Ideally, a group of surgeons who want to consider entering a co-management agreement would all work at the same hospital and include surgeons who produce higher revenue levels.
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Published 3/1/2013
Nicholas Colyvas, MD

Establishing a Service Line Co-management Agreement

Steps to increase physician alignment and integration with hospitals

Most orthopaedic surgeons are aware of the rapidly growing trend of physicians seeking hospital employment. But many orthopaedic surgeons currently in private practice may want to increase their alignment and integration with hospitals and medical groups, without becoming hospital-employed physicians.

Co-management agreements enable orthopaedic surgeons to achieve this goal. These agreements are helping to bridge the gap between the traditional medical staff orthopaedic surgeon model and the employed hospital physician model. The trend toward co-management agreements is driven, in part, by national healthcare policy that actively promotes more value-based healthcare delivery models that provide improved outcomes at lower cost. To achieve these goals, physicians’ active participation in the direct management of their service line is required.

Co-management agreements allow for a high degree of surgeon involvement in the management of the service line, without requiring the surgeon to be an employed provider. However, many orthopaedic surgeons who may be considering a co-management agreement with their hospitals are unfamiliar with the process. They would like a template or guide that outlines the steps needed to implement these arrangements.

The co-management process can be separated into three broad phases. Phase 1 covers the time from the initial concept to the signing of the contract. Phase 2 is typically the initial year of operation when the parties adjust to working together and co-managing the service line. Phase 3 covers the period beyond the first year when the co-managed programs develop and mature.

This article will focus on Phase I (often the most difficult), and the physician side of co-management formation with the understanding that the hospital or medical group will have its own process. Typically these steps are guided by consultants familiar with co-management agreements who work with both the hospital group and the ­surgeons.

Before initiating formal co-management proceedings, both parties must be willing to work together as a unit to achieve the quality and efficiency goals. Hospitals and surgeons eager to further enhance their good working relationships will find the formation of these arrangements relatively easy. When significant animosity between the hospital and surgeons exists, however, the ability to reach common ground often depends on views of each other’s real and perceived position in their local healthcare landscape.

Steps required
Once both parties have agreed to move forward with a co-management agreement they typically engage consultants familiar with the complexities of the process and initiate the following steps:

  • Step 1: The first step is the coming together of a group of orthopaedic surgeons wishing to consider entering into a co-management agreement. Typically these will be surgeons who work at the same hospital at some level, and ideally the surgeons who produce higher revenue levels at the hospital would all be included. The surgeons do not all need to be in the same practice group, but do need to have the ability to work together and appreciate the value of each other’s contribution. A steering committee of those interested in leading the group then works on recruiting the group participants and gauging their interest level and commitment.
  • Step 2: Once the steering committee feels the hospital and the physician group are sufficiently committed to the idea, the surgeons form a corporate entity, typically a limited liability company (LLC). The core business of the LLC is consulting and management services and it will contract with the hospital to provide it these services. The steering committee members usually form the board members for the LLC. A reputable legal firm with a solid background and experience in healthcare law should be retained to create the required paperwork for the LLC, and is used for the subsequent negotiations with the hospital. The start-up costs typically range from $2,000 to $4,000 per ­surgeon.
  • Step 3: While the surgeons are coming together, the hospital starts to outline the work plan that will govern the scope of projects and work to be undertaken by the co-management physicians. The work plan also outlines the expected hours required or expected for each task and the overall contract. This is then submitted to the LLC for changes and eventual approval.
  • Step 4: An independent third party, usually a fair market value (FMV) firm, evaluates the qualifications of the LLC members and the nature of the work and recommends a range of hourly rates for physicians based on fair market value. The hospital then offers an hourly rate within that range. The total value of the contract (to be paid to the surgeons) is the hourly rate offered, multiplied by the total hours required by the work plan. Final agreement between the parties on the total value of the contract may be achieved by negotiation of either the hourly rate or the hours required, or a combination.
  • Step 5: A comprehensive contract outlining the terms by which the hospital and the LLC will work together and co-manage the defined service line is put together by the hospital and submitted to the LLC. This includes the components outlined above as well as board structure, meeting requirements, corporate governance, nondisclosure and non-compete clauses, compensation and bonus structure, member qualifications, etc. With their legal counsel and consultants, the LLC and hospital negotiate and agree on all terms of the agreement. A key issue for negotiation is decision-making authority. Once both parties agree on the terms, the contract is signed and the service line co-management process formally begins.

Phase 2 and beyond
Phase 2 of the process involves prioritizing projects and setting up committees to tackle each one. Regular—usually once a month—committee meetings are held to determine initial set-up and follow-up work projects. Executive board meetings focus on overall strategy for the service line. Quality and other parameters are monitored and presented regularly at the meetings to ensure continued progress. Surgeons track the number of hours they spend attending these meetings and working on service line management projects and submit the hours to the hospital.

Gradually a working relationship between the surgeons and the hospital develops, which is reinforced when shared goals (eg, reduction of OR turnover time) are achieved. Ideally, by Phase 3, both parties are able to take on larger, more complex, and more contentious projects (eg, standardization of implants used in total joints) with confidence. In this manner certain co-management arrangements have evolved into essentially management contracts whereby the physicians take on the entire management responsibility of the service line at the hospital.

Service line co-management agreements can be valuable adjuncts to the practice of orthopaedic surgery, yet not every practice or hospital will see eye-to-eye on what constitutes an ideal service line co-management arrangement. However, when both parties’ interests in improved quality, outcomes, and efficiency align appropriately, service line co-management agreements can be an excellent vehicle to achieve these goals.

Although service line co-management agreements can be somewhat complex to set up, a stepwise approach will result in a signed contract and significant benefits to both parties—and ultimately to patients. The growing popularity of these agreements is a function of the desire of both hospitals and orthopaedic surgeons to join forces to try and meet the challenges of the upcoming changes in the healthcare landscape.

Nicholas Colyvas, MD, is assistant clinical professor of orthopaedic surgery, UCSF, and chief medical officer of Healthcare Strategy and Research Consultants Inc.