A Vendor...
For this next part, EMGA will be waiting for their replacement to be chosen. Most of what has been mentioned previously regarding noncompetes is correct, and their only function at this time is to serve as leverage to negotiate on an individual level with the incoming group. Despite what one poster suggested above, Hospital Administrators cannot tolerate a single day without coverage in the ED, and will lean on whatever group wins the contract to ensure that things go smoothly from day 1. This is why division directors, regional directors, corporate physicians from outside of the hospital area, and anyone who can get credentialed will often start up a new contract. Locums are always a last resort because they are expensive, and don't look good to administrators who just signed a contract with a group to staff their department. The new group NEEDS members from the old group to be there on day one. They are already credentialed, know the medical staff, and are in a relatively easy position to retain. The new group needs to get their compensation right to successfully retain the old group, and there is an approach for this too (see future thread). Long story short, if EMGA stays united, the CMG who takes their contract will likely pay them a buyout fee to make it easier for them to stay on board. That is the whole basis of "enforcing" a noncompete clause. It is much more likely that individual buyouts from a noncompete will occur before a team of firefighters or locums are brought in on day one. There is one more often forgotten use for the non-compete, which will be explained below.
After a whirlwind RFP process, the hospital has three groups to choose from. CMGA, CMGB, and CMGC. Before advancing the plot, now is a great time to discuss how the bid process works, how CMG's function to create a bid, and how a decision is made. This is intended as a reference for the EP in all stages of practice, and is important to understand because this is how new "groups" are formed at a local level.
RFP = "Request for Proposal"
This is common in any business where a corporation is seeking a vendor for serve a function in their organization. The RFP could be for a housekeeping service, dining service, maintenance group, or, in this case, a group of emergency physicians. Hard reality point #1 - despite your education, sacrifices, residency issues, lawsuits, divorces, personal issues, and years of prozac prescriptions, you are nothing more than a member of the housekeeping team in the eyes of a hospital administrator. They don't know what we do, and can't look past the price tag on a thoracotomy kit to grasp the reason it is needed and how skilled we must be to use it. They need a department full of doctors, and are asking for proposals to fill that need. The only real "differences" that physician groups have in the eyes of an administrator is how they are going to make their hospital money. For example, if one CMG offers an excellent internal quality tracking system, compliance training, and has a model that rewards physicians on perceived superior care, they may stand out compared to another CMG that is known for consistent staffing without holes in the schedule. The hospital admin sees volume growth, CMS reimbursement for quality metrics, and forward thinking revenue as their goal - not who they have on the ground to get it. Ultimately the hospital administration doesn't care about how providers are compensated, if they are compensated, or who they recruit, as long as they fit well with the medical staff. Spoiler Alert: All groups accomplish the same task if a good director is on the ground. There is little to nothing that a CMG itself will do to fix a hospital - it depends on the team they put on the ground.
I have heard administrators ask contract negotiators - without specifically asking - if their providers are black because they would fit in with the black patient population. They ask if providers speak fluent english, because certain members of the medical staff in high positions of power don't like doctors they "can't understand." They have asked to hire a certain percentage of female providers, or male providers. Clearly, while these are all blatant violations of EOE laws, they are not technically employer violations at the contract negotiation level. These tactics and requests are wrong, but are nearly accepted universally by all CMG's as "part of the business." The answer is typically "we can hire whoever you want." CMG's have become masters of giving lip service and telling administrators what they want to hear. Administrators have become masters at trusting the groups they have had good experiences with, and forever banishing those they don't like. This is why leadership changeovers are dangerous for those in groups not liked by the new CEO. Hard Reality Point #2 - you can lose your contract just because the CEO doesn't like the blue and white logo on your paycheck.
The only other requirements, hard and fast, that all hospital administrators place on a new group is that the ED must be completely, safely staffed at the time of contract changeover - without exception. This isn't really their decision though. This is one of their conditions of participation with CMS.
