Service line co-management: The silver bullet for physician-hospital alignment?

The imperatives for hospitals and healthcare systems are to improve quality and reduce costs. But many struggle to achieve these goals at the pace and magnitude required to succeed today and in the world into which we are heading.

This content is sponsored by The Greeley Company.

One of the most important but challenging keys is engaging, aligning and integrating with physicians. They need to be part of the leadership team and pull in the same direction.

Imagine a soccer team where some of the defensemen listen to the goalkeeper, but not the captain, and one of the forwards won't pass the ball, even to a teammate in a better position. Even if all the players are highly skilled, that team will have a tough time winning against a top competitor. In healthcare, lack of engagement between key players can be insidious, creeping into how decisions are made, what is prioritized and how process improvements are achieved, ultimately preventing systems from reaching the goal of using fewer resources to provide better patient care.

"These challenges are even greater when conflict is high and trust is low between physicians and management, a situation we see all too commonly in our work with hospitals and healthcare systems throughout the country," says Rick Sheff, MD, CMO of The Greeley Company, a healthcare consulting firm based in Danvers, Mass.

Service line co-management, which allows physicians and hospitals to manage a service line as equal partners, is a proven solution for alignment, engagement and even resolving trust issues, according to Dr. Sheff. The following article discusses the key success factors for service line management done well and how co-management can take that organizational structure to the next level, creating a framework for hospitals and systems to confront the challenges of today's healthcare environment as a unified team.

Start with Sutton's Law

Service line management began in the late 1980s as a way to market to patient populations with similar clinical needs. Common hospital service lines include cardiovascular, musculoskeletal, neurosciences, oncology, women and children's health, and behavioral health. These services became natural targets for service line initiatives because they follow Sutton's Law. Willie Sutton was a bank robber. When the authorities finally caught him they asked, "Why did you rob all those banks?" He replied, "That's where the money is."

The money for hospitals and systems is in these critical service lines. Optimizing revenue, quality and costs in these clinical areas is a recipe for success.

The 7 goals of service line management done well

"As service lines came into healthcare, the strategy early on was to recruit some individual or group with a great reputation that did high-end, high-margin services, call ourselves an institute, put a plaque on a building and tell the world we're here. It was primarily a branding and marketing strategy," Dr. Sheff says.

As the healthcare industry evolved, requiring greater value from the care provided, service line management became more than a marketing strategy. It became a way to break down silos between hospital departments, physicians and home care and to collaborate in creating the best care experience for specific patient populations.

According to Dr. Sheff, successful service line management today has to go beyond branding and marketing and achieve measurable improvements in the following seven critical areas.

  1. Branding and marketing.
  2. Clinical outcomes.
  3. Patient and family satisfaction.
  4. Referral source satisfaction.
  5. Cost reduction — both cost per case and for care of a population.
  6. Market share for physicians and hospitals.
  7. Margin for physicians and hospitals.

However, countless well-meaning hospitals and health systems that launched service line initiatives have failed to deliver results in many of these areas. "For most, the biggest obstacles center around working with physicians," Dr. Sheff says.

Typically responsibility for leading a service line is assigned to a dyad partnership between a physician leader and a management or nursing leader. While sometimes this model succeeds, more often it creates confusion between the service line medicaldirector and medical staff department chair roles. Physicians and management become unclear who is accountable to whom for what. The result is failed alignment and change management with the physicians, according to Dr. Sheff.

Co-management as a catalyst for success

Enter service line co-management. As Dr. Sheff observes, "Based upon our experience, we find co-management a great way to create a business relationship between physicians and the hospital or healthcare system that truly aligns incentives, that truly creates a win-win partnership."

With co-management, hospitals and physicians come together to create a third entity, typically a joint venture, which manages significant portions of the service line. The hospital or system can pay physicians both for managerial work and for achieving success on agreed upon metrics based upon hitting targets. This creates an incentive system to reward performance that is compliant with the Stark Law and Anti-Kickback Statute.

"It allows the hospital or health system to pay physicians for time doing the substantive work required to lead change, improve quality and reduce cost, to reward them for results, and to do so legally," Dr. Sheff says.

Co-management becomes a great solution for ED call and inpatient coverage. Instead of paying a physician just to fill a call slot, compensation for covering unassigned patients gets rolled into the work of managing the service line. Hospitals and health systems get a much better return on investment paying physicians based upon achieving results on important strategic and business goals than carrying a beeper for 24 hours.

In settings where conflict is high and trust is low, co-management has proven to be a great solution. As Dr. Sheff observes, "In our experience, the process of conducting an interest-based negotiation to design and commit to a co-management arrangement allows for establishing new ground rules for physician-hospital interaction and an accountability structure to ensure all parties play by the new rules."

According to Dr. Sheff, the results can be transformative. He says Greeley has facilitated new co-management arrangements in a number of settings in which trust has been low. Examples include facilitating co-management arrangements for a multihospital system with a large private practice neurosurgery group and an already employed, large cardiology group. In both cases, at the end of the process, the physicians and healthcare system experienced replacing recurring conflicts that eroded trust with a true, value-added partnership that drives success for the system and the physicians.

Service lines and the medical staff

A hospital or health system may need service line management or co-management if its self-governed medical staff has been unable to make significant progress toward achieving critical hospital or system strategic goals. When this happens, service

line management, with or without co-management, can stand outside the organized medical staff or be integrated into it, according to Dr. Sheff. "We've worked with hospitals to integrate physician service line leaders into roles on the medical executive committee. We've also helped set up clinical councils to drive this important work outside of the organized medical staff. The solution needs to be customized to the unique history and dynamics in each medical community," Dr. Sheff says.


In today's healthcare environment, hospitals are in a race to find out how to improve quality and patient outcomes and to do it for less. Using service line management as a strategy sets hospitals in the right direction to achieve these goals. However, many organizations are still falling short. This is because service line management in itself may not fully align and engage physicians. Service line co-management can provide the needed framework for aligning physician and hospital leadership, goals and incentives.

As Dr. Sheff observes, "The very process of building a structure charged with optimizing the interests of both parties — that process in itself is very effective at creating a foundation for a true partnership that helps hospitals, systems and physicians succeed both today and in the challenging times ahead.

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