The negotiation of a pathology practice’s hospital contract generally is one of the practice’s most critical tasks . The dynamics of the relationship between a hospital and its hospital-based pathologists continue to change and become more complex. Payment amounts from hospitals are generally declining. In addition, third party payor reimbursement methodologies are changing, with more accountable care organizations , shared savings, bundled payments, and capitation . Both of these trends result in efforts by hospitals to exert more control over managed care contracting for pathology services.

Other trends include greater restrictions on outside activities by pathology practices as hospitals attempt to retain volume, shorter contract terms, and more contracts subject to competitive bidding.

Pathology practices must carefully plan the negotiation of their contracts with hospitals not only to maximize the Part A compensation from the hospital but also to avoid undue restrictions on their medical practices and outside activities. The parties must be mindful to avoid the compliance issues that would arise from a contract in which the hospital receives, directly or indirectly, inappropriate remuneration from the pathology practice.

The process of preparing for the negotiation should begin many months in advance of the expiration date of the current contract. A game plan should be established that would include at least the following preparatory steps:

In short, groups need to “do their homework” before entering into contract negotiations with the hospital. Information and preparation is critical. Financial information and comparative data can be extremely valuable in negotiations or in responding to questions raised by the hospital personnel.

Preparation for contract negotiations is a critical part of the process, and best started before the ink is dry on the last contract.

As explained above, it is critical for pathology practices to educate their hospitals about the value of the services provided by the pathologists. As a first step, pathology practices should explain, in detail, the various types of pathology services that they provide, including anatomic pathology services, professional component of clinical pathology services, blood banking services, autopsy services, graduate medical education services, research services, outreach services, etc. The pathologists should ensure that the hospital administration understands the significant commitment of time and expertise required to provide these services, especially those services for which the pathology practice cannot bill payors or patients (i.e., services for which the sole source of compensation is the hospital).

If the pathology practice has one or more pathologists with specialty expertise, this pathology specialization and its relation to the provision of specialized services by the hospital and its medical staff should be emphasized. For example, one or more pathologists with hematology expertise offer significant support to the provision of oncology services at the hospital. A pathologist with pediatric specialization is vital to a hospital that prides itself upon its pediatric services. Without such pathology expertise, the hospital and members of its medical staff would not be able to provide the same level of specialized hospital and medical services.

The pathology practice should explain that quality pathology services are directly related to more satisfied medical staffs and patients, which means that the hospital is less likely to lose referring physicians and patients to competitors. Quality of care is increasingly an important issue to some payors, and the expertise of the pathology services can have an impact on the hospital’s ability to secure preferred managed care contracting.

Pathologists can effectively market the clinical laboratory and anatomic pathology services offered by hospitals to physician offices, surgery centers, nursing homes, and other health-care providers, and often are the single most important factor in a client’s selection of pathology and laboratory services. It is advisable for pathologists to assess the dollar value of the outreach services provided by the hospital, and explain to the hospital the critical role that the pathologists play in securing this business and retaining it.

Quality pathology services reduce the risk of malpractice liability for hospitals and attending physicians. If hospitals are interested in cutting costs and are looking for the “lowest cost” provider of pathology services, the hospitals may be increasing their exposure from a liability perspective. Pathology practices should remind budget-minded hospitals that courts have held hospitals legally responsible for the negligent selection of hospital-based physicians, and the more prudent approach for hospitals is to pay a reasonable amount to secure the services of competent and trained pathologists. In addition, pathologists also can assist hospitals in reducing their liability exposure through their supervision and oversight of hospital laboratory personnel.