Clinical Co-Management Models and Compensation

John C. Erickson III

Here are some details on clinical co-management entities, how physicians participate, and related compensation.

A prior article described clinical co-management agreements - arrangements in which hospitals tap physicians to manage hospital service lines. This article discusses co-management entities, how physicians participate, and related fees.

There are several ways physicians are organized to provide clinical co-management services, including:

• Clinical Institutes
• Joint Ventures
• Direct Arrangements with Independent Groups

Clinical institutes are designed to become integral parts of future ACOs. In this model, a hospital forms an “institute” (e.g., Hospital X Gastroenterology Institute) that usually employs some physicians on a full-time basis. The institute also might offer “membership” to physicians in independent practices. Membership criteria attempt to ensure that independent physician members are sufficiently connected to the hospital to assist to manage on of its service lines.

It is less common for hospitals and physicians to form co-management joint ventures. These JVs are owned by hospitals and independent (or, less frequently, hospital-employed) physicians and exist solely to perform a co-management agreement. Some of the physician owners provide medical director services for the hospital. All physician owners and the hospital assist the JV to perform the broader co-management services. JVs distribute earnings to the physicians and hospital based on their relative ownership.

A third type of arrangement is a direct agreement between a hospital and an independent group. This allows a hospital to associate with, and benefit from the management skills of, an independent group without incurring the costs or mutual risks of employment. If a hospital engages more than one independent group to manage a single service line, then the groups often form a joint venture to organize their resources.

Fees for co-management services are evolving.

Co-management services used to be generally administrative in nature. As a result, the fees were usually determined on a dollars-per-hour basis for those oversight services.

Today’s co-management arrangements seek to elevate service line quality and efficiency by taking full advantage of physicians’ unique skills and position in the hospital environment. Physician buy-in and direct leadership combine to drive beneficial changes that hospitals cannot effect without them. As a result, modern service line management agreements typically involve two distinct types of services.

First, there are the medical directorship services that are necessary to run any quality service line. A hospital typically pays the co-manager a per-hour fee for these services.

Second, the agreements often state a set of specific measurable annual quality and efficiency objectives (e.g., reduce the re-admission rate for X procedure by Y percent). The manager earns a fee/bonus for each objective it achieves. The fee for each objective is “at risk” because the manager receives nothing if it is not achieved (or a lesser amount for partial success). Properly structured, this type of arrangement can align hospital-physician incentives to achieve the “Holy Grail” of improving patient outcomes with greater efficiency/lower cost.

Co-management arrangements will continue to gain momentum if they achieve the lofty goals that currently seem reachable (and as long ACOs remain on the horizon).

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