect this relationship and to neglect the key concerns of your administration is to allow an opening for another entity to come in and steal your contract. It may seem unlikely, but most hospital administrators get cold-called by contract management groups on a regular basis. Don't give them any interest in taking that call. Know your administrator's concerns, know where their interest is focused, and make sure that you align your group's interests with theirs.

Term and termination

How long should the contract be good for? Do you want an "evergreen contract" which will renew automatically every year until someone wants to modify it? It's low-maintenance, which is nice, and if there are no items of value to be renegotiated then there's no pressing need to renew it periodically. Personally, I do not recommend this approach. I like to schedule some "face time" with our hospital leadership every so often, to discuss the "relationship" and make sure that they are happy with the services we are providing. Also, if you have an evergreen contract which has been unchanged for a number of years, and you want to modify it, it's kind of a big deal and your administrators might view this negatively. There's more flexibility in a contract that you renew annually or bi-annually. Termination will usually be 90 or 180 days notice, more if the contract is terminated without cause. "Cause" should be clearly defined and limited to Very Bad Things, like loss of malpractice insurance or Medicare eligibility. Ideally, the termination notice should be on the longer side; this makes it a bit harder for the hospital to replace you, and if they are flirting with a CMG you have more time to respond and remedy the situation.


It is common and reasonable for the hospital to ask its partners not to compete too directly with their business, but the restrictions should be limited and justifiable. For example, many contracts will prohibit the ED group from opening an urgent care center or "boutique" ER within a certain geographic radius from the facility. I've always viewed this as fair. But the contract should not prevent you from acquiring other hospital contracts, should the opportunity present itself.


The hospital will typically require you to maintain professional liability insurance, which is something of a no-brainer. But pay attention to the details. Are you required to maintain certain limits? This will depend greatly on your market. $1/3 million is common, $2/6 million is high-end. Whatever the requirement is, make sure it is consistent with insurance that is actually available in your market, and that you actually have the stipulated insurance. It is also helpful to compare the limits you are required to hold with other members of the medical staff -- EM is more comparable in risk to ortho or GYN-surg than it is to OB or Neurosurg, and you should not be held to a higher standard than similar specialties. Also, some hospitals will insist on A-rated insurance, which may not be reasonable in certain markets or with certain products like risk retention groups. Some older contracts still contain "mutual indemnification" clauses, which are bad things and should be stricken. If there should happen to be a judgment in excess of policy limits and the hospital has to pay the balance, they can use this clause to come after your group for restitution. However, there is no balancing risk for the hospital; it's a very one-sided clause which is disadvantageous to the ER docs. Also, should the ED medical director ever be sued for his actions as medical director, the contract should specify that the hospital's general liability or D&O policy will cover him.

Other Items of Value
ED Medical Director: The ED Medical Director is a facility function and as such the salary should be covered at least in part by the hospital The proportion paid by the hospital might be determined by the time required by the job, if it is less than full-time or if the director spends much time on other activities. The contract should also specify the process by which the director is chosen (ideally a collaborative process in which both parties have input), who the Medical Director reports to (to ensure he has adequate institutional clout), and the degree to which the Medical Director has budgetary authority (also important in terms of clout).
Subsidies: Direct subsidies are nice if you can get them. They are, however, problematic under the Stark regulations, unless you are in a distressed market and are willing to jump through some hoops. My experience is that subsidies are becoming less and less common, and they certainly are a liability when it comes to renewing and protecting your contract.
Incentive compensation: if your practice is in need of additional monies to ensure adequate compensation for your docs, and the hospital is unable or unwilling to give free cash, incentives are permissible and a creative way to increase your bottom line while positioning yourself as a good partner for the facility. Find out what it is that your CEO values -- whether it's patient sat, LWBS, JCAHCO core measures, CMS P4P or whatever, and as long as it can be affected by your department and measured, offer to make this a performance bonus clause in your contract.
Billing and coding: Who will perform it? If the hospital does, how will you be paid? Based on actual collections or a predetermined fraction of billed charges? Hospital coders and billing offices tend not to be aggressive on the professional side; the amounts are too small for them to care about. Basically they give away the doctors' services, and their profit center is the facility charge. So you should not accept actual collections, and you should ensure that you have input and control over the coding process to ensure that all professional charges are captured accurately. In most cases it is better for the docs to accept the cost & risk of self-billing. Unless you had a large subsidy from the facility, generally the entrepreneurial spirit will ensure that your group will do better managing its own revenue cycle. If you are going to self-bill, make sure that your billing vendor is given adequate access to records and hospital space as needed.
Physician Fee Schedule: Hospitals do not want their docs gouging the community, as this leads to complaints, so some will try to restrict your ability to set your prices. Usually as long as you can justify your fee schedule as reasonable, this should not be a contentious issue, but be sure that you have the freedom to adjust the fees as needed. We use the Ingenix database, and I have always felt that somewhere above the 50th percentile but below the 75th strikes a nice balance between aggressive pricing and gouging.
Medicare and Medicaid: You will be required to participate. Get over it.
Managed care and payer contracting: This is highly market dependent. Generally, you need to have the freedom to negotiate with payers, and the only credible leverage ER docs have is to go non-participating with a plan. Therefore, if your hospital requires you to participate in every plan they do, then you have zero leverage and will certainly have to settle for crummy compensation. This is worth fighting for, in most states. Of course, the freedom to go non-par needs to be used very judiciously and selectively, as the political ramifications are significant. Often times you can mollify the hospital's concerns with a clause that requires the ED group to negotiate in good faith to participate in all the plans the facility does.
Charity care: In my opinion, this is an opportunity to put on the white hat and offer to take a loss for the home team. Most services which appear to be charity are going to be non-recoverable, and the hassle and complaints that go with aggressive collections may not be worth it. You can offer to write off cases based on certain parameters (or mirror the hospital's charity policy) and you'll look like a good team player. If you choose, you can ask for some reimbursement from the hospital for your largess.


