Nicholas V. Colyvas, MD

AAOS Now

Published 8/1/2014

The Value of Physician Comanagement Agreements

A roundtable discussion on what comanagement means to orthopaedic surgeons

New payment models and an increased emphasis on aligning hospitals and physicians have fostered growing interest in physician comanagement agreements. Under these agreements, which are usually between a hospital and a physician group, the focus is on a specific service line, as well as on improving quality and efficiency.

Recently, two members of the AAOS Practice Management Committee—Nicholas V. Colyvas, MD, assistant clinical professor in the department of orthopaedic surgery, University of California, San Francisco, and Thomas F. Murray Jr, MD, of the OA Centers for Orthopaedics, Portland, Maine—spoke with Craig R. Mahoney, MD, of Iowa Ortho in Des Moines, Iowa, and Robert Ritz, president of the Mercy Medical Center in Des Moines, about this trend and what it means for orthopaedic surgeons.

Dr. Colyvas: My first question is where do comanagement agreements fit in the growing trend of physician integration with and physician employment by hospital groups?

Dr. Murray: I think that physician comanagement agreements have been a middle road for many practices, enabling them to pursue an aligned relationship with a hospital without pursuing a full employment arrangement. They are a great way for private practices to align themselves with hospitals, improve their revenue streams, and create very positive outcomes for both entities.

Dr. Mahoney: From a specialist standpoint, a comanagement agreement is actually more efficient than something like an accountable care organization (ACO). Comanagement allows more direct contact between the specialist group and the hospital or health system. The connection between the two supports an efficiency that is favorable to both parties and enables them to move quickly in an ever-changing market. I think the main advantages are the efficiency, the direct connection, and the ability to effect change within the service line more effectively.

Mr. Ritz: From the perspective of the health system, comanagement arrangements are among the options available for redesigning the delivery system and improving performance. They also help prepare for a more integrated network over time and enable physician groups and hospitals to participate in risk-based performance management.

Dr. Colyvas: I’ve noted that comanagement agreements are becoming more popular and being driven by the growing trend for integration between physicians and hospitals. What’s been your experience?

Dr. Mahoney: A couple of years ago, I heard that about 20 percent of hospitals within the Catholic Health Initiative had sophisticated comanagement arrangements that included financial and quality
metrics.

Dr. Murray: Here on the East Coast, we tend to be a bit more conservative in many ways. I think comanagement agreements in large part were initiated by physicians who were looking to work and partner with the hospital strictly on the management of the service line; for instance, orthopaedic surgery as a service line within the hospital.

Today, more folks are talking about managing risk, taking on risk, and developing bundled payment programs. The need and the drive toward more sophisticated comanagement arrangements—such as clinically integrated networks—are now very popular on the physician side of the equation as well as on the medical systems side. Private hospitals and private practices and hospitals that don’t have strict employment-model arrangements with their orthopaedic surgeons need a way to align themselves to be able to execute these kinds of risk contracts.

Mr. Ritz: I would like to offer a different perspective and maybe a forecast. The number of comanagement agreements clearly has increased over the years. And perhaps some of the agreements have intensified in their relationships.

Today the comanagement agreement has a broader scope. To participate in some of the various options—whether the bundled payment arrangement or other models—true clinical integration is needed. Federal guidelines may actually limit the degree of integration between physicians and health systems using comanagement agreements. Over time, the comanagement agreement may not be enough of a relationship to meet the test to participate in payer relationships. It will depend on the objective and vision for alignment and integration.

Dr. Colyvas: I think we have seen some of that here on the West Coast as clinical integration starts to appear as a potential rival to comanagement. But clinical integration is in its infancy and comanagement is a more mature concept.

Dr. Murray: I see comanagement service line agreements as the initial level , with the clinically integrated network approach as the next level for these relationships to accomplish bundled payments or similar risk-taking type contract arrangements.

Dr. Colyvas: Where does comanagement fit in the spectrum of newer payment models?

Dr. Mahoney: I see comanagement agreements enabling a connection between a hospital or a health system and a physician group or a service line or section of a subspecialty. When compared to newer payment models, I think comanagement offers efficiencies that may not otherwise exist. Additionally, the concept of risk sharing can be worked into a comanagement agreement. In my opinion, it is a different variety of a newer payment model, one that hasn’t been publicized as widely as it could be.

Mr. Ritz: Comanagement agreements—both in terms of popularity as well as overall level of effectiveness—may be somewhat dependent on the specialty. In certain specialties, comanagement agreements may not be enough to enable a large group to survive. Certain subspecialists have moved beyond interest in comanagement agreements to full integration.

