March 2004
Volume 68 |
Number 3 |
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Negotiating With Hospital Administrators
Part II: Conducting an Effective Negotiation
Karin Bierstein, J.D.
Assistant Director of Governmental Affairs (Regulatory)
In the January 2004 Practice Management column,
David Wofford and Robert Rowland of ECG Management
Consultants in Seattle, Washington, <www.ecgmc.com>
described differences in viewpoints between anesthesiologists
and hospital administrators, particularly as they
relate to negotiating anesthesia service agreements.
Below, they again demonstrate their extensive
experience with anesthesiologist-hospital contracting
and discuss the difficult part — addressing
those differences effectively during the negotiation
process.
First Things First
Before even beginning discussions with the hospital,
there are several basic principles that you, and
every member of your group, should understand
about this type of negotiation process:
• Delegate negotiating
power to two or three group members. Whoever
the group designates as its representative(s) must
have the authority to negotiate on behalf of the
group. Sadly, it is not uncommon to have the anesthesia
group send representative(s) that are not empowered
to speak for the group. If a group’s negotiators
must go back to the group with every proposed deal
point, it results in continual changes in the group’s
needs, and the inability to compromise. This makes
the process virtually impossible and may create
so much ill will with the hospital that it could
jeopardize the outcome. Get organized before meeting
with the hospital.
• Decide what you want most, and be
realistic. One of the most common difficulties
that anesthesia groups face is that they cannot
decide what they want out of a negotiating process.
Too often, anesthesia groups place a list of demands
in front of the hospital that is simply the sum
of everything that any physician in the group could
think of asking for. Here is an example of a “Demand
List” from an actual negotiation:
• Double the current OB
stipend
• Pay for 1.5 anesthesiologists’ compensation
related to room down-time
• Hospital pays for call coverage if more
than 1:4
• Hospital pays for all locum tenens costs
• Hospital provides stipend for additional
2 weeks’ vacation (currently 10 weeks/year)
• Medical Director stipend of $175,000/year
• Salary guarantees for new physicians of
$280,000
• All recruitment costs paid by the hospital
• Hospital guarantees the group average
compensation will be a minimum of $380,000 plus
benefits, indexed to the Medical CPI for the coming
three years.
While most of these “demands” may
be reasonable by themselves as a basis for negotiation,
taken together they will be seen by the hospital
as irresponsible and as evidence that the anesthesiologists
have lost touch with reality.
We recommend that anesthesia groups begin with
a very basic goal and approach to which all members
agree, such as:
In order to attract and retain
quality providers and continue all the services
currently provided, our negotiations must result
in an average compensation increase of 15 percent
and the addition of one member to the group. We
are willing to consider a range of specific stipends/support
payments that result in achieving this goal.
This should then serve as a “sounding
board” to help assess whether negotiations
are on track or if a course correction is needed.
• The burden of proof is
on you. To get what you need from the hospital,
you will need to build a strong case that what
you are asking for is necessary, reasonable, and
consistent with what other organizations are doing.
This must be done primarily with data, but can
be supplemented by relevant articles. Remember,
the person you are dealing with has a board, a
CEO, a medical staff, and others to whom he/she
must justify any support arrangement. Therefore,
the easier you can make this task for that person,
the better off you will be.
• You Will Have to Share More Information
Than You Will be Comfortable With. If the hospital
is going to write the group a large check, it
has a legitimate need to know certain things about
the group, such as whether its operating expenses
are reasonable and how much its physicians currently
earn on average as compared to the market. This
does not entitle the hospital to examine W-2 forms
or the group’s general ledger, but the hospital
will need a reasonable level of assurance that
the group’s internal affairs are in order
and that all regulatory requirements are met before
it commits funds. Don’t expect a big check
with no accountability and don’t be surprised
at a loss of some confidentiality of group operating
data.
The Negotiating Table — How to Get What
You Want
1) Educate Yourselves and the Hospital
Almost invariably, when anesthesiologists approach
the hospital for financial support, their basic
assertion is that without additional support,
they cannot earn enough to sustain market-competitive
incomes and therefore cannot recruit and retain
quality physicians. Or, to put it differently,
there is something about practicing at that particular
facility that places the group at a competitive
disadvantage relative to opportunities elsewhere.
Therefore, the group must demonstrate three things:
• Physician compensation,
benefits, and/or lifestyles are out of step with
the market.
• The group has exhausted all opportunities
available to it to improve members’ compensation,
including maximizing billing efficiency and minimizing
practice expenses.
