FRA and Florida Hospital: A Cautionary Tale Unfolds
After 40 years, a 47-physician group ceased to exist, a casualty of current medical economics, internal strife,and failed negotiations The first inkling that the public had that anything was amiss between Florida Hospital and its radiology group occurred in March 2008, when a story appeared in the Orlando Sentinel revealing that Florida Radiology Associates (FRA), which had been interpreting for the hospital since 1968, was ending the 40-year relationship. At the core of the failed negotiations, the story says, was FRA’s demand that Florida Hospital offset a significant compensation gap resulting from unrecompensed or poorly recompensed Medicaid and indigent billings for emergency-department and other services that FRA provided. The story adds that the hospital, instead of compensating the independent radiology group, had offered to take over FRA’s billing, an offer the radiology group declined. FRA sources were quoted as saying that a full 40% of the group’s work was now occurring on nights and weekends—peak times for uninsured patients to appear in the emergency department. FRA was doing its own night and weekend reading, per its contract. No outside teleradiology coverage was being provided by either FRA or the hospital, according to sources in the radiology group. On March 3, when FRA gave notice that it would terminate its contract, a deadline was set: June 3, the term of the contract. After that, FRA would no longer be interpreting for the hospital. Negotiators had that long to find at least a temporary solution, or the hospital had that long to find an alternative solution on its own. According to FRA radiologists involved, the decision to terminate the contract was an effort to inject a more urgent tone into further negotiations, with the endpoint being a more suitable contract with the hospital. One FRA source reports that the radiologists indicated that they would have been willing to work without a contract during negotiations. Instead, negotiations came to a stop. The hospital formed its own in-house radiology group, Radiology Specialists of Florida (RSF). It then hired away 32 of the 47 FRA radiologists to join the hospital’s in-house group. FRA, as an independent practice, collapsed. The former FRA radiologists who chose RSF were now hospital employees. FRA administrators made a brief face-saving effort to keep the group going with its skeleton crew of radiologists, but that turned out to be for naught. By late May, FRA had laid off the bulk of its 64 billing-support personnel. By late September, it had disposed of its headquarters building. A highly specialized, independent radiology practice that had provided interpretations to Florida Hospital for 40 years was no more. FRA’s doctors who had joined RSF had, in the words of one former FRA doctor, been transformed into radiology hospitalists. While negotiations were collapsing and the hospital was forming its own group, online radiology forums were buzzing, with much of the comment coming from those who were obviously close to the Florida Hospital scene. Cowards, scabs, and worse terms were used to describe the doctors who chose to leave FRA to join RSF. Ironically, though, those who did join RSF may have achieved much of what FRA had been aiming for all along. The hospital hired a teleradiology service to provide final readings for the emergency department at night. It also reportedly offered attractive salaries to the former FRA doctors, effectively giving them a big pay increase. The vituperative forum posts and word of mouth made the demise of FRA a sort of cause célèbre in the radiology world. If a hospital could shift unilaterally to an employee model with a big group like FRA, were other independent practices that read for hospitals at risk? One forum comment states that the demise of FRA has taken on the stamp of an urban legend. Some FRA doctors who are no longer with the hospital agreed to explain that legend, as long as their names were not used. The hospital issued a one-paragraph statement on its position. Later, a hospital administrator agreed to an interview. FRA’s Narrative Negotiations between FRA and the hospital, according to more than one source, had been ongoing for five or six years, at least. Essentially, one issue was at the heart of things: the radiology group was losing income because it couldn’t collect from patients coming to the emergency department. This lost income left FRA holding the bag on recruitment. It could not recruit radiologists because it could not pay them enough to commit. All of this was putting more and more pressure on the FRA doctors, who were reading high volumes for what they believed was diminished pay. According to its Web site, Florida Hospital, a not-for-profit acute care network, is composed of seven Orlando hospitals, including an 880-bed hospital in the city center. Florida Hospital has a total of 3,025 beds and operates 15 walk-in urgent care centers. With more than a million patients per year, the hospital ranks itself as the busiest in the United States. It also claims the highest number of Medicare patients of any hospital in the country. It calls itself central Florida’s third-largest