Understanding Hospital-based Coverage Contracts

Prior to the 1990s, hospital-based coverage contracts between physician groups and hospitals traditionally involved one of four major practice areas: emergency medicine, radiology, pathology, and anesthesiology. The years which followed witnessed the expansion of services to include internal medicine hospitalists, pediatric hospitalists, neonatology, critical care, radiation oncology, and trauma surgery.

More recently hospitals and practice groups have been exploring the use of coverage contracts in acute care surgery, pediatric intensive care, orthopedic surgery, neurology, cardiology, and the list is growing.

Typically, these arrangements provide that a practice group will be granted exclusive coverage for a hospital's patient needs, in exchange for the promise on the part of the practice to cover all of the hospital's patients. Coverage may be 24-hour, or a set number of hours, with nighthawk coverage excepted.

Sometimes, this arrangement is workable without any subsidy from the hospital. Often, additional payments are necessary (beyond professional fee collections) to cover a service, in the event that actual receipts are insufficient to cover the actual and opportunity costs of the practice (lost income due to the inability to accept other work). An imbalance can be caused by uncompensated care, and can be complicated where the hospital receives a supplemental payment from the government, which is not properly allocated to recognize the group's contribution.

If this specified additional payment is a specific amount per year it is called a "stipend." If the hospital makes up the difference between collections and a target it is called a collections "guarantee." Frequently, contracts are also supplemented with incentives.  

These subsidies must be carefully documented to avoid Anti-kickback Statute and Stark Law concerns. MD Ranger, a market data company that collects non-employed physician fair market value analysis, offers the following compliance tips: 

1. Establish a contracting compliance program at your organization, with staff that can oversee day-to-day management.

2. Outline a standardized fair market value process for all contracts.

3. All hospital-based contracts, even "no cost" contracts, should have fair market value documentation.

4. Documentation should be a valuation using market data, the cost method, or a combination of both.

5. More complex hospital-based agreements, particularly ones with no market data available, will need a formal cost valuation.

The following figure illustrates the decision process between market data and cost valuation.

Click on image for larger view.