How Payments Work in Co-Management Arrangements

January 11, 2015

Here's a primer on how co-management agreements work in healthcare, a pay-for-performance tool picking up steam among physicians.

Co-management arrangements have been all the rage since the OIG issued a favorable Advisory Opinion 12-22 in which a hospital proposed to pay a cardiology group compensation that included a performance bonus based on implementing certain patient service, quality, and cost savings measures associated with procedures performed at the hospital's cardiac catheterization laboratories. Historically, treatment generates two separate billing categories: professional fees and/or the technical component earned by the facility or other provider. Co-management arrangements are essentially management or medical director arrangements, with an added pay for performance (P4P) incentive paid to the physician based upon some quality measure or metric.

Co-management models can be joint ventures between doctors and entities, such as hospitals or ambulatory surgical centers, or as an alternative to joint ventures, simple contracts can be employed.

The intent of co-management arrangements is to appropriately reward participants for improving the quality and efficiency of a particular hospital service line, rather than fee-for-service. The arrangement may include one or more physicians, medical groups, or faculty practice plans, or a joint-venture entity owned entirely or in part by participating physicians or medical groups. 

There are two types of payment in co-management arrangements: a base fee, including compensation for service line development, management and oversight; and a bonus fee, paid when predetermined metrics are met. Under a co-management model, physician compensation is often higher than what it would be under a medical director agreement. In Advisory Opinion 12-22, the OIG approved of co-management arrangements, if certain safeguards are followed.

According to an article by The Camden Group, "Top 10 Lessons Learned from "Mature" Co-Management Arrangements," the OIG may have it right this time according to the article, which states: "The improvement in the operations of a co-managed surgical service line, such as orthopedics, had a huge impact on the operations of the [operating rooms'] overall." When one of the metrics employed involved "start times," the range of on-time starts "increased to 80 to 90 percent." Turnover improved, and more patients could be accommodated using the same human and capital resources. Both the hospital and physicians benefited financially.

As to the types of compensation physicians can earn, Jen Johnson of VMG Health has produced an excellent presentation, "What Can Be Paid in a Co-Management Arrangement? Should You Enter Into a Co-Management Arrangement?"

As always, it is best to consult with a health lawyer for advice before entering into any of the more sophisticated P4P arrangements.