Physician Alignment through Co-management

Physician Alignment through Co-management 

November 2014

What is Co-management?

As hospitals and physicians continue to develop new ways to align more closely, hospitals are increasingly turning to service line "co-management" arrangements with physicians. The purpose of a co-management agreement is to engage physicians by providing them greater management authority over a defined set of services, where the hospital pays the physician group to co-manage the quality, efficiency and experience of the patient.

This quality-focused alignment strategy puts physicians and hospital leadership at the table together. When managed properly, the physicians begin thinking of the program as their own. Physicians are called upon to make recommendations in business decisions, such as staffing, marketing and purchasing. Payment can be in the form of a fixed fee or an hourly rate to cover their monthly work. A variable fee may also be included as an incentive, which is tied to quality performance, so focus is on quality outcomes, improved efficiency and controlling costs. The agreement is then revisited each year, in terms of scope, participating physicians and goals for the year.

This method of management has not only proven to be effective in promoting hospital-physician alignment, but also in encouraging greater collaboration among physicians themselves. Physicians partnered in the co-management arrangement share ideas, discuss protocols, refine processes and set goals for quality of care.

How Does Co-management Work?

There are several unique types of co-management relationships, from formal relationships to those that are looser in structure. Agreements must be carefully set up to avoid violations of federal, state, Stark Law and anti-kickback regulations. The legal arrangement defining the structure and scope of responsibilities may take the form of a new company or an all-party agreement.

Most often the physicians will form a limited liability company which contracts with the hospital to manage specified clinical departments (co-management agreements are commonly found in service lines like orthopedics, cardiology and oncology).

The hospital pays the LLC physicians a base fee for managing the service line, and usually offers an incentive bonus based on patient satisfaction and quality metrics previously agreed upon by both parties. Payment for services should consider the size, volume and productivity of the service line to be co-managed. This introduces several compensation models that can be negotiated to further satisfy both parties.

What Are the Benefits of Co-management?

Hospitals and Physicians both benefit from co-management. Under a co-management arrangement, hospitals can expect to realize a competitive advantage with:

  • quality care and patient satisfaction
  • improved physician interaction and engagement
  • physician retention incentive
  • increased operational efficiencies
  • focus on revenue streams

Physicians can benefit from:

  • autonomy over quality and operations
  • greater patient satisfaction
  • increased productivity
  • association with a respected organization
  • decreased corporate intervention
  • tax incentives

Service line improvement is one of the main tenets of a co-management arrangement. Beginning with identifying the highest priorities for clinical and operational improvement, the focus is on patient experience through day-to-day operational oversight.

With increased publication of quality and outcomes data, co-management can help lead to improved outcomes and scores, enhancing the image and market share of both hospitals and physicians.

Evolving reimbursement models is another reason the co-management model of alignment has spread recently. With many hospitals' and health systems' reimbursement now based on the value or quality of care provided, they are increasingly seeking to get physicians involved in quality improvement efforts. Co-management also begins the process of payment reform and is a first step toward bundled payments or other new forms of reimbursement.

What Are the Potential Drawbacks of Co-management?

Co-management depends upon equal and active participation. Without this, some members react negatively, and infighting can result. This can ultimately lead to the failure of the co-management agreement. Hospitals generally pay the physician group a lump sum, which is divided by the partners in the co-management LLC. Divisions can arise if some physician members did not contribute as much as others, but still expect an equal share. Hospital leadership and physicians must be committed and prepared to dedicate the necessary time to make the partnership work.

One way to address this potential problem before it becomes a dividing issue is to specify work language in the LLC contract to define an "active participant". In addition, all involved parties must be aware of their responsibilities. The hospital should explicitly lay out the goals of the arrangement, as well as the duties everyone is expected to perform.

Aditionally, there is a political element that must also be addressed during formation to ensure balance of control. The two governing sides should detach from the interests that serve them individually to think of the LLC as its own entity with impartial government.

Co-management for Your Organization

There are numerous benefits to the co-management form of physician alignment. It is important to establish the culture, set expectations and develop a unity of purpose so that the two groups are operating under the same vision. While there are many details to work through regarding new processes, levels of authority and responsibility, the overall structure of a co-management arrangement is straightforward. This flexible, increasingly popular alignment model may be a good choice for your organization.