How to seal a co-management deal with a hospital

A column about keeping your practice in good health

By Victoria Stagg Elliottis a longtime staff member. She covered practice management issues and wrote the "Practice Management" column from 2009 to 2013. She also covered public health and science from 2000 to 2009. Posted Jan. 24, 2011.

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Cardiovascular surgeons in Grand Blanc, Mich., were looking for closer alignment with Genesys Regional Medical Center. The health system wanted the same, but no practice was bought or sold and no independent doctor became an employee.

Rather, the surgeons -- along with some cardiologists and hospitalists, both independent and employed -- formed a clinical co-management company.

Clinical co-management agreements vary widely but generally involve physicians, not necessarily from the same practice and possibly with some employed by the hospital, forming a limited liability company. The entity, which sometimes will have a small staff, may be owned by the physicians or be a joint venture with the hospital.

Physicians usually invest to cover the start-up costs, and the hospital contracts with the entity for specific services, such as the management of orthopedic surgery or the day-to-day operations of an outpatient clinic.

The company then distributes money paid by the hospital for management services to doctors, who still collect their usual fees for providing medical care.

A clinical co-management company is not an accountable care organization, although it may become part of one. Analysts said the arrangement is an alternative for institutions that cannot legally employ physicians -- or are not interested in doing so -- but want more alignment. A clinical co-management agreement is a good option for physicians who do not want to be bought but seek more control over the hospital part of their practices.

"Money is second a lot of the time to having significantly more input in how the hospital side of their practice is run," said lawyer Krist Werling, a partner in the Chicago office of McGuireWoods. "Physicians can implement protocols that benefit their patients."

Experts, however, say such agreements must be set up well to ensure that they meet all the goals involved. A poorly set-up company can run afoul of federal laws related to hospitals illegally paying for referrals.

"This is not something a hospital or physicians would use to increase business or increase volumes," said Robert Cohen, a lawyer and a senior partner with Kutak Rock in Omaha, Neb. "This should be looked at as a way to engage physicians, their expertise and time to improve the quality and operational effectiveness of the hospital."

The early steps for physicians investigating setting up a clinical co-management agreement include recruiting a health care lawyer early in the process and developing goals. These almost always include clinical improvement, but other possibilities include having surgeries start on time, increasing patient satisfaction and improving doctor engagement.

Many experts say the key is not to have too many goals.

"You really want to keep it simple," Werling said. "A co-management agreement that has eight different committees and 50 different goals is very hard to get off the ground. Pick eight to 10 goals, and don't build in too much bureaucracy."

Choosing doctors

The next step is for physicians to think about what kind of doctors should be recruited and their requirements for membership. Physicians usually have to invest something, but what else will be required? Will physicians need to attend a certain number of meetings? Must they be members of the hospital's medical staff? Should the co-management agreement include physicians of only one specialty? Are enough physicians interested to achieve the goals?

"The success of these arrangements hinges on having critical mass of medical staff willing to be involved," said Marc Silver, MD, co-chair of the cardiovascular services department at Genesys and board chair of its cardiovascular co-management company. "You cannot just have a couple of people participating to really see movement on various issues." Silver is directly employed by Genesys, although most members of the clinical co-management company are in small practices. The hospital owns 50% of the entity.

Consultants who set up these arrangement say physicians should next contact the hospital's chief executive or operations officer. Some institutions may have long policy papers about how they should be set up and may be actively recruiting physicians for this purpose. Others may be less prepared, Werling said.

A limited liability company should be established, and a contract delineating the responsibilities of all parties should be worked out. Physicians need to determine with the hospital how compensation will be structured.

About 50% to 80% of payment is usually fixed, with the remainder linked to a set of goals, but hospitals can pay only fair market value for services. This should be determined by a third-party evaluator, attorneys said.

Physicians should decide how the compensation will be divided among participants. At this point, physicians need to decide if the amount of money possible is worth the time needed to run the enterprise. Experts caution that financial benefits can be indirect as well as direct. Quality of life also may be affected.

"Improving on-time starts in the operating room means that doctors are not sitting in the doctors' lounge twiddling their thumbs," said C.B. Rebsamen, MD, senior vice president for Navvis & Co. in St. Louis. "Maybe a surgeon can do four cases a day instead of three. Or maybe they can get done earlier and go home."

Contracts generally last for one to three years. Experts say a clinical co-management agreement sometimes is a step to hospital employment.

Though early efforts at clinical co-management companies focused on surgical specialties, primary care is now getting involved. At Genesys, the hospital executives are working to set up a co-management company that focuses on pediatrics.

Victoria Stagg Elliott is a longtime staff member. She covered practice management issues and wrote the "Practice Management" column from 2009 to 2013. She also covered public health and science from 2000 to 2009.

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