GE Healthcare Camden Group Insights Blog

Co-management Economic Impact Elements to Consider

Posted by Matthew Smith on Oct 25, 2016 1:10:12 PM

By Panos Lykidis, MBA, Vice President, and Angela Thiagarajah, MHA, Manager, GE Healthcare Camden Group

physician_engagement-1.jpgCo-management agreements continue to grow in popularity as organizations turn to pay-for-performance reimbursement models. These agreements are typically quality focused arrangements in which physician groups contract with hospitals to manage a particular service line to ensure efficient and effective care is provided to patients. Co-management arrangements also allow for hospital-physician collaboration without requiring physicians to become hospital employees. 

Determine the Structure of the Arrangement

To assess the economic impact of a potential co-management arrangement, the first step is to determine the structure of the arrangement, beyond just the service line. For example will this include inpatient and outpatient services and/or medical and surgical services? These services will also need to be further defined through a combination of selecting coding (e.g., MS-DRGs, ICD-10 codes, and CPT codes), specific physicians, and physician specialties. The definition of the structure should be clearly defined and not overly complex, to establish a baseline and enable the development and execution of recurring reports, which will measure future performance. The structural design will be an iterative process, using actual data to test that the volumes, associated with the definitions, are substantial enough to develop a meaningful baseline and internal benchmark, in order to effectively evaluate the performance of physicians.

The baseline is the historical physician performance for the services within the above defined structure of the co-management arrangement. Important metrics for the baseline include volume (discharges and visits), average length-of-stay (“ALOS”), direct variable cost, case mix index (“CMI”), and other quality indicators as agreed upon. A minimum of one year of historical data is typically required to have statistically significant volume to identify trends and project the future impact of performance improvement. It is important for participating physicians to understand how the baseline and benchmarks were developed, and agree to its accuracy.

For benchmarking inpatient services, the CMI, which reflects clinical complexity and resource need of the population served, can be used to weight or adjust the length-of-stay or direct variable cost, for a more meaningful comparison of a single physician’s performance to peers or top performers, by taking into account patient acuity. The gap between the historical performance and the internal benchmark will identify opportunities for improvement. Internal benchmarking is useful when external benchmarks are not available, however, if possible, external benchmarks should also be reviewed and used in conjunction. Using national or other external benchmarks can ensure internal top performers are actually top of field when compared to competitors.

Assess the Cost of Implementation

It is also important to assess the cost to implement. Typically, co-management arrangements include base management and incentive fees. The base management fee is compensation to physicians for their participation in furthering the goals of the co-management arrangement (e.g., committee participation, clinical protocol development, and daily oversight). The incentive fee is compensation for achievement of performance goals such as financial, operational, quality, and patient satisfaction metrics. It is important that co-management agreements be set up in a way to ensure compliance with civil monetary penalty and anti-kickback laws. Organizations should take time to ensure their fees and services are of fair market value and meet commercial reasonableness requirements, in order to avoid legal complications. 

Additional costs to consider include consulting and legal fees and additional staffing needs for program management and analytics. Also, consider the impact of current medical directorships and whether or not these will roll-over into the co-management arrangement. Hospital management should use this process to assess the effectiveness of existing medical directorships and decide which ones should be:

  1. kept separate from the co-management arrangement;
  2. rolled into the co-management arrangement; or
  3. allowed to expire or be terminated.

The implementation of the co-management arrangement will standardize care delivery, reduce supply costs, reduce length-of-stay, and improve quality which will lead to savings and improved value. Achievement of these savings will ramp up over the period of the arrangement, generally three years. If targets are exceeded in year 1 and/or year 2, loftier targets and metrics should be included in future iterations. This is to ensure that the service line incentives keep pace with the progress being accomplished by the collaborative efforts of the physicians and hospital management. An assessment on return on investment should include risk for achievement of savings.

Setting the Foundation

A well-conducted economic impact analysis will serve as a foundation for the creation and implementation of the co-management arrangement. The assessment can be used to educate and align participating physicians and hospital management. It will also set the stage for the work to come, which will include developing an optimal structure, defining performance measures and targets, modeling compensation arrangements, and the execution of the services.

Lykidis_P.jpgMr. Lykidis is a vice president with GE Healthcare Camden Group with more than 15 years of healthcare experience specializing instrategic and business planning for a broad range of healthcareprovider and payer organizations. His experience includes serviceline strategic planning, such as developing hospital/ physician alignment models, co-management arrangements, facility master planning, conducting medical staff development plans and community impact studies, and performing physician needs and fair market value compensation studies. He may be reached at panos.lykidis@ge.com.


Thiagarajah_A.jpgMs. Thiagarajah is a manager with GE Healthcare Camden Group specializing in financial operations and decision support. Her experience includes service line assessments, productivity analytics, and the development of financial forecasting models, including the financial impact analysis and customized payment bids to prepare organizations for bundled payments. She has led the successful implementations of financial information systems for hospitals. In addition, she has worked to streamline hospital operations and finance functions. She may be reached at angela.thiagarajah@ge.com.



