5 Steps to Develop a Co-Management Arrangement for a Hospital Service Line

Practice Management

A co-management arrangement of a hospital service line gives dual responsibility to hospital employees and group physicians for the financial, operational and quality outcomes of a particular service line. According to Bob Gift, a director at IMA Consulting in Chadds Ford, Pa., hospitals and physician groups pursue co-management arrangements for multiple reasons, including:

• Greater hospital-physician alignment
• Improved quality and operational efficiency
• Program development and expansion
• Involvement of physicians in cost management and resource utilization

According to Mr. Gift, a rift has developed in recent years between hospitals and physician groups, where "more and more services move out of the hospital into the physician offices … and the payment system creates an inherent competition between [the two groups]." Co-management of a service line directly involves physicians in hospital goals, such as cost-cutting and supply management, while also compensating physicians for their participation and allowing them a greater control over the practice.

Here Mr. Gift offers four steps to build a successful hospital service line:

1. Appoint a service line leader. For a co-managed service line to fulfill the needs of the hospital and the physician group, Mr. Gift says a strong leader is essential. He says while the leader can come from either the hospital or the physician group, generally the leader is a hospital employee with a clinical background. In his experience, the best service line leaders have been those with an intimate knowledge of both the physician experience and the particular service line. "In my most recent experience, there were five major service lines in the hospital, and all five of those service line leaders, or executive directors, were clinicians," he says. "The cardiac service line executive director was a nurse by training who also had an MBA but came up through the ICU, understood cardiac care very well and had run the cath lab. She knew everything there was to know about running a service line."

Appointing a hospital employee with a clinical background will give the hospital some control without sacrificing physician representation. Clinicians "tend to speak the same language," Mr. Gift says, meaning a leader with a clinical background will likely please the physician group.

2. Decide the goals of the co-management arrangement.
The goals of a co-management arrangement can run the gamut depending on the hospital, says Mr. Gift, so one of the first steps is to decide what the co-management arrangement should accomplish. Some hospitals may be looking to give physicians a hefty amount of power over the service line, while others may be just looking for more physician input over service line decisions. The co-management committee should determine the physician's role in the development of strategic and tactical plans, budgeting, program development and other goals the service line might pursue.

3. Determine requirements for participation. According to Mr. Gift, co-management arrangements can decide participation based on various factors. For example, the hospital might put out an invitation for every physician to participate, but make it clear that the hospital expects a meeting attendance rate of 80 percent. The hospital might also limit participation to physicians who are active members of the medical staff rather than consulting members. Determining requirements for participation depends on what the hospital is trying to achieve, he says. "If [the hospital is] trying to get a broader base of physicians in the service line, it can open up participation to a broader group," he says.

Requirements for participation ensure that those physicians participating in service line management — and being compensated for that participation — are those who actively want to develop the service line and improve quality of care. Mr. Gift says hospitals should involve physician partners in designing the criteria for participation, as they will most likely know which requirements are reasonable.

4. Decide how physicians will be compensated. Physicians involved in a co-management arrangement can be compensated in various ways, but generally the hospital divides compensation into a fixed payment and an incentive payment. If that's the case, the hospital will first determine the fixed payment and then decide how the incentive payment will be measured. If the service line meets goals drawn up at the beginning of each fiscal year, "there's a pot of money that's out there for incentive compensation," Mr. Gift says.

He says physicians may receive incentive compensation based on their level of participation on the committee. "Let's say, hypothetically, there are 24 meetings I could participate in as part of this group, but I only go to six of them. Then I might get paid based on some calculation of an hourly rate for the six I attended, but I would only be eligible for 25 percent of the incentive compensation," he says. "So if we achieved all our targets but I only participated in 25 percent of the meetings, I would only get 25 percent of the [incentive money]."

Mr. Gift warns hospitals against compensating physicians based on building volume or increasing referrals, which is considered illegal. "You have to be careful about setting program development objectives," he says. "It's about developing the program, not meeting volume milestones, because then you're paying physicians for admissions, and that's against the law." He says incentive-based compensation should be based on the implementation of a new service, rather than increasing admissions by 10 percent, for example.

5. Set goals for each fiscal year. In order to compensate physicians for improving the service line over time, the committee needs to set goals for improvement each fiscal year. Hospital employees and physicians should work together to decide operational, quality and development goals for the service line. Operational and quality goals might involve decreasing OR turnover time, wait time or treatment time, as well as improving patient and staff satisfaction. Development goals, on the other hand, might include expanding a vascular service for a cardiovascular service line, developing and delivering community education programs or providing mammography outreach to areas with limited services.

Once the committee has decided on a set of goals for the fiscal year, committee members can be divided into sub-committees to pursue those goals, and their progress can be tracked for review on a monthly basis.

Learn more about IMA Consulting.

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