Wooing the Surgeon (Part Two)

Empower Surgeons to Manage the Service Line

You don’t need to spend much time with orthopedic surgeons to learn that they like to be in control, especially where the care of their patients is concerned. When you involve your surgeons in managing your orthopedic program, you typically see happier physicians and better outcomes. Three tactics to include orthopedic surgeons in the management of the service line are:

• Physician-led service line structure
• Management services agreements (MSAs)
• Co-management arrangements

Physician-Led Service Line Structures

Strong physician leadership often helps solidify the service line and enhance hospital/physician alignment. As illustrated in Figure 3, management of a service line may be led by an administrator, a physician, or both.

Figure 3: Orthopedic Service Line Leadership Structures

Physician-directed and dyad management models have benefits for physicians and hospitals alike. In both cases, orthopedic surgeons get a stronger voice in the management of the service line. Physician leaders can also do wonders for hospitals because they are often best prepared to ensure quality and safety, achieve pay-for-performance goals, pursue service development opportunities, and foster relationships with employed physicians and independent medical staff members. Physicians have an insider’s understanding of the healthcare environment which administrators may lack. A leader with this unique perspective can help bring improved patient outcomes and compliance. However, hospitals must take care to find a physician leader who has business experience and understands the nuances of running a well-managed operation. Such multitalented physicians are often difficult to find, and not all programs are fortunate enough to have someone who can be both physician and leader.

The dyad model tries to find a happy medium between administrative management and physician-directed management. This model benefits from having both the clinical expertise of a physician and the business experience of an administrator. Each leader brings a specialized skill set to the organization, integrating a clinical focus on patient care with an eye for the business side of hospital management. The model creates an effective line of communication between administrative, medical, and nursing staff. However, a dual reporting relationship introduces additional complexities into the system that need to be managed. A successful dyad model must come with a clear definition of management roles and responsibilities.

Management Service Agreements

Management Service Agreements (MSAs) can also provide orthopedic surgeons with the operational control they seek. Under an MSA, the hospital contracts administrative responsibilities for a service to a physician-owned management company. The payments associated with this service must be set at market levels (i.e., fees charged by other management companies). MSAs enable physicians to enjoy operational control similar to that of an equity joint venture. However, the lack of a capital investment from physicians limits potential upside gains and also mitigates downside risk. Figure 4 presents the relationships involved in an MSA.

Figure 4: MSA Relationships

MSAs are designed to enhance quality and control the cost of care within orthopedics. Agreements often provide for one or more medical directors, an executive operations director, and an outcomes measurement coordinator. A portion of the compensation for the MSA should be performance‑based and can be dependent on scores in many areas of importance to the service line, including medication reconciliation, appropriate care score for hip and knee, medical record compliance, overall patient satisfaction, and pain control. Performance-based compensation cannot be directly tied to cost-reduction efforts.

Co-management Model

Under a co-management model, the hospital and orthopedists jointly own a management company that (1) manages day-to-day service line operations and (2) plans the long-term development of the hospital’s orthopedic service line. The physicians and the hospital hold equity interests and share the governing power of the management company board.

While certain material business decisions must be subject to final approval by the hospital board (to meet regulatory requirements), the management company develops strategic plans and operating policies, and oversees the day-to-day operations of the orthopedic service line. Its purview often extends to all orthopedic services, both inpatient and outpatient.

However, orthopedic department facilities that are not located on the main campus of the hospital must maintain specific governance, management, and staffing requirements to meet provider-based regulations. Usually, the physician investors in the management company will be restricted from directly or indirectly owning, managing, or operating a competing facility.

Partner With Surgeons Through Mutually Beneficial Equity Joint Ventures

Joint ventures allow hospitals and physicians to work together to build a program based on trust and mutual benefit rather than control.  As the name suggests, equity joint ventures involve establishing a business co-owned with physicians. That ownership position often includes significant physician control of day-to-day operations, staffing, and scheduling. If an existing business is converted to a joint venture, it must be purchased by the venture at fair market value. Investors will earn a return on their investment from both dividends and capital appreciation. Therefore, the selling of shares is typically tightly restricted by the shareholder agreement. Figure 5 summarizes the relationships in an equity joint venture.

Figure 5: Equity Joint Venture Relationships

Potential joint ventures with orthopedic surgeons include orthopedic hospitals, ambulatory surgery centers, imaging services at physicians’ offices, and physical/occupational therapy. Joint ventures offer many benefits to both the hospital and the orthopedic surgeons, including the chance to develop increased collaboration and trust, and a potentially high return on investment. It is important to note that although many joint venture ambulatory surgery centers (ASCs) have failed, the reimbursement climate for orthopedic ASCs is improving quite favorably. 

A successful joint venture strategy should be based on the goals of your orthopedic program. After you clarify these goals, you are ready to formulate a joint venture strategy through the following activities:

• Define joint venture evaluative criteria to assess the impact of future joint venture opportunities and provide a decision process for pursuing potential joint ventures.
• Understand the legal considerations and the implications of your options.
• Identify and determine the main structural elements of potential joint ventures, including corporate structures, ownership structures, governance, and management to define how the hospital and physicians will align interests.
• Identify and prioritize joint venture opportunities.

Conclusion

Boomeritis translates to a growing demand for orthopedic services and an attractive opportunity for hospitals to expand their orthopedic programs. However, hospitals cannot benefit by competing against orthopedic surgeons. Instead, hospitals must partner with surgeons to develop jointly beneficial working environments. Giving surgeons more OR time, involving surgeons in service-line leadership, and building joint ventures are all sound strategies for expanding orthopedic programs. Whether a hospital is hoping to lower implant costs, regain lost outpatient business, or expand its range of orthopedic surgical and medical services, a strong partnership with physicians is the key to success. By developing closer alignment with orthopedic surgeons, hospitals can capture an increasingly attractive market, control costs, and improve patient care. Like the growing number of marathon runners in the boomer generation, orthopedic surgeons and hospitals alike need to learn how to hit their stride together.

For questions about this article, Mr. Fink can be contacted at jfink@ecgmc.com.