Category: Physicians Practice

When it comes to Medicare self-disclosure of potential wrongdoing, the two most important protocols to physicians are the Stark Law’s self-referral disclosure protocol (SRDP) and the more general provider self-disclosure protocol (SDP). The Stark Law self-disclosure webpage explains that beginning in 2010, when Congress enacted the Affordable Care Act, the HHS secretary, in cooperation with the HHS Office of the Inspector General (OIG), was mandated to establish a SRDP, “to facilitate the resolution of only matters that, in the disclosing party’s reasonable assessment, are actual or potential violations of the physician self-referral law.”

The OIG webpage explains the more general provider SDP, “[P]roviders who wish to voluntarily disclose self-discovered evidence of potential fraud to OIG may do so under the Provider Self-Disclosure Protocol (SDP). . . To start the disclosure process moving quickly, submit your disclosure electronically using the online submission button below.” Thus, CMS and the OIG websites declare these agencies stand ready, willing, and able to quickly discuss your self-disclosed evidence to quickly determine whether you have violated Stark Law or some other regulation.

Conceptually, the idea of voluntary self-disclosure, in exchange for lower penalties, is a solid one. Trouble is, it doesn’t work; for anyone. According to a 2013 OIG published a report on the SDP , here is how it works: “The SDP is available to facilitate the resolution of matters that, in the disclosing party’s reasonable assessment, potentially violate federal criminal, civil, or administrative laws for which [civil monetary penalties] are authorized.”

In “making a disclosure, a disclosing party must acknowledge that the conduct is a potential violation.In making a self-disclosure, [di]sclosing parties must explicitly identify the laws that were potentially violated and should not refer broadly to, for example, ‘federal laws, rules, and regulations’ or ‘the Social Security Act.'”

In reality, the OIG seems to find that disclosing physicians often avoid acknowledging that there is a potential violation and as a result, “are more likely to have unclear or incomplete submissions or unrealistic expectations about resolutions, which result in a lengthier review and resolution process.”

Further, the same 2013 OIG report reveals: “statements such as ‘the government may think there is a violation, but we disagree’ raise questions about whether the matter is appropriate for the SDP.” The OIG concludes, the “resulting back-and-forth over these issues can create unnecessary delays in reaching a resolution and may result in the disclosing party’s removal from the SDP.”

The delay is borne out by data. As of January 12, 2015, CMS has received 529 disclosures through the SDRP, 128 of which have been resolved through settlement or were otherwise closed. The OIG has proposed to Congress changes in the SDRP to limit disclosure protocol to cases of more clearly demonstrable fraud, which focus less upon common arrangements which might merely potentially involve a violation.

A fair read of the self-disclosure protocol’s short history reveals that while the concept might appear valid on paper, in actual experience, it is more trouble that it is worth. The OIG’s limited resources would be better spent on cases the OIG has identified as problematic, and less on merely potential violations which are self-reported by the most conscientious physicians.

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According to a lawsuit filed January 30 by Healthscripts of America in District Court in Austin, Texas Attorney General Ken Paxton issued Civil Investigative Demands (CIDs) to a number of Texas physicians who have invested in compounding pharmacies. The CIDs, according to the suit (In re Healthscripts Specialty Pharmacy, et al. Cause No. D-1-GN-15-000380), were issued in aid of the attorney general’s authority to investigate Deceptive Trade Practices Act (DTPA) violations, which came on the heels of news articles questioning the legality of physician ownership in compounding pharmacies.

Physician ownership in any ancillary services company is usually analyzed under the Texas Solicitation of Patients statute Tex. Occ. Code 102.001; a criminal statute which broadly forbids any licensed healthcare entity, including pharmacies, from knowingly paying remuneration in cash or in kind for the solicitation of patients.