employer, with an estimated 18,000 employees. The in-house radiology group, RSF, employs 47 radiologists, the same number that FRA had. The hospital’s radiology department conducts an estimated 1 million imaging procedures annually, according to its billing agent. A 2007 report in Medical News Today indicates that Florida, with a population of more than 18 million, has about 3.8 million people without health insurance. One fourth of those under 65 have no health coverage. In the past eight years, the number of Florida uninsured has increased by 38%. All these figures support FRA’s reported increase in emergency-department workload and subsequent uncollected billings. According to former FRA physicians, the emergency-department workload also evolved from one of basically interpreting radiographs into one of reading high numbers of CT scans. The First Coup The Medical Group Management Association (MGMA) collects data that let specialists see how they rank, compared with their peers elsewhere. One former FRA radiologist notes that the group was always trying to compare itself with the market. According to MGMA data, it was working in the 90th percentile and getting paid in the 25th percentile. The group needed to correct that. The disparity between work and pay was a killer when it came to recruiting, the source adds. Potential recruits would look at the offer and see that they could go to a number of places and start for what FRA radiologists were getting as partners. If the hospital continued to expand, FRA couldn’t continue to expand to share that volume increase because it couldn’t recruit. The hospital had, in 2004, announced just such an expansion plan, according to its Web site’s news archive. The recruitment problem was so severe, another former FRA physician says, that unless the economics were resolved, attrition would eventually kill the group. FRA had to do something or it would not exist after a while. The source says that the group was headed for failure because of working conditions. There was an inability to attract and keep high-quality radiologists to do the intense work at the level of skill required. It was a hard job, the source says, that outstripped the complexity of any academic position in terms of what was seen and done on a daily basis, as well as in volume. The radiology business model, based on professional billings, came up against the hospital model, based on technical fees, the source adds. As long as the FRA radiologists kept reading under the reimbursement arrangement defined by the group’s contract, the hospital was happy to let demand push up the numbers on the imaging-volume side, the source says. The hospital’s only incremental cost for additional patients is contrast media, since the technologists are already paid to be there, the source explains, adding that Florida Hospital may have earned $150 million from imaging in 2007. FRA wanted the hospital to share those earnings from technical-component payments by subsidizing the hours that radiologists spent on night and weekend emergency-department cases for which no payment was collected. According to one source, FRA had added five partners just to deal with the emergency department and Medicaid workload, while income from the effort would not have supported even one partner. As negotiations crawled along, a faction of the more aggressive FRA radiologists grew increasingly frustrated. FRA’s negotiating team (its executive committee) was too much in league with the hospital, they charged. In 2006, or perhaps in late 2005, the more aggressive FRA radiologists circulated a petition to dissolve the executive committee and form a new one. According to more than one source, about 80% of the FRA doctors signed the petition. At a rancorous meeting, the executive committee was informed of the petition and its results. It was legal, since FRA was a professional association with corporate bylaws, but the executive committee was reportedly outraged. While its members could have run for re-election, they resigned on the spot instead. Several of them left the group and took other positions at outlying centers or hospitals under the Florida Hospital aegis, as more than one source notes. While the new executive committee now had a mandate to negotiate more assertively with the hospital, a price had been paid. One could argue that the overthrow of the original executive committee came back to haunt FRA. The palace coup created fissures that never closed. The abrupt and forceful changing of the guard left lingering damage. As the new executive committee would learn when its own turn on the hot seat came, FRA had planted the seeds of its own destruction. Instead of going straight to a more productive outcome, the negotiations between FRA and the hospital, under the new executive committee, appeared to head sideways. One source says that the hospital would never put anything in writing. It apparently did make an offer, but not one FRA could accept. One radiologist explains that there were many complex conditions in that offer, which incorporated many changes made to the old contract. The first year looked good because there was a bonus pool applied to salary, but that bonus pool was not guaranteed