RSNA 2016: The pitfalls of negotiating exclusive provider agreements

Contracting with hospitals can be a proverbial minefield for radiology groups, unless you have a strategy for negotiations and some legal guidance.

Kenneth Davis Jr., JD, a healthcare attorney and partner at Katten Muchin Rosenman in Chicago, and Lawrence Muroff, MD, CEO of Imaging Consultants, presented both the attorney and radiologists’ perspectives on exclusive provider agreements at a Nov. 30 presentation at RSNA 2016.

One of Muroff’s key points to radiology groups was never to “wing it” when crafting these deals, even if a practice expects friendly, easy negotiations and even if your practice is small. While a practice leader or a small committee will likely be the only ones physically present during negotiations, that doesn’t mean practices shouldn’t have legal guidance.

“These contracts typically run anywhere from about $10 to $25 million per year,” Muroff said. “You take out fire insurance on your house. Why in the world wouldn’t you protect an asset of that magnitude? Why would you put it at risk without any kind of assistance behind the scene?”

This is where an attorney like Davis comes into play.

The cornerstone of the agreement is the extent of the exclusivity. Davis said that needs to be clearly defined down to specific procedure categories or CPT codes. If there are “carve-outs” within the agreement, he said there’s a risk of provisions being so broad they become “the exception that swallows the rule.”

“You’ll sometimes see agreements that have this beautiful brand of exclusivity that’s one sentence long and then there will be two pages of exceptions to the exclusivity. That’s probably not very exclusive,” Davis said.

There also are important legal and regulatory considerations for practices, like not ignoring compliance with self-referral laws (called the Stark Law) and federal anti-kickback statutes. He also advised groups to be wary of hospital attempts to shift their own costs onto practices.

“Increasingly, hospitals will ask the radiology groups to do all kinds of things under the guise of medical directorships, department chair roles and all this kind of stuff,” Davis said. “Essentially, what the hospital is doing is shifting supervisory responsibilities, which should really be the hospital’s purview, they’re trying to make the radiology group responsible for it. And yet sometimes, they want the radiology group to pay for that and that’s a problem.”

Other sticking points in negotiations may include performance standards, including those which depend on areas well outside the control of radiology groups such as patient satisfaction scores. Davis recalled one negotiation he was involved in where a hospital’s C-suite said termination of the agreement would tied to those scores, despite radiologists’ lack of impact on them, because their own bonuses relied on those results.  

How, when, and for what reason agreements can be terminated will be one of the most important aspects of the negotiation. Davis recommended groups seek the longest possible term, preferably with an automatic renewal “evergreen clause,” and a provision that neither side can terminate the agreement without cause for a set period of time.

What hospitals may try to do is impose vague standards that can be used as cause for termination.

“I’ve seen provisions in agreements that are right on the edge of saying, ‘If we think they have body odor, we can terminate,’” Davis said.

From the radiologists’ perspective, Muroff said groups should come into negotiate with answers to the following questions:

• What issues are most important to your practice?
• What’s your best alternative if you can’t reach an agreement?
• What’s your leverage (for example, skill sets of your radiologists and relationships with media, hospital and politicians)
• What’s your target price?
• At what price would you walk away from negotiations?

Groups may have to change their stance on what is considered acceptable. Muroff said certain provisions which radiologists used to fight, like “clean sweep clauses” terminating privileges of all group members covered by the exclusive contract when the contract is up, have now become the norm.

In other instances, like when a contract at a new facility is up for grabs, Muroff said groups may have to accept more onerous terms from a hospital, citing an example from his own practice.

“We signed the most draconian contract you could imagine because if you wanted that contract at the new facility, that was the deal,” Muroff said. “After two years, we proved our worth to the hospital. Totally different contract.”