The statue is not limited to Medicare and Medicaid, but applies equally to private insurance and cash payers. The statute contains a safe harbor protecting any practice authorized by the federal Anti-Kickback Statute (AKS). One of these, and the safe harbor at issue in the lawsuit, is the “Small Business Investment Safe Harbor,” 42 CFR 1001.952(a)(2) . The Small Business Investment Safe Harbor contains eight applicable standards which must be met by physician investors. These include several financial requirements (i.e., that no more than 40 percent of a pharmacy may be owned by persons in a position to make or influence referrals; no more than 40 percent of the pharmacies income be generated from physician investors; and the return on investment must be proportionate to the capital investment). Some of these requirements naturally will not be known (or even knowable) at the time of the investment.

Thus, in Texas, physician investment in compounding pharmacies is legal under the Solicitation of Patients statute, if done correctly. The statute expressly authorizes the attorney general to institute a civil action for injunction or civil monetary penalties, if the statute is violated. The DTPA, a consumer protection statute, authorizes CIDs if the Texas attorney general’s office believes a consumer protection provision may have been violated. While DTPA CIDs are common, it is very rare to see DTPA CIDs asking physician investors for financial records and any communications related to an investment covered by the Solicitation of Patients statute.

Healthscripts has not been accused of any wrongdoing at this time. The Healthscripts lawsuit seeks to set aside the CIDs, which ask individual physician investors to “produce all documents of your involvement and communications with Healthscripts” and “produce a copy of all documents showing the amount of remuneration of any kind paid to these prescribers who invested money … ”

Although the lawsuit at this time is confined to Healthscripts assertion of privilege against the disclosure of financial information sought by the attorney general in the CID, the case could have nationwide implications for physician investors in any form of ancillary service.

Most states have some form of laws against payment for healthcare referrals. Some are merely statements of medical ethical principles, others authorize private causes of action by whistleblowers. Absent involvement of a federal government program, like Medicare, investigations under these state statutes is usually quite rare. That is why the Texas case is so unusual: seldom does a state’s attorney general seek to investigate physician investments. It is most unusual for an attorney general to dig so deeply into what would appear to be the finer nuances of the safe harbor for physician investments.

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In 2010, the Affordable Care Act mandated compliance programs for Medicare and Medicaid providers. The reform law, which applies to all Medicare and Medicaid providers, requires the HHS secretary to promulgate “core elements” and set an effective date for compliance programs, presumably through rulemaking, but does not set a deadline for these actions.

Corporate compliance programs, in general, were developed in response to the Federal Sentencing Reform Act of 1984, which led to the development of U.S. Sentencing Guidelines. As a result of large corporate financial scandals in 2001 and 2002, the Sarbanes-Oxley Act, passed in 2002, required all publicly-traded companies to submit an annual report of the effectiveness of their internal accounting controls to the Securities and Exchange Commission beginning in 2004. The spirit of these corporate compliance programs was carried over into healthcare.

In 1997, the concept of voluntary healthcare corporate compliance was adopted by HHS’ Office of Inspector General (OIG). The OIG published “OIG Compliance Program for Individual and Small Group Physician Practices” (65 Fed. Reg. 59434-59552; Oct. 5, 2000).

Every federal agency has an OIG. The HHS OIG exclusively investigates cases of fraud, waste, or abuse involving government programs. However, OIG pronouncements become the standard by which best practices are judged for healthcare compliance programs. References to the OIG here are intended to denote best practices as dictated by the HHS OIG, and do not necessarily imply that the OIG has jurisdiction over non-government billing and coding.

The purpose of compliance programs is to assist providers and their agents and develop effective internal controls that promote adherence to applicable federal and state law, and the program requirements of federal, state, and private health plans. The adoption and implementation of voluntary compliance programs significantly advance the prevention of fraud, abuse, and waste in these healthcare plans while at the same time furthering the fundamental mission which is to provide quality care to patients.

Fundamentally, compliance efforts are designed to establish a culture within an organization that promotes prevention, detection and resolution of instances of conduct that do not conform to federal and state law, and federal, state, and private payer healthcare program requirements, as well as the provider’s ethical and business policies. In practice, the compliance program should effectively articulate and demonstrate the organization’s commitment to the compliance process. The existence of benchmarks that demonstrate implementation and achievements are essential to any effective compliance program.