after the first year. The pension and health care plans offered were less favorable than the previous ones. The hospital reportedly offered radiologists something in the neighborhood of $500,000 per year plus the bonus pool, in addition to paying the malpractice tail. In retrospect, this sounds, at least on the compensation level, much like the offer that was reportedly accepted, according to more than one source, by the RSF doctors who signed individual contracts to join the hospital as employees. Instead of focusing on new contract terms initially, hospital administrators apparently argued that FRA’s bookkeeping was flawed and that FRA was missing out on collections that it could have obtained, had it been billing correctly. This may have been the reason that the hospital offered to take over FRA’s billing. According to one radiologist, the hospital suggested that FRA was missing out on as much as $7 million in collectibles. The real amount, the source adds, turned out to be only a few hundred thousand dollars, but that result came only after long and time-consuming audits. To clarify the situation, FRA agreed to let the hospital’s auditors study its books, but in return, FRA wanted the auditors to take a look at the hospital’s radiology books. One source says that the radiologists believed that half the billing information from the hospital was erroneous, based on bad data. The long audit process may have been clarifying on some fronts, but it apparently didn’t solve anything, and it may have allowed time for negotiations to harden. Termination During the negotiations, one source says, the hospital had been paying FRA a premium for three-month contract extensions. Two extensions had been used when the hospital asked for a third, but this time, refused to pay for it, a source says. FRA declined the third extension, the source adds. One radiologist describes this as when everything hit the fan, with the declined extension being completely unacceptable to some level of hospital administration. The hospital walked away from negotiations, this physician adds. At that point, according to radiologists involved in the negotiations, FRA, groping for leverage, announced that it was terminating its contract as of the June 3 deadline. There is no question that FRA’s contract termination notice put Florida Hospital between a rock and a hard place. Without radiologists, how was it going to meet the imaging needs of its patients? According to FRA sources, the hospital called an emergency meeting of its medical staff, at which details from the FRA negotiations were disclosed, including proposed pay levels. An FRA representative was invited but chose not to attend, the sources say. Some physicians who were there told one FRA doctor that the group was called lazy, inconsiderate, and uncaring. The talk about pay, this doctor adds, was a move to incite the medical staff against FRA by mentioning numbers. Radiologists don’t control what different specialists are paid, but telling primary care physicians and pediatricians that radiologists refuse to work is a bad idea when these other doctors are not making half as much. According to a survey of salaries from 2003 to the present by Allied Physicians, Inc, radiologists are among the most highly paid physicians. A beginning radiologist in this survey earned $201,000 per year; this rose to $354, 000 after three years of employment, with a maximum of $911,000 for the most experienced. In contrast, at the same levels of experience, pediatricians earned $135,000, $175,000, and $271,000; internists earned $154,000, $176,000, and $238,000; and emergency physicians earned $192,000, $216,000, and $295,000. Whether it was schadenfreude or other factors that accounted for the lack of backing for FRA from the medical staff, there did not appear to be much support. As the FRA story approached its denouement there was, apparently, silence from clinicians. As one online forum post notes, there were failures at multiple levels, and outrage from the medical staff was absent. Almost immediately following the breakdown of negotiations, Florida Hospital began advertising for radiologists. According to a forum post that claims to include a copy of an advertisement, the hospital was looking for radiologists of all types and was offering an extremely competitive base salary, occurrence-based malpractice insurance, vacation time, health insurance for the physician and family, relocation, retirement, and a signing bonus. Besides signing on new physicians, the hospital was also, according to FRA doctors, prepared to use teleradiology services to provide both night and day coverage until it could build RSF. As analysts later noted, teleradiology has changed the negotiating landscape for hospitals and radiology groups. As it turned out, however, the hospital never had to resort to teleradiology beyond what it is now providing in night coverage. Coup Two The hospital had another big card to play. It offered jobs to FRA radiologists willing to quit FRA and join the new in-house group, RSF. At some point in the negotiation process, FRA had employed its own consultant. According to more than one FRA doctor, that consultant now urged FRA to stick to its guns and