AHLA's Speaking of Health Law

Hospital-Based Specialists: Current Trends and Developments

• American Health Law Association

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Hospital-based specialists such as radiologists and anesthesiologists are critical to the operations of health systems. However, the current landscape is creating new challenges between these specialists and health systems. Rich Chasinoff, Director, VMG Health, speaks with Angela Hill, Vice President and General Counsel, Vandalia Health, about how the relationship between specialists and health systems is changing and how health systems are responding. They discuss issues related to reimbursement and compensation, structuring and negotiating arrangements, and legal considerations. Sponsored by VMG Health.

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Speaker 1:

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Speaker 2:

Support for A HLA comes from VMG Health, which is the leading healthcare consulting firm for business performance since 1995. The firm has designed its business to address any strategic, regulatory or operational challenges that affect quality, profitability, and growth. With eight offices and over 300 dedicated professionals representing an extensive array of credentials nationwide, VMG Health provides the expertise its clients can rely on. For more information, visit vmg health.com.

Speaker 3:

Hello everyone, and thank you for joining this discussion regarding current issues in hospital-based specialties and arrangements. My name is , uh, rich Chasnoff , and I'm a director with VMG Health. We're a healthcare , um, management consulting firm, and a large part of my work is devoted to compensation arrangements, including subsidies and support payments paid to hospital-based specialties, which is the subject of our discussion today. Um, over the past two years, we've seen in our practice an an increased need for health system support and radiology and anesthesia in particular. And today we wanted to provide some background and share some things we've learned , um, with you , uh, and talk about some approaches that health systems are using in this environment , um, and have a general discussion about , uh, the legal framework as well. Um , I'm here today with Angie Hill , uh, delighted to be together. Uh, Angie has faced and dealt with this problem firsthand. Uh, Angie, you wanna say hello and introduce yourself?

Speaker 4:

Sure. Thank you, rich. Hi, everyone. My name is Angie Hill. I'm the Vice President and General Counsel of Vandalia Health, which is a , um, 14 hospital system located in West Virginia, sort of across West Virginia. And , uh, I've been with the health system since 1994, so I've seen a lot , um, over the years. But certainly the challenges we face now are, are significant ones, parti , particularly in the hospital based , uh, um, provider area. And so , um, a few months ago, we were approached by our radiology group for some financial support. And, and this was new for us, rich, but you tell me it's becoming the norm. Can you, can you explain a little bit,

Speaker 3:

<laugh> ? That's right. It's becoming much more common, particularly in radiology. Uh, the last 18 months or so , uh, has been a , a tremendous increase. And I think there are a few things going on that, that are important to to know . It starts with a simple supply and demand discussion. Um, the population is aging. Um, a couple of numbers , uh, about 13% of the population was over age , 65 in 2010. That grew to 17% in 2022, and as expected to jump to 20% by 2030. So all of this is leading, not surprisingly , to more imaging procedures and more radiology at the same time. Um, the number of radiologists is not growing to keep up , um, radiologists or an aging workforce. There are limited radi , uh, ra radiology, resident residency spaces. Um, so we're not seeing radiology keep up. So that's, that's the, the , the , the start of the discussion around supply and demand. But the second part is the radiologists that are coming out of training and are, are in current practice, have some choices , um, and choices that they didn't have historically. Um, of course, they could join private practice groups as, as many had done in the past, but they also have opportunities for employed groups. They also have opportunities for , um, large roll-ups, like, like , uh, large companies that are, that are providing radiology, and then there are teleradiology providers as well. So there are a lot of different practice environments that radiologists have and have , uh, have their choice of. And they may choose that for, for a number of different reasons. But as you think about hospital-based radiologists and the , and the radiologists who decide to go into the independent group that is already in your practice, perhaps , um, or join the, the rollup that's already in your, in your hospital , um, there's a much more limited pool. So, so recruitment becomes that much more challenging. And at the same time, teleradiology offers some, some opportunities that hospital-based radiology doesn't offer the flexibility of work schedule, ability to work wherever you you wanna work. So all of those things are really making recruitment and retention , um, challenging. And lastly, as , as if that, that doesn't explain enough of it, there, there have been reimbursement challenges. And since , um, 2021 , uh, there's been about a 10% decline in radiology reimbursement. And what's that, what that's doing is challenging groups at a time when supply, when supply and demand forces are saying compensation needs to go up , uh, reimbursement is coming down at the same time. And then lastly, any groups that that may have investments in imaging centers have had the same reimbursement problems. So their profitability in the imaging centers that they may own , um, aren't quite as , uh, lucr lucrative or profitable for them. So all of this is coming together to create a tremendous upward crop compensation pressure, tremendous recruitment, retention challenges for, for health systems, for, for hospital-based radiology groups. And they're turning to their, to their health systems and saying, please help. Um, and, and health systems are, are , um, trying to figure that out , uh, as they do. And, and I know Vandalia has, has had that happen to them. So, so Angie, tell us a little bit about what happened at valia , um, and how you ultimately resolved the , uh, the situation there.