According to the OIG, a Corporate Compliance Program should have seven elements:

1. Implement written compliance policies, procedures, and standards of conduct;

2. Designate a compliance officer and compliance committee, who will be responsible for monitoring compliance efforts and enforcing practice standards;

3. Conduct effective training and education on the compliance policies, procedures, and standards of conduct;

4. Develop effective lines of communication to facilitate communication with staff and allow anonymous reporting mechanisms;

5. Conduct internal monitoring and auditing by performing periodic self-audits;

6. Enforce standards for employees through well-publicized disciplinary guidelines; and

7. Respond promptly to detected offenses and develop corrective action plans.

HHS OIG has strongly advised healthcare providers to make compliance plans a priority now. Corporate compliance programs are now a mandatory condition of participation. Under nearly any potential scenario, other than a total repeal of Obamacare, it is nearly certain that mandatory requirements of compliance programs are here to stay.

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Have you ever used the “check in” application on Facebook to tell friends of the latest trendy restaurant you visited? Psychologists say this behavior serves an important need in all of us. The “likes” provide much needed validation. According to a January 30 article in The Wall Street Journal, this same behavior serves an important need of cyber criminals.

The article, entitled “Even nameless data can reveal identity” warns, “Your shopping habits can expose who you are even when you are just one of a million nameless customers in a database of anonymous credit-card records.” A study conducted by the Massachusetts Institute of Technology analyzed anonymous credit card transactions by 1.1 million people. “Using a new analytic formula, they needed only four bits of secondary information — metadata such as location or timing — to identify the unique individual purchasing patterns of 90 percent of the people involved, even when the data were scrubbed of any names, account numbers or other obvious identifiers,” according to the article.

All the researches had to go on was the records of purchases over a period of three months by shoppers at 10,000 stores. The banks weren’t named, the country wasn’t named, and the shopper wasn’t named; transactions were time-stamped with day of purchase and linked to the stores.””

According to the report, “After isolating a purchasing pattern, researchers said, an analyst could find the name of the person in question by matching their activity against other publicly available information such as profiles on LinkedIn and Facebook, Twitter messages that contain time and location information, and social-media ‘check-in’ apps such as Foursquare.”

This should be doubling alarming for physicians and other medical practices. HIPAA, HITECH, and various state laws are enacted to protect some 18 different kinds of personal health information (PHI),”” including fingerprints, photographs, license plates and other seemingly nonsensical bits of information. The MIT study proves the definition of PHI may not be so nonsensical after all.

The article notes of the MIT research, “it is very, very, very difficult to remove any ability to identify people in these data sets, especially financial data,” according to a quote from Joseph Hall, chief technologist at the Center for Democracy & Technology, a nonprofit that studies privacy and data issues. “Data brokers who buy and collect very large quantities of information like this have the ability to take thousands of data points and pin those on individuals,” Hall said.

Experts also warn that stolen medical data is much more valuable than stolen credit card information. Medical identity theft is much harder to detect and correcting the problem takes a great deal longer.

The WSJ article reveals something CMS and HHS’ Office of Civil Rights, the agency responsible for administering HIPAA, have known all along: Patients are serving up massive amounts of personal data to criminals every time they pay a bill, use a credit card, and yes, when they “check in” on Facebook.

While it is probably too much to hope that patients would stop using Facebook to “check in,” you can protect yourself and your practice from liability under HIPAA and state laws modeled after HIPAA. If you have not already performed a HIPAA compliance audit and adopted compliance, now is the time. Once the patient’s data is out in cyberspace, it is too late.

On Dec. 3, CMS issued a final rule giving the agency greater power to deny or revoke enrollment to providers, by scrutinizing employees and owners of providers, who may have a less than stellar history with the Medicare program. The government is also considering greater reliance on the IRS to assist with delinquent recoupment collections.

