“Sometimes, the best deals made are those in which both parties feel as though they have left something on the table.”
To quote a healthcare attorney who had just inked a deal between a hospital and a group of physician investors for the development of a co-management agreement, this was his perspective, and quite possibly, the ideal one to have when developing physician-hospital alignment. This is not to imply that either party should enter into a formal relationship with deceit or unwillingness to share in the business partnership. Rather, both parties need to apply sound business acumen to ensure long-term successes for their arrangement, which includes collaboration, compromise, and communication.
While physician engagement ventures can take on many forms…from simple Professional Service Agreements (PSAs) for medical directorships, to very detailed legal entities providing co-management service, to a joint ventured ambulatory surgery center (ASC) providing diagnostic catheterization and interventional services.…the premise is the same: a hospital entity and a physician entity working together to benefit the community.
There are many factors in today’s cardiovascular care arena that are driving hospitals and physicians to work collaboratively in new business arrangements. Both physicians and hospital providers continue to feel the pressures of reduced revenue streams, increased reliance on expensive technology, intense competition, a shift of cases to the outpatient setting of care, and support for value-based reimbursement methodology. Additionally, changes in CMS regulations have decrease barriers for new relationships and concepts such as gainsharing, which were previously considered to be taboo or at least fraught with regulatory scrutiny. Now, gainsharing concepts now can be part of incentive bonus plans within a co-management agreement for instance. The landscape is continually changing!
In some markets, cardiac services-related joint venture relationships between physicians and hospitals are in an infancy stage. However, in markets such as Florida and Texas, physician entrepreneurship is emerging at a much faster pace. This entrepreneurship can create new competition for hospitals, or can be viewed as a new opportunity for hospitals to collaborate with physicians…perspective is key!
As Corazon travels the country working with cardiac programs of all sizes and shapes, we have examined what has worked well in the development of successful physician-hospital relationships. Based on this experience, Corazon offers the following information about hospitals that have incorporated key business principles in the development of several varied venture relationships with their physicians.
A Management Service Agreement: Working to Achieve a ‘Win-Win’ Proposition
A Corazon client in the South used sound business principles to develop a management service agreement for same-day catheterization services. This concept was applied to the management of this patient population as a means to align physician focus and commitment with operational performance improvement targets.
Under this type of management service agreement, hospitals generally choose to contract with an outside entity to provide a variety of management functions that can include any or all of the following:
- Day-to-day operations oversight and control*
- Professional physician services and staffing
- Case Management*
- Utilization Review
- Quality Assurance*
- Medical Directorship*
- Clinical process improvement*
- Program development*
- Payor/employer relationships
Our client negotiated a management service agreement for the services indicated by an asterisk (*) with the Cardiology group providing services at their hospital. This negotiation process was successful due to their laser focus on developing a ‘win-win’ proposition for all parties.
Key to the contract development and ongoing viability of this model’s success was the spirit of trust and honest, respectful dialogue on both sides of the negotiation table. Also, our client took care to validate a fair market annual fee paid to the physician group providing the management services.
A bonus structure was also developed with payouts tied to the achievement of credible clinical outcome measures and demonstrative operational and management goals. Key to this process was the development of objective measures to provide a baseline and ensure compliance with pre-set bonus thresholds and information systems that track these measures. Legal experts caution close scrutiny of goals for assuring that they are not a proxy for referrals.
A Joint Venture Catheterization Laboratory: Carving Out a Piece of the Pie
Corazon also assisted a West coast client in devising a relationship, in this instance developing a framework for a joint catheterization laboratory. Our research and experience indicated that a facility contiguous to the hospital offers the best advantage in patient triage, operating costs, and convenience to the physicians and hospital staff. The movement of patients from the for-profit catheterization laboratory can be quite complex and requires vigilance to assure a separation of the two operations. This is essential to protect the tax-exempt status of the non-profit hospital entity.
Certainly, many different factors to consider in this example, but again, the hallmarks of the communication and negotiation process should be in place as a means to establish a solid foundation for moving forward.
These examples highlight business principles and key features that we believe are paramount for a successful joint venture. They certainly do not cover every relevant issue in evaluating the business aspects of any particular arrangement, as each situation must be analyzed individually in the context of internal hospital situation, external market forces, physician dynamics, and more.
Regardless of how you collaborate with your physicians to expand market share and develop your cardiovascular service line, the most integral component is a solid relationship in which both parties work toward a realistic and mutually-beneficial outcome. Thus, defining the common goals of the hospital, health system, and key physicians should be the first step in creating any joint venture so the end goal is the same for all those at the table.