Topics: Hospital-Physician Collaboration, Volume-Based Reimbursement, Panos Lykidis, Angela Thiagarajah, Reimbursement Models, Co-Management

10 Questions That Are Often Overlooked by Health System Management Teams During a Mid-Year Checkup

Posted by Matthew Smith on May 9, 2016 4:06:42 PM

By Panos Lykidis, MBA, Vice President, GE Healthcare Camden Group

interview-questions.jpgMany health system management teams and boards use dashboards to track their organization’s performance. The purpose is to do a quick view of current trends. But, how often do you dig deeper to evaluate performance against metrics, market trends, and your strategic plan? This list poses 10 questions you may have overlooked or should proactively address as you consider your organization's mid-year checkup.

1. Narrow network strategy

Your organization’s payer mix no longer changes based only on consumer choice or socio-economic status. Are you securing narrow network positioning that benefits your organization while strategically displacing one or more of your top competitors? The opportunity cost of not being on the right side of this equation is compounded by the significant advantage you may be gifting to your competitors.

2. Physician enterprise results

You have aligned with some of your physicians. You listened to the right advice. However, have you evaluated if you are getting the optimal desired results? Keeping your physicians happy is only part of the answer. Recalibrating and tying the performance of your physician enterprise to your organizational targets should be an annual if not mid-year exercise. Is its performance aligned with your population health management strategies? Assuring that physician-hospital strategies are aligned with payer strategies is critical in today’s environment.

3. Mid-year strategy tune-up

Some of your strategies worked, some have not. Have you given enough focus on understanding why some failed? Is it due to timing, market factors, or poor execution? Unless you understand all the contributing variables, you will not improve your success rate and will continue to diminish the value generated from your annual planning efforts. Do you need to eliminate some strategies and reinvigorate others? Re-setting priorities periodically is critical when the market is changing quickly.

4. Risk mitigation analysis

All strategies have varied degrees of associated risks. Some organizations ignore them; others make sure to be aware of them. However, risks are not fixed variables. They can be prospectively mitigated to increase the chance of success. Are you including a risk mitigation analysis in all your strategic planning? It is a vital mid-year step that can help you decide between choices with the same potential return.

5. Department/Service line business process efficiency analysis

There have always been periods where organizations focus on “trimming the fat” and becoming lean. These efforts are often followed by periods of no growth, as the remaining staff struggle to perform the basic duties of the organization. Like a shark that has to keep swimming to survive, an organization must continue to grow. Are your departments and service lines operating efficiently and optimally? A business and clinical operational process assessment can improve your department and service line operational efficiencies, fuel your growth by reducing waste, and be funded through future savings, since most of these engagements are structured wholly or partly at-risk for the vendors providing these services. Further, they are critical to enabling success in new payment models, such as bundled payment or shared savings.

6. Pre- and post-acute continuum services

Historically, what happened inside the walls of the hospital dictated how the organization fared. Then, outpatient became as important. Today, the question is, are you winning the pre- and post-acute care battle? What is your strategy to partner, provide, or acquire these services? Focusing on the whole continuum of care means that you need to be very good at things you did not do or maybe even think about just five years ago.

7. Revenue impact assessment

Changes to worry about used to be related to losing one payer contract or seeing one medical group align with a competitor. In today’s competitive environment, the changes are happening in waves, with the impact becoming exponential. Can your organization survive a 15 percent revenue decrease? You must have a revenue-focused growth contingency plan in place to weather such an eventuality for 6 to 12 months, in order to prevent a tough blow from becoming a fatal one.

8. Philanthropy, again

Competition is not a new phenomenon, but it is not only about market share, physician alignment, and service growth. With financial pressures negatively impacting operational margins, philanthropy is becoming all the more important. The haves and have-nots are also distinguished by how much philanthropy they attract. Are your vision, brand, and message attracting the right levels of philanthropy?

9. Care model redesign

You have probably revised your care protocols to achieve best practices across your organization. Have you assessed the effectiveness of your care models for today’s needs? Are they positioning your organization to succeed in value-based payer relationships? Are they responsive to new entrants into your market that are patient and technology-friendly? They should be enhancing your ability to attract, engage, and retain patients. If they are not resulting in behavior change from your providers, with tangible results, then it is time for an adjustment.

10. Competency-guided governance

Lastly, the complicated questions laid out here demonstrate the sophistication needed to navigate the current healthcare landscape and make decisions that could determine if an organization will survive. Do you have the right board composition for this climate? What was appropriate before may no longer be the case. It is essential to determine what competencies the board needs (individually and collectively) to effectively govern the organization through these complex and changing times. The results of a competency needs analysis can help you create a board that is more engaged and more confident in tackling their fiduciary duties.

A mid-year check-up using some or all of these questions will put your organization ahead of the curve in weathering the evolving healthcare environment that persists. Riding the turbulence successfully will be the challenge of the decade for all.

Mr. Lykidis is a vice president with GE Healthcare Camden Group with more than 15 years of healthcare experience specializing in strategic and business planning for a broad range of healthcare provider and payer organizations. His experience includes service line strategic planning, such as developing hospital/physician alignment models, co-management arrangements, facility master planning, conducting medical staff development plans and community impact studies, developing co-management arrangements and performing physician needs and fair market value compensation studies. He has extensive experience guiding healthcare organizations in developing actionable strategic plans, including facilitating planning retreats utilizing a dynamic approach that ensures active participation by all participants and resulting in maximum buy-in. He may be reached at panos.lykidis@ge.com.

Topics: Panos Lykidis, Healthcare Planning, Strategic Planning, Healthcare Strategy, Narrow Network Strategy

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