Among the highlights:

· Adding the ability to deny the enrollment of providers, suppliers, and owners affiliated with an entity that has unpaid Medicare debt. CMS says this will help prevent individuals and entities from being able to incur substantial debt to Medicare, leave the Medicare program, and then re-enroll as a new business to avoid repayment of the outstanding Medicare debt. CMS will only enroll otherwise eligible individuals or entities if they repay the debt or enter into a repayment plan.

· Adding the ability to deny the enrollment or revoke the billing privileges of a provider or supplier if a managing employee has been convicted of certain felony offenses. This provision ensures that CMS can block or remove bad actors from the Medicare program to protect beneficiaries and safeguard the Medicare trust funds.

· Permitting CMS to revoke billing privileges of providers and suppliers that have a pattern or practice of billing for services that do not meet Medicare requirements. This is intended to address providers and suppliers that regularly submit improper claims in such a way that it poses a risk to the Medicare program.

Meanwhile, The Hill reported recently that, “Twenty-five Republicans are asking the Supreme Court to take up another case against Obamacare, this time challenging a controversial medical board that the party has labeled ‘a death panel.'” The dust-up, this time, involves something called the Independent Payment Advisory Board (IPAB), which is charged with cutting Medicare spending if it exceeds a certain level.

Why are these two stories related? The new CMS rules and the IPAB issue perfectly describe the Medicare and Medicaid problem. Spend too much, then make the only rules anyone can actually agree on: Those which punish physicians and providers.

The idea behind IPAB is that we can’t afford to keep spending as if there were no tomorrow, but we can’t trust elected officials to ever say, “No, we can’t afford it.” IPAB was designed to make these hard “end-of-life vs. how much it costs” choices; makes perfect sense, even if the solution isn’t perfect.

Common fiscal sense, however, goes out the window, when politics are factored into the equation. The result is a government which spends way too much and won’ t make hard choices about cutting spending.

Instead, we continue to create a system in which it is possible for physicians and providers to rack up huge amounts in “Medicare debt,” and then must enter an agreement to work it off, or they cannot find work at all.

Maybe this new rule will only be targeted at the really bad apples; I am not so sure. I am starting to hear echoes of Tennessee Ernie Ford’s Dust Bowl song, “Sixteen Tons,” about company stores, and company debt, which can never be worked off.

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The midterm elections are over, Congress is controlled by conservative Republicans, and five key governor’s races went to candidates who vowed never to expand Medicaid in their states. This brings me to a November 3 New York Times article which posed an interesting question: Suppose the Supreme Court had not struck down the Affordable Care Act’s provision forcing states to expand Medicaid? How would the healthcare uninsured landscape differ?

In order to recap, the Affordable Care Act recognized that as a system, health insurance works best if there is universal coverage. It does not matter whether universal coverage is obtained voluntarily or through something akin to blackmail.

Medicaid is a federal program created in 1965 along with Medicare. Unlike Medicare, Medicaid is partially funded by the U.S. government, but is administered by the individual states, free to set their own eligibility requirements. The amount of federal money provided to each state depends upon a number of factors. States must pay for the remainder of Medicaid costs. The reform law forced individuals and businesses to purchase health insurance, and attempted to coerce states into expanding Medicaid. Many refused. Thanks to a Supreme Court opinion holding that states cannot be penalized for exercising a right to choose not to expand, Medicaid expansion never got off the ground in holdout states.

Congress recognized some of the poorer states lack the budget to pay for Medicaid expansion, thus Congress included a “carrot.” Under the law, the federal government promised to pay all the costs of these “newly eligible” …. but not forever. Trouble was, the law also carried a “stick.” The states were given a “choice” under severe penalty for choosing unwisely: Either expand Medicaid, or lose federal Medicaid funding altogether. The U.S. Supreme Court struck this provision down, as unconstitutionally coercive. The world’s originator of national healthcare, Germany’s Otto Von Bismarck, was probably correct in his observation in the late 1800’s, “Laws are like sausages, best that you don’t watch either being made.” At any rate, a major pillar of the Affordable Care Act, coerced Medicaid expansion was dead.

