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Thought Leadership

Top 10 Lessons Learned from “Mature” Co-Management Arrangements


Interest in co-management agreements has increased dramatically over the last two years as hospitals explore various forms of physician integration, including bundled care, valued based payment arrangements, and ACOs. Since much of the first wave of co-management agreements began in the mid-2000's, there are many "mature" co- management arrangements from which to learn. Here are ten lessons learned from those early ventures that paved the way for clinical integration in specific service lines:

1. The improvement in the operations of a co-managed surgical service line, such as orthopedics, had a huge impact on the operations of the OR overall. When the range of on-time starts increased to 80 to 90 percent, and turnover improved, more patients could be accommodated using the same human and capital resources, and both the hospital and physicians benefited financially. The process improvements resulting from co-management spread to other service lines.

2. During the first years of the arrangement, performance standards, targets, tasks, and metrics were often adjusted to match those used by accrediting bodies and CMS. Since most comanagement agreements have three year terms, agreements were amended within months of execution. The language in some agreements made this easy, while in others, it was very cumbersome. It is important to have the flexibility to change tasks, responsibilities, and hours through amendments, rather than waiting for renewal dates.

3. Most organizations commissioned independent opinions on the fair market value of the payments outlined in the agreement. However, since the mid-2000's, scrutiny from the IRS and CMS has increased regarding the commercial reasonableness of the arrangements as well as the compensation paid. Hospitals with co-management agreements (especially those with multiple agreements) have strengthened their compliance to include commercial reasonableness opinions, typically when the contract is renegotiated or extended after the third year. The commercial reasonableness opinion considers the following:

a. Does the arrangement meet a need of the hospital other than for referrals?
b. Is there a community and/or patient need for the services in the agreement?
c. Are the hours reasonable for the services provided?
d. Is the compensation structure reasonable for the services provided?
e. Do the credentials of the individuals in the agreement match the services needed?
f. Are the tasks outlined in the agreement consistent with industry practice?
g. Is another agreement or party covering the same services?
h. Is there a formal oversight of the agreement to confirm that the services are being provided?

Hospitals with multiple co-management agreements ran into complications with items c and g, and most had shortcomings in the documentation of item h.

4. Co-management arrangements are more sustainable when they are focused on service lines where the opportunities for quality improvement and/or cost reduction are the greatest. For this reason, many early entrants started with orthopedics or cardiology yielding improvements in supply costs, length-of-stay, readmissions, and post-acute utilization. These organizations are now poised to pursue bundled payments and other value-based payment models.

5. In the early agreements, the hours covered in the agreement were typically for physician involvement only. Many agreements were amended to add non-physician services, especially in multihospital agreements or those with joint venture managers. Some tasks were delegated to nonphysicians working under the direction of physicians. When this occurred, the parties were required to confirm that the tasks and responsibilities were not already performed by hospital paid employees.

6. Many physicians confused co-management with gain-sharing and were surprised to learn that the hospital savings are not shared with physicians. This was especially annoying for physicians in those hospitals that had significant increases in volume over the time of the agreement. Inadequate attention to (and dollars in) the "incentive" payment portion of the fees deflated physician enthusiasm. It should be noted however there will be opportunities for gain-sharing in bundled payment and some value based payments in the future. All physicians impacted by the co-management agreement should be fully educated on the mechanics and compensation possibilities.

7. Throughout the 2000's, CEOs reported that they spent as much as 50 percent of their time on physician problem resolution. Perhaps that has not improved overall, but CEOs have reported that rather than demanding to see the CEO regarding problems in the OR, surgeons are more likely to work out the issues with the co-management leaders, leaving their interactions with CEOs to more positive and productive topics. This was for a lesson for the C-suite and affirmation that clinical integration can improve problem resolution and communication in some hospitals. The specialty liaison committees and site operations committees, in particular, appeared to address physician problem resolution.

8. The success or failure of co-management arrangements in some hospitals confirmed that the culture of clinical integration starts at the top. If the CEO does not include physicians and nurses in their senior leadership teams, budget preparation, and decision-making processes on a daily basis, then true integration at the service line level did not come naturally. Opportunities for improvements in patient care and quality were therefore missed. Some hospital executives involved with comanagement agreements have increased the exposure of clinicians in all areas of hospital operations and planning efforts.

9. Hospitals with a healthy compliance culture seemed more successful with co-management arrangements. When hospital management was fluent in language that described Stark and IRS excess benefit concerns, there was better acceptance of the constraints on compensation, and the expectations for incentives were more clearly communicated. Hospitals with good compliance were also better at defining roles and responsibilities, which ultimately reduced conflict in their arrangements.

10. As the payers continue to seek greater value, more extensive clinical metrics have been imposed upon healthcare entities, and the pressure to reduce costs is escalating. As a result, most co-management agreements will need to address these higher standards as a part of their deliverables, and accountabilities and responsibilities between the parties must be clearly established. Many co-management agreements are structured to include some or all of the following: leased employees, service line management, supply standardization and control, capital equipment, and medical direction. The physician-led co-management company must assume some or all of these responsibilities in a service line in order to perform to expectations. Hospital executives need to learn to "let go" and share the decision-making while not relinquishing the responsibility for the outcome. This is the most difficult behavior change, along with selecting the right combination of physicians who also can lead their colleagues in practice change.

Co-management appears to be a good first step to greater levels of physician/hospital integration. Utilizing this tactic can build success and trust which are necessary ingredients for all future relationships.

For more information on co-management arrangements, please contact Rebecca Bales or Robert Minkin at 310.320.3990 or rbales@thecamdengroup.com or rminkin@thecamdengroup.com.