Key Factors in Considering an ASC Clinical Co-Management Agreement

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As hospitals look for strategies to improve physician engagement and physicians look for efficient care environments, both groups are increasingly drawn to clinical co-management agreements in which hospitals run an ASC as a hospital outpatient department. David Thoene, founder and CEO of Medical-Surgical Partners, discusses some of the key factors that play into the decision to pursue the co-management model and what these arrangements entail.

What constitutes a clinical co-management model?
Under the clinical co-management model, the ASC is 100 percent hospital-owned and is licensed under the hospital's license as an HOPD. The hospital contributes the equity capital, and the hospital guarantees and is the borrower for any debt. The payor contracts are the hospital's, and medical staff and policies are also the hospital's. This model "takes a lot of the risk out of the ramp-up" for the physicians, Mr. Thoene explains.

Under the model, the ASC operates under a management contract with the physicians, and they own the management company. The management company is responsible for hiring an administrator and nursing director and contracts for a medical director.

"The facility itself looks like a surgery center, feels like a surgery center and is run like one, but it is actually a hospital department that relies on the hospital's license and contracts," Mr. Thoene says. "It is ultimately responsible to the hospital board and operates within the hospital's accreditation, license and certification." It can also bill at the HOPD rates, which are more favorable than those of an independent ASC.

How do clinical co-management agreements differ from typical joint ventures?
A clinical co-management agreement looks different from a typical ASC joint venture management agreement in several ways. The key elements include:

  • The compensation paid is based on fair-market value. The management agreement compensation has to be supported by a third-party fair market valuation, Mr. Thoene explains. Usually that valuation will come from a major accounting firm or a firm that specializes in valuation of healthcare management agreements.
  • The services provided are "necessary." Necessary services are generally those needed to maintain the facility's license and accreditation. These would be many of the same services necessary for a surgery center to provide safe and efficient services, and those that physicians would provide if they owned the center themselves. Some examples of necessary functions might be administrative responsibilities such as patient scheduling and intake, pre-certification, evaluation, surgical supply purchasing and inventory management; provision of a medical director; implementation of policies and procedures; and management of metrics for performance improvement programs.
  • Physicians are the reasonable and logical choice for management. It must be documented that physicians are the appropriate choice to oversee the elements of the management contract. For example, a co-management agreement could outline benchmarks for quality care measures — which physicians would logically oversee — but it probably would not cover payor contracts.
  • Hospital's compliance committee must approve the arrangement. The compliance committee will need to sign off on the agreement to make sure it does not expose the hospital or health system to risks of violating the Stark law or anti-kickback provisions. "The risk to the hospital is so substantial that it can't afford any of that risk," Mr. Thoene says. Performance incentives cannot be tied to productivity or admissions, but they can be linked to patient satisfaction metrics and quality care indicators.

While the physicians are incentivized to meet clinical standards, it is the hospital that is taking most of the financial and operational risk under clinical co-management arrangements, Mr. Thoene says. However, during the development phase, physicians will also be involved in helping choose equipment, recommend patient flow patterns and layout and training staff. Their involvement means they maintain a fair degree of control over their environment.

Future of co-management models
Mr. Thoene says the co-management model is growing in popularity and might continue to pick up steam as healthcare reform gets underway. Under the new law, accountable care organizations and overall greater levels of hospital-physician integration are encouraged. The co-management model is efficient, he says, because as physicians get in on the project during the development phase, they become aligned with the hospital's goals very quickly. In addition, the investment risk is low enough for physicians that it makes the opportunity a more attractive one than it might be were they being asked to put more of their finances on the line.

Clinical co-management agreements are proving attractive and effective in many different environments, whether small, secondary markets where it might not be financially feasible to undertake a traditional joint-venture ASC or large academic medical centers that might not want to jeopardize hospital revenue to start up a surgery center. "I think it illustrates the versatility of this model," Mr. Thoene says.

Learn more about Medical-Surgical Partners.

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