The Issue

To meet the challenges of accountable care, where payment is based much more on the value than on the volume of services delivered, hospitals must engage physicians in a shared effort to decrease costs and improve quality. If employing physicians or achieving clinical integration is not financially and/or politically practical, hospitals should consider alternative strategies for aligning with physicians, such as:

  • Comanagement arrangements
  • Clinical joint ventures
  • Professional services agreements (PSAs) with performance incentives


The payment incentives that providers have enjoyed under fee-for-service, offering the prospect of increased compensation for increased volume of services delivered, are giving way to new incentives focusing on value-i.e., rewarding providers for reducing costs of care while improving outcomes. This new focus requires greater coordination of care between hospitals and physicians, which some hospitals and health systems are achieving through a strategy of large-scale physician employment. Other hospitals are seeking to develop clinically integrated organizations capable of joint payor contracting with physicians.

But a lack of requisite financial resources or receptivity of physicians to the employment option or a clinical integration initiative makes these strategies impractical for some hospitals. Nonetheless, the most successful hospitals and health systems under accountable care will be those whose physicians and management are working toward similar goals and assuming the risk and reward for performance. Structures that serve as an alternative to direct employment yet may serve as a foundation for clinical integration may offer the best means to achieving the necessary alignment and integration.

Action Steps for Providers

Hospitals that have determined that physician employment and clinical integration strategies are not practical should consider three alternatives.

Comanagement agreements. By outsourcing the management of the service line to a comanagement company, a hospital can align with a broad base of independent physicians to drive service line success. The comanagement model uses a company, jointly owned by the hospital and physicians, to manage the day-to-day operations and participate in long-term planning for a specific clinical service line. Financial alignment occurs through the compensation paid to the management company for delivering services. With a portion of the payments contingent upon the achievement of specific quality and efficiency measures, the participating physicians are more committed to making clinical and operational changes that improve hospital performance, even if such decisions are counter to their personal interest.

The comanagement arrangement also creates shared organizational decision making through a joint governance and ownership structure. The governance of the management company is typically structured with physician investors and the hospital each holding a portion of the governing power.

Clinical joint ventures. Hospital-physician joint ventures are designed around everything from real estate to diagnostic imaging to cancer therapy to virtually any outpatient service. Perhaps the most popular outpatient service for such ventures is the ambulatory surgery center (ASC). ASC joint ventures provide a means for hospitals to achieve the triple aim of improving the experience of care and the health of populations and reducing per capita costs of health care.  The equity position of physician investors encourages physician participation in efforts to reduce variation, standardize processes, and reduce costs.

PSAs with performance incentives. Because hospital-based specialists rarely collect enough from professional services to cover provider costs, these physicians often require financial support from the hospital, without which their interest will run counter to that of the hospital. Yet as hospitals allocate more resources to align hospital-based physicians, they seek quantifiable improvements in cost and quality to justify the investment. One of the best mechanisms to drive improvements may be to implement a PSA model that incorporates "stretch" performance incentives. Under such a model:

  • The hospital contracts with a medical group.
  • Physicians may become either employees or contracted agents of the new group.
  • A formal governance structure for physician shareholders and employees governs compensation, strategic direction, and financial investment decisions.
  • The medical group is paid for services through the PSA.
  • The PSA may encompass both fixed and variable compensating elements.

This model allows specialists to focus on inpatient services when on call instead of trying to balance private practice with on-call duties. As a result, the hospital-based physicians can respond expeditiously to patient care needs, focus on inpatient operational and clinical improvements, and provide greater support to other medical staff.

Download the PDF or read the full article. You can also see more Board's Eye Views.

Publication Date: Wednesday, August 01, 2012

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