As for payment arrangements, I think we are seeing—for the first time in our industry—an alignment of goals between physicians and hospitals. Depending on an organization’s philosophy, the value of physicians leading the hospital can be remarkable. The long-term view is to be able to provide care at a higher value and lower cost because we know lower payments are here to stay.

We believe the way to do that is by having physicians provide leadership roles, with nonphysicians removing as much waste as possible. These agreements provide a format to do just that.

Dr. Colyvas: Comanagement agreements create a natural jumping-off point for developing bundled payment arrangements with hospitals, and more recent comanagement arrangements are formed around bundled payment opportunities. How do you see comanagement agreements and bundled payments interacting with each other?

Dr. Mahoney: I think some of the framework that exists in the comanagement arrangements provides a fast-forward when developing bundled payments because you’ve already started to talk about more sophisticated relationships as they relate to the hospital and the orthopaedic specialty.

But other specialties are also considerations in bundled payments. Where will the bundle start? Where will it end? Which physician groups will be involved?

Dr. Murray: I agree that comanagement arrangements enable the hospital or health system and physician groups to work on things that they can control within the acute phase of care. But much of the predictive savings in bundled payments may lie in the pre- or the postacute care phase for the patient, which is hard for the hospital or health system to manage.

Comanagement arrangements enable both groups to work on clinical pathways that run from beginning to end—from preoperative evaluation through postoperative rehabilitation and reintegration into work or society in general.

Mr. Ritz: To create the most efficient passway for the outcome that everyone wants, the integration of the intellectual capacity of physicians and hospitals is critically important. Comanagement agreements may or may not be enough, but they certainly set the tone—particularly on a specialty-by-specialty basis—to negotiate the scope, size, price, and delivery of a bundled payment model.

There is a lot of risk here. One of the ancillary benefits of the comanagement agreement is the legitimacy it provides when other physicians who may have a role in a bundled payment relationship see an orthopaedic surgeon and a nonphysician expert leading the bundled payment model together. That can elevate their willingness to sit at the table and to participate.

Nicholas V. Colyvas, MD
Craig R. Mahoney, MD
Thomas F. Murray Jr, MD
Robert Ritz

Dr. Colyvas: I’ve been involved in multiple comanagement agreements—some successful, some not. What do you think is the fertile ground for comanagement agreements to form?

Mr. Ritz: From my perspective, it is a shared vision, a shared destiny, and agreement up front of what you are trying to accomplish. If you get the right people involved, give them the resources they need, and stay out of their way, it’s amazing how quickly they can get there.

Dr. Mahoney: I agree. As an orthopaedic surgeon and an owner of an orthopaedic group, I know where opportunities exist within the hospital. At Mercy Des Moines, consistency in services provided—both in the hospital and on the physician side—has been paramount.

But I also think that most orthopaedic surgeons share a level of misunderstanding about the impact their decisions may have on the downstream financial effects on the hospital.

Dr. Murray: For me, the fertile ground in our experience here in Portland was a diverse group of physician practices working with a single private hospital. The comanagement arrangement enabled us to come together as a single group to develop that shared vision and destiny. Before that, we had a diverse group of orthopaedic practices with different cultures and different approaches.

Dr. Colyvas: In some cases, there may be a shared vision, but if there are issues like competition or personalities, people may not be able to come together. Sometimes the hospital and physician group share a vision, but each wants to implement it in a different way. So to me, the fertile ground is where a group of physicians sees value in working with the hospital. And the hospital sees value in working with the group, and they can agree on exactly how that is going to look in the future. It’s like dating; there has to be chemistry.

Dr. Colyvas: How do mature comanagement agreements evolve? What models can develop?

Dr. Mahoney: Our existing comanagement agreement started several years ago. As time passed, we retired some goals, introduced new ones, and adjusted baseline metrics to respond to levels of achievement. That’s one way that a mature agreement can evolve.

Mr. Ritz: Sometimes, comanagement agreements are an effective approach to lead service lines. We at Mercy Medical Center are transitioning our organization to a clinical service line model. We want to eliminate the traditional hierarchical structure of operations and clinical delivery.

Mature comanagement agreements pave the way to broader agreements, confirming the fact that the two parties can work together successfully and find added value through the mutual relationship. They also position both parties to venture into more risk-oriented areas, such as a capitated or bundled payment or a clinically integrated network.

Dr. Colyvas: In many of the comanagement agreements that I have been involved in, I’ve seen a change or improvement in certain metrics, which are then updated so there is constant forward movement. But sometimes there is a tendency for some comanagement agreements to go stale. In those cases, new projects can be introduced to keep the process going. I know of comanagement arrangements that developed into full management arrangements, but I don’t see this as a big trend. The other interesting possibility is for comanagement agreements to morph into clinical integration and ACO models.

