Service Line Co-Management: The Ultimate Sustainable PSA? Creating Legal, Effective, and Lasting Alignment

Hospitals have struggled to establish meaningful, lasting alignment with staff and community physicians. Amid the changing landscape of healthcare operations and regulation, physicians often find themselves challenged to decide between some form of employment and remaining independent. In either case, there is substantial pressure to adopt and adapt to broader initiatives being pursued by both government and private payors.

While traditional professional services agreements (PSAs) allow for flexible forms of alignment between hospitals and physicians without sacrificing mutual autonomy, greater focus on value-based care, population outcomes, patient satisfaction and efficiency (cost or operational) has inspired significant evolution among PSA arrangements, in particular for hospital service line co-management agreements (CMAs). CMAs can enable hospitals to substantially improve their quality and efficiency by engaging staff physicians to play a material role in the day-to-day management and oversight of a hospital service line.

From a provider perspective, a CMA can empower physicians to spearhead initiatives to effect positive change in hospital operations and the delivery of hospital services to their patients. CMAs typically feature conditional performance-based incentives that reward physicians for measurable improvement related to quality and/or efficiency metrics and outcomes that the engaged physicians directly influence. Properly implemented CMAs can create lasting material alignment between a hospital and its physician staff for meaningful, patient-centric reasons.

Structuring successful, sustainable CMAs that comply with applicable law and achieve their objectives is not necessarily intuitive. The Stark Law, Anti-Kickback Statute, and CMP laws provide the legal framework. Determining and paying FMV fees to reward effort and align incentives, especially regarding improvement initiatives, requires nuanced considerations. Applying lessons learned can avoid structural and operational pitfalls that await the unwary.

Listen as our panel of an experienced healthcare attorney and valuation expert provides an overview of the key legal, business, and valuation issues implicated by CMAs and offers best practices to optimize them for the long term.