Negotiating Exclusive Hospital Contracts: Five Critical Issues

Are exclusive hospital contracts negotiable? Of course they are, but when a hospital provides a radiology group with an exclusive contract, the hospital may give the impression that it is a form agreement, ready for signature. What the hospital does not tell you is that these form agreements frequently are heavily negotiated. When negotiating an exclusive hospital agreement, do not overlook five important issues: scope of services, hospital politics, compensation structure, termination issues, and obligations after termination. Scope of Services It is very important to define fully what services will be exclusively provided by your group. Turf wars over certain services have become common among different specialties; an example is the turf war between cardiologists and radiologists over which specialty should read 64-slice cardiac CT studies. Be vigilant in negotiating the contract to define the scope of services broadly, including all current and future radiology services to be maintained. On the other hand, make certain that your radiology group has the resources to perform the services required. You do not want to be forced to hire a subspecialist, within a short time frame, in order to provide the services that are exclusively yours to perform. As an alternative to a broad scope of services, radiology groups may consider negotiating with the hospital for the right of first refusal with respect to any expansion of services related to radiology. This will protect your group’s exclusivity in its specialty. Hospital Politics Many times, relationships involving hospital administrators, surgeons, cardiologists, and other specialists have a significant impact on an exclusive radiology contract. Although hospital politics may be difficult to navigate, be proactive. By participating in hospital committees, a radiology group can stay abreast of what is coming and can plan accordingly. Compensation Structure Compensation is always an important component of any contract. In an exclusive hospital contract, however, compensation is of particular consequence based on the patient demographics of the hospital’s service area. For example, in an affluent community, a radiology group may prefer a fee for- service arrangement. Alternatively, in an impoverished community where the level of unreimbursed charity care is high, a radiology group may desire a stipend to ensure that the group is sufficiently compensated for the services that it provides. Another consideration with respect to compensation is managed care contracting. A common provision contained in an exclusive contract requires the radiology group to participate in all managed care contracts determined by the hospital. Such provisions are often nonnegotiable. These contracts, however, could have a significant impact on your group’s compensation and, thus, it is important to make sure that the radiology group is permitted to be at the negotiating table with the hospital and managed care company. Termination Issues The first key issue regarding termination is the actual term of the exclusive hospital contract. Typically, 501(c)(3) hospitals have bond financ - ing that limits the length of the term of an agreement. Generally, the longest term of an agreement is three years. You also need to consider whether the contract automatically renews into a new term (evergreens) or simply ends, forcing the radiology group to renegotiate the contract at the end of each term. The second key issue is how both parties may terminate the contract. Typically, contracts contain both without- cause and for-cause termination provisions. With respect to withoutcause termination, you must determine how much notice will be provided, as this, in essence, reduces the term of the contract to the notification period. With respect to for-cause termination, a radiology group should attempt to limit the reasons for such termination to only the most egregious conduct, since there is usually no notice of termination upon the occurrence of these events. It would behoove the group to negotiate into the contract both notice of a forcause termination event and the ability to cure (correct) it. Remember, no matter what termination provisions are in the exclusive contract, a radiology group must include the ability to terminate its physician employees (on loss of the hospital contract) in its employment agreements with its physician employees. Be aware that hospital contracts usually include a requirement that, on termination and without due process, each of the physicians will resign from holding hospital privileges. Obligations After Termination Of significant importance to a radiology group are the post-termination restrictions in the contract. In states where restrictive covenants are enforceable, hospitals may try to impose a restriction during the term of the agreement, and for a period of time after termination, under which the group and its physicians are prohibited from providing services within a certain geographic area. A restrictive covenant limits the outside revenue that a group may earn, and thus should be carefully reviewed. A post-termination obligation that the radiology group should insist on is a provision restricting the hospital from hiring the group’s physicians after termination. With - out such a provision, the hospital can easily terminate the group and then cherry-pick the physicians with whom it would like to continue a relationship