Dialysis Medical Director Compensation Arrangement
Abbey
May 30, 2023
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June 13, 2023
Download PDFWritten by Matt McKenzie, CVA, and Taylor Dunlap
The following article was published by the American Association of Provider Compensation Professionals.
Hospitals play a crucial role in healthcare, providing advanced medical services to patients requiring the most acute levels of care from specialized physicians. To ensure adequate physician coverage of various specialty service lines and timely high-quality patient care, hospitals often enter into coverage agreements with independent provider groups. Through these agreements, provider groups provide on-site clinical coverage, unrestricted on-call coverage, and administrative management services to hospitals, often in exchange for the right to bill and collect from patients/payors and compensation payable by the hospital.
In structuring these types of hospital coverage arrangements, due diligence is necessary to ensure the compensation terms are consistent with fair market value (FMV) and maintain compliance with the Stark Law and Anti-Kickback Statute. In this article, we’ll discuss the key fair market value and operational considerations for the most common hospital coverage agreement compensation structures.
The first step in structuring a service arrangement with an independent provider group is often determining which party will bill and collect for the professional services the group will provide. In many cases, the hospital, especially if affiliated with a larger health system, might enjoy better-contracted rates with major commercial payors due to market bargaining power. Hospitals may also benefit from economies of scale enabling more efficient revenue cycle management. In other cases, a provider group, especially if affiliated with a large national or regional entity, may already have the infrastructure, commercial contracts, and billing and coding expertise within their medical specialty to efficiently bill and collect for its professional services.
This article focuses on considerations in structuring hospital coverage arrangements in which the independent provider group bills and collects for its professional services rendered. Service arrangements in which the hospital bills and collects for professional services are not covered in this article.
Provider groups incur significant costs to staff a hospital coverage arrangement including provider salaries, benefits, malpractice insurance premiums, billing and collection, back-office support, and overhead costs.
In some hospital coverage arrangements, the professional collections generated by the group directly from patients/payors are sufficient to cover these expenses. However, in scenarios in which the professional collections generated by the group are not sufficient to cover its costs of providing the coverage, hospitals often pay additional compensation to the group to offset the shortfall of professional collections to costs incurred.
This shortfall may be due to relatively low case volume and collections relative to the on-site and on-call coverage required by the hospital. Additionally, some hospitals serve a high percentage of Medicaid, self-pay, and charity care patients resulting in relatively low professional collections generated by the provider group.
In these types of scenarios, there are two common structures to compensate the provider group: (1) a fixed subsidy or stipend, or (2) a collections guarantee. VMG Health has observed other compensation structures in hospital coverage agreements, but these two remain the most common.
This compensation structure compensates the provider group based on a pre-determined fixed amount to subsidize the group’s shortfall in professional collections relative to costs incurred to staff the service line.
A collections guarantee structure compensates the provider group based on the difference between a pre-determined collections guarantee and the actual professional collections generated by the provider group under the coverage arrangement for a given period. The negotiated collections guarantee is typically set at a level meant to cover the projected costs of the provider group to staff the service line.
Hospital coverage agreements between independent provider groups and hospitals can help improve patient outcomes, reduce healthcare costs, and increase efficiency. Hospital administrators must balance compliance considerations, administrative burden, and operational alignment between the hospital and the provider group. When structuring these arrangements, it’s important to understand the risks and benefits of each model and to ensure the compensation structure and amounts result in compensation consistent with FMV.
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