Speaker 4:

Yeah, you know, initially, and , and I think because of all the pressures that you mentioned, rich , uh, we were initially approached by our, our long-term radiology group. They've been here 50 years , um, about becoming employed. You know, they, they really wanted to look at the employment model. I think they were tired of trying to, you know, keep, keep the practice, you know, together. And , um, you know, it's still, when you have a group that's been a group for 50 years, it's really hard to make that transition from being your own independent group to becoming employed. And, and so for, for that, for that group, it was just, it was, it ended up being a bridge too far. So we spent a lot of time, you know, really discussing the employment model. Both sides were very engaged in that process, but ultimately they preferred to stay, stay in a group and , uh, ask us to evaluate a professional services agreement model, where essentially the hospital would bill , would bill and collect for all of the services, and then would pay the group a fee for the services they provided. And we spent, you know, another several months negotiating that particular , um, type of transaction. And in the end , um, we were not able to reach terms with that group and , um, ultimately had a professional services agreement with another radiology provider.

Speaker 3:

So, so as you , as you reflect on that, that process and that series of events, what, what are some of the, the lessons that you learned about structuring deals, negotiating these, these types of negotiating in this environment , um, where, where physicians really do, are needing some support, but at the same time , um, you have obligations to the health system to make sure that, that you, you are proper financial stewards of, of the health systems , resources,

Speaker 4:

Right? Absolutely. And you know, in West Virginia, certainly our population is aging, and our payer mix is not, you know, is , is, is, is, is not , uh, very commercial. So we have a , you know, the, the , the payer mix is a challenge, which does, and , and we're a level one trauma center. We are, you know, a safety net hospital. So, you know, the groups that practice here do , uh, take on the responsibility of providing a lot of care to those who don't necessarily have the ability to pay. So subsidies are becoming, you know, be becoming something that we've, we've had to consider that we hadn't really had to consider before. I think the thing that , the things that I learned is, you know, particularly for these hospital based specialties of , know , we talked about, we touched on anesthesiology too, but radiology, you know, it affects , it affects everything you do. You know, the radiology radiologists are key to everything that you do. It's, it affects inpatient, it affects outpatient or a trauma center. You know , we need x-rays, we need MRIs, we need cancer diagnosis and screening. So those services touch every aspect. And so you really have to be sure that you, you're mindful of that and that you keep others, you know, in the, in the loop. Because the, the worst thing that could happen is you have a lapse, you know, you, you have a , a change in contracts, and then all of a sudden you can't provide services, necessary services to your community. So , uh, you know , certainly , um, that was, that was key for us. These contracts are often also exclusive contracts. So, you know, those who exercise privilege in a certain space can't exercise privileges if you change contracted providers. So you have to be mindful of , um, you have to be mindful of that. So if you switch groups, likely you're going to have to have a whole new group of providers that have to be credentialed within your organization. That takes, that takes time to, to credential, you know, 25 new radiologists within your system. They may not have licenses, you know, in West Virginia. So how do they , how do we get them licensed here? That also takes time. So , um, you know, you also have to look at what you need from an inpatient standpoint. The , the teleradiology , um, space is very attractive to a lot of people. A lot of people don't wanna be on site anymore. They wanna, they wanna stay where they are and continue to provide services from those locations. So that is , um, that's difficult. But you do still need onsite radiologists for interventional procedures, and those are, those are really difficult to find, particularly when, you know, a lot of these groups have non-competes and things like that. So it's , um, that was, that was a real challenge.