Two years later, the Times wonders, “what might have been,” but for Supreme Court meddling. The article shows two maps which look like Petri dishes showing microbe growth. The map on the right shows the uninsured population if Medicaid expansion was upheld. It appears remarkably free and clear of clusters of “bad things.” The map on the left is rather heavily populated with darker dots representing uninsured.

The bias in the drawing implies that an epidemic of “bad things” could have been be avoided, (and utopia achieved), if Medicaid had been expanded as Congress intended. That’s ridiculous.

Simply placing a large portion of the population into an unfunded, or underfunded government insurance program, which doctors likely will eschew, does not mean the problem of the uninsured population has been solved.

According to a 2014 Merritt Hawkins study, Medicaid pays so poorly compared to Medicare, very few physicians are willing to accept current Medicaid patients.

In many of the states where the expansion would have been forced, the acceptance rate is around three out of 10 doctors. Clinics accepting Medicaid can’t always see new patients quickly. Many further believe Medicaid patients are more likely to sue for malpractice. If a patient can find a doctor, the below-cost reimbursement levels result in clinics which are understaffed, and lack modern equipment.

Medicaid is largely seen as a socialized dystopian mess, requiring physicians to take on too many patients, which means something akin to Soviet bread lines, with no margin for profit.

Now that the elections are over, the more troubling question isn’t so much whether Medicaid will ever be expanded, but instead: Who will take will take care of people who are simply too poor to afford basic healthcare?”

As a health lawyer working in Dallas, I have some new heroes. Chief among them, Dallas Presbyterian nurses, Nina Pham (pictured below) and Amber Vinson. Lying in a hospital bed in northeast Dallas fighting the deadly Ebola virus, Pham is worried that she’s let us down. No ma’am, we let you down. Nina Pham, Amber Vinson, and the remaining health workers at Presbyterian Hospital were completely unprepared by the CDC to handle a patient infected with Ebola.

Nevertheless, Pham and Vinson bravely did their duty. As Lincoln said at Gettysburg, it seems to me the “last full measure of devotion” these dedicated nurses can give, is to put their lives at risk for the good of a patient. Pham and Vinson deserve the highest praise for their selfless dedication to patient care.

Texas Health Presbyterian Hospital in Dallas is one of the finest hospitals in the nation. If there is a better hospital in Texas, I don’t know about it. If there are better healthcare professionals in the world, I don’t know where to find them. But they were not prepared for an Ebola patient.

AP Photo/ tcu360.com

That didn’t stop nurses and doctors from doing their jobs the best way they knew how.

According to an unconfirmed statement released by National Nurses United (NNU), the largest U.S. nurses’ union.

There were no protocols in place for dealing with the crisis. Once Ebola patient Thomas Eric Duncan, the first person to be diagnosed with Ebola in the U.S., was admitted to the hospital, he was “left in an open area of a Dallas emergency room for hours, and the nurses treating him worked for days without proper protective gear and faced constantly changing protocols.” According to NNU, the nurses’ statement said they had to “interact with Duncan with whatever protective equipment was available,” even as he produced “a lot of contagious fluids.” Duncan’s medical records, which his family shared with The Associated Press, underscore some of those concerns. It appears that nurses were forced to use surgical tape to attempt to seal seams of protective clothing, unaware the greatest risk appears to be the removal of such protective wear. Many days passed before Tyvek suits, triple gloves, triple boots, and respirator caps became available.

After Pham fell ill, followed by Vinson, reports reveal the hospital is now in freefall. Patients are cancelling doctor’s appointments. Parking lots are empty. The CDC are in no better position. Statements issued by the CDC first blamed Pham for getting sick, then blamed Vinson for violating CDC policy in boarding an airplane while symptomatic. I’ll say it, “Please stop it. They didn’t fail us, you did.” It should be clear by now that these women would have done anything to protect the public, if they had only been given proper guidance from the CDC.

