Hospital-Physician Relationships: Clinical Co-Management Agreements

Blog posted by Shannon Lorbiecki

While there has been a dramatic increase in the proportion of physicians in hospital employment over the past several years, other partnership models are becoming popular. One of them is the co-management arrangement.

Defining a co-management agreement

In a typical co-management agreement a hospital or health system enters into an agreement with a new company (e.g. “Newco”) to provide management services to a hospital. Newco may be a joint venture between the hospital and physicians or can be a physician organization. In some cases the new joint venture also includes a management company.

The goals of the co-management agreement may be to enhance the service line, create new service line opportunities, improve operations, coalesce the physician members, and most importantly, align the goals of the physicians and the hospital around delivering high quality, efficient, and effective health care.

A co-management agreement may include either a base management fee or an incentive payment (or in many cases, both). The incentive component may be similar (in approach and legal requirements) to pay-for-performance programs that are focused on improving quality and reducing costs by rewarding efficiency.

Popularity and myths

We are seeing these arrangements in hospital or health system service lines and ambulatory surgery centers. They can also be used effectively in outpatient imaging centers, radiation therapy, infusion centers, dialysis units, laboratories, and chemical dependency centers.

I was talking with an administrator recently who suggested that a clinical co-management agreement was just a way to put money in physician’s pockets without an expectation of service. If that were the case, the arrangement would certainly not meet legal tests including the anti-kickback laws prohibiting payments which would induce Medicare or Medicaid referrals and would not achieve its goals.

In fact, I believe co-management agreements can be a very good option for hospitals and physicians who desire a greater degree of economic alignment but who do not or cannot move to a more integrated model.

The Joint Commission has a set of principles around the development of pay-for-performance programs. The commission suggests that programs should be designed to align reimbursement with high quality safe care and be based upon metrics that are evidence-based, risk-adjusted, and reliable. These are wise guidelines for any hospital physician relationship as the relationship should always be based upon a shared vision in addition to creating economic alignment.