Speaker 3:

How did, how did your medical staff respond and react? You know , you know, the radiologists are so integrated with the medical staff and , and the , the surgeons, the oncologists all rely on the judgment of the radiologists and, and like that, you know , really appreciate the relationship that they form with the radiologists and radiology groups over, over years. How did, how did you work with them to, to address this?

Speaker 4:

Yeah, it was very, it was a very difficult transition because you're right, they do, they do , um, trust those individuals. They have their, you know, everybody has their go-to person. So it really was, was working with them and making sure that we had, you know, as we went to a new service provider, we kept the same turnaround times, we kept the same quality metrics, you know, that, that we were very conscious of what these doctors needed to continue to perform the services that they were performing and to, to address the needs of their, of their patients in, in real time .

Speaker 3:

Mm-hmm <affirmative> . Yeah . That's, that's terrific. And it , it is a large undertaking. Prior to my , um, you , you may know this I think Angie, but prior to my role as a consultant , um, I, I was a hospital administrator as well, and we were in the position to change radiology groups. And I know that just how hard it is , um, to, to go through that with, with your organization. And, and, and it is a big undertaking and, and a heavy lift, so to speak. Um, you know, as, as organizations see these challenges with , um, you know, financial challenges and the , and the need to provide additional support, you know, we, we've seen this take a lot of different forms. Um, and I think what's interesting is an Angie walked through a lot of different options that, that you explored with, with vandalia . You kind of went down a lot of different, different avenues. Um, we've definitely seen , um, a number of different things. You know, the first one that, that a lot of health systems are trying are , um, some of the traditional, you know, other types of arrangements we've seen on-call arrangements. We've seen medical directorships offer to pay , offers to pay for Nighthawk coverage or, or some, some other sort of coverage. And , um, I think that works sometimes, but, but quite honestly, in, in our experience in the last two years or so, those types of payments have not solved the , the, the financial challenge mm-hmm <affirmative> . That the health systems have had. So they've really moved to PSAs or employment and explored those other things. And, and just generally, you know, a lot are , are moving to subsidies. Health systems are used to subsidies that they have subsidies in anesthesia, which we'll chat about in a little, we could chat about in a little bit. But, you know, hospitalists are often subsidized, sometimes emergency medicine physicians. So health systems see this for their, for hospital-based groups. And, and it's often a , um, it's, it's often a , a , an avenue or a path that, that , um, organizations think about. Uh, it add radiology has a slightly different challenge than some of those other specialties that they're, they're much more production based of the other specialties. They're much more time and shift based radiology, because the shifts are so varied, it , it, it changes things up a little bit in our experience , um, where you've got teleradiology, you've got doctors who may be part of the group, but working completely remotely. Um, you've got , um, sharing across multiple facilities and , and different things. So the subsidy arrangements , um, you know, measuring subsidies and sort of calculating and identifying the, the number of FTEs and the staffing and the costs that you need to meet when, when the health system start , starts with, you know, our, our, our revenue is no longer meeting our expenses. Um, it's, it can pose a challenge to, to figure out what those expenses are. And it starts often in radiology with a, with a production model. But, but organizations like valia are also thinking about, you know, this question I think that's relevant is, as you think about the financial picture, there's also this question that gets raised about which party is best in a position to, to bill and collect for the services mm-hmm <affirmative> . Uh, who has the, the resources in place to do it, and the , the process in place to do it , um, and who can really maximize revenue. And that includes who's , who's , um, contracts are better. So that's another thing that we frequently see in this space is, is a black box analysis to, to begin to assess which , um, which party's reimbursement is, is , um, you know, is stronger in that. And, and then this consideration of , um, as you , you mentioned an Angie moving over and, and having, rather than letting the group continue to bill, having the hospital billing and collect, and that offers two opportunities. You , you , you went down both roads , um mm-hmm <affirmative> . But one with the employment or , or a PSA or both, both options. And they offer different levels of control for the , for the group. But, but, but honestly, the, the economic outcome , um, tends to be, tends to be similar in both, in both situations.

