Signed, Sealed and Soon to be Delivered

Consolidation has become the name of the game for many private radiology practices, but not everyone wants in. Many unaffiliated groups still prefer the independent side of the playing field, defending their turf by contracting to provide imaging services to hospitals and health systems.

Today more than ever before, negotiating these contracts—whether for the first time or in renewal mode—is a competitive sport in and of itself. And like any game with high stakes and real consequences, the favored teams tend to beat the underdogs on the combined strengths of careful planning, smart strategizing and excellent execution.

“There are several must-do’s for radiology practices negotiating with hospitals and hospital systems and several common errors that really need to be avoided,” states Clint Mc-Clurg, business development manager of Diversified Radiology in Denver. Founded in 1927, Diversified Radiology recently merged with US Radiology Specialists of Raleigh, N.C., but was for decades an independent practice.

McClurg and other sources interviewed by RBJ note that, in this era of “show your value” healthcare, getting contract negotiations right starts with understanding what the prospective client institution needs to win its own competitions. Raw work histories can help prove a practice’s qualifications for any given open job, but they no longer suffice as standalone pitches when it comes to closing the sale.

“If you’re hanging your hat on quality metrics such as turnaround times, you will be in for a rude awakening,” warns Charles McRae, MBA, chief executive of Columbus Radiology in Ohio and regional vice president of operations for Radiology Partners in El Segundo, Calif. McRae, who joined Columbus Radiology before it became a Radiology Partners practice and previously served Knoxville, Tenn.-based Vista Radiology as CFO and practice administrator, says such metrics are fine to include. But if you over-emphasize those points, you risk coming across as behind the times.

“Sophisticated hospital systems that are ever-merging and acquiring new executive talent with different experiences” recognize turnaround times and similar metrics “as what they are—‘service metrics.’”

McRae deems the ability to provide subspecialty reads, generate final reports 24/7 and offer great turnaround times the going expectation for radiology groups to even be considered for a contract. And that’s just for starters.

“Hospitals are differentiating practices based on the additional value the group can bring,” McRae explains. “This value can take many forms—clinical or operational leadership, clinical best practices, and ownership of patient outcomes, to name a few. Practices that show this added value will be awarded these contracts, and groups will be required to continuously innovate in new ways to drive value for the patient and the hospital.”

Refinement and Alignment

Cathrine Keller, MD, managing physician and president of Lake Medical Imaging & Vascular Institute in The Villages, Fla., concurs with that take. Additionally, Keller believes that, in the midst of contract negotiations, radiology groups must demonstrate the quality and value they bring or will bring to the hospital or healthcare system by presenting not only quality data but also other illustrative informatics. Numerical and anecdotal evidence reflecting utilization, safety, communication and accuracy must be part of the presentation as well, she says.

Cathrine Keller, MD, Lake Medical Imaging & Vascular Institute
Cathrine Keller, MD, Lake Medical Imaging & Vascular Institute

Keller also advocates designating one key individual to be responsible for measuring and monitoring quality data. This will help facilitate measuring and monitoring processes and ensure that data points are accessible when needed for negotiations.

Meanwhile Kip McMillan, Diversified Radiology’s CEO, has found that imaging service providers need to focus on true measures of positive outcomes, such as decreases in callback rates and shorter lengths of stay, as barometers of value and quality. And that goes whether the practice is competing against similarly sized practices in their market or large radiology conglomerates with affiliated practices in multiple markets.

“In the old days, one could focus on turnaround times and such,” Mc-Millan underscores. “Not anymore.”

Equally important in winning new contracts or renewing existing agreements is demonstrating “alignment” between the radiology practice and the hospital or healthcare system. This term has come up often enough in recent years that it’s in danger of becoming jargon, but the principle behind it is anything but a toss-off.

A longtime close observer of healthcare law and economics spells out why.

“You can show value with metrics, performance measures, services, patient survey results and [more], but in the end it comes down to convincing everyone in the C-suite that the practice is attuned to the institution’s needs,” says Thomas Greeson, JD, MBA, a partner with Reed Smith and former general counsel for the American College of Radiology. “The more questions the radiology practice asks about these needs, and the more they are willing to put into the contract about fulfilling them, the better the negotiations will go.”

Horizontal Maneuvers

Keller advocates a similar approach. “Do excellent quality assurance and show how that saves money,” she urges. “Volunteer to help with clinical decision support [mechanisms]. Propose ways to help get more business for your clients.”

Before you preparing your pitch for their RFP, start seeing the world through the eyes of the prospect institution—how can you help its leadership increase revenues, decrease expenses and cut lengths of stay, Keller advises. “Don’t ask the hospital or healthcare system to pay a director’s fee” or for any third-party teleradiology services, she adds.

As for the ways alignment plays out in practice vs. theory, nearly every hospital and health system has a published statement of mission, vision or both. It’s wise to study the wording of these statements for clues into the organization’s value system.

Exclusive Contracts: Upsides, Downsides, All SidesAt one time, McMillan explains, representatives of imaging service providers could call on only the individuals who would work directly with the radiologists once the relationship was up and running. That’s changed. Today many hospitals are being governed both “horizontally” and at the system level, he says.

“As a result, radiology practices need to find out what the hospital system administration—not the head of the hospital—has in mind,” McMillan says.

Another point of consideration: the need for integration and collaboration with the medical community as a whole. Keller has observed that contract negotiations flow most smoothly
when physicians form relationships away from the day-to-day workflow. A proven way to make friends and influence
decision-makers away from the hustle and bustle is joining hospital committees and staying active with them, she suggests.

