In the New Value Economic Model, Co-Management is a Must - Part 2

Tuesday, December 15, 2015 | Joel Sauer

Co-Management Models

The models employed to implement co-management are extremely varied, but largely fall into two main categories:  1) direct contracting and 2) joint ventures or legal partnerships. In either case the structures can range from very simple to quite complex.

Direct contracting would include the traditional medical directorship discussed earlier. An agreement specifying roles and responsibilities, along with compensation, is executed between two parties. These contracts can be with an individual physician or with a group,

depending on scope. In an employment model, co-management is often baked into the employment agreement, but can also be found as a separate contract.   

By the way of example, a hospital could direct contract with a group of cardiologists to co-manage its catheterization labs (Figure 3). The scope of this agreement might include day-to-day management of the labs, including staffing, purchasing, clinical outcomes and financial performance. An agreement would succinctly detail the roles and responsibilities of these duties. As noted above, compensation for these services would come from time and incentives. The time piece might be derived from an FTE calculation on the management services needed, or might come from simple time sheets. On the incentive side, pre-defined improvement measures would be identified and valued as part of the overall program. Examples of incentives include areas such as cost per case, on time case starts, purchasing opportunities, etc.

A more complex joint venture model might bring multiple groups together to manage a hospital's entire cardiovascular service line (Figure 4), including providing professional clinical services to the hospital through a Professional Services Agreement (PSA). In this illustration the separate groups (could be multiple cardiology practices, cardiology and surgery, etc.) create a new company (New Physician Company) and contract with the Hospital through this entity for both management and professional services (MSA & PSA respectively). In some models the hospital may also be an owner in the new company. Regardless, both the PSA and MSA would clearly define roles and responsibilities and the compensation structures with the time (administrative) and incentive buckets.

Incentive Compensation

Irrespective of the co-management model, incentive compensation provides the accountability that was often missing in traditional medical directorships. Physicians will be rewarded for making organizational improvements that increase overall value. If these improvements don't happen, physicians are compensated less.

When looking for incentive opportunities it is wise to follow the SMART Principle; find goals that are Specific, Measurable, Achievable, Realistic and Timely. Given today’s tight financial environment it is also wise to include opportunities that provide a financial payback to the organization. This helps ensure continuity of the co-management program over time. Incentives must focus on improvements, not payments for retaining the status quo. Areas of focus for incentive opportunities are found in Table 1.

Choosing appropriate and relevant incentive opportunities can take a significant amount of time, particularly given the “measurable” axiom mentioned above. Today’s information systems were built around volume indices and are often oriented at an organizational or departmental level, not drilled into the individual detail we often need. Often we are left with “good enough” for certain data in the development of these incentives. However, a critical element of the co-management model is to both leverage and use data for all decisions.

Given the above, it can be valuable to provide for some flexibility in the performance achievement thresholds that need to be defined for each metric. For instance, a first tier goal may be set above current baseline performance, but at a level that is “expected” for achievement. Whereas a second level, Tier 2 in the illustration, would be for a “stretch” performance. In this way the incentive performance payment is not binary, but provides for a spectrum of achievement.

According to MedAxiom’s 2015 Provider Compensation & Production Survey, the median level of compensation available for hospital incentives (including co-management) was $30,000 per cardiovascular physician FTE in 2014. Of that available compensation, the median group earned just 80 percent. These data suggest that the value around these programs is significant, but also that the incentive metrics require real effort. However, still less than half of cardiology groups are in formal co-management arrangements indicating the newness of the model and pointing to growth in the future.

Conclusion

Value reimbursement is no longer an “if.” It is a “when” and the when is now. Although there will certainly be more evolution and change with the roll out of both the Merit-Based Incentive Payment System (MIPS) and the Alternative Payment Models (APMs) within Medicare’s migration to value, we can be sure of one thing:  physicians will need to play a major role in leading health care to achieve success.

Co-management creates the framework to engage and empower physicians, create accountability, align economics, and leverage the expertise of both administrators and physicians through powerful dyad leadership. Building an effective co-management infrastructure takes time and building trust—an often lacking but absolutely critical component for achieving success—takes even longer. Further, vetting and fixing key data also takes time and significant effort. Given the short timeframe with regard to the value-based reimbursement transition, organizations are wise to get started on this path now.

In many ways the co-management model chosen—whether a simple direct contract or a complex joint venture arrangement—is less important than bringing physicians and administrators together to achieve common goals. Likewise, this learning “how” trumps the specific “what,” particularly in the short run: once learned, the co-management machine can be turned to any specific objective. Regardless of the eventual reimbursement model chosen by third party payors, having this type of effective infrastructure in place will be essential for value-based success.

 

Joel Sauer is Vice President, Consulting at MedAxiom Consulting. He works with organizations across the country in the area of physician/hospital partnerships. His work includes full-service line development, co-management arrangements, and integration transactions. Click here to learn more about Joel or send him an email.

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