Integrating Cost Saving Strategies into Service Line Co-Management Agreements

Updated on December 3, 2013

Kristin TruesdellBy Kristin Truesdell

Healthcare reform is fully upon us, and unfortunately the time has come where hospitals must provide care to increasing numbers of patients with fewer resources.  Corazon has witnessed the money ‘pinch’ that healthcare providers are in; as a result, cost cutting has become a common, almost essential. strategy for today.

When focusing on cost savings initiatives, the most common areas service line administrators evaluate include managing supply costs, reducing length-of-stay, and optimizing resources  However, even the most well-planned strategies are frequently ineffective due to a lack of physician participation.

Thus, improving or creating hospital-physician alignment strategies, particularly service line co-management arrangements, should not be overlooked as a viable means to achieve cost savings.  Although co-management agreements are often multi-faceted, there are typically two main components related to this goal: administrative functions and incentive metrics.

How to Achieve Cost Savings with Administrative Functions

As part of a co-management agreement, physician administrative functions are often based on a list of duties (similar to a job description) and the estimated number of hours necessary to complete them.   When outlining this administrative role, the hospital and physicians must identify which responsibilities can be either directly or indirectly impacted in order to achieve proper management and direction of the service line….and ultimately, cost savings as a result.

Unbiased third-party advice is often invaluable to understand which responsibilities are typically involved, evaluate what can have the greatest impact on operations and finances, and ensure compliance with legal regulations and restrictions.

Administrative duties with cost-savings potential: [call-out]

Patient flow management

Budget development

Work flow/throughput streamlining

Dashboard deployment

Each of these duties requires the participating physician(s) to dedicate and document their time spent in activities that will implement the most efficient and cost effective way of providing care while maintaining quality standards.  And on that note, we believe development of dashboards for service line metrics and individual physician metrics are vital.  They allow for transparency and ongoing involvement of critical performance indicators, which, in tandem with industry benchmarks, can reveal a clear picture of the operational impact on service line financial performance.

Case mix index, mortality/complication rates, contribution margin, and length-of-stay are just some of the metrics that should be regularly reported and reviewed.   These dashboards should be accompanied with a plan of action to correct any areas with lower than the target outcomes.

How to Achieve Cost Savings with Incentive Metrics

Incentive metrics are a second important component of co-management agreements.  They are based on defined measures that typically range from 8-10 indicators with a strong focus on clinical quality, operational efficiency, patient/staff satisfaction, and new program development and their relationship to cost-savings for the service line.  Metrics are then benchmarked against industry best-practice standards and incentive payments are applied to each metric.

The entire process will need to be deliberated and agreed upon by all parties in the co-management arrangement.  If the physicians share in a financial risk based on the performance of each metric, this often translates into a sense of ownership and accountability for achieving better outcomes.

Incentive metrics with cost savings potential:

  • Length-of-Stay
  • Cost per case
  • Overtime costs
  • Readmission rates

As previously mentioned, all proposed metrics should undergo an independent legal review to ensure that adherence to Stark Laws and anti-kickback statutes is not in question.

By reviewing costs and modeling “best practice,” physicians become more involved with any issues and are able to take actions for improvement.  For instance, if cost-per-case for the cardiac cath lab is an incentive metric,  and the data is a compilation of all physicians who perform the procedures, it becomes the responsibility of the physicians in the co-management to address this issue since it has a direct financial impact on their incentive bonus.

Conclusion – Tying it Together

Through Corazon’s national experience, the co-management agreement has proven itself to be a highly effective alignment strategy for hospitals and physicians to achieve cost-savings.

Since the co-management agreement is based on physician administrative participation and metric outcomes, it is natural that performance improvements and increases in financial incentives occur in direct relation to each other.

Although other duties and metrics tied to clinical quality are required and perhaps the most important, the combination of cost savings and achievement of positive quality care and patient satisfaction measures can have a lasting impact for the individual physicians, the service line and the hospital as a whole!  As care improves, all parties are positively impacted, most especially the patient.

Kristin Truesdell is a Decision Support Specialist with Corazon, Inc. For more information, visit

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