5 Things to Know About Co-Management Agreements

Hospital-physician alignment arrangements are becoming an increasingly sought-after integration model as health organizations are redesigning their approaches to care in the pay-for-performance environment.

Mercy Gilbert (Ariz.) Medical Center, part of San Francisco-based Dignity Health, and OrthoArizona Southeast Valley Co-Management Group entered into the one of the latest co-management agreements.

OrthoArizona physicians will co-manage Mercy Gilbert's entire orthopedic service line, including foot and ankle surgery, fractures and dislocations, hand surgery, orthopedic spine surgery, sports medicine and total joint replacement.

"The rationale for this agreement is to create and standardize best practices, processes and procedures with a focus on systems of care," said Tim Bricker, president and CEO of Chandler Regional and Mercy Gilbert Medical Centers, in a news release.

In light of this recent announcement, here are five things to know about co-management agreements.

1. Co-management agreements are growing in popularity as organizations turn to pay-for-performance reimbursement models. Co-management agreements are quality oriented, pay-for-performance-based arrangements in which physician groups contract with hospitals to manage a service line. Physicians oversee and manage the service line — such as orthopedics, oncology or cardiology — and ensure it runs smoothly, effectively and at a high quality. The hospital continues to oversee administrative duties, such as budgets, marketing and personnel issues. Co-management allows for hospital-physician integration without requiring physicians to become hospital employees. Quality improvement is a main goal in these arrangements since everybody benefits when quality improves. Physicians are rewarded with incentive bonuses for reaching certain quality measures and benchmarks, hospitals see higher reimbursements under the pay-for-performance model and patients receive better care.

2. Physicians are paid a base fee with opportunities to earn bonuses. In such agreements, physicians are compensated for the time they dedicate to overseeing, managing and sometimes overhauling the care process. This is a fixed, annual base fee consistent with the fair market value of the physicians' time and efforts. Physicians typically are eligible to also receive certain bonuses if they meet or exceed mutually agreed-upon quality goals. "We generally see a base compensation of $200,000 to $300,000 per year plus incentive compensation payments," says Scott Becker, JD, publisher of Becker's Hospital Review. "Here, the core base fee must be defensible as fair market value and a valuation is needed to support the valuation. Further, the incentives cannot be based on the volume and value of referrals."

3. Co-management agreements should be set up in a way to ensure compliance with civil monetary penalty and anti-kickback laws. Organizations should take time to ensure their fees and services are of fair market value to avoid legal complications. Many organizations refer to the HHS Office of Inspector General's Advisory Opinion No. 12-22 as a template for developing a legally compliant agreement. This document assessed a typical co-management agreement of a catheter lab in a hospital and found it to be in compliance with healthcare fraud laws. Several initial issues raised by the opinion were the potential occurrences of "stinting on patient care," choosing to treat healthier patients, steering sicker ones to other hospitals and offering payments to increase referrals. However, the OIG ultimately said it would not impose sanctions for those because analysis indicated physician compensation is fair market value for services provided, physician pay is not dependent on the number of patients treated, and the specificities of the arrangement were clearly laid out.

4. Agreements should have a set time limit. Benchmarks and quality goals continuously change, so there is less room for improvement if such measures are not regularly revisited. Additionally, part of the OIG's opinion on the legal compliance of that co-management agreement cited the finite time parameters of the agreement as a positive factor in its review of the legal compliance.

5. Elements of co-management agreements and bundled payments overlap, but they can still coexist in a hospital for the time being. Both arrangements seek to improve quality while lowering costs by a higher degree of interaction between hospitals and physicians. Physicians earn bonuses for reaching certain quality measures, though the bonuses are calculated in different ways and reward different measures. Co-management agreements are centered on physician management of an entire service line, while bundled payments are focused on specific episodes of care. In the current market, the two models seem to coexist, though some thought leaders project one model may become more prevalent in the years to come.

More Articles on Integration:

A Seat at the Table: How Physician Advisory Councils Contribute to Hospital-Physician Alignment
The Benefits of Integrated Physician & Employer Market Strategy
Hospital-Physician Economic Alignment: What it Entails & Why its Important


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