Speaker 4:

Yeah. And, and you know, of course for us, historically, we had not billed for radiology services. So it's standing up the whole aspect of, you know, billing for those services. So, and , and , and the mechanism building, you know, building it in the, in the electronic health record and the revenue cycle. So that's, you know, it's a huge lift to, to do that, to , to switch. And it's, you know, it's a cultural change, you know, for, for everybody as well, so. Right .

Speaker 3:

And some organizations don't even have , uh, contracted rates for radiology. I don't know if you went through that.

Speaker 4:

We did. I sure

Speaker 3:

Did. So you , so you actually needed to go to go negotiate rates for radiology. Yep .

Speaker 4:

Um, so Rich, what do you think as far as the demand goes? Is it, do you see any change as far as the , the , the data that you're pulling? Is it,

Speaker 3:

I I think in terms of demand for

Speaker 4:

Any hope in sight ,

Speaker 3:

<laugh>, <laugh> , you know, I think it's gonna level off . I , I do think it's going to level off, but there's definitely an increase in, in radiologist compensation that's happening right now. And I think, I think there is , um, some hope in sight , but I think we've, we've gotta get through this sort of increase and, and, you know, I'm hopeful long term that, that we're, we can put out and, and train more, more radiologists, I think becomes a , um, becomes part of the solution here. Um, but, but other parts of the solution I think are, are just health systems are starting to rethink how radiology is provided in the health system. Radiology is one of the last , um, specialties to take on apps and, and understanding the role of apps and apps are starting to do some, some basic procedures in radiology, which is taking some pressure off of the radiologists. Um, so that's an op an an option. We're also seeing hospitals think about the, the requirement that radiologists be in-house as well. And by changing some of that dynamic and some of the, the, sometimes it's interruptions, sometimes it's workflow changes that allow the radiologists that are there to become that much more efficient , um, and assuring that the PAC system is working well, and all the structures in place that help radiologists become efficient are , um, are in place. I think that that also helps and take some of the pressure off of the radiologist to allow them to , um, to, to do more, to be more productive and, and, and addresses some of the recruitment and retention , um, issues that we're, that we're seeing mm-hmm

Speaker 4:

<affirmative> .

Speaker 3:

But I think health systems getting involved early is , is, and having that discussion with the radiologists early is also helpful. We've seen , um, quite a lot of fire drills in our practice, a lot of sort of emergency , um, you know, needs the , the radiologists are really struggling and we don't have a plan in place. Um, so, so addressing it early is also, is also helpful.

Speaker 4:

