At the 9th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago, Scott Safriet, MBA, AVA, principal for Healthcare Appraisers, and Kristian Werling, JD, associate with McGuireWoods LLP, presented their thoughts on co-management relationships with hospital outpatient departments.
Mr. Safriet and Mr. Werling began the presentation with an overview of co-management arrangement trends. They said co-management arrangements with hospital outpatient departments are becoming increasingly popular as hospitals seek to improve efficiency and improve their relationships with physicians. The increase in co-management relationships mirrors the growth of ASC and physician practice acquisitions by hospitals, the presenters said.
Direct contract model
Mr. Safriet and Mr. Werling said a co-management relationship can be built in a number of different ways. In a direct contract model, the hospital owns the service line and enters into a management agreement with the physician group. The physician group then provides management services for a fee, and a governance committee is appointed to oversee the relationship. The presenters emphasized that in this model, the governance committee is present only to provide oversight, not to serve as an active manager.
Joint venture model
In a joint venture model, Mr. Safriet and Mr. Werling said the hospital and physicians generally form a "newco," which then contracts with the hospital. The profits from the newco are then split between the hospital and the physician group.
The presenters said the type of arrangement often depends on the number of physician groups involved. If one physician group is involved, a direct contract model is often the easiest approach; if multiple physician groups are involved, the joint venture model is more appropriate.
Payments for co-management services
Mr. Safriet and Mr. Werling said compensation for physician co-management services is generally divided into two levels of payment: a base fee and a bonus fee (based on quality and performance), both of which must be consistent with fair market value. Examples of compensated co-management services include:
• Clinical process improvements
• Workflow improvements
• Scheduling
• Materials management
• Credentialing
The presenters said physicians should not be compensated for clinical duties through a co-management arrangement.
Legal issues surrounding co-management compensation
Hospitals must be aware of various legal issues when compensation physicians for co-management services, the presenters said. The following issues can affect how physicians are compensated:
According to Mr. Safriet and Mr. Werling, the anti-kickback statue prevents hospitals from paying physicians for referrals. The anti-kickback statute is an intent-based statute, meaning hospitals that meet various "safe harbors" can avoid penalties if they show they did not intend to violate AKS. These safe harbors include the personal services safe harbor, in which a hospital has documented the fair market value of a compensation arrangement, and a management contract safe harbor, in which the hospital provides a fair market value management fee for actual management services.
To meet safe harbors for AKS, compensation must be fair market value and set in advance. This means that hospitals can only reward physicians with bonuses if the minimum and maximum bonus amount is decided in advance. Compensation should never be based on a percentage of collections.
The presenters also reviewed the civil monetary penalties statute, which prohibits hospitals from paying physicians to reduce/limit services to Medicare or Medicaid beneficiaries; the Stark Act, which prohibits physicians from making referrals to a facility in which they have a financial interest; and the False Claims Act, which prohibits the submission of false claims to the federal government.
Related Articles on Co-Management Relationships:
Co-Management Arrangements: Key Tips for Success
4 Issues for Hospitals in Choosing HOPD or ASC Venture With Physicians
ASC Transactions and Pricing During 2010: 4 Key Concepts
Mr. Safriet and Mr. Werling began the presentation with an overview of co-management arrangement trends. They said co-management arrangements with hospital outpatient departments are becoming increasingly popular as hospitals seek to improve efficiency and improve their relationships with physicians. The increase in co-management relationships mirrors the growth of ASC and physician practice acquisitions by hospitals, the presenters said.
Direct contract model
Mr. Safriet and Mr. Werling said a co-management relationship can be built in a number of different ways. In a direct contract model, the hospital owns the service line and enters into a management agreement with the physician group. The physician group then provides management services for a fee, and a governance committee is appointed to oversee the relationship. The presenters emphasized that in this model, the governance committee is present only to provide oversight, not to serve as an active manager.
Joint venture model
In a joint venture model, Mr. Safriet and Mr. Werling said the hospital and physicians generally form a "newco," which then contracts with the hospital. The profits from the newco are then split between the hospital and the physician group.
The presenters said the type of arrangement often depends on the number of physician groups involved. If one physician group is involved, a direct contract model is often the easiest approach; if multiple physician groups are involved, the joint venture model is more appropriate.
Payments for co-management services
Mr. Safriet and Mr. Werling said compensation for physician co-management services is generally divided into two levels of payment: a base fee and a bonus fee (based on quality and performance), both of which must be consistent with fair market value. Examples of compensated co-management services include:
• Clinical process improvements
• Workflow improvements
• Scheduling
• Materials management
• Credentialing
The presenters said physicians should not be compensated for clinical duties through a co-management arrangement.
Legal issues surrounding co-management compensation
Hospitals must be aware of various legal issues when compensation physicians for co-management services, the presenters said. The following issues can affect how physicians are compensated:
According to Mr. Safriet and Mr. Werling, the anti-kickback statue prevents hospitals from paying physicians for referrals. The anti-kickback statute is an intent-based statute, meaning hospitals that meet various "safe harbors" can avoid penalties if they show they did not intend to violate AKS. These safe harbors include the personal services safe harbor, in which a hospital has documented the fair market value of a compensation arrangement, and a management contract safe harbor, in which the hospital provides a fair market value management fee for actual management services.
To meet safe harbors for AKS, compensation must be fair market value and set in advance. This means that hospitals can only reward physicians with bonuses if the minimum and maximum bonus amount is decided in advance. Compensation should never be based on a percentage of collections.
The presenters also reviewed the civil monetary penalties statute, which prohibits hospitals from paying physicians to reduce/limit services to Medicare or Medicaid beneficiaries; the Stark Act, which prohibits physicians from making referrals to a facility in which they have a financial interest; and the False Claims Act, which prohibits the submission of false claims to the federal government.
Related Articles on Co-Management Relationships:
Co-Management Arrangements: Key Tips for Success
4 Issues for Hospitals in Choosing HOPD or ASC Venture With Physicians
ASC Transactions and Pricing During 2010: 4 Key Concepts