Author: Andrew L. Worthington
The combination of healthcare industry consolidation and physician shortages can leave hospitals with few options to secure coverage by specialist physicians. Oftentimes, the traditional on-call arrangement may not be sufficient to secure consistent coverage of hospital-based service lines. In recent years, HealthCare Appraisers, Inc. has observed an increase in the prevalence of arrangements with independent physician groups to provide full-time coverage of hospital-based specialty services, such as general surgery, neurology, obstetrics, orthopedic surgery, and trauma surgery. These hospital-based specialists are generally referred to as specialty hospitalists, with the “-ist” suffix appended to the end of the specialty to reference the specialist (e.g., surgicalist, neurohospitalist, laborist, orthopedic hospitalist, and traumatologist).
These arrangements often feature a number of common components, including, but not limited to:
- Professional services: dedicated staffing of a hospital-based service line for the treatment of unassigned and emergent patients. These services include follow-up visits with patients after discharge.
- Coverage requirements: continuous (i.e., 24 hours per day, 365 days per year) coverage of the hospital-based service line through a mixture of on-site and on-call coverage. The arrangements can vary regarding the specificity associated with the coverage requirements.
- Professional services billing: the ability for the medical group to bill for and retain collections from professional medical services.
- Financial support: because the professional services revenue may be insufficient to cover the cost to provide such services, these arrangements often feature compensation in the form of a fixed “subsidy” or a “collections guarantee” with variable payment amounts.
As a result of the more stringent coverage requirements, the level of financial support associated with collections guarantees and subsidies is often greater than compensation for on-call arrangements. These arrangements may implicate the Stark Law, Anti-Kickback Statute, and the Internal Revenue Code, thus requiring terms that are commercially reasonable and/or compensation that is consistent with fair market value (FMV). However, because specialty hospital-based services involve physicians who typically practice in both hospital- and office-based settings, there are a number of additional critical factors to consider when determining a subsidy or collections guarantee, including:
- Program volume: Physician compensation is the largest cost associated with a specialty hospitalist program. Therefore, the level of physician staffing required will often drive the level of financial support. Accordingly, it is essential to validate that the level of coverage is commensurate with the frequency of patient encounters to avoid overpaying for professional services.
- Avoiding support of private practice costs: Hospitals commonly engage private practice groups in the community to provide specialty hospitalist services. It is imperative that the financial support that the group receives does not subsidize expenses associated with its private patients. For example, the group cannot receive financial support to render care to its assigned patients when scheduled to provide the services under the specialty hospitalist agreement.
- Reconciling market and survey data: It is important to exercise caution when evaluating physician compensation for specialty hospitalists. While such providers are typically not expected to perform a high volume of billable procedures relative to their office-based peers, other considerations that may drive the selection of compensation benchmarks (e.g., the number of hours of coverage provided per physician, the local supply of specialists, the level of specialization required).
FMV Pitfall: The standard approach to on-call arrangements may not apply for specialty hospitalist arrangements. Extra caution is necessary when determining the compensation for specialty hospitalist arrangements to avoid overpayment or subsidization of private-practice professional services. HealthCare Appraisers, Inc. performs valuations for hundreds of specialty hospitalist arrangements annually, and helps our clients navigate the perilous waters surrounding compensation for such programs.