Co-Management Agreements, Compensation & Compliance

Published by ABA Health eSource

Hospitals’ critical success factors are shifting towards quality performance benchmarked to national standards. This trend towards improved quality is increasing the need for hospitals to align with physicians since they control the delivery, management, and utilization of clinical services. As a result, many hospitals are involving physicians in various types of service arrangements, such as co-management agreements.

It is important to understand that compensating physicians for assisting in the attainment of high quality care must be set at Fair Market Value (“FMV”) and that the terms of the arrangement must be consistent with regulatory guidelines. Failure to do so could result in criminal and/or civil penalties based on healthcare fraud and abuse laws. The following provides an overview and regulatory guidance associated with paying for quality care and specifically addresses co-management agreements.

The Trend – Paying for Quality

Governmental and commercial pay for performance (“P4P”) programs indicate that compensating hospitals for quality care is becoming more common. Perhaps the most relevant regulatory support related to paying for quality care is based on CMS’ P4P pilot project, the Hospital Quality Incentive Demonstration (“HQID”) Program. In 2003, CMS started financially incentivizing hospitals for quality through this P4P program which was launched by CMS and Premier Inc.1HQID includes more than 250 hospitals which are measured on more than 30 standardized and widely accepted care metrics for patients in six clinical areas – heart attack, coronary bypass graft, heart failure, pneumonia, hip and knee replacements, and the Surgical Care Improvement Project.

There is not yet a nationwide CMS P4P program; however a CMS national Value Based Purchasing (“VBP”) program is expected soon. On January 7, 2011, CMS released a proposed rule establishing the VBP program which would be mandated under Section 3001 of the Patient Protection and Affordable Care Act (“PPACA”). It is anticipated that the new program will provide value-based incentive payments to hospitals beginning in Fiscal Year 2013, based on their achievement or improvement on a set of quality care measures.4 Similarly, Accountable Care Organizations (“ACOs”), mandated under Section 3022 of PPACA are expected to provide financial incentives for quality outcomes; the proposed rule implementing this provision was published April 7, 2011.5 Finally, history has shown that commercial payors are influenced by governmental initiatives and that the entire industry will most likely continue to see growth in commercial payor P4P programs.

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