Co-Management Agreement

By June 22, 2016Health

A co-management agreement is an increasingly popular integration model under which hospitals and physicians jointly manage a health service. Driven in large part by a shift to payment models that emphasize better clinical outcomes, co-management agreements are thought to incentivize physicians to work with hospitals to improve overall efficiency and quality. Under a co-management agreement, physicians and hospitals contract to have the physicians co-manage an entire hospital service line, such as anesthesia services. As part of this type of management structure, physicians have a financial incentive to meet quality outcomes ; a portion of physician payment is “performance-based” which requires the physician group to meet certain standards to receive full compensation. Because of the growing popularity of this type of practice agreement, it is important for physicians to know more about these co-management agreements.

  1. Co-management agreements reflect the trend toward pay-for-performance (P4P) reimbursement models.

Annually, the United States spends far more on healthcare than any other developed country. As health care costs have risen, lawmakers, healthcare administrators, and healthcare providers have looked at ways of improving our health while lowering the cost of healthcare. One approach is to focus on reimbursement and payment structures for healthcare services. Traditionally, medicine in America has been practiced under a fee-for-service model, under which, physicians are generally reimbursed per service (hospital admission, lab work, diagnostic tests). In recent years, however, this model has been criticized for its potential to incentivize providers to order and produce higher volumes of health care services without any assessment of the effect on cost or outcome. As a result, healthcare providers are increasingly being compensated under a pay-for-performance model, which includes the co-management agreement.

  1. How does a Co-Management Agreement work

Under a typical co-management agreement, a hospital will contract with specialty physicians, such as anesthesiologists, to oversee and manage an entire hospital service line. There are typically two parts to the co-management agreement. There is a “base fee,” which is a fixed payment that is made at regular intervals, that compensates the physician group for the basic day-to-day effort of managing, overseeing, and improving the service line. In addition to the base fee, there is an incentive fee. This fee is not guaranteed, but is only given if the pre-determined quality objectives for that particular service line are met. This is where the performance incentive for the physician group lies. If the physician group meets outcome objectives, they receive the incentive fee in addition to the base fee. In this way, the co-management agreement encourages physicians to meet quality standards and patient outcome markers, rather than encourage a volume-based practice.

An important issue that comes up with this type of P4P payment scheme involves determining how the standards are defined and measured. Quality metrics should be developed cooperatively between the hospital and physician group. This will ensure consideration of both the needs of the patient population as well as the operational needs of the hospital. Performance measures should use objective methodology, be verifiable, and be based on credible medical evidence.

  1. Do physicians benefit under these agreements?

A co-management agreement can be a beneficial change to the practice of specialists such as anesthesiologists. A well-written co-management agreement will clearly outline the rights and responsibilities of both the physicians and the hospital so that all parties are informed, up front, about their role in the integrated model. Anesthesiologists are an integral part of a hospital’s operation. By being part of a well-articulated co-management agreement, anesthesiologists can benefit from having an impact on the operational and strategic effects of the hospital. In many ways, such ventures allow the anesthesiologist to integrate with the hospital and to be a part of improving operations, without requiring the physician to become a hospital employee.

  1. Beware of Legal Pitfalls

A bad co-management agreement can run afoul of federal and state laws that prohibit kickbacks and other types of rewards between hospitals and physicians. One key thing to remember in a co-management agreement is the need for both the base fee and incentive fee to be based on “fair market value.” Moreover, the compensation cannot vary based on the number or volume of patients seen by the physician group or the number of referrals made from the group to the hospital for services. Rather, the goal of the co-management agreement must clearly be to enhance quality. Finally, these agreements are often of limited duration out of necessity. Quality goals and benchmarks continuously change and develop; thus, there needs to be constant revision and of the measures and outcomes. Many organizations refer to the HHS Office of Inspector General’sAdvisory Opinion No. 12-22as a template for developing a legally compliant agreement.

Co-management agreements are likely to continue being used as hospitals look for ways to improve quality of care while reducing costs. And, as physicians look toward changes in the way insurance pays for health care, they are also interested in looking at new ways to improve their practices. Value-based health care cannot succeed without physician involvement because physicians are the leaders in designing and redesigning clinical care.