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How to Negotiate Your Hospital Contract: A Guide for Physicians

An MD Ranger Physician Resource

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Preparing for a contract negotiation?As you’ve likely discovered, these conversations take time and effort, and often go differently than anticipated.  

Discussing compensation, no matter how positive the business relationship may be, will present challenges.  

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Seven steps:

1. Research2. Establish objectives3. Consider scope of the agreement, not just the rate4. If the situation is complex, attempt to quantify the

component5. Consider alternatives and possible compromises6. If your agreement is exclusive, consider the economic

value to the hospital and to your group7. Document and support your arguments with numbers

and examples

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First: do your homework

Prepare carefully and consider how you are going to achieve your desired outcomes from the negotiation, e.g:

• Compensation for coverage• Higher rates for coverage or administrative

services• More hours to do your administrative tasks• Lower call burden• More hospital staff support for certain

functions

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Additional research

• Know what is a reasonable payment rate for the specialty and service.  Market data is particularly helpful.  

• While you should study the entire market range, MD Ranger recommends focusing between the 25th and 75th percentiles.  Remember, everyone cannot get paid at or above the 90th percentile, but statistically someone must be above the 90th percentile and someone must be below the 25th.  

You should enter the negotiation with quantitative evidence, building your argument to justify your position, with benchmarks as support.

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Establish objectives but determine where you can compromiseAfter you have decided what you would like the contract to contain, separate the elements of the contract into areas that you are and are not willing to negotiate.  

Your negotiation objectives should be consistent with fair market value. Use market data to determine what is the ballpark range for your specialty, your credentials and the role at your hospital.

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Consider the entire scope of your arrangement

Hospitals and physicians sometimes assume the scope of service should never change; that might not always be the case if you have evidence that conditions have changed or the expiring terms are flawed. 

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A good example

A medical direction contract may delineate hours of service that reflect the demands of the job, yet the focus negotiations is only on the hourly rate.  

Unsure what’s appropriate for your service?  Market data are available on the number of hours per year for most medical director positions.   Provide objective information in negotiations to make sure the number of hours is within reason, and keep time records (which the hospital should require) that document your actual time spent.  

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If the situation is complex, define the components

Situational details (such as intensity of workload, payer mix, trauma status, etc.) may distinguish your contract from other contracts within the same service.  If that’s the case and the appropriate factors haven’t been factored into the payment rate, the compensation might be inappropriate.

Find market data that take hospital characteristics into account in order to find the best rate for your service.

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Consider alternatives• Before entering a negotiation, it is best to

prepare an exhaustive list of alternatives and reasons why they aren’t adequate for the situation.  

• Anticipating pushback to your objectives will make a negative outcome less likely.  

• The definition of fair market value includes the provision that “the price …between a willing buyer and a willing seller, neither being under a compulsion to buy or sell”.  

• Presenting high quality market data will help quantify what is a fair price.

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Consider the economic value of an exclusive contract

• If your hospital is offering you or your group exclusive rights to provide a service, the OIG has opined that those rights have economic value to your group.

• Thus, your payment rate may appropriately be less than a non-exclusive arrangement.

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Document your work and your process

• Use market data? Document and present the ranges.

• Ensure you have reasons to back up the market rate you are asking to be paid. • If it’s above the 50th percentile, you should have a

good reason. If it’s above the 75th, you should have an exceptional reason.

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Contracting Questions?

MD Ranger, Inc.650-692-8873physicians@mdranger.com