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Practical Guidance to Help You Understand and Plan for On-Call Coverage Payments Print E-mail
Written by Jen Johnson, CFA   
Thursday, 02 October 2008
Adequate on-call emergency coverage is a real issue for hospital emergency departments and inpatients requiring urgent specialist consultation. Sullivan Cotter’s 2008 Physician On-Call Pay Survey Report states that 85 percent of survey respondents have experienced difficulty finding physicians to provide on-call coverage. The problem has been so severe in some instances that 16 percent of respondents reported the discontinuation of service lines due to lack of call coverage; these specialties included neurosurgery, orthopedic surgery, urology, obstetrics/gynecology and vascular surgery. These statistics help support and explain the recent, growing trend in providing payments for on-call coverage.

In fact, 86 percent of the survey respondents reported they currently provide compensation to non-employed physicians for call coverage, and 70 percent of the respondents stated they provide additional pay for on-call services, or consider call duties in determining total compensation for employed physicians. These numbers are a result of recent growth, as nearly two-thirds of those surveyed reported their on-call pay expenditures have increased in the past 12 months, with 15 percent of these respondents reporting increases of more than 50 percent.

In addition, growth is expected to continue as 28 percent of the respondents indicate they plan on implementing on-call pay within the next six months for physicians not currently receiving pay. With physician payment activity such as this, it is no surprise the OIG has brought call coverage payments to the spotlight recently by issuing its first advisory opinion related to call coverage. The following discusses the reasons for the growth of call coverage payments, compensation options and what organizations should consider when determining how to ensure the arrangement meets the fair market value (FMV) requirements.

Reasons for the rise of on-call payments
There is a shortage of physicians willing to take call for several reasons, including reluctance to go without pay for uninsured patients, fear of malpractice lawsuits, disruption of personal lives and practice, and the fact that less physicians are working for hospitals. Here are four other issues contributing to the shortage.

1. Decrease in physicians. There is a pure physician supply issue, which is expected to worsen. The Health Resources and Services Administration in the U.S. Department of Health and Human Services released a report in 2006 projecting a shortfall of approximately 55,000 physicians by 2020. A similar study in 2005 by the Council of Graduate Medical Education projected a shortage of 85,000 physicians by 2020. Even more alarming, Richard Cooper, MD, director of the Health Policy Institute at the Medical College of Wisconsin in Milwaukee and a national expert on physician-workforce issues, projects a shortage of 50,000 physicians by 2010 and up to 200,000 physicians by 2020.

2. Aging physicians. Adding to the shortage of physicians’ availability for call is the fact that the physician workforce is aging and many medical staff bylaws allow older physicians to opt out of call. From a demand perspective, there is no relief in sight as the elderly population is expected to double by 2030 and the number of doctor visits per elderly person is on the rise.

3. Fundamental change in the industry. Historically, physicians provided call coverage in exchange for privileges at a hospital which allowed them to help build their practice. Today, many physicians are shifting away from hospital settings to freestanding ambulatory surgery centers or specialty hospitals that don’t have emergency departments (ED). Specialists no longer need privileges at a hospital to build their practice. The growth in physician owned surgery, imaging, diagnostic and other facilities is expected to continue, which will provide more alternatives to physicians that don’t require call. In 2005, The American College of Emergency Physicians survey poll of 4,444 U.S. hospital ED medical directors revealed that 51 percent of respondents attributed their call coverage problems were due to physicians relinquishing privileges to pursue practices elsewhere.

4. Economic contributors. There are several other economic reasons attributing to the shortage of physicians willing to provide call coverage and need for call payments. Payments from patients seen in the ED are often inadequate due to the uninsured patient population which is on the rise. In addition, malpractice insurance for those providing ED coverage is higher than for those strictly in private practice. This is because there is a higher probability of a lawsuit when working in the ED. Surveys by the American College of Surgeons and the American Association of Neurological Surgeons revealed more than one-third of respondents have been sued by a patient that was first seen in the ED.
 
Other reasons cited by hospitals for the need to provide on-call payments to physicians include physicians threatening to cease coverage if payment arrangements are not made and the desire to create equity among all physicians. Finally, work-life balance is more important to the newest generation of physicians. A front-page story in the April 8, 2008 Wall Street Journal reported that young physicians are intent on balancing work and family. As a result, practice options are ranging from small, primary-care facilities to many other options that keep doctors on predictable schedules.

Types of on-call payment models
Here are several types of on-call payment methods used by organizations in hopes of retaining physicians to provide call coverage.

1. The most common financial solution is by providing a stipend or hourly rate. The Sullivan Cotter’s 2008 Physician On-Call Pay Survey Report notes that 90 percent of organizations use this methodology for employed physicians and 97 percent use this methodology for non-employed physicians.