The Proposal
Contract groups by and large market themselves as delivering better service than their counterparts. How this is done varies, and there is not much data to support any evidence that company A is better than company B in regards to quality, safety, or care. However, the companies that do stand out, and retain their contracts for a longer period, are those who are able to regularly visit their hospitals, interface frequently with administration, participate in local/regional hospital panels and committees, and make the hospital admin feel like they bought a "reliable" product. All companies have a standard pitch, and bring out their usual bells and whistles to dazzle administration. Company A may have a proprietary text messaging service that allows their providers to interact with other staff members. Company C may have an online patient referral portal that can be used in primary care offices to expedite referrals to their hospital. Whatever "tools" are presented in the pitch, these are usually all marketing tools to get the contract, and often come with an added expense after the first year of use. The people making the pitch sell the company, and are often the best at explaining what enhances their service line. The pitch team usually consists of the company or Division CEO, Upper level executives (President, Vice President), Regional Medical Director, Marketing director, and business/growth director).
Aside from the business/marketing talk, which is essentially a 30 minute explanation of who the company is and how it works, with the shiny toys it brings, there is a 15 minute explanation of any conflicting data used to create the proposal, the proposed coverage model and whether a subsidy (stipend) is needed. Today, unless the hospital is very low volume, or in a rural location where recruiting physicians will be difficult, it is understood that hospitals do not subsidize emergency groups. The final 15 minutes is usually a question/answer period, and an opportunity for the CEO to add any other relevant requirements. The bid is usually given by the highest ranking corporate member in the room, and if given verbally, submitted in writing after any last-minute adjustments are made in the meeting. This same process takes place for all three bidding companies.
As part of the RFP, and prior to the pitch, the hospital gives each bidding company a pro-forma, which details their reported volume, payer mix, case mix index (the variability in common diagnoses and frequency), number of active beds, and other data relevant to the hospital. This is a very shady process because often times this data is inaccurate, and requires additional legwork from the CMG to validate. For example, the hospital may report that the ED volume is 35,000 patients annually and an admission volume of 15,000. At first blush this would mean that the hospital has a 43% admission rate which, when viewed in the eyes of the CMG, means that at least 43% of their patients will qualify for level 5 billing. This can appear very attractive and, without validation, can be a common trap hospital administrators put out for groups to bite on. They may be reporting only medicare volumes, their data in the pro forma may be skewed from old data, or for whatever other reason, their number may be low. They may not be reporting their Left without being seen (LWBS) which could be very high due to high wait times. In actuality, their true department volume could be 45,000, which means that their actual admission volume is 33%, not the 43% that the group would have used to calculate their staffing needs and budget. Interestingly, in this scenario, the only people that actually have the easiest to compile and most reliable data are the members of EMGA, who know their pay mix, volume, admission percentage, and growth pattern better than even the hospital themselves. Fortunately, with the protection of their noncompete and their corporate confidentiality, they do not have any reason to share this information with anyone. Nor has the hospital asked them to.
There is nothing that a bidding group hates more than going into a bid proposal in the blind. In no specific order, below is a list of what a CMG needs to submit a bid. Keep in mind that, off the top of the entire process, there is a margin expected by most groups that must be met to proceed with placing a bid. Usually that is between 4-10%. If a group does not feel it will meet its margin after year one, they will likely choose not to bid, or ask for a subsidy expecting that other groups will find the same data and be in the same boat. If the bid takes place in a competitive market, they may extend their time window to make margin, or may take the contract at break even (or maybe a loss) to get their name in the market. CEO's are not necessarily dug in against a subsidy if the fair market analysis (as determined by the bids from other companies) shows that a stipend is needed.
The competitive bidding process is fair in that group A is competing against groups B and C, they may have all worked for each other at one time or another, and they are guessing what the other bids will be before they finalize their own. Again, without the correct data regarding payer mix, CMI, and volume, it is impossible to anticipate a margin, or other group's offer. In short, here are the things that all CMG's must consider in their bid:
1) Start up costs (locums, IT conversion, local administrative presence, travel costs, sign on bonuses, locums fees, etc.)