Time will tell how bad this situation will become. But to Pham and Vinson and the other dedicated healthcare professionals at Presbyterian, we in Dallas would like to simply say, “Thank you.”

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A managed care tug-of-war has been ongoing for well over two decades between physicians and insurance companies. Managed care networks require physicians to agree by contract to a limited reimbursement schedule, in exchange for placement on the insurer’s approved list of providers. Now, physicians are being advised that they have been terminated from the provider network, which termination often falls into one of three categories: termination without cause; termination for cause; and refusal to renew.

Want more “payer power?” Join us at Practice Rx, Sept. 19 & 20 in Philadelphia for “Payer Negotiation Strategies: Using Your Own Payer Report Card as Leverage” and other sessions to boost your bottom line. Register today.
Termination without cause, simply put, “isn’t.” There is always a reason, and the reason is usually money. Termination without cause is akin to being “banned from the casino” for winning. Carriers take the position that they are not required to contract with physicians, and are free to terminate provider status without stating a reason.

The most costly physicians appear to be those who rely on mid-level employees to perform ancillary laboratory and testing services in house. The total payments to the physician may well appear to be more expensive, when in fact, the cost per patient may be no different or less than an outside referral.

Non-renewal often follows the same pattern. Physicians are singled out because they are the highest earners.

Termination for cause, in which the carrier gives a reason, may involve some alleged misstatement in the credentialing process, or some error in billing and coding. Carriers originally referred many such misstatements to licensing boards, but have discovered it is much easier to simply terminate the provider agreement. Carriers may be required to offer a type of appeal, though the likelihood of success may not be great.

Physicians have been fighting back, according to a recent article by the Texas Medical Association, “A Bitter Pill, Physicians Seek Justice for Network Termination.” The article tracks the history and outcome following UnitedHealthcare’s decision to terminate thousands of physicians from Medicare Advantage plans. In December, a federal appeals court granted the medical associations a preliminary injunction, preventing the payer from kicking physicians out of its Medicare Advantage plans until doctors could arbitrate their cases.

The basis of the lawsuits against carriers often depends upon the type of insurance involved. Medicare and workers’ compensation statutes may dictate procedures which must be followed before termination can occur. Private plans may have fewer statutory restrictions, depending upon the laws of a particular state.

The Texas Medical Association offers a white paper entitled “Physician Steps in Termination of Network Participation,” designed to help physicians appeal insurance network termination and available upon request.

If you have been terminated, or notified you will be terminated, contact a healthcare attorney who is licensed your state.

Many physicians are familiar with the provisions of Stark Law and the Anti-Kickback Statute, and the requirement that physician contracts be at a price consistent with “fair market value.” This is aimed at preventing hidden kickbacks, in which the physician might be paid too much for services (or charged too little for things the physician must purchase, such as office space or equipment leases).  

Less is understood about the requirement that contracts must also be “commercially reasonable.”

I asked Michael Heil, one of the founders of MD Ranger, about this. MD Ranger is a subscription service providing market benchmark data about hospital-physician agreements, Michael also leads the consulting firm HealthWorks, which provides valuation services to both physicians and hospitals for hospital-physician agreements.

Martin Merritt: How is “commercial reasonableness” defined?

Michael Heil: In CMS regulations an agreement is “considered commercially reasonable in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS referrals.”

MM: That definition sounds quite subjective. Are there more objective standards?

MH: No, not really. The only additional sources are IRS guidelines that list a few factors for consideration (such as duties and responsibilities of the physician and economic conditions in the marketplace). Some additional clues can be found in a few court rulings where findings were made against hospitals when the issue was whether anything should be paid at all.

MM: Can you give an example of how commercial reasonableness is different from fair market value?

