Commentary: Clinical co-management is option for hospital-physician alignment

As described previously, market forces, healthcare reform and, more importantly, decreasing reimbursement for physician practices are forcing cardiology groups to evaluate long-term practice revenue. The clinical co-management model has become a popular method for cardiology group practices to begin exploring what a hospital affiliation might look like.

While some practices continue to make good margins, the recent announcement of decreased reimbursement for key cardiology ancillary services, such as myocardial perfusion imaging and transthoracic echo, could have a significant impact on the current independent physician practice model.

There are a number of options to offset lost revenue that include: downsizing staff, becoming more lean by reducing waste, negotiating better managed care contracts, increasing volume and scope of services, and aligning with a hospital system.

Looking for options
Many cardiology practices have experienced these market realities and begun looking for ways to closely align with a hospital. The most notable alignment structure in cardiology today is employment, which tends to be the least favorable option due to the independent entrepreneurial pride each physician possesses. There are other forms of hospital alignment that allow the physician to remain independent but yet be more closely aligned with a hospital system.

The clinical co-management model has become a popular method for cardiology group practices to begin exploring what a hospital affiliation might look like. This has become the model of choice for many of the cardiac cath joint venture agreements that had to be restructured due to the Stark changes put into effect Oct. 1, 2009.

Essentially, clinical co-management alignment pays an entity (typically a physician group and/or a physician group and the hospital), fair market value (FMV) compensation for operational and clinical management activities. The “co” component in this type of agreement is optional.

These types of agreements can be as simple as glorified medical directorship agreements to as complex as giving entire profit and loss responsibility of the cardiology service line, which can also be defined many different ways. The managing entity also may be able to provide staff, equipment or supplies to the hospital. Note that legal issues prevent the managing entity from providing all of these services, but it could provide two of the three.

Keys to success
The keys to success in these types of agreements include understanding what the physician group is interested in managing (real work) and also what the hospital is willing to allow the physician group to manage. Keep in mind that governance and control issues will still generally need hospital approvals.

These agreements can enhance physician satisfaction by allowing them to participate in the operational and strategic efforts of the hospital. At the same time, the hospital can gain from possible cost reductions and secure a key physician group in one of the most important service lines of the hospital.

If this type of agreement seems complex, you are indeed correct. There are many issues and details both hospital and physicians need to identify in an effort to make this alignment strategy successful. The complexity sometimes drives physicians to become employed by hospitals.

Here is a “quick” overview of a clinical co-management agreement:

General Overview

• An alignment tactic that provides FMV compensation for operational and clinical management activities, along with financial performance incentives based on pre-determined outcomes.
• Physicians and potentially the hospital form a management entity (LLC) to provide specific management services for the service line.
• The LLC is motivated to drive organizational outcomes based on performance.

Compensation

• Compensation is typically split 50/50 between fixed and performance-based –objectives* and must be commercially reasonable based on defined work effort at FMV.
• The contract will specify a base management fee which is linked to the amount of effort necessary to provide the required duties.
• Bonus compensation is tied to achievement of pre-established performance metrics that bring value the organization.

*Fixed Duties and Performance Objectives Examples

• Defined quality metrics (e.g., door-to-balloon time);
• Comprehensive service line goals (growth, services, recruitment);
• Take into account current responsibilities (medical directorships, etc);
• Can emphasize quality outcomes rather than hours worked;
• Need to show improvement from baseline.

Mr. Yanci is a senior manager with Charis Healthcare in Hudson, Ohio, with expertise in physician/hospital alignment strategies. He can be reached at jim.yanci@charishealthcare.com.