• The hospital is somehow placing higher
than normal demands on the anesthesiologists —
either through OR inefficiency, excessive service
expectations, poor payer mix, or other factors
— and that these factors are the cause of
below-market compensation.
Let’s take a quick look at each, with a
sample of how data could be used to support the
group’s points:
Physician Compensation.
Determining market-level physician compensation
is not as simple as it may seem. While there are
numerous surveys that will help identify average
or median compensation levels, some do not provide
data by geographic region and in any event wide
variations often exist within regions. More importantly,
market compensation figures alone are meaningless
if they are not tied to some form of productivity
measure. Therefore, hospital administrators will
want some degree of confidence that the anesthesiologists
are not enjoying cushy lifestyles at the hospital’s
expense.
Charts 1 and 2 provide a sample of the kind of
information that the group may want to provide
to the hospital.
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The first chart shows that although compensation
is increasing, it is not keeping pace with the
rest of the country. The second chart indicates
that the group is getting busier, but that because
of increasing overhead, decreasing reimbursement,
and other factors, this does not translate to
higher physician compensation. While these charts
contain fictitious information, they tell a story
that typifies many real anesthesia groups.
Group Operations. Before
committing funds to bolster anesthesiologists’
incomes, hospitals will insist on assurances that
the anesthesiologists have done everything in
their power to improve their own situation. Therefore,
develop a report demonstrating your group’s
performance on things such as revenue cycle management,
staffing levels, and overall cost structure.
The types of information presented in Table 1
may be presented by the group to show that its
operations have been stable, as measured by common
indices:
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Hospital Operations.
This is quite often the most contentious and difficult
aspect of the negotiation. Anesthesiologists frequently
argue that inefficiency in the OR, obstetrics,
trauma and call coverage, and a host of other
factors create physician downtime that cuts into
their earnings potential. These are legitimate
issues. However, they are also issues at virtually
every facility in the country. Therefore, if the
group is going to claim that these hospital-driven
factors are preventing the group from being competitive,
then the group will need to demonstrate not simply
that these issues exist, but that they are more
acute here than elsewhere.
2. Ask For What You Want, In Detail
Having educated your members and the hospital
about why the group is struggling, now comes the
critical question: what are you asking for to
make the group whole? We recommend not creating
a long list of demands for specific payments.
Rather, we advise groups to develop a basic goal
of reaching a certain average compensation, with
lifestyle considerations included. How can that
goal be quantified? There are five steps in the
process:
Step 1: Determine the number of
anesthesiologists that are needed to meet the
hospital’s service expectations, assuming
market-based workloads, vacation time, call schedules,
etc. This should also consider the mix of CRNAs
and anesthesiologists, and any changes that will
be made in the future.
Step 2: Determine the market-competitive level
of compensation and benefits that your anesthesiologists
must be able to earn, on average, to provide group
stability.
Step 3: Multiply these two figures to determine
the target amount of total compensation and benefits
funding that the group needs to generate through
the combination of its own billings and support
from the hospital.
Step 4: Re-state the group’s annual income
statement to reflect any anticipated changes in
operations (e.g., revenue cycle enhancements,
change in payer or provider mix, etc.).
Step 5: Calculate the difference between the target
amount of physician compensation and benefits
and the amount in the restated income statement.
This difference is the amount that the hospital
should provide to the medical group in financial
support. You should not hesitate to show the calculations
and your assumptions to the hospital. Keeping
these numbers secret my seem shrewd, but in reality
it is simply a refusal to tell the hospital what
you need, and how you arrived at that need.
The information below illustrates how this might
be presented to the hospital’s management.
When addressing financial support from the hospital,
include specific ways that you propose support
will be structured, with specific amounts such
as:
Payer Mix stipend – 5 percent
of gross billing - $300,000/ year
New anesthesiologist salary support - $100,000
for two years
Recruitment cost reimbursement - $100,000/year
Medical Director stipend -$75,000 /year
3. Know When to Say “Yes”
Obviously, all variables are negotiable and will
require a lot of give-and-take between the hospital
and the group. However, by following the process
we have described you will provide a rational
framework for arriving at your needs and you will
articulate a clear request for a specific level
of support. Don’t get caught up in the details,
but remember that your goal is to reach a level
of compensation, with acceptable lifestyles for
the group. Consider each proposal by the hospital
based on how well it addresses your overall goal,
and when your needs are meet, say “YES!”
and shake hands. As long as the deal reaches your
goals, it is not critical how it gets you there.
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