MH: A hospital considered paying for orthopedic spine surgery call at a rate that was well within fair market value. But it was already paying for restricted neurosurgery coverage. The neurosurgeons were fully credentialed for spine surgery. Based on commercial reasonableness requirements, the hospital shouldn’t contract with the orthopedic spine physicians at all: A reasonable entity would not pay for the same coverage twice in the absence of referrals.

MM: Are there any examples from case law?

MH: In Kaczmarzyyk v. SCCI Hospital Ventures, 2004, the court found an excessive number of medical directors in violation of the commercial reasonableness requirement. To help with assessments like this, MD Ranger provides data on the total number of medical directors for hospitals of various types and sizes.

MM: MD Ranger has developed a checklist to make the process more objective.

MH: We are happy to share it. As you said, the regulatory standard is quite subjective, but here are criteria that physicians and hospital administrators should consider that help make it more objective

In the new healthcare transactions book, “Doctor Deals,” Nicholas A. Newsad and Kyle Tormoehlen of Healthcare Transaction advisors provide insight into one of the more recent types of arrangements by which hospitals seek to win patronage of physicians: the development of a “co-management” arrangement.

I recently spoke with Newsad for a primer on these arrangements.

Martin Merritt: What is a physician co-management arrangement and why are we hearing so much about them?

Nicholas A. Newsad: These are contractual arrangements whereby hospitals are engaging groups of independent and employed physicians to manage the quality aspects of one or more hospital service lines, such as cardiovascular services or orthopedics.

Co-management is very effective due to its versatility. These arrangements are extremely adaptable to a wide variety of hospital service lines, as well as the specific goals of different groups of physicians.

HHS’ Office of the Inspector General (OIG) reviewed a cardiology co-management agreement and issued OIG Advisory Opinion No. 12-22 on January 7, 2013.  This has promoted the use of co-management agreements.

MM: How are co-management arrangements structured?

NN: Generally, they are being structured as contractual agreements between a hospital and a separate management company. The management company may be wholly owned by physicians, or the management company may be co-owned by physicians and the hospital itself.

The duties of the co-management company include base duties, for which compensation is fixed, as well as incentive performance targets, for which compensation is tied to results. We usually see at least 30 percent of the total co-management fees attributed to incentive compensation and the achievement of performance targets.

The management services are provided by the physician owners of the management company. For example, for an orthopedic co-management arrangement, we would expect there to be a physician manager for each subspecialty, including ortho-spine, sports medicine, hand surgery, foot and ankle surgery, rehabilitation, and hip and knee replacement.

MM:  Can you explain what works about these agreements in the real world?

NN: Co-management is an effective way to empower physicians with the means to improve hospital operations. If there are willing parties to such an arrangement, then it is merely a matter of developing consensus on the objectives, structure, and the terms of the agreement.

A grassroots approach to developing these arrangements starts with face-to-face meetings with each physician that practices within the service area. Group consensus is most effectively developed by soliciting input from each and every prospective physician participant.

We have observed that the development of the co-management contract can be expedited when independent counsel is engaged. While using hospital’s counsel may save the parties money, it can cause conflicts because counsel is not only drafting the agreement, but they are also representing the hospital. Engaging independent counsel removes this conflict.

Lastly, we’ve found that the terms of the co-management agreement should be negotiated by a small group of physicians that are empowered to speak for the entire specialty group. If the larger group of physicians doesn’t select their representatives on the initial steering committee, then the negotiated agreement terms may be rejected by the larger group.

MM: What else should physicians know about co-management agreements?

NN: Co-management is extremely adaptable to specific hospital service lines, goals, and unique situations. The performance targets can focus on clinical, operational, or strategic goals.

We have observed nearly 70 different performance metricslevied on providers through Medicare’s accountable care organizations, the Hospital Readmission Reduction Program, the Hospital Value-Based Purchasing Program, and the Bundled Payment for Care Improvement Initiative. Payers United, Wellpoint, and Aetna are also following suit.

Co-management arrangements are an ideal mechanism for aligning the interests of physicians and hospitals in this new environment of value-based reimbursement.