That's key, because again, these things take time. You know, you can't just stand up a whole new group overnight. So yeah, you do have to be, you do have to be mindful of , uh, the time that it takes , uh, to, to do that. Um , and, and you know, just from a , I think some of the other contractual things that we've found that we need to really be mindful of is, again, every arrangement has to comply with Stark. So whether you do the employment, personal services arrangement, whatever has to comply with stark fair market value is always a key, a very key component to these. And , uh, these arrangements are complicated. So we definitely have found that we needed some expert help in, in determining what the reasonable, you know, whether it's, you know , initially the subsidy that we considered, the employment that we considered, the employment options that we considered are certainly the, the professional services arrangement. You know, certainly looking at fair market value and commercial reasonableness are, are, are key, are absolutely key to every analysis. And , uh, you know, for me, I feel like the rest of the legal stuff is pretty easy. It's the, it's , it's the compensation part that's, that's always hard. Although in these, these arrangements, sometimes the non-financial terms are where you can get, you know, where you can get hung up as well. Um, and so, you know, as far as non-financial terms that we found that we really have to, you know, that we had to focus on, were, you know, turnaround time requirements to make sure the needs are met, FTE requirements to, you know, both onsite hours of operation, when do we expect somebody to be on site and at what facilities, what outpatient facilities, you know, what , what do we need in the hospital? Um, how many remote , uh, readers do we need? Do we offer rights of first refusal for new locations? So if we acquire a facility, a new facility, a hospital facility, or if we acquire a physician practice, do we give that group the right of first refusal to provide their services at those locations as as well? And do they, do they have the capacity to, do they have the capacity to do that? Um, you know, again, these contracts are gonna be exclusive contracts. So as you negotiate them, you really need to consider, do we have other providers in the environment? You know, people who do nuclear radiology, cardiac CTAs, things like that, where if you give somebody an exclusive contract, are you, are you disqualifying one of those providers from providing services that they've, they've offered at your hospital for years? So you have to be really careful at looking at the exclusive services that you're contracting for in relation to other services that are provided by other members of your medical staff. And then of course, you know, always big are the non-competition, non-solicitation provisions where, you know, if you did have a group that left, can you hire those doctors? Can those doctors work for you? Or , um, you know, can you solicit them? And those are all really important considerations as you, as you look at how you structure these arrangements as, as well.

Speaker 3:

Yeah ,

Speaker 4:

It's a challenge for sure.

Speaker 3:

It , it , it, it sure is. It sure is.

Speaker 4:

And we had , uh, as you know, we had a very similar experience in radiology, I mean, in anesthesiology. So what are you seeing out there in, in the realm of anesthesiology? Is it similar?

Speaker 3:

Yeah . Um, it , it, it is similar but different as, as, as o and I I think some of a anesthesia has been , um, a specialty for a long time that's required subsidies. It's traditionally been a poor payer and an inefficient , uh, you know, has an inefficient delivery model. Um, when you look at anesthesia, there's a lot of , um, time that, that anesthesia is dependent on the way that ORs are scheduled, the, the uncertainty with ORs, how long they're each going to run. Uh, obstetrics has unique challenges , um, with downtime and sort of a lot of, a lot of waiting in anesthesia. Um, so there, there are a number of things that make anesthesia inefficient and poor payers, which has always led to the subsidies there. Mm-hmm <affirmative> . I think what's what's changing in anesthesia is, and it's also a supply and demand issue of on, on the anesthesiologist side, but anesthesia also has a, a different staffing model , um, with , in that CRNAs are very important to the anesthesia staffing right now. And from a supply and demand perspective, anesthesi , uh, CRNAs have been in tremendous demand, and their salaries have really , um, grown in the last few years. And as, as organizations have tried to balance their and, and right size , their staffing model and compliment between anesthesiologists and CRNAs , that's , uh, increased demand for CRNAs. Um, DR driven up their SAL salaries, and I think to some extent that's impacted the anesthesiologist salaries as well, that they've sort of gotten, gotten a little bit of a lift as CRA salaries have come up. Uh, physician salaries have come up in this space , uh, as well. So there, there are a few different factors at , at play, but, but there are a lot of similarities and fundamentally revenue, revenue not meeting, meeting expenses. And, and that becomes the, the, the challenge , um, in, in that environment. And what can health systems do? They try , try to organize an anesthetizing locations in a , in a more logical way. But fundamentally there's a, there's a, an inherent goal of assuring that surgery and surgical care is available , um, and the anesthesiologists are, are often at the , um, at the, the whim of those decisions made in the OR to, to keep surgical throughput coming, coming through. Um, tell us a little bit more about how , how things played out at, at Vandalia .

