Collections Guarantee or Stipend? That is the Question!
August 20, 2019
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Performance Transformation
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Under the federal EMTALA statute, hospitals with emergency departments are legally required to provide treatment to patients presenting with emergency medical conditions. When a hospital offers professional services of any specific specialty, EMTALA generally requires the hospital to provide coverage for that specialty 24 hours per day, 365 days per year, either directly or via transfer agreements with other facilities.
Many factors, not least of which is the nationwide physician shortage, can make it difficult for hospitals and health systems to find enough qualified providers to staff all their clinical specialties efficiently. This situation may be especially true for hospital-based specialties, such as anesthesia, emergency medicine, hospitalist and intensivist care, and radiology. Therefore, many are turning to independent physician practices to supplement or entirely provide hospital care.
Due to the coverage hospitals may require of hospital-based providers, or the hospital’s payer mix, professional collections may not be adequate to support the cost of providing the required coverage. In such situations, hospitals and health systems frequently enter into arrangements with the participating physician(s) or physician group(s) to supplement income. These arrangements often take the form of a collections guarantee or stipend.
Through these arrangements, hospitals and health systems make regular support payments to the participating physician/group. With collections guarantees, a periodic audit of the physician group’s collections is performed to ensure that support payments do not exceed a pre-determined guarantee amount (set at an FMV cost structure for the services provided), with a payback or offset to future payments, if they do. Stipends, which are intended to close the gap between the FMV cost structure and anticipated collections, typically do not include an audit of the related collections. This factor can significantly reduce the administrative burden involved in the implementation of a given arrangement, hedge the risk of paying more than desired, but may also raise the risk of overpayment if the physician group collects more for its services than expected. In many instances, stipend approaches are applied in more stable environments, whereas collections guarantees are used in more dynamic environments (new hospital or service line, etc.). A key consideration concerning collections guarantees or stipends is the allocation of risk. With a stipend, the health system hedges their risk by paying a fixed amount, whereas they accept more risk of higher payments (but also the potential benefit of lower payments) in a collections guarantee. We have seen hybrid agreements recently, as well, where a hospital makes regular stipend payments, and the participating physician group splits collections over a certain pre-determined amount with the hospital, with or without a formal audit of collections.
If you are working to negotiate the economics and structure of a hospital-based arrangement, we recommend involving a trusted advisor to assist you in your assessment of the model best suited for your situation and determine a reasonable level of support payments. Coker has a wealth of experience assisting hospitals and health systems with complex physician matters, including compensation strategy and fair market value assessments.
Contact us today to learn more about how Coker can help.
