Both physicians and hospital administrators want to deliver quality patient care, yet often run into obstacles outside of their control. Frequently it seems they are on opposite teams. What if these groups could come together and tackle problems head on, providing higher patient satisfaction, efficiencies and better outcomes for both physicians and hospitals?
One way to begin to achieve such alignment is to structure a co-management agreement, where both parties work together, each giving up some control to create the best patient experience.
But, from a business perspective, these agreements are not without potential financial pitfalls and compliance risk.
The term co-management is used in a couple of different ways, but in this case refers to a hospital paying any physician to co-manage daily operations of a medical specialty service line. It’s all about aligning both the physicians and the hospital on the same side, to improve the service line. This type of agreement is structured so a portion of physician compensation is tied to the quality and efficiency of the hospital service line. It is like a medical directorship across many physicians, on steroids. The expectation is you get into the nitty gritty aspects of the service line that can be improved by working together.
Common specialties that lend themselves well to this type of agreement are the cardiac and orthopedic service line. Typically, a consultant is then brought in to structure the deal and explain how the agreements can be set up. The hospital takes the full financial risk in these agreements, so they have to be comfortable with the deal. There is sometimes a lack of trust between the parties, so a neutral party setting up the agreement is important.
The physicians and the hospital leadership sit down to discuss challenges around that service line so they can work together to solve them. This may include protocol compliance, program development, increasing patient satisfaction and efficiency measures such as surgical block utilization. A list of goals, with things that can be measured KPIs and benchmarks, is created.
The final agreement is often called an “all-party agreement” – meaning, both hospital and physicians sign the same agreement. The goal is to improve the service line by letting the physicians co-run it. They sit at the table and discuss staff, supply, patient flow and other problems. The target goals are clearly laid out at the start and after a year, if the goals are met and KPIs improve at a rate that’s defined by a fair market value company, there will be a sum of money divided between participants. The earnings are usually significant enough to impact real change. The goal is to incentivize the group to meet these benchmarks.
The benefits of co-management agreements
Physicians see many benefits from co-management agreements. There’s the carrot of additional compensation, but there’s also the chance to build something. Physicians want positive patient outcomes above all else, and often the best way to do that is to control their environment. When they have a say in how the service line is set up and run, they are more aligned with the outcomes. What’s more, these agreements give them a chance to collaborate with other physicians in their specialty to agree upon patient protocols that provide the best care.
While patient outcomes are the best motivator for physicians, there are also daily inconveniences that can be resolved with this kind of physician alignment. You will hear some things that can be solved easily. Parking, for instance, doesn’t seem like a big deal until it is making your surgeons late for the OR or a cardiac cath lab. This is problematic for the hospital because it increases costs associated with staffing, equipment and length of patient stay. One hospital I worked with set up valet service for all physicians as a result of what we learned. This was a relatively small cost to offset a huge inefficiency.
Other challenges are larger but can be solved together. Another deal I worked on with an orthopedic service line had 11 different vendors for hip implants. The hospital was experiencing huge costs for these implants because they didn’t have scale in ordering. By having the surgeons work together to narrow the options to three companies, they were able to get better rates for the implants and decrease the carrying costs of the inventory.
Potential pitfalls of co-management agreements
It’s true that co-management agreements can be a great way to align the interests of physicians and hospitals. In many ways, co-management agreements allow for creativity and ingenuity to tackle complex problems on both the clinical level and the business front. But, like any physician agreement, they need to be set up carefully so that they don’t violate the federal Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (Stark Law) regulations.
Since the physicians are working on the whole service line, they will be compensated not only on units of service, but also for administrative time. The agreement must be set up to clearly indicate that the purpose is to improve quality and not reward referrals, volume or value of care. It is critical to work with FMV experts to ensure all the i’s are dotted and the t’s are crossed. Setting up the agreement properly is paramount so there isn’t a violation of AKS and Stark Law.
All payments made under the agreements must constitute fair market value. While creative solutions to physician obstacles (such as the aforementioned valet example) can be a part of co-management agreements, the parties must not get carried away. For example, a few years ago, a Tennessee optometry group came under legal scrutiny due to an agreement that seemed to violate AKS. Part of the case included the disclosure of “freebies,” including free continuing education, dinner and drinks, lunches, baseball games, golf outings and other events. This, combined with up-selling so that optometrists could receive bonuses, led to a ruling against the group.
So, how can hospitals make the process of paying on co-management agreements as transparent as possible? One way is to incorporate automation with your physician time tracking.
Co-management agreements will inherently include different rates for different specialists who might be part of the agreement. It is also critical all physicians be part of a group agreement, where they are able to share in the same pool of hours.
Antiquated contract management software does not support this type of complexity, so instead, many hospitals end up duplicating contracts to accommodate multiple rates in their system.