Speaker 4:

Yeah, so, so in this case , um, the anesthesiologist did , uh, become employed. So again, it was a long, a longstanding group of anesthesiologists who had , uh, provided , uh, anesthesia services as independent contractors for, for a long time, you know, quite a long time. And, and they actually , uh, I , I'm happy to say all, all of the anesthesiologists within the group ended up accepting employment at the hospital. So that transition occurred in October. Prior to that, our CRNAs, to your point, our CRNAs were employed by the hospital, and the anesthesiologists were employed by the, by the group. So I think that now having everybody aligned as employees of the group will allow us to be much more efficient, you know, in, in the way we provide anesthesia services. Uh, it's, it's interesting in our state now, there's a bill being introduced to allow CRNAs to, to practice independently more independently. Um, and so it'll be interesting to see where that goes. I think it's become a real issue, particularly in rural hospitals. And we have a lot of rural hospitals in our state that, that can't find an anesthesiologist, so they'll have A-C-R-N-A and then what can that CRNA do there? Oftentimes they're supervised by a general surgeon who may or may not know that a general surgeon is, is who may or may not know he's supervising the , um, the CRNA. So it's, it's interesting to see that, that development within our, within our state , um, and we'll see, we'll see what happens with that. But , um, yeah, the , the , um, knock on wood so far that, that , um, that seems to be going, that transition seems to be going very well.

Speaker 3:

That's great. You , you talked about the transition to employment, and that's, that's another, we didn't, we didn't explore that perhaps in a , at a later date, but , um, it, it is challenging to bring organ , um, a group of physicians in from , um, particularly hospital-based physicians in from the private practice. And, and there, there are a lot of, in our experience there , some of that challenge relates to, to the health system never having managed that particular specialty before. Um, health systems have gotten used to, and, and have a lot of experience now with managing office-based practices or surgical practices, but in, in anesthesia, there's an entirely different billing structure and, and, and , um, organizational structure same in radiology. So it, it presents some different challenges as well, and I'm sure that you've had some growing pains there.

Speaker 4:

Yeah. Yes, it is very, it is very different. And I think that, you know, like one of the key takeaways I would say from both of those experiences is, is just to have respect for where each other is coming from. I mean, it's, it's logical that a group of physicians is, is going to be somewhat untrusting of the hospital. You , you think you can get your back and say, you know, we've been, we've been doing business together for 50 years or 35 years, whatever that period of time is, but it's really hard to go from being independent to being employed. That's a big, that's a big shift for a lot of people for, I mean, for I think any, any group. And so I think that, you know , as you go through these negotiations, you have to, you have to keep in mind of where, where they're coming from. And it's, it's understandable. Um, and, you know, you just hope that you can, you can work through it in a, in a rational way. And , um, yeah, it's been, I think , I think that, and recognizing that you have a lot of, you know, every specialty in the hospital, every department in the hospital is affected by, you know, this, these service lines, they're very important to everyone. So, you know, you just need to proceed with care, with what, what , with what you're doing, keeping the hospital's interest in mind as well .

Speaker 3:

Well, terrific. Yeah, and I think it's important, you know, health systems, when the , when the, when the pro , when the discussion gets started, it's often started as, you know, we need a subsidy or we need support. But there, there are some other options out there that we've talked about that employment is always an option. PSAs are always an option. And I think it's, it's critical that, that organizations, you know, think as , as they're , as they're about to make an investment, whether it's in radiology or continued investment in, in anesthesiology, that, that organizations, you know, continue to think about options and explore , uh, ways to, to, to enter into these arrangements with, with eyes open, with a , uh, an eye toward the financial picture and outcome. And of course, towards the absolutely successful operations.

Speaker 4:

Yeah, it's getting harder and harder to be in the healthcare business. You know, things are getting, you know, the , the tightened all the time. So it is really, you know, essential to look at these other options , um, and, and not just the subsidies as we've historically done.

Speaker 3:

Yeah. Well, I think this is a good place to conclude. This has been a wonderful discussion, Angie. Thank you so much for joining me . Thank

Speaker 4:

You, rich. Enjoy it

Speaker 3:

And sharing these practical insights. Uh, thank you to , to all of you who are listening. Have a great day, everybody.

Speaker 2:

Thank you for listening. If you enjoyed this episode, be sure to subscribe to ALA's speaking of health Law, wherever you get your podcasts. To learn more about a HLA and the educational resources available to the health law community, visit American health law.org.