10 Key Factors for Spine Surgeons to Examine Before Signing Hospital Contracts

"As a recruiter, it's not necessarily the contracts that make physicians unhappy years after they sign," says Nancy Luck, director of physician recruitment at Concorde Staff Source. "It's not doing their homework before. A healthcare attorney can help you navigate your different options."

Here are 10 things to consider before entering into an employment contract.

1. Figure out hospital demographics and payor mix. Before becoming a hospital employee examine the hospital's patient demographics and insurance mix. If either the demographics or payor mix differ with your current practice you may experience an increase or decrease in patient volume.

"One of the major things to consider is the demographics of the insurance mix you currently have in your practice and whether it will be the same when you are employed by the hospital," says Sanjay Jatana, MD, a Denver-based spine surgeon and medical director of the Rose Spine Institute at Rose Medical Center. "The worst case scenario for a physician is to become a hospital employee and have the demographics and insurance mix change so you are doing more poor reimbursing cases."

For example, if your practice is currently 20 percent Medicare but at the hospital your case mix will change to 60 percent of Medicare patients, you are billing the same number of RVUs but with lower collections.

"Then the hospitals want to drop your salary because you aren't collecting the same as when you were in private practice," says Dr. Jatana. "This is the trap of salary based on numbers and not the work you are doing."

2. Negotiate fair salary terms. Your salary contract with the hospital should be fair and reasonable for both sides. The salary offered to the surgeon should reflect what the surgeon made before employment and consider local as well as national standards. Each hospital has a different formula for calculating surgeon compensation based on RVUs as well as other factors.

"Some hospitals will say you are in the 50th percentile for salary, but sometimes the percentile is not reflective of the experience surgeons have," says Dr. Jatana. "You might be at the 75th percentile for bringing in revenue and an outlier in the state, so they decide to offer you lower salary so you fit in with everyone else. Sometimes that's not an optimal situation for the physician. Understand where you are with the community before you give up autonomy."

Surgeons can look at national statistics from companies such as the Medical Group Management Association, but this information changes depending on the market and surgeon experience.

"You want to know your compensation is fair with the level of training you have and years of experience," says Ms. Luck. "Every hospital works out a formula for compensation that usually includes a wage and incentive. However, RVU formulas have changed in recent years to reflect the new healthcare market and they aren't just based on the procedures you do, but also on patient satisfaction and quality scores."

3. Make sure salary considers expenses. Hospitals employing surgeons will cover overhead costs and expenses for the surgeon's practice, but make sure the contract recognizes that these expenses will go up over time. Some contracts will pay a flat sum over several years without allowing for the operating costs to grow.

"Hospitals offer employment agreements for a certain number of years, and physicians will find their gross income and operating expenses increasing," says Dr. Jatana. "Hospitals initially look at financials over the first few years of your practice and base their offer on those reports. They assume that moving forward the operating costs are the same but typically they are not."

The hospital should also respect the existing contracts you have with practice employees and companies for overhead expenses, or renegotiate them after acquiring your practice. "Their salary structure should be in compliance with your payment structure for practice employees," says Dr. Jatana. "Once you are an employee, your employees are also employed by the hospital."

Surgeons who are just beginning their practice should know whether the hospital will provide a physician's assistant. Many surgeons want to work with them, but not all hospitals employ enough PAs for a 1:1 ratio, or they require the physician to establish practice before hiring a PA.

4. Build in bonus incentives. Salary contracts should be adjusted for the actual work performed so if the surgeon works more in a certain quarter they are able to realize financial benefit. Reimbursement depends on local demographics and insurance mixes, which should be negotiated individually.

"If the surgeon is working less than in private practice, the hospital won't feel good about the salary negotiated, but if the surgeon is working more they should make more," says Dr. Jatana. "There are complexities of negotiating compensation based on case volume or reimbursement."

Be aware of salary caps and how that could impact your practice. For example, if you do 200 cases per year in private practice, your salary could be capped at those expectations. Then, you might perform 300 cases as a hospital employee but the salary cap will prevent you from sharing in the 30 percent revenue bump.

"If surgeons do their minimum RVUs over a quarter, they will meet their salary requirements," says Dr. Jatana. "If they do more work in a busy quarter their salary should be bumped. That's not based on a negotiated number, so it should be built into the contract."

5. Factor potential revenue loss into salary agreements. New employment contracts should consider the revenue you make in private practice as well as future opportunities you are giving up by becoming an employee. For example, private practice spine surgeons can add ancillary services like imaging, physical therapy or neuromonitoring to their practice and collect extra revenue; by signing a hospital contract surgeons are losing that revenue and in many cases directing it to the hospital.

"You can maintain independence in those ancillaries if the hospital doesn't have interest in them, but they usually do," says Dr. Jatana. "The ancillaries have to be reconciled. When we've had discussions in the past, hospitals tell us our ancillary business makes it prohibitive for them to offer hospital employment."

When the physician is willing to give up ancillary income, it should be incorporated as part of the deal. "If there is a potential for future ancillary income that surgeons will lose in the future by being an employee, you have to negotiate that," says Dr. Jatana.

6. Figure out where you will fit within the current program. First spine surgeons should investigate the hospital's current spine program and then figure out where they will fit. Does the hospital have an established spine center, or are they hoping to build their program around you? Does their current program have a bad reputation in the community or are you stepping into a highly-regarded program?