At the same time, collaborating with referring physicians to develop practice models that best serve hospitals, health systems and patients can only have a positive effect on contract negotiations. Participating in such teamwork tends to go over well with decision-makers, who appreciate contracting practices that excel in the intangibles, sources tell RBJ. A heightened level of involvement along these lines helped Diversified Radiology forge a win-win negotiation recently, McClurg and McMillan report.

Costly Assumptions

Make no mistake. The list of contract negotiating faux pas committed by radiology practices at the negotiating table—or even before they get there—is at least as long as the checklist of imperatives for ensuring success at the negotiation table. One error Greeson has seen clients make: waiting until contract renegotiation time to demonstrate the value they offer.

“Whether through reports, verbal information-sharing, hands-on assistance or something else, those who succeed in renegotiations and are awarded long-term tenure for imaging services emphasize the value they bring” to the equation on a daily basis, Greeson says. This equation, he adds, factors in not only the hospital and the hospital administration but also patients and referring physicians.

In like manner, McMillan has witnessed a proclivity among radiology groups to assume their contract will be renewed automatically. He and his colleagues learned not to do this the hard way, when a new CEO joined the healthcare system that owned a hospital in Denver to which Diversified Radiology had provided imaging services for many years.

While the hospitals in the system had each enjoyed autonomy in their choice of radiology contractors, the new CEO—unbeknownst to Diversified Radiology’s management—wanted to adopt a model that dictated contracting for imaging services from one provider across the board.

Another provider got the gig.

“We shouldn’t have felt so secure in our relationship with the hospital and so certain of renewal,” McMillan admits. “We should have approached the new CEO and told our own story, rather than have it told by a competitor. But we were unaware, so when we tried to play catch-up, deals had been struck and hands had been shaken.”

Sticky Stipulations

Hospitals “are going to shop their business,” McMillan states matter-of-factly. “Just because they love you know doesn’t mean they aren’t going to send out RFPs at contract renewal time.”

Assume they’re doing so, take nothing for granted and remain aware that competing practices are likely doing the same—and you’ll put yourself in the optimal mindset for negotiating, he suggests. The point to hammer home is the positive results your practice can deliver.

Another snare best avoided is the common failure to grapple with the issue of contract exclusivity, Keller says. “Don’t be general when negotiating carve-outs,” she says. For example, it’s better to be upfront and honest—“We do everything but cardiac imaging”—than to be vague, playing hide-and-seek with lapses in your service lines.

Greeson says radiology practices will sometimes consent to carve-outs that are so broad they cause problems down the road. This may lead to haggling over what services clients can “contract out” to other imaging services providers. Instead, these items should be very clearly defined during negotiations, down to specific procedures and CPT codes, he says.

Similarly, according to some sources, radiology practices can concede too quickly on certain contract sticking points. An example is hospitals’ attempts to impose fuzzy standards that can be used as cause for contract termination or make it unduly easy for themselves to terminate a contract early or for no reason.

The experts suggest insisting that the final contract stipulate a window of time during which neither the client nor the radiology practice may terminate the agreement without cause.

It’s also fine to push back when a client or prospect attempts to impose unclear standards that can be applied as justification for contract termination. Likewise, it’s important to include a proviso in the contract laying out how, when and for what reason a contract may be terminated.

Tech Investments Pay

Despite the success of certain private, unconsolidated practices in negotiating contracts with hospitals and health systems, some have questioned whether there is room for them to compete for business in an increasingly consolidated healthcare economy. The answer, sources tell RBJ, is “yes”—but it’s a qualified “yes,” with conditions and strings attached.

Based on his observations, McRae says standalone radiology practices can hold their own against Radiology Partners and its ilk if their scale and infrastructure allows them to provide the same value to patients and referring physicians as their larger counterparts. Advanced reporting capabilities, he contends, will be the key to delivering such value, thereby leveling the competitive playing field and keeping it that way.

There’s already pressure on practices to meet CMS’s growing demands for quality metrics, ICD10 and MIPS/MACRA/QPP, McRae observes. In this climate, independent practices “will struggle to remain competitive without investments in natural language processing, artificial intelligence and information technology infrastructure to report and manage the group’s performance.” Such struggles will cut into groups’ capacity to maximize their competitive edge, he adds.

“You can’t manage what can’t be measured,” McCrae continues. “It’s only through advanced reporting that practices can continue to improve and meet the changing demands of hospitals, CMS and private payers.”

Not Easily Expendable

Greeson agrees, deeming his contention consistent with what he has seen at hospital-radiologist negotiating tables and elsewhere in his practice. Larger, consolidated radiology groups enjoy an advantage over smaller, independent ones in procuring and retaining contracts because they’re taking steps to demonstrate their value daily, he believes. Meanwhile they’re making investments in the information technology and beta-analytics necessary to demonstrate that value.

Thomas Greeson, JD, MBA, Reed Smith
Thomas Greeson, JD, MBA, Reed Smith

“This absolutely does not mean smaller radiology practices cannot offer the same value as larger ones,” Greeson says. “What it does mean is that they need the tools to show it.”

According to McMillan and Keller, unconsolidated practices’ geographic location will impact their potential to negotiate and secure their fair share of contracts with hospitals and health systems. McMillan says experience has shown him that smaller practices situated in metropolitan areas where multi-specialty practices have a foothold and an “in” may encounter some difficulties here. “

In certain smaller towns, however, unconsolidated practices will be fine competition-wise if staying independent is what they choose,” he says.

For Keller, it’s about location, location, location—and some other factors. Unconsolidated radiology practices’ ability to cut a competitive edge against larger ones also is predicated on relationships with local hospitals, health systems and referring physicians, she states.

“If you treat the practice of radiology like a commodity” instead of working at those relationships, Keller concludes, “you will likely be treated as expendable.” No amount of negotiation will change that.