Dr. Murray: Apart from the apparent evolution of moving from compensating physicians based on service line management toward arrangements that involve risk or reward for meeting performance metrics, some less tangible cultural changes occur in mature arrangements. Physician groups are able to work together in ways that they weren’t able to do before—such as by helping each other cover call—and physician-staff relationships develop that help improve everyone’s experience—from the physicians to the staff to the hospital administration to the patients receiving care.

A tendency to feel like being on the same team, working together, develops. It’s a less tangible benefit, but a very clear one.

Dr. Colyvas: How have comanagement arrangements improved the finances of your health systems?

Dr. Mahoney: Initially, we began a Six Sigma project that involved improving efficiencies within the operating room and specifically with joint replacement surgery. The hospital’s baseline performance had been three joint replacement cases in one room per day. By standardizing, we were able to cut the turnover time in half. We moved from three cases a day to four, and actually finished earlier than the three cases did. One of my partners routinely does five in a day in one room.

That initial project dovetailed into a second project under the comanagement arrangement—standardizing the implants being used for hip and knee replacements, and later for shoulder replacements. The arrangement demonstrated that the hospital didn’t understand implants or the advantages and disadvantages of each. However, the physicians didn’t understand the financial impact of choosing one implant or another.

We created a capitated pricing system that stratified demand on behalf of patients, based on age, habits, activity levels, and other issues. We were able to standardize the implants being used in specific instances, and by doing that, we were able to consolidate pricing. We remained an open platform, which—from a recruiting standpoint—has been a tremendous advantage. Any implant manufacturer can bring a product to the hospital if it agrees to follow our protocol.

It has been an advantage for the hospital both in terms of consolidating information and in managing price increases. Physicians have maintained freedom in choosing implants working within the capitated pricing arrangement.

Mr. Ritz: Comanagement agreements can provide the ability to perform at a higher level for a value-based performance payment model. Having physicians lead with nonphysicians under a comanagement agreement for a specific service line enables a health system to focus on efficiencies, repetition, things of that nature.

I think price sensitivity will soon be introduced in the healthcare arena. As we become more responsible for the price we charge for services provided, vendors will feel increasingly pressured. It may behoove us to discuss how vendors become part of a shared savings model now to capitalize on the complete integration of all partners responsible for delivering a clinical service.

Dr. Colyvas: In many of the comanagement arrangements I have been involved in, lowering the cost of implants is probably the “low-hanging fruit.” The ability of these physician groups to look at this problem of high-cost implants and address it is key. Most of the ones I have seen have significantly lowered implant costs.

Often, initial comanagement agreements would be split in terms of an hourly rate for physicians versus the money “at risk.” In other words, the target-based reimbursement or bonus was frequently heavily loaded toward the hourly rate, with a small portion toward the bonus. Over time, the risk portion increases, partly because the physicians are more comfortable with the idea of working with the hospital and managing that risk and partly due to the trend to bundled payments and other similar risk-sharing opportunities. How much risk does a comanagement agreement take on and does that change as it matures?

Dr. Mahoney: To a certain extent, the risk involved in a comanagement arrangement is negotiated on the front side. I think an advantage for both sides is that they know what is at risk and have a very tight, consolidated set of metrics that may be more inviting than a full or bundled payment model.

Mr. Ritz: The risk concept for me is a little different. It includes an economic risk I think has already been mentioned. There is also the risk of the “haves” and the “have nots.” When multiple practices in a community are affiliated with the organization, and only one is selected as the comanagement partner, how the hospital deals with the other practices contributes to the success of the comanagement agreement.

The risk of failure also needs to be thought through. If you enter into an agreement that is not working, you have to bring it to a close. And if both parties don’t agree, the relationship could be harmed forever.

Dr. Murray: I certainly agree with everyone’s perspective on this. I think it is one of those questions we see through different lenses. It is natural that as comanagement agreements mature, more of the physician group’s compensation will depend on meeting specific performance metrics. At the same time, in a good relationship with a hospital or healthcare system, the goal is really for the physicians to meet those performance metrics.

Our market is competitive in that another hospital is very close by. So we have an open structure in our comanagement model. We invited everyone to participate and gave them incentives to participate more as time went on. That worked very well through the first 3 years, and we saw more than a 20 percent increase in orthopaedic volume every year. We hope to continue that growth by working on others that we might be able to bring in and engage.

Mr. Ritz: I agree, which is why I constantly refer to a service line model as well. With a service line model, the governance structure is often a steering committee. Although one group has the comanagement agreement, we invite other groups to be on the steering committee.