Physician Hospital Co-Management Arrangements

By Marshall R. Burack, Akerman Senterfitt

In recent years, a number of regulatory and economic factors have driven hospitals and physicians to find ways to work together in a more coordinated manner in order to improve the quality and reduce the cost of patient care. Factors causing hospitals and physicians to work together include, among other things, bundled payments for services, the imminent introduction of Accountable Care Organizations and other shared savings arrangements, and reduced reimbursements from both private and governmental payers.

Direct employment of physicians is one means by which hospitals can assure a cooperative relationship with physicians. An ever-increasing number of physicians are becoming employed by hospital-owned practices.1 Many hospitals, however, either do not wish to employ physicians directly, or do not have the financial resources necessary to acquire and operate medical practices. Moreover, although more physicians are electing to become employed by hospitals, many physicians do not want to become employees of a hospital or other institutional provider and wish to continue to provide patient services through an independent, physician-owned practice.

Co-Management Arrangements

For those hospitals which do not wish to establish and operate a hospital-owned medical practice, and for those physicians who wish to practice independently rather than as a hospital employee, the physician-hospital co-management arrangement offers an alternative arrangement for aligning financial incentives and encouraging physicians to work cooperatively with the hospital to which they admit patients to improve the quality and reduce the cost of hospital care.

A co-management arrangement typically involves the formation of a management company which is jointly owned by a hospital and independent physician members of the medical staff.

The purpose of the jointly-owned company is to manage one or more service lines offered by the hospital. The management company may be formed to manage a specific, narrowly defined service line (e.g., the cardiac cath lab) and include only a limited number of specialist physicians. Alternatively, the management company could be formed to manage a broadly defined service line (e.g., surgical services, or inpatient medical services) and include a substantial portion of the hospital’s medical staff. In either event, the general objective of the management company in managing a particular service offered by the hospital is to improve the quality of that service, while reducing the cost of providing the service to patients.

In order to achieve this objective, the management company and the hospital would enter into…..

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