Compiling a bid takes a large amount of time and company resources usually within a region. The size of the CMG influences how many resources are consumed to create a bid. Larger CMG's (EMcare, Team) usually have teams within a division or region to weigh in on their individual areas. For example, The hospital uses Meditech as their EMR, and CMGA knows that extracting their data for billing and provider tracking takes at least 6 months, meaning that their AR will be several more months behind. Their local IT/Billing team will submit an estimate of their float cost to run the contract until revenue comes in. This is no different in the process that EMGA went through when they started up (remember that $1M loan they took out), except that the CMG corporation is large enough to front this cost themselves. They also know that their IT is internal, and billing is internal, and will cost a fraction of the EMGA rate. New startups require a lot of airfare, hotels, meals, recruiting, and administrative time on the ground, which adds up over the first 6-12 months. Sign on bonuses (such as student loan payoffs, noncompete buyouts, retention bonuses, CME, etc can add up very quickly. Usually, the hospital administration will reach out to the outgoing group and get a feel for who will stay and who will go. They will lean heavily on the group president, and possibly the medical director, to help with the transition and retention of the physicians. This will give the CMG's a rough idea of how many staffing holes they will need to fill. This can also become sticky because, in the case of EMGA, they are not making this as easy as the hospital or the CMG would like. At the end of the day though, EMGA is no less a corporation than CMGA and this is understood by all parties.
2) Actual patient volume
Nailing down the true patient volume is critical for everything. Specific coverage will be requested by the hospital, and is often unrealistic compared to the volume they give in the pro forma. For the 35,000 volume example above, the hospital may request 4 doctors and 3 midlevels daily, which would equate to an averaged coverage of 1.4 patients per hour. Hospitals always want more coverage, and CMGs always want less. This is why hospitals sometimes adjust their reported volumes and CMG's must get better data and present their case. There is an industry standard of 2 patients per hour that each CMG does advocate for.
3) Payer mix (what percentage of total volume will pay)
If a hospital is located in an inner city, they will probably have a bad payer mix. If a hospital is in a wealthy area full of retirees, they may have a better payer mix. If a hospital is in a medium sized suburban location with strong local business and a young median age, they will probably have an ideal payer mix. Why? Inner cities have no insurance coverage or cash, older people have medicare (lower reimbursement), and younger people with families who are employed have private insurance. Every CMG has a department that performs heat maps and data analysis to determine what the actual payer mix for a hospital is. Market share is considered, and if the hospital they are bidding on is not the preferred hospital in their market, their payer mix will likely be lower than the competition. In this case, the hospital has a goal to partner with the CMG to swing more volume to their hospital and improve their payer mix.
4) Insurance Blend
Larger CMGs have negotiated higher reimbursement rates from certain providers based on economy of scale. They may take insurance that the hospital does not, and again, they have an internal corporate team that identifies these payers, and can improve the appearance of their payer mix based on insurance rates that the hospital may not even collect.
5) Additional Resources for contract management
CMG's need to expect the unexpected. A new hire may quit after the first week, or be asked to be removed from the staff, or there may be a change in hospital coverage that changes the hospital's ability to provide services, requiring more coverage, or a change in their model. There is a budget buffered in for the unexpected. While this is often a small part of the overall budget for a CMG, this is the single biggest reason that hospital choose CMG's over SDG's. They have (or at least have the reputation of having) immediate manpower to cover their ER.
6) Provider pay
In the case of EMGA, this is a very easy and simultaneously difficult position for the CMG because they need members of EMGA to stay. At the time of the loss of contract, all physicians were partners in their own company, have additional accounts receivable rolling in for the next year or so, may have up to 2 years (or more depending on state) to be sued for malpractice, have potential tail expenses to maintain their insurance coverage for that time period, and were earning an averaged clinical rate including their partner bonus of just shy of $300 per hour. This was on an average of 2 patients per hour. THE CMG's WHO ARE BIDDING DO NOT KNOW WHAT THE CURRENT PARTNER PAY IS. They do know that the market rate at the competing hospital is $210/hr for days and $230/hr for nights. EMGA has two dedicated night providers. This will need to be factored into the bid and presented to the providers in such a way that they don't run away. The MLP rate is likely going to stay unchanged. CMGA is structured to pay their physicians as employees, which will add the cost of benefits to their numbers. CMGB is independent contractor status only (1099) and will not include benefits for physicians. MLPS are employee only. CMGC offers a choice of IC or W2 income for all providers. Each of these structures cause contract costs to vary dramatically.
7) Benefits
Due to its size and negotiated contracts corporate-wide, the CMG cost for benefits, outside of 401k match is around $6-10 per hour per providers who work full time. Benefits will not be offered for part time providers because they will not work their equivalent hours to justify the cost of their benefits.
8) Administrative Stipends
The hospital has asked for two positions to be filled - a Department Chairman and an Assistant Medical Director. They have made it clear that the current medical director cannot be considered for the position. This will add additional monthly overhead to the contract, and will likely be open to negotiation. It may also require additional recruiting.
