As reimbursement is changing to reward for value and quality of care, hospitals and physicians have found themselves being incentivized to become more closely aligned.  A popular method to bring hospitals and physicians together is the Clinical Co-Management approach.  Clinical Co-Management is an arrangement to recognize and compensate medical groups or physicians for their efforts to develop, manage and improve both the quality of care and efficiency of a hospital service line.

Hospital Physician Contract

In the most common co-management arrangement, a group of physicians will create an entity, usually an LLC, to contract with the hospital.  The physician entity agrees to share in the administration of both the clinical and operational management of a specific service line.  As studies have shown, physician-led hospitals and service-lines are often more profitable and have better quality of care results than hospital-led systems.

Hurdles to Success

Compensation Issues – Because of the Stark Law and Anti-Kickback Statute, the structure in which the physicians are compensated for their services is very important.  Physicians must be paid for the fair market value of their services.  Their compensation cannot be tied directly to the bottom-line profit of the service line.  In order to overcome this, part of the compensation is usually tied to specific performance measures for quality of care.

But, that only considers how the compensation is paid to the entity owned by the physicians.  The physicians then have to decide how to allocate the income of the entity amongst themselves.  Should the allocation be tied to clinical hours worked, individual quality statistics, administrative hours worked, evenly?  These questions can all lead to in-fighting amongst the group.  Having a well-written operating agreement and consulting with your CPA on various compensation models is advised.

However, depending on how the relationship is structured, under a co-management arrangement there could be several Stark exceptions available.  It is important to have a knowledgeable health care attorney to help confirm that your arrangement follows the law.  Civil Monetary Penalties can be significant.

Trust and Transparency are Key – In the past, physicians and hospitals did not necessarily have the same incentives and often had adversarial relationships.  As reimbursement is changing, it is hoped that these incentives are being aligned.  However, many physicians have built distrust towards hospital management.

The fact that a hospital is considering a co-management arrangement should start to ease physicians’ concerns.  However, hospital management must create an atmosphere of transparency, communicate the strategic plan and goals, and engage the physicians in the process of change.  Additionally, all of the physicians must buy into the process, participate in management and trust that the hospital will follow through.

How a Co-Management Arrangement Can Work for Your Practice

While there are certainly concerns beyond the monetary aspects of considering a co-management relationship with a hospital, you should seek counsel from your CPA and health care attorney before entering into one of these arrangements.  ORBA can provide you with a better understanding of your compensation and the various models that you could use to allocate that income amongst your partners.

If you have any questions or would like to learn more about clinical co-management arrangements, contact Greg Koelling at [email protected] or call him at 312.670.7444.