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By Jane Wood
10/09/07
Part A and Hospital Contract Negotiations
The negotiation
of a pathology practice’s hospital contract generally
is one of the practice’s most critical tasks. The dynamics of the relationship
between a hospital and its hospital-based pathologists continue to change and
become more complex. Trends in the changing relationship include the following:
1.
Payment amounts from hospitals are generally declining and are more often performance-based.
2. Greater
control by hospitals over managed care contracting for pathology services.
3. Greater
control by hospitals over staffing matters.
4. More
hospital contracts provide for automatic loss of privileges if the contracts
terminate.
5. More
hospitals are trying to “streamline” negotiations and ongoing interaction
with pathology groups through “department director” contracts.
6. Greater
restrictions on outside activities by pathology practices.
7. Contract
terms are becoming shorter.
8. More
contracts are being opened to competitive bidding.
Keeping in mind these trends,
in order to maximize compensation from the hospital, a pathology practice
must market effectively the value of all of its services to the hospital,
not only during the contract negotiations, but also throughout the term of
the contract.
Preparing for Negotiation
Negotiating a favorable hospital
contract and maintaining a favorable relationship with the hospital are the
keys to more than success—they are the keys
to survival. The process of preparing for the negotiation should begin many
months in advance of the expiration date of the current contract. A game plan
should be established which would include at least the following preparatory
steps:
1. Determine
the strategic plan of the hospital. What is the hospital’s current financial
condition? What factors will affect that condition in future months? Is the
hospital “in play” as a potential acquiree by some other hospital
or system? Is the hospital a potential acquirer? How successfully is the hospital
competing? How well is it doing in attracting managed care plans or the business
of other third parties? Is the hospital planning any projects off site in which
the pathology practice could be involved? Are any professional services which
could be provided by the department being routinely sent to outside providers?
Will the trend likely continue or increase? What can be done to prevent or
reduce out-of-department referrals?
2. Carefully
review the terms of the pathology practice’s current contract with the
hospital. What problem areas exist from the pathology practice’s standpoint
and the hospital’s? Are certain provisions in the contract being ignored
or violated? Have there been any tacit amendments to it which the pathology
practice and the hospital accept? Have any promises been made by the hospital
of any future accommodations or contract modifications?
3. Check
with the other hospital-based groups in the hospital. What has been the general
experience of the anesthesia, radiology, or emergency room groups in their
negotiations? A word of caution is needed here. Agreements on the part of non-integrated
hospital-based groups related to what they will accept as fees, or prices,
or collective activity that involves a boycott, refusal to deal, or the threat
of either, can violate federal and state anti-trust laws.
4. Determine
how the pathology practice is perceived by the hospital or the medical staff.
If the perception is in any way negative, can the pathologists act to change
it?
5. Determine
how dependent the pathology practice is on the level of hospital financial
support it receives. To what extent (and how) could the pathology practice
deal with various levels of change in that support?
6. Determine
what information is available from other similarly situated pathology practices
(not the pathology practice’s competitors, however, for anti-trust reasons)
or from the national associations about standard aspects of financial support
from hospitals.
7. Determine
what opportunities may exist in the next few years to provide services at locations
other than the hospital, including other hospitals and freestanding medical
facilities.
In short, groups need to “do their homework” before entering into
contract negotiations with the hospital. Information and preparation is critical.
Financial information and comparative data can be extremely valuable in negotiations
or in responding to questions raised by hospital personnel.
Another issue is determining when to start the process. The process of analyzing
the pathology practice’s situation and assembling the “case” should
begin no later than six months prior to the expiration date of the contract.
Value
of Pathology Services to Hospitals
As explained above, it is critical
for pathology practices to educate their hospitals about the value of the services
provided by the pathologists. As a first step, pathology practices should explain,
in detail, the various types of pathology services that they provide, including
anatomic pathology services, professional component of clinical pathology services,
blood banking services, autopsy services, graduate education services, research
services, outreach services, etc. The pathologists should ensure that the hospital
administration understands the significant commitment of time and expertise
required to provide these services, especially those services for which the
pathology practice cannot bill payors or patients (i.e., services for which
the sole source of compensation is the hospital).
