What Can Be Paid for Co-Management Arrangements?

At a session at the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference, Jen Johnson, CFA, managing director, VMG Health, discussed compensation for co-management services and valuation issues related to these agreements.

Ms. Johnson began by explaining the rationale behind co-management agreements, which is to increase quality. As payors transition to pay-for-performance models, hospitals and other healthcare facilities seek mechanisms to incentivize and reward physicians for improving quality. While there are a variety of mechanisms that can be used to do this, Ms. Johnson focused her presentation around co-management agreements around quality.

Under a co-management agreement, the hospital and physicians typically enter into an agreement where physicians are jointly responsible with the hospital for managing a defined service line. As part of the agreement, physicians are compensated for various services provided and then rewarded for quality improvements.

According to Ms. Johnson, the co-management fee structure is typically determined by a fixed fee plus a variable fee.

The fixed fee is typically determined by an hourly rate required to perform specific duties, such as medical directorship duties, attending meetings, on-call coverage, etc. Here, payment is determined by an hourly rate for a specific duty times the hours spent performing the specific duties.

In terms of valuing each of the defined duties, a valuation firm will examine each duty separately and determine fair market value for that specific component. Here, Ms. Johnson warned that facilities be careful not to consider fair market value the amount the "hospital next door is paying," noting that this amount could actually be above fair market value.

The variable fee includes any incentive payments for meeting quality or other benchmark. Here, incentives should only be triggered if quality benchmarks are either improved or are at a truly high-performing level. In other words, hospitals and ambulatory surgery centers must be careful to not reward stagnant or low quality levels. Doing so could put them at risk for compliance issues.

For the variable fee, incentives should be determined by trigger benchmarks based on reliable data of other organizations' performance. According to Ms. Johnson, patient satisfaction, infection rates, readmission rates and mortality rates are common categories included in the overall determination of quality incentives. For orthopedics, performance on CMS' Surgical Care Improvement Project survey is also commonly used. 

In the end, co-management agreements must be compensated at a fair market level and must also make business sense. Ms. Johnson explained this means that the services being paid, even if they're paid for at a fair market value, must be needed and logical.

More Articles Featuring Jen Johnson:

Orthopedic Surgery Call Coverage Payments: Understanding and Applying Survey Data
Call Coverage Payments: Trends, Regulations, Statistics and Valuation Considerations

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