Just one year after rolling out a co-management agreement, physician leaders have helped save an Indiana hospital about $250,000 in surgical expenses, while boosting OR start times and employee satisfaction. At the same time, the hospital is aligning employee and physician objectives with an employee gainsharing program.
Several years ago, the stand-alone Columbus Regional Health (CRH), in Columbus, Ind., faced an interesting dilemma after a flood caused the hospital to close for several months. The leadership team had to choose whether to permanently close the hospital, partner with a larger health system, or look for strategic ways to solidify and grow the hospital’s market presence so as to sustain independence.
CRH’s strong and determined leaders rallied around the last option—ultimately, rolling out a physician co-management approach. They saw co-management as a key strategy to the organization’s future success. The agreement not only increased alignment with critical physicians, but provided a solid foundation for aligning financial and clinical interests between the health system and its physicians, producing a higher value for patients and payers.
To help ensure that physicians meet performance objectives, CRH also launched a gainsharing program for surgical employees, including nurses and technicians. Physicians are not included in this gainsharing program, but they benefit from it. Surgical employees are now more motivated to help physicians meet co-management performance goals, such as ensuring OR start times.
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Developing the Co-Management Plan
After several initial planning exercises, the CRH team realized that other health systems were interested in entering CRH’s market via physician acquisitions. To respond to this market threat, CRH pursued a surgical co-management agreement with Genesis Physician Group LLC, a group of 35 independent surgeons, proceduralists, and anesthesiologists.
To ensure the desired systematic impact, the co-management agreement had to be led by physicians and professionally managed. It also needed to span the full continuum of the surgical experience.
To accomplish these goals, CRH took advantage of an ambulatory surgery center joint venture that it had formed in the 1990s with Genesis. The two partners had 50-50 ownership in the Columbus Surgery Center.
CHR purchased the remaining 50 percent ownership interest in the Columbus Surgery Center from Genesis to become the full owner of the surgery center. Then, after completing the purchase, CRH entered into the surgical co-management agreement with Genesis.
The physicians now manage the full spectrum of inpatient and outpatient surgery and endoscopy services at the hospital and ambulatory surgery center. The physician co-managers also oversee the clinical staff within the hospital department.
A steering committee was created with majority physician participation and representatives from the health system’s senior leadership team. This steering committee worked together to structure the agreement and build the cultural pillars of the organization to ensure a sustainable partnership. Jim Bickel, CRH president and CEO, and Michael Dorenbusch, MD, chairman of Genesis Physician Group LLC, were instrumental in pulling the steering committee together. Their sponsorship enabled the committee to work through the big challenges and not allow potential barriers to prevent progress.
Compensating Physicians for Services
The key to making the co-management program a success was to align the incentives for the physicians with the goals of CRH. Accordingly, CRH set goals around clinical outcomes, patient safety, satisfaction, and operational effectiveness.
Under the Stark and anti-kickback laws, any compensation paid for achieving these goals are required to be set at fair market value. In addition, as a not-for-profit hospital, CRH has other restrictions imposed by the Internal Revenue Service. To meet these requirements, CRH engaged the help of outside legal counsel familiar with the implementation of these types of arrangements in not-for-profit hospital settings and an independent consultant to assess fair market value for the services.
Some of the safeguards implemented include:
- Verifying that compensation (i.e., hourly compensation for services and profit distributions) is not set in a manner that takes into account the value or volume of referrals
- Auditing the outcomes to assess if CRH achieved the clinical goals set forth under the co-management agreement
- In CRH’s agreement, physicians agreed to meet certain clinical quality metrics and develop care pathways/protocols for specific surgical procedures (see the exhibit below).
- An agreed on dollar amount—60 percent of the total co-management compensation available to the physician’s limited liability company (LLC) as determined by fair market value—will be paid out to the physician LLC, based on the percentage compliance with the established metrics and goals.
Physician compensation is primarily based on the time required to provide the services plus a potential share of cost savings. The costs savings are determined based on the cost at a specific hospital (e.g., CRH) versus the cost to provide the same care at comparable hospitals. Comparable hospitals (e.g., local hospitals with similar operating structures) may be defined based on acuity of cases, academic status, cost of living, quality ratings, and other metrics.