If the pathology practice has one or more pathologists
with specialty expertise, this pathology specialization and its relation to
the provision of specialized services by the hospital and its medical staff
should be emphasized. For example, one or more pathologists with hematology
expertise offer significant support to the provision of oncology services at
the hospital. A pathologist with pediatric specialization is vital to a hospital
that prides itself upon its pediatric services. Without such pathology expertise,
the hospital and members of its medical staff would not be able to provide
the same level of specialized hospital and medical services.
The pathology practice
should explain that quality pathology services are directly related to more
satisfied medical staffs and patients, which means that the hospital is less
likely to lose referring physicians and patients to competitors. Quality of
care is increasingly an important issue to some payors, and the expertise of
the pathology services can have an impact upon the hospital’s
ability to secure preferred managed care contracting.
Pathologists can market
effectively the clinical laboratory and anatomic pathology services offered
by hospitals to physician offices, surgery centers, nursing homes, and other
healthcare providers, and often are the single most important factor in a client’s
selection of pathology and laboratory services. It is advisable for pathologists
to assess the dollar value of the outreach services provided by the hospital,
and explain to the hospital the critical role that the pathologists play in
securing this business and retaining it.
Quality pathology services reduce the
risk of malpractice liability for hospitals and attending physicians. If hospitals
are interested in cutting costs and are looking for the “lowest cost” provider
of pathology services, the hospitals may be increasing their exposure from
a liability perspective. Pathology practices should remind budget-minded hospitals
that courts have held hospitals legally responsible for the negligent selection
of hospital-based physicians, and the more prudent approach for hospitals is
to pay a reasonable amount to secure the services of competent and trained
pathologists. In addition, pathologists also can assist hospitals in reducing
their liability exposure through their supervision and oversight of hospital
laboratory personnel.
Pathologists play a key role in controlling costs in hospital
laboratories. If the hospital treats its pathologists fairly and looks for “win-win” scenarios
with its pathologists, then the pathologists will be much more attentive to
controlling laboratory costs while maintaining quality services. During contract
negotiations, it is advisable for the pathology practice to educate the hospital
about the steps taken by the pathology practice to control expenses in the
laboratory, to the financial benefit of the hospital.
Another important benefit
that the pathology practice provides to the hospital is with respect to the
accreditation and certification of hospital laboratories. Not only is the pathology
practice responsible for providing medical direction as required by the Clinical
Laboratory Improvement Amendments of 1988 (CLIA) and the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO), but it also provides the
supervision and oversight of all of the technical services provided by the
hospital’s laboratory personnel.
Part A Services
Professional component of clinical pathology
services usually are the most significant source of compensation from a hospital.
Professional component of clinical pathology services are medically necessary
services that are separate and distinct from the technical component of clinical
laboratory services. These professional component services are required by
federal and state certification standards and the JCAHO. Unlike medical director
services which are provided by a single medical director, most, if not all,
of the pathologists in a practice provide professional component of clinical
pathology services. These professional services encompass the following (and
thank you to Daniel J. Hanson, M.D., for this list):
1. The
consideration of appropriate test methodology, instrumentation, reagents (agents
used in laboratory testing), standards, and controls;
2. The
establishment of test reference values and levels of precision, accuracy, specificity,
and sensitivity;
3. The
direction of laboratory technical personnel and advice to such personnel concerning
testing;
4. Assurance
that tests, examinations, and procedures are properly performed, recorded,
and reported;
5. Interactions
with members of the hospital’s medical staff regarding issues of laboratory
operations, quality, and test availability;
6. The
design of test protocols and the establishment of parameters for the performance
of tests;
7. Recommendations
regarding appropriate follow-up diagnostic tests when appropriate;
8. The
direction, performance, and evaluation of quality assurance and quality control
procedures;
9. The
evaluation of clinical laboratory data and the establishment of a process for
review of test results prior to the issuance of patient reports;
10. The
determination of the effects of medication on tests;
11. The
determination of the effects of other analytes on test results;
12. The
effects of other disease states on test results;
13. The
establishment of turnaround times;
14. The
criteria for urgent applications;
15. The
prioritization of testing and testing sequences;
16. The
application and response of values which require immediate medical consideration;
17. The
determination of formats for reporting;
18. The
establishment of referral criteria for review by pathologists and subsequent
examination;
19. The
determination of the type of data collection and storage criteria that will
be used for particular tests;
20. The
prevention of overuse and improper application of tests; and
21. The
assurance that the hospital laboratory complies with state licensure laws,
certain accreditation standards, and certain federal certification standards.