9) Potential future costs
When a CMG comes in for free like they do in the ED, they are often asked to provide their services elsewhere in the hospital if they do a good job. Typically, this is the hospitalist service, which is often a budget killer, unless they take all admissions including those from private doctors in the community. In most places (especially this hospital example, which is a trauma center), the majority of admissions to the hospitalist service are self pay, which means they will likely not be paying their bills. After a certain point, there will be a time when hospitalist groups can turn a small profit as their service grows, but once their daily census grows beyond a critical point, a new physician needs to be hired, wiping away any gained income and potting them back into the red. As a result, these service lines are usually subsidized by the hospital, or by the ED group's profits. Nowadays, CMGs are considering future service line acquisitions in their EM bid to buffer the addition of a secondary startup.
10) Recruiting fees (can be very costly if multiple physicians are needed at the beginning)
Again, Airfare, hotels, recruiters fees, site visits take time, and money. Hiring a team to run the department may take a year. Shuffling members of the team to create a solid long-term group can take several years. These costs are also added to the bid.
11) Buyout Fees
See Above under startup costs and immediately below. These can be costly but very lucrative if done correctly.
12) Accounts Receivable
EMGA has accounts receivable that are probably 1 year away from being collected. Some may be even longer. There will be a few months after their contract ends where 70% of their outstanding revenue will come in. The remaining 30% will trickle in over the course of a year or so, and may require multiple negotiations back and forth between EMGA and insurers/collectors to be paid. These are owned by EMGA, and they will likely not have the resources to effectively hunt down payment from each delinquent account. There will come a time that their business operating costs no longer make sense, and when the time comes, they will wind up their company. The CMG knows this as well, but are in a different position in that if they lose their contract, they will still be functioning as a company and have the resources to collect their AR. In short, the CMG company who wins will try to do everything in their power to buy - at a reduced rate - the AR from EMGA, and exploit the weakened position of the partners to sell their future collections. EMGA knows what their AR is, and they each know what their share of total collections will be. They also know that there will come a time where collecting the remaining 30% will not be cost-effective in the long run. EMGA is considering that, once a contract has been awarded this will be up for negotiation.
So, here is EMGA's current dilemma:
There are three CMG's putting bid proposals together to take over their group and try to hire them. They want to maximize their AR but won't have the resources to collect 100% of what they are owed, their legal fees will continue to mount as they operate, and they each need a job (except for two providers who are going elsewhere). There are two side of the coin to look at their salary situation - the less the incoming group knows about their pay, the more pressure they will have to pay a higher rate to keep them on board due to the time constraints of the start-up date. Or, the more the incoming group knows about their current rate, the more they can pressure them with a take it or leave it approach with the likelihood that they will be forced to take the job or become unemployed.
As business-minded physicians, both CMG's and SDG's understand the importance of a good partnership, and know that getting things off on the wrong foot may lead to a good outcome in the short term, but possibly a bad relationship in the long run. In the world of Emergency Medicine, a few bad relationships can destroy even the largest of companies (read: EmCare). The CMG wants nothing more than to create a stable long term contract with a reliable low maintenance revenue stream that exceeds their margin. EMGA wants what they are beginning to realize they will never have: The ability to run their own group like they did, manage their own finances, and make decisions on the local level with the hospital directly. They also want to be paid what they earned before. Most of this is possible, and they are beginning to realize that if they are not part of the negotiation process with the incoming group, they may be stuck with what they get after all is said and done.
The hospital does not want any communication with EMGA other than routine day to day operation of the ED, and negotiating with the CMG's before the bid has been awarded will not be likely. It is possible that a bid may be submitted with bad information, which will reduce the salary threshold of the providers. The point is, once the bid is done and the contract has been awarded, the CMG has a finite amount of funds budgeted to make things work. EMGA has agreed to create a proposal to sell their accounts receivable to the incoming CMG, and is preparing themselves to negotiate buyouts. They have begun to take a realistic stance to the process as they wait for a decision. There remains a possibility that, after the contract has been awarded, and if the numbers match, the group may have an angle to sell their company assets to the incoming group.
More to come. Please share your thoughts and perceptions of this process. For nearly half of the viewers on this forum, this is how our jobs came to be...