retain its last remaining bit of leverage, a noncompetition clause that prevented FRA physicians from working for the hospital for a specified time. At some point, the hospital, according to FRA sources, warned FRA radiologists that they might not be hired by RSF if they didn’t quickly rescind the noncompetition clause. All the RSF jobs might be gone, and it would be too late for them to get work. Other stratagems were reportedly used by both sides to enhance leverage in what turned out to be the last days for FRA. The Orlando Sentinel carried a story that FRA had sent a letter warning hospital physicians that outsiders—teleradiology services—could soon be interpreting their patients’ scans. Did they really want faraway strangers providing diagnostic readings for patients in Orlando? According to FRA sources, the hospital sent its own letters. One set was allegedly sent via registered mail and therefore delivered during the day, when many of the radiologists were at work, but many of their spouses were likely to be at home. The doctors were about to lose their jobs, the letter warned. This was done just to upset the spouses and to pressure the radiologists, one FRA doctor believes. As June 3 edged onto the visible horizon—and as the housing market in Florida continued its downward slide, making selling a home a tough task—some FRA radiologists were reportedly trying to convince their colleagues to take up the hospital’s offer to join RSF. According to sources, two days after an FRA vote to support the negotiating team and continue the holdout, another (reportedly secret) ballot was distributed to FRA doctors. This time, they capitulated. A majority voted to rescind the noncompetition clause. In short order, a domino line of FRA radiologists fell the hospital’s way. Two thirds of the FRA physicians signed on with RSF. The long journey was over, and FRA had lost. Some describe the capitulation as having been led by the old hands, some of whom were still bitter about the overthrow of the first executive committee two years earlier. While the rescindment of the noncompetition clause wasn’t a changing of the guard vote like the first coup, it might as well have been. When a core group of FRA negotiators went back to the hospital to interview for new jobs with RSF, they were not hired. One of them insists that this was not for professional reasons, but because the actions of those on the executive committee during negotiations were not seen as being in the hospital’s best interests. The Hospital’s Side Initially, Florida Hospital’s media-relations team issued a one-paragraph summation of the FRA/RSF story as its only comment. It reads, “Effective June 3, 2008, Florida Radiology Associates terminated their contract with Florida Hospital. In the interest of a seamless transition of patient care, Florida Hospital entered into an agreement with Radiology Specialists of Florida to provide exclusive radiology services to the seven-hospital system, effective June 4, 2008. 32 of the 47 members of Florida Radiology Associates chose to join Radiology Specialists of Florida and to continue to provide high quality services to Florida Hospital’s patients. This relationship has been a success for our patients, Florida Hospital, and the radiologists.” The hospital’s senior vice president, Terry Owen, later agreed to comment. “There were very fine quality radiologists in Florida Radiology Associates,” he says. “We had a long relationship with them, and after an extended period of negotiations on their agreement—negotiations that they initiated—they provided a letter of termination of the contract. At some point, we just decided it was time to move forward. It was very clear.” Asked whether the hospital had wanted, all along, to bring the FRA doctors into an in-house, employee-model radiology practice, as some radiologists charge, Owen says no. “I don’t know where those allegations came from. It was never the hospital’s intent. It was never the first choice or the second choice in our discussions,” he says. Owen declines to discuss specifics of the negotiations. “I’m not sure it’s appropriate for Florida Hospital to talk about what happened in negotiations with a group of physicians on its medical staff. I don’t think that’s productive, nor particularly helpful,” he says. Asked what the hospital’s position had been on FRA compensation, he says, “We believe there was a peer-fair transaction for the independent group.” Asked to respond to FRA’s contention that it was being inadequately compensated because of uncollected billings, Owen notes, “I think what you just said was that they felt they had an ineffective business model. Their model wasn’t working.” Asked why the negotiations had broken down, he says, “Lack of progress—that’s generally why negotiations break down.” Did it become personal? “Never—on either side.” He declines to discuss what accountants may or may not have found in studying the books on both sides. He does not want to talk about any letters that the hospital may have sent. He does not want to speculate on how the negotiations might have ended differently. “We have high regard for the long relationship with FRA. We had a very long, mutually beneficial relationship. We