2. Other compensation options used in the industry include:

  • Providing payments for “excess call” (over 3-5 shifts per month)
  • Fee-for-service payments
  • Paying professional fees for uninsured patients (typically based on Medicare rates), and
  • Paying the physician’s malpractice insurance

3. Some organizations have set up unique compensation plans, including 457fs which are deferred compensation plans allowing eligible employers to contribute money on a pre-tax basis into investments that provide physicians with a retirement benefit, while other organizations have provided company owned life insurance (COLI) plans to physicians participating in call coverage.
 
4. There is also a trend of hiring physicians dedicated to call coverage and unassigned patients. These new roles are often referred to as laborists (obstetricians) and surgicalists (general surgeons and orthopedists). This year, for the first time, Sullivan Cotter surveyed these emerging specialties, including laborists, surgicalists and nocturnists. While the data for these specialties is still somewhat limited, it does let us know that physicians providing these services are beginning to emerge in the market.

"Based on the data received by Sullivan Cotter, the total cash compensation levels paid to these physicians appears to be slightly lower than the compensation levels paid for physicians within their respective specialties. This may be because these specialties tend to attract newer physicians just out of residency," said Kim Mobley, principal of Sullivan Cotter and the director of the survey.

Some research shows the use of these new specialties can benefit the patients by providing higher quality care in a timelier manner, benefit the hospital by providing cost savings and benefit the local physicians by enabling a better work-life balance.

5. Other organizations are finding it easier to contract with an entire physician group to provide call coverage. This guarantees coverage and allows both parties to budget a fixed amount. Low cost options which may not be available to all organizations include utilizing residents and physician extenders, while a more expensive option is utilizing locum tenen agencies. Finally, with emerging technology, some organizations are turning to technology-driven call. This is where the physician calls in remotely and through live video/audio feed, they can review imaging scans and on-site reports, and direct the on-site physician.

The following discussion addresses the strategies and struggles with determining appropriate compensation under the most common model for on-call compensation, the hourly rate, or stipend. Before analyzing the appropriate methodology for determining on-call compensation under this payment model, it is important to understand the on-call coverage opinion issued by the OIG in September of 2007 and other regulatory guidelines related to physician compensation.

First on-call opinion by the OIG
On September 20, 2007 the OIG issued Advisory Opinion no. 07-10 (“Opinion”) that expressed a favorable opinion of an arrangement between a hospital program and medical staff physicians concerning payment for on-call and uncompensated care physician services. This was the first advisory opinion issued by the OIG that addressed this type of hospital and physician arrangement.

The Opinion provides guidance to healthcare organizations considering paying physicians to take call since it stipulates several guidelines for organizations when considering compensation for on-call coverage. Specifically, the OIG found the subject arrangement to be low risk for fraud and abuse based on several factors, which included:

  1. An independent third-party analysis concluded that the compensation reflected FMV for the services furnished.
  2. The per diem rate was designed to compensate each physician for the burden of being on-call and it considered the likelihood that the physician would be required to provide subsequent inpatient services.
  3. On-call physicians were obligated to provide continuing care to ED patients, regardless of their ability to pay.
  4. Physicians in each specialty received the same per diem payment without regard to the individual physician's referrals to, or business generated for, the hospital.
  5. The medical center had a legitimate, unmet need for on-call coverage and indigent care services as demonstrated by the fact that the medical center was previously forced to outsource emergency care and related treatments to other facilities.

The OIG's opinion warned that there is a substantial risk that improperly structured payments for on-call coverage could be considered unlawful remuneration where the payments exceed FMV or for services not actually provided. Based on Sullivan Cotter’s 2008 Physician On-Call Pay Survey Report, 9 percent of organizations modified their arrangements since the OIG opinion by either incorporating language into contracts and/or conducting a formal FMV analysis.

FMV guidelines
In addition to the Opinion discussed above, the federal government has presented guidelines which should be considered when determining the FMV for on-call payments. Most notably, the Stark regulations state specific methodologies for determining FMV. Although the Stark regulations may not be directly applicable to an on-call arrangement, they provide insight to what federal authorities consider appropriate methodologies in determining FMV within the healthcare arena:
We will continue to scrutinize the Fair Market Value of arrangements as Fair Market Value is an essential element of many exceptions. Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating Fair Market Value. (STARK II, PHASE III, FR Vol. 72, No. 171)

The methodology must exclude valuations where the parties to the transactions are at arm’s length but in a position to refer to one another. (STARK II, PHASE II, FR Vol. 69, No. 59)

Based on the above regulatory language, reference to multiple, objective, independently published salary surveys and limited reliance on information produced from referral relationships should be guidelines in determining the FMV for on-call payments.