Compensation
for Part A Services
The contract should specify the amount and/or method
of payment for both professional services and administrative services and the
payment schedule therefore. The services provided by a pathology practice,
and compensated by the hospital, may include professional component of clinical
pathology services, the services of the chairperson of the department, direction
of the blood bank, autopsy services, direction of outreach programs, teaching,
research, etc. All of these services are commonly referred to as “Part
A services.” Pathologists
should educate their hospitals regarding all components of Part A services,
and negotiate for reimbursement for all components of Part A services.
The Medicare
program provides for reimbursement for the professional component of clinical
pathology services to Medicare beneficiaries through Medicare Part A DRG payments
to hospitals, rather than through Medicare Part B payments to pathologists.
When the Medicare program decided to shift the reimbursement for professional
component services from Medicare Part B to Medicare Part A, the Centers for
Medicare & Medicaid Services (CMS) allocated payment for
professional component services into its DRG calculations. The current Medicare
reimbursement methodology for professional component of clinical pathology
services presumes that the hospital will reimburse the pathologists directly
for these services.
The contract should explain whether the Part A payment from
the hospital is intended to cover professional component of clinical pathology
services only for Medicare and Medicaid hospital patients, or also for some
or all patients covered by private payors. This is especially important if
the pathology group bills or wishes to commence billing for professional component
of clinical pathology services to private patients.
Pathologists will want to
protect against interference with the right to bill for the professional component
of clinical pathology services. This can be done in several ways, including
becoming educated about professional component billing, educating other pathologists
in the group, proactively educating the administration and the medical staff,
monitoring and keeping track of any patient questions and/or complaints, developing
a formal policy for addressing patient questions and complaints, and avoiding
hospital contract provisions that prohibit professional component billing.
The contract should clearly limit the Part A compensation to those patient
categories for which the pathologists are not billing a clinical pathology
professional component. The contract also should require the hospital’s
cooperation in the development of appropriate notification language for the
hospital administration as well as registration forms.
Legal Compliance
Remuneration between a hospital and pathologists
may implicate the Medicare and Medicaid anti-kickback law, particularly if
the pathologists are required to pay direct or indirect remuneration to the
hospital as a condition of providing services to the hospital’s in-patients
and outpatients. If the Part A payment is below fair market value, the government
could allege that the pathologists have paid a kickback to the hospital in
exchange for the opportunity to provide services at the hospital.
The Office of Inspector General (OIG) has explained
that a hospital’s
demand for compensation from its hospital-based physicians is suspect under
the anti-kickback law. (Department of Health and Human Services, OIG Management
Advisory Report: Financial Arrangements Between Hospitals and Hospital-Based
Physicians, at pp. 3-4, Jan. 31, 1991.) This OIG report specifically discusses
no, or token, reimbursement to pathologists for Part A services in return for
the opportunity to perform and bill for Part B services at that hospital. The
OIG’s Compliance Program Guidance for Hospitals also cautions against
arrangements with hospital-based physicians that compensate the physicians
less than fair market value for their services, including no, or token, Part
A compensation for pathologists.
(OIG’s Compliance Guidance for Hospitals,
footnote 25, February 1998.) By refusing to pay adequate compensation to pathologists
for their Part A services, hospitals and their individual administrators and
trustees may violate the anti-kickback law, thereby subjecting themselves to
criminal and civil penalties.
Many hospitals require or attempt to require pathologists
to keep detailed time studies to support Part A services. It is important to
understand that the Medicare program does not require time studies for professional
component of in-patient clinical pathology services because these services
are paid through the DRG payments to the hospitals. Medicare regulations only
require hospitals to maintain time studies for services that are reimbursed
on a cost basis.
