Reform Update: Doctors' employment contracts due for renewal—and revamp

Physician employment contracts with hospitals that were signed in the early days of healthcare reform are coming up for renewal.

Experts say the expectation of payment reform requires that these new deals include the flexibility to adapt to expected and unforseeable changes.

“We're seeing a fair amount of handwringing in terms of these deals,” said Max Reiboldt, president and CEO of the Coker Group, an Alpharetta, Ga.-based healthcare consultant. “We are changing the paradigm of how doctors are being paid. It's not 100% (relative value unit) productivity anymore.”

That said, the predominant payment system has not changed yet and probably won't before contracts expire. So Reiboldt said many new employment contracts are including automatic renegotiation triggers if, for example, 20% of a hospital system's reimbursement starts to involve pay-for-value metrics. “Most hospitals have not yet experienced the change themselves but they anticipate it,” Reiboldt said.

Future value-based payments will be similar to capitation models of the past, he said. But he noted that capitation typically involved individual doctors negotiating their own deals. But with pay-for-value, “all providers are in this together.”

In contract renewals, Reiboldt said “money is always the biggest issue.” But with reimbursements down and future revenues uncertain, one way to mitigate economic concerns is to work doctors into an organization's governance structure. They don't necessarily have to be business partners, but physicians need to have a role as “functional decision makers,” he said. “You have to treat your doctors like partners. Most hospitals get it, some don't. You still have a few old-school CEOs who think that doctors are indentured servants and not partners.”

The other key issue affecting contract renewals is clinical integration. Having doctors involved in governance and decisionmaking can make the process smoother while also helping to identify areas where integration and reimbursement issues intersect.

Once they become employed, doctors never again have the leverage they had during negotiations to sell their practice, said Bob Collins, managing partner of the Medicus Firm, a Dallas-based physician recruitment firm. But they're finding ways to make up for it. “The biggest change is that physicians are becoming much wiser in the use of data for their own benefit,” he said. “They can come to the table showing they made this metric or that metric while showing how much direct and indirect revenue they generated.”

One sticking point that may arise in renewing an employment contract is that hospitals may decide they no longer need every physician who was part of a group practice they acquired. A hospital system may decide they only need 12 of the 15 physicians they hired when acquiring a 15-physician specialty group.

“If it's a good deal for 12 and a bad deal for three, (the doctors) are going to wish those three well,” Collins said. “The smaller the group, the greater the loyalty and the tendency to say 'All of us or none of us.' But the larger the group, the easier it is to say majority rules.”

Collins added that the most frequent disconnect in negotiations between doctors and hospitals is over the value of the physician practice. Doctors may want to include intangibles such as community goodwill in the value of the practice while hospitals only want to include the cold bottom line. He advised doctors, “Don't take it personally.” It often takes them some time to “get over the sticker shock.”

Contracts for newly hired physicians are also in a state of flux. Travis Singleton, senior vice president at Irving, Texas-based physician recruiter Merritt Hawkins & Associates, said organizations struggle to find the “Goldilocks Zone” where they offer physicians the right mix of a base salary and quality incentive payments. This struggle is reflected in his company's recent review of its physician searches, which found that fewer clients now are offering quality incentives to new recruits.

Between April 2013 and April 2014, Singleton said the number of Merritt Hawkins clients offering quality incentives to new doctors fell from 39% to 24%. “Clients are putting the brakes on this until they figure out how to do it,” he said.

But those that still offer quality incentives are basing a growing percentage of compensation on those quality metrics. In 2011, organizations that used quality incentives kept the level at around 5% of their compensation packages. That figure has increased to nearly 15%.

Minnesota primary-care physicians will finally be getting their enhanced Medicaid managed-care payments just a few months before the federal program boosting those payments is set to expire Dec. 31.

A foundation of the Patient Protection and Affordable Care Act was expanding Medicaid coverage. To make this patient population more attractive and economically viable for physicians, a federal subsidy increased Medicaid primary-care reimbursement rates to match Medicare rates for 2013 and 2014.

“It's a little messy,” said Janet Silversmith, Minnesota Medical Association director of health policy. “We're happy to see they're proceeding, but it's incredibly late.”

She explained that Minnesota's Medicaid payment system represented an unusual departure from Minnesota's “usual progressivity” in healthcare.

The ACA used 2009 as a base year to calculate Medicaid parity with Medicare, but the state did not adopt relative value unit-based fee-for-service payments until 2011. Subsequently, Silversmith said, there were delays in getting data from the state, delays in getting the state's methodology approved by the CMS, and delays in getting data from the health plans involved in the state Medicaid managed-care program.

Anthem Blue Cross has teamed up with large San Francisco Bay-area medical groups to form three new accountable care organizations aimed at Blues members with two or more chronic conditions.

The groups forming the new ACOs under Anthem's Enhanced Personal Care preferred provider organization program are: Brown & Toland Physicians, UCSF Medical Group and several affiliated Sutter Health foundations.

Anthem noted in a news release that a similar arrangement with Torrance, Calif.-based HealthCare Partners Medical Group saved $4.7 million in the first half of 2013. But a blog post on the San Francisco Medical Society website offered a touch of skepticism.

Follow Andis Robeznieks on Twitter: @MHARobeznieks