"Make sure the hospital has high ethical standards and will put patients first," says Ms. Luck. "Figure out how much autonomy you will be giving up. Know if there are any issues with their orthopedics program and what they are doing to correct them."

If the program already exists, figure out how many other specialists work in that area. "If the neurosurgeons are doing spine surgery onsite, what will your referral pattern be? What is the need for spine surgeons?" says Ms. Luck. "Figure out how many private orthopedic groups are in the region with spine surgeons and what their role is within the community. Look at contiguous counties as well, because people will drive for spine surgery."

Make sure the hospital will have enough new cases to sustain your practice and that referral patterns will be fair. "The hospital has to have a solid referral pattern," says Ms. Luck. "Ask them who determines where the patients go and what other specialists there are. I would want physical medicine and rehabilitation specialists in the department because that would mean I am getting a lot of the surgical cases, not the patients who need non-surgical care or pain management."

Some surgeons prefer seeing the patient from the beginning to the end of care — or they enjoy doing spinal injections and pain management procedures — in which case hospital employment may not be right for them. Another factor to consider is the equipment and experience level of other surgeons.

"Look at whether the hospital has committed new equipment for your group or practice and what they already have," says Ms. Luck. "They want to market the latest technology and they'll want to use it. Even if you are coming in as a more experienced surgeon, they might have another younger surgeon be their number one guy because he is better trained on the equipment they just purchased. It's a hard transition into a different situation. Hospitals are now purchasing robotics and that will be taken over by something else in the future. Spine surgeons have to think about this competition when they are becoming hospital employees."

7. Look over the hospital's books. Conduct a full assessment of the hospital before becoming an employee, which includes examining their books. Make sure there is positive cash flow and the hospital will be able to meet the terms of your contract going forward.

"Establish if the hospital is a financially stable organization," says Ms. Luck. "Look at whether they are about to be taken over. Everyone is merging now and you need to make sure the hospital has strong leadership and financial solvency."

Ask about the hospital's collection rate for the whole organization. Under-collecting could eventually impact the surgeon's salary. Some hospitals may not want to discuss this information, but find out as much information as possible before signing the contract.

"What happens if the hospital system is taken over — are they at risk to not meet the contractual obligations," says Ms. Luck. "Are they subject to a takeover? Make sure you know what would happen with your contract in that situation. You can also look at the rate of staff turnover to gage the hospital's stability."

8. Examine non-compete clauses. Look at your current non-compete clauses as well as those the hospital will have after you become an employee and consider whether you will be in a good situation going forward. Surgeons who are right out of training will have little problem agreeing to the hospital's non-compete clauses because they don't have a current patient base, but it may not make sense for established surgeons.

"Know how long the contract is for and what happens at the end of the contract," says Ms. Luck. "They might find out that the referral pattern isn't good, or the hospital decides not to renew after the initial three years, and the surgeon is left on their own when the contract is over."

If the surgeon leaves hospital employment, the non-compete will prohibit them from competing with the hospital for patients and they might need to move or rebuild their practice. "Surgeons might not be able to take their patients with them after they leave hospital employment," says Ms. Luck. "Figure out how long they have before they are free from the non-compete.

9. Reconcile your liability insurance. Spine surgeons selling their practice must consider their current liability insurance and transition to the hospital's liability insurance. Most hospital systems are self-insured and most physicians are not, so figure out who will take care of the liability insurance going forward.

"In some states, such as on the east coast, medical liability is so high and prohibitive I would definitely incorporate that into the contract," says Dr. Jatana. "But in other states it's not a big ticket item. Physicians have to understand the local environment — what it has been in the past and what it will be moving forward."

Medical liability claims are often filed within a certain period of time after they occur and you must make sure that you cover cases that might have occurred when you were in private practice but were filed after you became a hospital employee. Surgeons often must purchase extra insurance to cover this "tail." The same is true after the hospital contract is over.

"If the agreement with the hospital terminates, usually big organizations cover the tail, but you may have to cover it," says Ms. Luck. "You don't want to be caught without insurance."

10. Agree with patient satisfaction standards. Insurance companies and Medicare are increasingly looking at quality and patient satisfaction statistics to determine the appropriate level of reimbursement, which means new hospital initiatives. Surgeons must deliver a great outcome, but also a superior patient experience.

"Patient satisfaction as it relates to ObamaCare can have a big impact on surgeons going forward," says Ms. Luck. "For example, if an ER physician determines the best course of action but the patient would rather take a specific drug, the surgeon could feel pressure to prescribe the drug to increase patient satisfaction. We don't know the blow back from the hospitals and insurance companies involved as a result of this change."

Many hospitals are also developing care teams that require surgeons to take certain steps to ensure patient satisfaction.

"They are being graded on how well they work with the surgical team and whether they were a good team member," says Ms. Luck. "Hospitals are now releasing surgeons who blow up at nurses or don't get good marks from their colleagues. They want high patient satisfaction and teamwork."

More Articles on Spine Surgeons:
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5 Tips for Spine Surgeons to Prepare for New Payment Models
Private Practice Spine Surgeons Can Survive: Q&A With Dr. Ty Thaiynanathan of BASIC Spine