Provider Qualifications: At a minimum, the contrast will have some boilerplate regarding the duty of the ED group to provide licensed docs with valid DEA numbers, medicare eligible, etc. Some hospitals will choose to place certain extra minimum qualification levels on their ED group -- Board Certified/Board Eligible, Residency trained vs grandfathered, for example. My view is that these issues are more properly a function of the medical staff process, but depending on the composition of your group and your hiring philosophy, you may choose to accept this clause to show your facility that you are committed to maintaining standards.
Exclusivity: This can be a helpful perquisite in certain circumstances. Exclusivity means that your group will be the sole provider of care in your ED, and this really establishes the ED as your turf. It precludes private attendings and specialists from bringing in their own patients and seeing them in your department. An exclusivity clause may not be needed if your medical staff does not do this very often or if they do so in a non-disruptive manner. However, if patients often come in to see "their" doctor, and if this gums up patient flow, or if the privates are less-than-prompt in coming in, then you may benefit from exclusivity. Be prepared for pushback from the medical staff if you go there; this means lay the groundwork in advance to ensure that the suits are on your side, and make sure you have some leverage or bargaining position to propel you to a win, before you initiate the discussion.
Out-of-ED responsibilities: Does your group cover in-house codes? If so, the requirement to do so should be spelled out in the contract. If this responsibility would leave the ED uncovered for any significant time, you may wish to have the facility indemnify you against any adverse event that resulted from this dual responsibility.
Staffing level or on-call requirements: Ideally, the staffing level for the ED should be set by the ED director and nurse managers. The contract should not be excessively restrictive in requiring a high level of staffing, or at least no higher than what you are willing to actually provide! On-call requirements are becoming more popular as hospital administrators get more savvy about "surge capacity," but again, you will have the most flexibility if you can keep this out of the contract.


Who owns the contract? Ideally, the contract is between your corporation and the hospital. However, in many cases, the contract may be between one or a few select managing partners and the hospital. If you're not one of them, you're out of the loop and out of control. By definition, there's not much to do about it until you are in a position to take over the contract (with or without the assent of the current contract-holders). One caveat: having a single contract-holder is not great for contract stability. Should that individual die or abruptly decide to get out of the game, there's no assurance that he or she will pass the contract back to the group. It may be sold to another favored friend, or to a CMG. While it may not fall into the purview of the facility contract, some sort of "succession planning" might be prudent to ensure continuity of your practice.
Compliance: though your group is elsewhere obligated to be in compliance with the alphabet soup of applicable federal regulations, they will likely be reiterated here. Just be aware that in the event you are found to be noncompliant in any respect (most notably billing practices) this may give the hospital a club to use against you. While you cannot escape the obligation to remain compliant, make sure that the hospital must give you an opportunity to remedy any and all compliance deficiencies prior to taking any action against your group.
Dispute resolution: Binding arbitration is a very good idea, as it is cheaper, easier, and much much faster than litigation, so it's a good idea to have a dispute-resolution process that includes arbitration. Mandatory mediation is, in my opinion, less useful but not unreasonable. However, the point does remain that if you do have a serious enough dispute with the facility that it requires arbitration, your contract is probably toast anyways.
Recitals and boilerplate: There's a lot of legalese in these contracts "Whereas Hospital owns and operates a licensed general acute care hospital and is in need of physicians to provide professional services to patients of the Department, and Whereas Medical Group is a professional corporation engaged in the private practice of medicine... blah blah blah" and it can be really dense and boring. READ IT ALL, and make sure that the words do reflect the reality.

OK, that was a long and boring post. It's an important topic, however, and if any of you made it all the way to the bottom and are reading these words, I hope you found it helpful. Now, I have to quit blogging and get back to real work. Anyone want to guess what I am working on this week?


  1. I like the boring post.

    I like the idea of asking the hospital to indemnify us for covering house codes. This is very risky business for us. We have had our contract for 20 years. Covering codes was not a big deal when we where a 20k visit ED. Now it has grown to a 75K visit ED with lots and lots of really sick patients in the hospital and I think administration takes it for granted that is "just what we have always done for them".

    I would also add that another way to secure your contract for the future is to have the ED docs infiltrate all of hospital committees. (P&T, med exec, peer review, credentials, disaster, etc) Hospitals always have a hard time keeping htese positions filled and if administration fires the ED group then they are also killing their committees as well.

  2. A lot of excellent information here. Thanks!

  3. excellent post. as a newbie ED attending this kind of admin stuff is super interesting to me. they really don't teach you this stuff in residency. you learn by doing or from people like you. thanks!

  4. I'm rapidly moving up my older small group's chain of command. Thanks for a fantastic resource.


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