Hospitals and health systems are using co-management arrangements with great frequency to align with physicians and achieve operational efficiency and improved patient outcomes. These arrangements will increase in prevalence and perhaps expand in scope as Medicare’s Hospital Readmission Reduction Program increases payment penalties to 3% and expands to include knee/hip replacements and COPD in 2015.
Our research concludes that many commercial payors have followed Medicare’s lead in implementing quality measures in contracts and administering penalties when quality has not been demonstrated. Co-management is an ideal model to address these challenges.
In implementing these arrangements, hospitals and physicians expend significant resources in the development of the co-management arrangement / company, establishing base and “at-risk” duties, and ensuring the overall structure complies with applicable healthcare regulations. Commonly, the co-management duties are analyzed by a reputable healthcare appraisal firm to establish the Fair Market Value (FMV) compensation paid by the hospital to the co-management company based on the agreed to scope of duties.
Typically the arrangement and duties are renewed every two years and adjustments are made to the subsequent contract to add new performance duties / metrics and re-base those duties where the co-management company has successfully implemented measurable improvement.
Annual Audit & Assessment
However, given the high degree of regulatory risk for these agreements (relative to other compensation arrangements found within healthcare), compliance should not start and end at the development or renewal of the co-management contract. There needs to be a mechanism in place to ensure that the co-management company is providing the level of service stipulated in the contract and consistent with assumptions used in creating the original FMV opinion.
The OIG’s advisory opinion 12-22 indicated a generally favorable review of a physician co-management arrangement for cardiology service line management. However, it is worth noting that the hospital requestor uses an independent review firm to annually review the data related to the components of the performance fees, as well as the group’s performance.
Annual reviews should ideally include data reviews, interviews with management and physicians, meeting minutes, and the original co-management agreements.
Some fundamental tests include:
- Are the duties performed by the hospital’s administrative team and the physicians as originally defined for the co-management company?
- Is there detailed documentation of active participation and the real-time effort(s) of the co-management company (i.e., meeting minutes)?
- How is the incentive compensation being determined / calculated?
- Is there enough independence to critically assess the co-management duty scoring?
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