Currently, the market does not offer multiple surveys for on-call compensation, only the Sullivan Cotter survey. In addition, this survey data is based on referral relationships. Therefore, it is prudent to look to other methodologies in determining the FMV for on-call compensation.

Methodologies for determining on-call payments
Although relying on Sullivan Cotter’s 2008 Physician On-Call Pay Survey Report alone has its drawbacks, it does provide the most relevant data available and valuable information related to on-call coverage payment trends. In addition, based on VMG Health’s experience, a national healthcare valuation firm for which I oversee the valuation of professional service arrangements, the median per diem payment data for certain specialties, such as orthopedic surgery, are in line with what VMG Health has observed in its experience in conducting FMV analyses for on-call coverage. Specifically, a review of the Sullivan Cotter survey data for orthopedic surgery call coverage compensation shows the median per diem payments for 2006, 2007 and 2008 were $975, $968, and $1,000, respectively. VMG has concluded similar results in valuing on-call arrangements in the specialty of orthopedic surgery.

However, it is important to note that a FMV analysis considers other factors, such as additional valuation methodologies and burden of call. For example, if an arrangement’s circumstances included exceptionally poor payor mix or very low volume, market indications could warrant an adjustment up or down. The Sullivan Cotter data alone does not consider these factors.

Another issue with relying on Sullivan Cotter’s 2008 Physician On-Call Pay Survey Report is reliability. Specifically, of the 36 reported specialties, two-thirds of those specialties have less than 20 respondents for on-call compensation. In addition, some specialties show questionable year over year growth, such as anesthesiology, for which per diem median payments jumped 50 percent from $500 to $750 in 2008, and gastroenterology, for which per diem median payments rose 42 percent from $300 to $425 in 2008. Other red flags with certain data included in the survey include the decrease of median per diem payments for specialties such as neurosurgery, which dropped 15 percent to $1,000, and Psychiatry, which dropped 50 percent to $200 in 2008.

Fortunately, the Medical Group Management Association, a leading provider of healthcare survey data, is currently conducting an on-call compensation survey which is expected to be released in the spring of 2009. Although survey data alone does not appear to be enough to fully support payments for on-call coverage as FMV, considering two surveys will be a step in the right direction.

Locum tenens and beeper rates as alternatives
Alternatives for determining FMV on-call payments include calculating adjusted locum tenens rates and beeper rates. The locum tenens approach provides a proxy for the cost of on-call coverage by adjusting a market locum tenens quote by an industry margin and patient contact time. The beeper rate methodology is based on what a provider would earn, as a percent of base pay, for being on-call. If conducted appropriately, this methodology can utilize multiple surveys for the specialty and provide an on-call rate based on non-referring provider data.

Once the various market costs for on-call coverage are understood, it is important to consider the OIG’s Opinion. Specifically, organizations should ensure there is a written agreement and consider stipulating low risk factors as detailed in the Opinion, such as the requirement for the physician to follow the patient. It is also important to show the agreement terms and burden of call was considered in determining the on-call payments. This will document due diligence in ensuring the organization considered regulatory guidance in its compliance policies.

-- Jen Johnson, CFA oversees the valuation of professional service arrangements at VMG Health, a healthcare transaction and advisory firm. Contact Ms. Johnson at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

Note: This article is not to be construed as legal advice; it is to provide insight to valuation guidelines related to FMV.

Endnotes:
  1. The New England Journal of Medicine, Hospital Emergency On-Call Coverage: Is there a Doctor in the House? January-February 2008.
  2. American College of Emergency Physicians Survey of Emergency Departments, On-Call Specialist Coverage in U.S. Emergency Departments. April 2006.
  3. American College of Emergency Surgeons, a Growing Crisis in Patient Access to Emergency Surgical Care, 2005.
  4. Sullivan Cotter and Associates, On-Call Survey. 2008.
  5. Association of American Medical Colleges, Recent Studies and Reports on Physician Shortages in the U.S. August 2007.
  6. Association of American Medical Colleges, Help Wanted: More U.S. Doctors. 2006.
  7. American College of Emergency Physicians, More Hospitals Pay to Keep On-Call Specialists. April 2007.
  8. Washington Post, On-Call Specialists At Emergency Rooms Harder to Find, Keep. December 2007.
  9. Clinical Advisory Board, Call Coverage Strategies: Best Practices for Securing Cost Effective Call Coverage. 2007-2008.
  10. Hospitals and Health Networks, Dagmara Scalise. Hospitalists: In-house docs can ease some vexing problems, but first you’ve got to win over the skeptics. June 2006.
  11. HealthLeaders News, Lynn Massingale, MD, FACEP. Emergency Department Throughput: Recognizing and Addressing Five Common Inhibitors. December 7, 2007.
  12. Wall Street Journal. Not on Call: Young Doctors Want Work/Family Balance. April 29, 2008.
 
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