Determination of Fair Market Value
Approximately
one-half of the total work hours of all of the pathologists in a pathology
practice are spent providing Part A services, although this percentage can
vary significantly in individual situations. Pathologists cannot bill the Medicare
program for any of these services. In fact, pathologists can bill the Medicare
program only for surgical pathology services and a very narrow range of clinical
consultative pathology services. Therefore, adequate Part A reimbursement from
hospitals is essential (and required by federal law).
The
federal government has not mandated that a specific formula be utilized to
determine the fair market value of Part A services provided by pathologists.
Nevertheless, many hospitals and pathologists consider the Medicare reasonable
compensation equivalent (RCE) in their determinations of the amount of Part
A compensation to be paid. As explained below, however, the Medicare RCE amounts
should not be relied upon as sole indicators of the fair market value of the
services provided by pathologists.
The Medicare RCE formula is intended to be
utilized for the payment of salaries to pathologists who are employed by hospitals,
and explicitly does not cover professional component of clinical pathology
services or teaching services. “The
reasonable compensation equivalent (RCE) limits set forth in this notice do
not apply to costs of physician compensation that are attributable to furnishing
inpatient hospital services paid for under the hospital inpatient prospective
payment system or that are attributable to GME costs.” 62 Fed. Reg. at
page 24,483. In addition, the RCE formula does not cover the additional costs
that the hospital would incur as the employer of the pathologists, such as
the costs of practice overhead, etc. Therefore, the RCE amounts established
by the Medicare program do not reflect the full value of the compensation and
expenses paid by a hospital for the services provided by its employed pathologists.
To accurately reflect the full fair market value of these services, the RCE
amounts must be increased to include professional component of clinical pathology
services that are compensated under the prospective payment system and teaching
services of the pathologists, as well as expenditures for practice overhead,
etc. The value of medical director services also can be separately included
under cost-based records of the hospital.
Many hospitals use Part A reimbursement
data from “selected” hospitals
to justify compensation amounts that the pathology practices consider inadequate.
Oftentimes, the data is skewed, and the services provided by the pathology
practices in the survey are not representative of the types and volume of services
that another pathology practice provides. If a pathology practice provides
services on a full-time basis, arrangements where pathologists cover a rural
hospital on a part-time basis should be excluded from fair market value comparisons.
These part-time arrangements often involve a fraction of the volume of services
that pathologists would provide under full-time arrangements with larger hospitals,
and these arrangements generally do not include any services with respect to
outreach work.
Furthermore, a hospital’s own data should not include any
other hospitals which may be in violation of the Medicare and Medicaid anti-kickback
law. It is imperative to remember that compensation paid by a hospital that
violates the Medicare and Medicaid anti-kickback law cannot be used to determine
the fair market value of the compensation (i.e., just because someone else
is breaking the law does not mean that another hospital and another pathology
practice should break the law).
A comparison of Part A compensation amounts
paid by other hospitals is only legitimate from a legal compliance perspective
if the other hospitals are in full compliance with the government’s guidelines
and if the services provided by all of the pathology practices are substantially
comparable in terms of volume and scope, including, without limitation, the
complexity of care, the volume of clinical laboratory testing, blood bank services,
outreach services, reference work, the extent of charity care, etc.
Bed size,
utilized in some analyses, does not take into account the complexity of care,
the volume of outreach and reference work, whether blood bank services are
included, whether substantial charity care is provided, the quality of the
care provided, the credentials and specialization of the pathologists, etc.
As a general matter, bed size should not be determinative of the amount of
Part A compensation paid to pathologists, although it can be one factor among
many other factors.
Some hospitals argue that the only accurate method of determining
fair market value of pathologists’ services is to solicit one or more
proposals from other pathology practices or firms offering nationwide pathology
contracting services. One of the reasons that the OIG issued its 1991 report
and its guidance in the model compliance plan for hospitals is that the OIG
was concerned about declining levels of Part A reimbursement to pathologists,
especially in situations where the pathologists are threatened with loss of
the contract or a “bidding” process
for the contract. A hospital that threatens to put a pathology contract “up
for bid” raises serious legal compliance concerns with the OIG.
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