Reducing Physician Stipends Through Improved Payor Contracts
For hospitals and many specialty-based medical groups, there is a strong connection between reimbursement from payors and stipends for services. For contracted hospital-based specialty service providers such as anesthesia, emergency groups, hospitalists and radiology groups, they often have less favorable managed care contracts from their payors and will look to the hospital for higher stipends to meet their overhead costs.
Across the country, we are seeing physician stipends increasing for hospital-based specialties like anesthesia, ER, hospitalists, and radiology. There are a number of reasons for this:
- Physician salaries are increasing due to a shortage of physicians.
- Reimbursement is declining due to challenges with revenue cycle performance.
- Denials are increasing due to pressure on pre-authorization criteria
- As the population ages, the percentage of Medicare patients is steadily increasing.
Hospital-based specialty groups must focus on obtaining payor contracts with market-driven rate structures to maintain acceptable stipend levels. Health systems should hold the hospital-based specialty groups accountable for their financial performance that includes incentive-based compensation, revenue cycle optimization and market driven payor contracts. By doing this, hospitals will reduce stipends and ensure the appropriate level of points of service from their specialty group partners.
Payor Contracting Strategies for Hospital-based Specialty Group
Most payor contracts for hospital-based physicians are based on a percentage of Medicare. For example, allowable rates are set at Medicare plus an additional percentage. But we know Medicare rates are not keeping up with inflation or the cost of providing services. Yet, payors are raising their rates to the employers in excess of inflation and seeing record profits.
Hospitals, healthcare systems, and physicians must adopt a more aggressive approach when negotiating payor contracts. It has been demonstrated that when payors are presented with data showing their premium increases to subscribers far outpace physician reimbursement rates, there is an opportunity to reduce the gap by negotiating higher reimbursement rates. However, hospitals and medical groups need to be well-organized and armed with compelling data to support their requests for an acceptable market-driven rate structure.
To succeed in payor negotiations, it is important to:
- Provide market-driven data comparing your reimbursement to commercial and Medicare reimbursement within your market.
- Model reimbursement data based on service volume by procedure code, including surgical services, medical procedures, and evaluation and management (E&M) codes.
- Present data comparing healthcare organization and physician cost increases to payor rate structures.
- Review the provider reimbursement over the preceding five-years, comparing to both the market Consumer Price Index (CPI) and healthcare CPI, to ensure it aligns with local economic factors.
Lastly, Hospitals, health systems and physician groups must also be willing to accept a “lapse of in-network” coverage in order to work toward a fair and equitable contract with payors.
By incorporating incentive-based compensation, optimizing the revenue cycle, and securing market-driven payor contracts, hospitals can reduce stipends while ensuring the continued success of their hospital-based specialty groups.
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