want to honor that legacy,” he says. Asked what the hospital’s strategy had been to make sure it had coverage once FRA had terminated its contract, Owen says, “In any organization, when negotiations break down and you have an impending point in time where you won’t have coverage, you have to take appropriate action to ensure continuity of care and patient safety. Being good stewards, we took appropriate action.” Owen says that Florida Hospital then provided night teleradiology coverage for RSF. He notes that the teleradiologists are all licensed in Florida and working from the United States. “I don’t know the volumes,” he says. “We’re getting quality work, which we had before with FRA.” He won’t say what salary offers were made to the RSF radiologists or discuss the economics of teleradiology or the department. Asked if efficiency has changed since RSF assumed responsibility, he says, “I think every hospital is looking at—and every radiology department is looking at—efficiency throughputs. We are looking at that. I couldn’t give you any metrics on how it’s changed. Clearly, that’s an issue in today’s radiology world.” Employee Models Owen talks at greater length about whether the employee-based model is becoming increasingly popular with hospitals, not only for radiology, but for other departments as well. “Around the country,” he says, “you’re seeing a lot of hospitals doing employment options. It really depends on a site-by-site and issue-by-issue situation. It’s not necessarily the first strategy. It’s one of the tools you have to make sure you provide quality patient care to fulfill the mission of your organization.”
"In any organization, when negotiations break down and you have an impending point in time where you won’t have coverage, you have to take appropriate action to ensure continuity of care and patient safety." —Terry Owen, senior vice president Florida Hospital, OrlandoHe continues, “We have not, in the framing of taking over, brought in other independent practices. For services we need to provide to the community, if a (medical) group says, ‘We can no longer function this way; what other options are available to us?’ that is one of the tools in our arsenal that’s available to us that we can use to continue to provide quality care to our community. It’s not that we have looked to that for our own sake.” Asked if the advent of teleradiology has changed the dynamics of negotiating with independent radiology groups or changed the way the hospital could provide coverage, Owen agrees to discuss the situation, but only industry-wide, not for the hospital specifically. “On the industry-wide level, the DRA made a lot of challenges occur instantly; a lot of fetters, which created another dynamic,” he says. “We’ve got rapidly growing demand for radiology, in terms of the number of exams, around the country, and it’s difficult.” He adds that technology has had a heavier impact on radiology than on any other area of medicine with which he’s familiar. He says, “It creates a lot of changes in the marketplace that we didn’t even know were available a few years ago.” Teleradiology services change technology, for example, and, “In the PACS world, now, there is remote reading even inside a system. Where the medical staff is used to having a radiologist there, to some degree, you don’t even need that there. It’s just a different dynamic. A part of the medical community is going through great change. That’s water that everybody is in,” he adds. Asked what the mood was like on the RSF staff and whether attrition was expected because of lingering bitterness over the FRA negotiations, Owen says, “We think it is very important for delivering a quality product that we have good teamwork in the department. I believe we’re achieving that. I would hope that the radiologists are very pleased and enjoying the practice of radiology and enjoying the work,” he adds. “We’re very pleased with RSF and the people we’re dealing with; it’s gone very well. We hope everybody works as long as they want, as long as they’re able, as long as they’re productive, and as long as it’s a win-win.” Owen concludes, “We had great respect for the radiologists in FRA. We’re disappointed the negotiations broke down—and now it’s time to move forward.” It may be time to move forward for some, as Owen says, but it has been hard to move forward for all. For those radiologists who lost their jobs in the final transfer of power between FRA and RSF, there is lingering disbelief, a feeling of betrayal, and even sorrow. A former FRA negotiator who now works for several clinics while looking for a steadier job (with the security of a regular paycheck) says that no one from the old group has been in contact. Another FRA negotiator reports having an excellent job, but still feels tossed under the bus by the vote to rescind the noncompetition agreement. This doctor adds that the group was toppled too easily, and that this does not bode well for the future of large hospital groups. The View From 30,000 Feet Whether FRA’s experience bodes ill for other hospital radiology groups may be the key question in its aftermath. Should what happened at Florida Hospital put other groups on alert? Did FRA badly overplay its