Co-Management Models Can Be Profitable for Physicians

May 5, 2013

The growing movement from volume purchasing to value arrangements has made co-management more attractive. Is it right for you though?

A growing number of hospitals are turning to co-management arrangements to better align themselves with physicians in key specialty areas. While the concept has been around for years, the growing movement away from volume purchasing and toward value arrangement have made this even more attractive.

Co-management really has its roots in gain-sharing relationships under which hospitals proposed to provide financial incentives to physicians to reduce the costs associated with either specific procedures or service lines. The government took a dim view of these models and considered them a form of kickback until 2005 when the Office of Inspector General (OIG) began to approve arrangements that had a clear clinical quality component and were based on objective goals that were monitored, often by an outside organization. Recently, Medicare has actually created a gainshare model that allows hospitals and physicians to share in cost reductions tied to specific bundles of care. How times have changed.

Under the basic co-management model, the hospital contracts with an entity owned jointly or fully by physicians to provide clinical and administrative services around certain procedures or across clinical departments. Most focus on high-cost areas such as cardiac care, orthopedics, oncology, and neuroscience with the reason being the magnitude of potential savings.

Co-Management: Good for the Hospital

As reimbursement moves toward rates that include a package of services, similar to Medicare’s DRGs, hospitals want to lower costs and control outcomes. When physicians standardize care, avoid complications and readmissions, and move the patient more efficiently through the care system, the hospital saves money and does better under bundled payments.

Co-Management: Good for the Physician

Co-management works for both employed and community physicians and isn’t as aggressive as managing entire populations of patients. Physicians are typically paid for the time they spend in redesigning the care process, establishing the quality measures that will be required, and for overseeing the care process. They would also share in any savings that result from their efforts. This incentive payment can more than make up for any reduction in fee-for-service income that might be a result of improved care efficiency.

Getting Started

Identify opportunities -Typically, hospitals will identify service lines that could benefit from a co-management arrangement by comparing their reported costs (hospitals submit an annual cost report to Medicare that aggregates costs on a service basis) to the reports submitted by competing hospitals. Being the low-cost provider in a market will have real value in the future.

Create structure - Physicians need a legal entity to contract with the hospital and which will distribute payments to the owning physicians. It is important that membership eligibility is defined, the scope of the clinical focus be determined, the clinical standards that will be tracked are identified, and a means established to monitor physician performance under the guidelines that are established.

Define the compensation model - The agreement between the co-management entity and the hospital should define the amount physicians will receive for their time spent in program development and monitoring and how future savings will be split. Payments are typically based on the attainment of clear, objective quality targets and patient satisfaction scores.

Approach payers - Once the care management system is in place, discussions with major market payers should focus on incentives for improving care, increasing member satisfaction, and overall cost reductions.

Take the Initiative

Physicians should be proactive when it comes to value-based initiatives, such as co-management. Hospitals recognize the leadership role that physicians must play in redesigning the care process but they will likely create a model institutionally advantageous unless an informed group of physicians are prepared to lead the discussions.

As more of the market moves from volume to value the experience specialists gain in the co-management process can make them an attractive partner for provider networks looking to manage population health. This is an opportunity to get paid to learn about what might make you even more successful in the future.