Due to the nature of services hospital-based physicians provide, no group is more logical or simple to truly “align” with. Their quality is your quality. Their mistakes are your mistakes. In the future, as bundled payment initiatives gain traction, it is very possible that your reimbursement will be their reimbursement. Now is clearly the time to take steps to align your goals and objectives with your hospital-based groups.

Over the last few years, we have helped clients re-evaluate their financial arrangements with these groups and begin to incorporate quality, customer service, and efficiency incentives that bring them closer to true alignment. In the process, you will learn a few things that benefit, and trials of aligning with other groups as well.

Provided below are two case studies where HSG incorporated quality, customer service, and efficiency incentives into contractual relationships. In each case, the result was to better align hospitals with their hospital-based groups.

Anesthesia (Independent Group Subsidy)

The client is a 220 bed community hospital in a large metropolitan area, with 7 surgical suites and 2 endoscopy suites. The anesthesia group was being subsidized by the hospital $500,000 through two separate agreements addressing call coverage and on-site services subsidy. The group contended that volume and payer mix changes threatened the group with the loss of anesthesiologists and CRNAs, and requested an increase in the subsidy. The loss of providers by the group would force the hospital to close operating rooms, with resulting loss of surgical volume and revenue. That said, the impact could be much larger and far more damaging as surgeons, dissatisfied with the lack of schedule availability and flexibility, elect to do their cases at another facility.

With all that as a backdrop, the hospital also had some concerns and documented issues with the group such as customer service, surgeon satisfaction, delayed case starts, and slower than desired operating room turnaround times. The hospital also wanted to ensure compliance with vitally important quality initiatives, such as the Surgical Care Improvement Project (“SCIP”) initiative on administration of prophylactic antibiotics given within one hour prior to incision time, the Healthcare Facilities Accreditation Program (“HFAP”) standards on post-anesthesia assessment, and security of medications.

HSG was retained to evaluate the need for additional subsidy and then validate any potential subsidy as fair market value. With the issues described above and a hospital board pushing to keep the subsidy as low as possible, this was the perfect time to meld incentives into the subsidy structure. If we were going to increase the subsidy, we were going to justify to the board at least a portion of the increase by demonstrating that the hospital was getting something in return…the entire subsidy wasn’t freely given, not without mutual risk. Yes, the group was going to get the hospital’s support, but they were also going to be a partner. They were going to have to work in concert with the hospital to ensure quality, efficiency, and customer service. If not, both parties feel the consequences.

Provided below are some details of the subsidy structure that HSG designed.

Year one of the agreement: $800,000.00 potential, with a Base of $680,000.00, and $120,000.00 At-Risk portion (a 15% Withhold). All base amounts are paid monthly in equal amounts of the base divided by 12. Eligibility for the amount allocated to the physician satisfaction goal will be measured and paid, if the goal is reached, within 45 days of the last day of the fiscal year. All other goal criteria will be measured and reported monthly, but will be paid quarterly throughout the year. The withhold goals are in Table 1.

Measure Weight
Increase Physician Satisfaction, as evidenced by the Physician Satisfaction Survey Annual Results. 33.33%
Maintain > 95% compliance on the Surgical Care Improvement Project (SCIP) initiative on Administration of Prophylactic Antibiotics given within one hour prior to incision time. 10%
Maintain > 90% compliance with the Healthcare Facilities Accreditation Program (HFAP) standard on Post-Anesthesia Assessment, as evidenced by monthly audits. 10%
Comply with FMH On-Time Starts initiative standard of “Anesthesia Late or Unavailable” for a first case on-time start, whereas three (3) times anesthesia late or unavailable within a rolling 30-day period results in loss of 2% withhold. 13.33%
Improve turnaround/turnover times between surgical cases. Measurement of a turnover time consists of when one surgery case closes (incision/bandage) and the start of the next surgery case begins (incision made). Goal is to reduce current turnaround time average of 44 minutes to 42 minutes annually. 13.33%
Maintain >90% compliance with the HFAP standard for Security of Medications, as evidence by monthly audits. 6.68%
Maintain >90% compliance with completion of Anesthesia Informed Consents, as evidenced by monthly audits performed. 13.33%


The client is still in year one, but we believe they will get a reasonable return to their incremental investment.

Emergency Medicine (Employment)

A 240 bed rural community hospital saw 40,000 emergency room visits per year. The existing independent contract group intentionally kept provider staffing at the bare minimum so that their expenses were low and incomes high. The result has been long wait times, poor customer satisfaction, difficulty attracting and retaining new physicians, and undesirable quality scores.

To make the situation worse, the local competitor is starting to take advantage by aggressively recruiting new emergency room physicians and marketing their emergency room’s shorter wait times. Hospital executives decided that the best way to get control of the future of their emergency department was to employ the physicians and their midlevel providers.

HSG was retained to develop the compensation model that better aligned the goals and objectives of the physicians with those of the hospital. The following compensation structure was developed to drive the physician to the desired performance.

  1. Each physician receives a base hourly rate for each hour worked during a shift. The hourly rate is considered fair, but not at market levels. The goal is to develop a rate that, when combined with incentives, creates a total compensation that can still be considered fair market value but is also attractive. If the physicians are going to achieve high levels of compensation, they are going to do so through efficiency, exemplary quality, and customer satisfaction.
  2. Each physician is also eligible for wRVU production bonuses for all wRVUs produced above a predetermined threshold. This still allows the busier, more efficient physicians to make a little more based on their effort.
  3. Each physician is eligible for a quality incentive bonus potentially worth $15,000 per year. The total of $15,000 is subdivided and allocated among four quality measures that management feel are vital or needed improvement. The contract allows for these measures to be reevaluated and changed annually, so the measure will likely evolve. Provided below are four measures that are included in the contract for year one:
    • Admission status compliance. Determine the appropriateness of admission to a level of care, whether it be inpatient, observation, or outpatient. Value = $1,875 (98% compliance) or $3,750 (100% compliance)
    •  PCI within 90 minutes of arrival. Acute myocardial infarction (AMI) patients with ST-segment elevation or LBBB on the ECG closest to arrival time receiving primary PCI during the hospital stay with a time from hospital arrival to PCI of 90 minutes or less. Value = $1,875 (98% compliance) or $3,750 (100% compliance)
    •  Blood culture prior to antibiotics. Pneumonia patients whose initial Emergency Department blood culture specimen is collected prior to first hospital dose of antibiotics. Value = $1,875 (98% compliance) or $3,750 (100% compliance)
    •  Appropriate antibiotic for pneumonia patients. Immunocompetent patients with Community-Acquired Pneumonia who receive an initial antibiotic regimen during the first 24 hours that is consistent with current guidelines (Non-ICU, ICU, Pseudomonas risk). Value = $1,875 (98% compliance) or $3,750 (100% compliance)
  4. Each physician is eligible for a customer satisfaction incentive bonus potentially worth $15,000 per year. Bonus eligibility is based on overall individual customer satisfaction score, as measured and reported by the hospital’s utilization of a Press-Ganey customer satisfaction survey tool. Value = $7,500 (> 50th percentile) or $15,000 (> 75th percentile).

In addition, one physician is selected as medical director of the group and the emergency department. His compensation model is slightly different, as he has certain expectations tied to hours of medical direction and additional bonuses tied to department or group objectives, such as successful recruitment of additional physicians.


Neal D. Barker

Partner and Managing Director, Compensation and Compliance