hand? Was there another scenario in which the hospital, as some argue, bit off too big a chunk with its employee model, taking a step that could leave its radiology operation running in the red? To Alan Kaye, MD, a Connecticut radiologist who follows the industry, hospitals are putting increasing pressure on radiology groups to handle higher volumes and reduce turnaround times. The FRA story, he says, “may be a signal that this is one potential ramification of increased service demands placed on radiologists.” He adds, though, that the answer isn’t yet known. “The 30,000-foot view is that this is a signal that the relationships between radiologists and hospitals are in a state of flux. I’m reluctant to say this is bad for radiologists, but this is a flashing yellow.” Kaye points out that for the radiologists now with the hospital’s in-house group, RSF, the outcome may have been good. “Maybe this was a win for the radiologists. For all we know, it may be what the radiologists wanted. Some physicians might view this as a plus by not having to be distracted from medicine. We don’t know what the long-term ramifications will be for the hospital or the group,” Kaye says. Kaye sees something else that is worrisome in the story—the threat that teleradiology can become when a hospital uses it as leverage in negotiations. “Teleradiology has created a two-edged sword,” he says. “On one hand, it allows radiologists to comply with some of the demands on them and still maintain a lifestyle. On the other hand, teleradiology has created a wedge a hospital can use by outsourcing—by creating a perception it’s easy to replace radiologists. To the extent a hospital thinks it’s easy to replace radiologists, they have more leverage in a discussion. That’s important to understand.” In Kaye’s view, Florida Hospital was lucky that most of the FRA physicians chose to join RSF. “If we start down the road of teleradiology as a solution, you oversimplify a very important part of patient care and make radiology the equivalent of a lab test. That’s not to the benefit of the patient. When the referrer knows who’s reading, and the nuances of an interpretation, that is very important to patient care,” he says. Kaye says that radiologists need, most of all, to make sure that they satisfy the demands of the medical staff. “That’s the ultimate security, the medical staff,” he says. “For all we know, the support of the medical staff may have been the lever that got the radiologists who stayed on a good deal.” Jeopardizing Care For Howard B. Kessler, MD, who was first to call the FRA experience a cautionary tale, the mistake that FRA made in negotiations was to draw a line in the sand that threatened to disrupt patient care. Kessler, who operates a Philadelphia-based consultancy as well as practicing radiology, says that one of his strongest messages to radiology groups is that patient care should never be used as a negotiating chip.
"A hospital should not be put in the position where it’s held at gunpoint by radiology groups. The hospital has no choice but to provide patient care. The cautionary tale for radiology groups is that to lose sight of that is a bad negotiating tactic, and it sets the stage for lost trust."—Howard B. Kessler, MD Philadelphia“Once you play the card of, ‘We’re leaving unless you give us this,’ the likelihood of an amicable solution drops precipitously. Groups need to figure out what’s important to them, where they need to move forward, and what they’re going to live with,” he says. “A hospital should not be put in the position where it’s held at gunpoint by radiology groups. The hospital has no choice but to provide patient care. The cautionary tale for radiology groups is that to lose sight of that is a bad negotiating tactic, and it sets the stage for lost trust.” Radiology groups need to understand that hospital administrators know how to negotiate far better than they do, Kessler emphasizes. Administrators negotiate all the time. Radiology groups, conversely, usually have to learn on the job. “Administrators understand the game; they know what the pressure points are, and they know how the radiology group operates. If this group in question voted to dissolve restrictive covenants, then that is what other groups should really look at,” he says. Kessler does advocate restrictive covenants, so that if a group dissolves, the hospital still cannot steal the radiologists, but his overarching message is that radiology groups need to head into negotiations with a well-considered message. “It’s incumbent on a group to create a compelling, logical story. Groups need to do their homework. They should recommend how they might propose to cut costs, and create a story where if we make less, it costs you (the hospital), and we can neither perform nor recruit,” he says. Hospitals also have to be careful, he warns. In taking a group in-house, “You are basically rolling the dice,” he says. “What you’re getting can’t be measured for years.” Kessler says that groups that are prepared to negotiate will do well. Of groups that come in aggressively, with the assumption that they’re not replaceable, he says, “The naked city is littered with groups that couldn’t be replaced.” FRA is one of them now.