A secondary method of assessing fair market compensation is a comparison to other clinical co-management agreements. However, the comparison must include a complete understanding of the services provided and the potential for improvement at the hospitals in which these arrangements are in place.
Sharing Savings with Surgical Employees
Around the same time as CRH rolled out the co-management initiative, it also introduced a gainsharing program for all surgical employees (e.g. nurses and technicians). CRH leaders recognized the importance of employee gainsharing to the success of the co-management initiative since nurses, technicians, and other surgical employees greatly impact OR start times, patient satisfaction, and many other metrics that dictate physician performance.
The gainsharing program for surgical department nurses, techs, and other employees allows for 40 percent of the surgery department’s margin (net revenue – direct expenses) to become eligible for distribution to the surgical employees. See the tool below for further description of the program.
Access related tool: Calculations for Employee Gainsharing
The actual gainsharing amount paid out to the surgical employees is based on the percentage of compliance (tiered) with the established clinical performance metrics and protocols. For example, as follows:
- 70 percent of incentive pay is paid out for 70 percent to 80 percent compliance
- 90 percent is paid out for 80 percent to 90 percent compliance
- 100 percent is paid out for 90+ percent compliance
The co-management agreement was signed in July 2012. Within the first year, the co-management agreement has already generated very positive results. “The co-management agreement has been great for the physicians and Columbus Regional Health,” says Kurt Ellis, vice president of health system operations. “The physicians have begun to create a new culture in the surgery department, develop a positive environment for the staff and themselves, play a part in controlling their own destiny, and operate in a physician-driven culture that enables them to police themselves.”
Ellis also stressed that the benefits to CRH and patient care have also been positive. Specifically, the co-management agreement generated the following results within the first year:
- On-time surgery starts have increased from 47 percent to 62 percent.
- Surgical quality and safety standards have been maintained in a more efficient environment—with100 percent of all clinical outcome and patient safety metrics meeting or exceeding the highest assigned performance thresholds.
- A $250,000 annual savings on surgical costs has been achieved through a physician-led vendor management process.
- The timely documentation of patient histories and physicals has improved by 6 percent.
- Employee and surgeon objectives are now aligned through the adoption of the surgery center’s employee gainsharing program.
- Employee satisfaction scores have improved, which has resulted in a 3 percent increase in employee retention within surgical services.
Given the success of the surgical co-management arrangement, the health system is evaluating expanding the agreement to the emergency department and positioning the organization to take on risk-based contracts through the development of a clinically integrated network.
Creating a Path for Success
Ellis outlined the following imperatives for hospitals and physicians who desire to create a successful co-management agreement to ensure positive results:
Commitment of strong physician leadership. Without the leadership and bravery of Michael Dorenbusch, MD, Larry Olson, MD, and Kendall Hadler, MD, the effort would have failed, says Ellis. “Because of the commitment of these physicians to create a surgical environment that promoted high-quality, cost-effective, and optimal patient care we were able to get to where we are today.”
The involvement of people who have gone down this path before. Outside professional advisory firms helped CRH work through the strategic, valuation, and legal issues, which helped ensure an arrangement that fit the local dynamics and was compliant with legal and regulatory guidelines. Several conversations were also held with other health systems that had surgical co-management agreements in place to learn what worked and what didn’t.
Effective communication among physicians, health system leaders, and staff. Effective communication to all stakeholders is key to not only gaining buy-in but to getting valuable insights.
Looking to the Future
The CRH leadership team recognizes that each market will move from volume to value at its own pace. However, the leadership team knew that it could take incremental steps over time to more effectively chart its own course by thoughtfully focusing on quality and efficiency projects within the current fee-for-service model. No one knows exactly with the future of healthcare brings, but innovative organizations like CRH are embracing the complexity to drive transformation in care delivery.
Dennis Butts is a director, Navigant Consulting Inc’s Provider Strategy Practice.
Curtis Bernstein is a managing director, Altegra Health’s Valuation and Transaction Practice, Denver, CO.
- What questions do you have for CRH about its co-management agreement or employee gainsharing program?
- Has your organization rolled out any co-management agreements? What are some lessons learned that you can share with other healthcare CFOs?
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Publication Date: Friday, September 13, 2013