Experts Outline How to Evaluate a Hospital Contract

May 2006

By Mary Ellen Schneider
Elsevier Global Medical News

LAS VEGAS — Consider the volume of visits, payer mix, and potential revenue when deciding whether to accept a new hospital contract, according to experts at "Reimbursement: Trends and Strategies in Emergency Medicine," a meeting sponsored by the American College of Emergency Physicians.

Hospital administrators generally include information about their volume of visits and payer mix in the request for proposals (RFP) they put out when searching for a new physician group, said Dr. David C. Packo, president of Emergency Medicine Physicians of Canton, Ohio.

The RFP also usually includes the payer contracts, Medicaid rates, self-pay percentage, and collection rate of the hospital. The percentage of Medicare and Medicaid patients is a key area to consider, he said.

Other key considerations include the area's managed care penetration and the number of health plans that the hospital will require the emergency physician group to sign with, he said.

Also important is whether the hospital has the ability to recruit new physicians to the group. "It's location, location, location, much like housing," Dr. Packo said.

Buy-in from the hospital administration is also key to success with a new contract, Dr. Packo said. And during the first 6-12 months of the contract is a good time to work with administrators to make any changes around the hospital. Support from the medical staff is also important, he said.

When accepting a new hospital contract, emergency physician groups also need to figure out the level of staffing based on the facility's volume. A higher volume of patients gives the group more flexibility to set up shifts that allow for cross-coverage, Dr. Packo said. For that reason, a hospital with an annual volume of more than 30,000 patients is easier to staff than one with 15,000-20,000.

There are financial considerations, too. With a lower volume of patients, the group can't afford to pay its physicians as much, Dr. Packo said. Group leaders should also look at the number of patients per hour or the relative value units (RVUs) per hour. For example, the difference between seeing 2.2 patients per hour vs. 2.4 is about $175,000 over the course of a year, he said.

For use in putting together a potential budget, it's a good idea to look at 18 months' worth of expected revenues and expenses, said Dr. John E. Stimler, managing member of the consulting firm Bettinger, Stimler, Schultz & Associates, Jacksonville, Fla.

Calculate how much it will cost to "ramp up" to the maximum monthly collectible amount on any contract, he said. That process can take approximately 7-12 months, Dr. Stimler said. The hospital may be willing to subsidize ramp-up costs. Consider seeking such subsidies whenever the revenues don't cover expenses.

Dr. Stimler said that showing the hospital administrator the budget numbers can help to persuade them that a subsidy is needed. It's a chance to educate them about the cost of entering into multiple managed care contracts, providing uncompensated care, and paying for skyrocketing malpractice insurance. The hospital leadership may be more receptive to a subsidy request when they realize that the physician group is losing hundreds of thousands of dollars a year on managed care contracts, Dr. Stimler said.

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