Using Co-Management to Turbocharge your Service Line

Thursday, December 1, 2016 | Larry Sobal

In Part 1 and Part 2 of recent blog posts I explored how to solve the clinical service line puzzle. Among the various comments and questions I received afterward were ones about the role of Clinical Co-Management Agreements in service lines. Let’s dive into that topic.

Although a co-management arrangement is not a required component of a service line, most mature, high-performing service lines have some aspect of a co-management agreement in place. To understand why that might be, let’s first define what a co-management agreement is.

Generally, clinical co-management agreements are contracts written to align and compensate physicians for the management of a hospital department or service line. The contract commonly incorporates both fixed and incentive compensation, which is typically reviewed and possibly adjusted annually.

Fixed compensation, sometimes called the “base fee” is usually linked to physicians (or in some cases other clinical staff or physician practice leaders) serving in defined leadership roles focused on service line development, management and oversight. Variable incentive compensation, sometimes called the “bonus fee” is usually based on mutually agreed-upon objective goals for achieving specified operational process improvements, attaining certain quality indicators, satisfaction measures, and/or aspects of clinical program development. A service line arrangement would typically include both fixed and variable compensation elements, but unique co-management arrangements of a single department, such as the cath lab, might only incorporate a base fee.

It’s important to note that any incentives built into a co-management agreement must be structured in a way that doesn’t reward physicians for increased volumes (a violation of the anti-kickback statute). The contract length is generally between one to five years, though parties could agree to extensions in a manner outlined in the agreement.

Clinical co-management agreements tend to fall in the middle of the hospital-physician alignment spectrum. On one end (more casual alignment) is an affiliation arrangement that calls for cooperation between the hospital and physician for some mutual benefit, and virtually all control is maintained by both parties. At the other end is a full acquisition and employment physician or group practice, and all control is surrendered to the acquiring facility. In between these two are clinical co-management agreements, clinical affiliations, lease transactions, and partnerships with legal and financial commitments required of all participants. 

Most mature, high-performing service lines have some aspect of a co-management agreement in place.

One misnomer is that a co-management arrangement is not necessary when the physicians in the service line are in an employed relationship with the hospital or health system. On the contrary, this is where the principles of a co-management relationship can serve as a turbocharger for the overall service line success due to the ability to incorporate incentives into employed compensation plans.

The reason co-management can be such a critical part of a service line is its ability to create alignment. As many organizations have found out, successful alignment with physicians can be a tricky and fickle thing to achieve. How often have I spoken to health system leaders who can’t understand why their employed cardiologists (or other subspecialty) are employed but don’t seem to exhibit any behaviors of alignment?  Likewise, a co-management agreement itself does not guarantee alignment. Many physicians (both independent and employed) who have a formal co-management agreement in place will, off the record of course, speak to their frustration and lack of alignment with their hospital or health system partner. 

While it’s been my experience that trust and relationships are the foundation upon which strong alignments are built, a well-designed co-management arrangement is often the best vehicle for physicians and hospital partners to begin learning to work together and develop a trusting and productive relationship.

The reason co-management can be so successful is that it gets all the right stakeholders to the table to focus on the following types of activities:

• Clinical improvements
• Work flow process improvements
• Physician and patient scheduling optimizations
• Nurse and non-physician clinician oversight
• Patient case management activities
• Product standardization
• Episodic cost reduction

However, having a mutual desire and a co-management agreement to work on these types of opportunities only gets you part of the way there. In order for the co-management agreement to be successful, three other attributes are vitally important. The first is that the co-management must start with an atmosphere of complete transparency. In the past, physicians may have been suspicious about information not being shared. That culture has to transition from one of limited sharing to openness for an agreement to be successful. After all, you are now “co-managing” together.

Second, the hospital needs to have the ability to deliver on the agreed upon changes to processes or provide resources that have been identified by the co-management entity. Co-management agreements take a lot of attention and work. Expectations and timelines need to be set realistically or there is a risk of frustrating and alienating the physicians. Most importantly, leadership and staff have to be aligned and empowered to focus on and implement the recommended changes to achieve the improved outcomes.

The co-management agreement will require the managers and staff to work in close collaboration with physicians while implementing changes, and any deviations to the change need to be discussed with their new co-management team. In this way, physicians feel like they're taking a more active role in changing the way care is delivered. If there is one area where I see service line co-management agreements struggling, it’s from a lack of resources and delegated authority for someone to lead and accomplish the agreed-upon improvements. That’s almost a guarantee of misalignment and loss of trust.

Third, the incentives and metrics used in the co-management agreement need to be well thought out and designed. Too often, not enough time is spent on this and the co-management struggles with incentives that can’t easily and objectively be measured and controlled, and don’t truly focus on the desired improvements.

I’d like to know about your experience. If you have a co-management agreement in place today, comment back on how it is working.

 

Illustration: Lee Sauer

---

 

Larry Sobal is Executive Vice President of Business Development at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and insurance. Larry consults, writes and presents on topics relevant to transforming physician practices and health systems.

 

---