Clinical co-management agreements offer an opportunity to align the interests of hospitals and practicing physicians in order to achieve better clinical outcomes and patient satisfaction. Most commonly, these agreements are contracts between hospitals and a physician-owned entity to engage physicians as business partners in overseeing and managing a service line or a department.

Common characteristics of clinical co-management agreements include:

  • The formation of a clinical management company by practicing physicians through a private placement offering;
  • The fair market value compensation of the clinical management company for its management of a hospital’s service line or department (such as cardiology, oncology, orthopedics, outpatient surgery);
  • The joint development of specific clinical improvement benchmarks for the department being managed; and
  • The payment of both fixed fair market value monthly payments and  incentive payments in return to the management company in return for its management services.

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Quality improvement is a main goal in these arrangements. Physicians are rewarded with incentive bonuses for reaching certain quality measures and benchmarks, and hospitals see higher reimbursements under the pay-for-performance model and patients receive better care. Typical co-management quality improvement measures include:

  • Operational process re-designs;
  • Improvements in procedure start times, turnover intervals and wait times;
  • Reductions in infections or complication rates;
  • Better performance on national benchmarks for clinical outcomes; and
  • Increased patient and staff satisfaction as measured by a third party

An OIG Advisory Opinion issued December 31, 2012 provides the basic parameters for co-management agreements that are acceptable from a regulatory perspective:

  • The co-management agreement should incorporate the use of an outside monitor to ensure no deterioration of clinical services;
  • Equity returns to the physician owners must be proportionate to ownership, and incentives should not be structured in a way that rewards physicians for increased volume;
  • Payments cannot be made for reducing or limiting medically necessary services to Medicare beneficiaries or for reducing a length of stay; and
  • All payments must be determined to be fair market value for actual services performed as validated by an independent valuation.