Now that new physician-owned hospitals are banned and current physician-owned hospitals are prohibited from expanding under the Affordable Care Act, hospital leaders can integrate physician-owned, best-practice concepts into a hospital service line by creating co-management agreements.

In the co-management model, physicians are engaged in and compensated for their roles in program development. Hospitals benefit from better patient satisfaction metrics, and physicians benefit by providing more options for their patients at multiple facilities.

This synergistic relationship between physician groups of all specialties and administrators is essential for success as value-based purchasing will require hospitals to continue to improve patient care and demonstrate greater efficiency. Engaged physicians can make all hospitals perform like physician-owned hospitals.

Co-management at a Hospital in the Midwest

Our hospital, the Midwest Orthopedic Specialty Hospital, is a joint venture with 50/50 ownership between a physician investment group and Wheaton Franciscan Healthcare. The hospital opened in 2008, just prior to the enactment of the ACA. Unfortunately, our facility has only 16 inpatient beds and it is typically running on a full inpatient census. Yet, expansion is not possible.

Our patients needed better access, so we created a service line co-management agreement between the system and the orthopedic surgeons to improve our orthopedic programs throughout the entire system. Under the agreement, physicians are compensated for working with hospital administrators to transform orthopedic delivery so that it mimics care pathways employed at our physician-owned specialty hospital.

The co-management agreement has allowed us to extend the experience of a physician-owned hospital to the remaining seven surrounding hospitals within southeastern Wisconsin. It has provided benefits to our patients, while also benefiting the health system with improved performance in the new value-based purchasing. This alignment also will allow for a smooth transition of our physician group and health system to clinically integrate into stronger entities involving accountable care and risk-sharing ventures.


Our service line co-management agreement is entering its third year. The care pathways employed at Midwest Orthopedic have led to high patient and employee satisfaction, successful implementation of a two-day total joint pathway, and numerous efficiencies in orthopedic surgical and hospital care. Our efforts to deliver the highest quality of patient care have been acknowledged through the prestigious Press Ganey Inpatient Summit Award in 2012.

Other care pathways we have successfully implemented include dual-implant systems in total joint, trauma and spine surgery, improved operating room efficiency, block utilization, and on-time starts. We also have created a unified care pathway for all orthopedic subspecialty patients at our hospitals. Objective measures of our success include metrics that were chosen to improve patient satisfaction and to assist us in optimizing our ability to successfully navigate value-based purchasing. Results obtained are systemwide:

Sustained improvement in the inpatient and outpatient antibiotic selection measures. The physicians consistently have scored at 100 percent for both measures since the beginning of the agreement.

On-time surgery starts. In evaluating our three major markets throughout southeastern Wisconsin, our physician group exceeded targeted performance with 72 to 83 percent of surgeries starting on time. Our target was 63 percent based on our fiscal 2011 baseline, which was 48 percent. 
Block utilization. In fiscal 2012, we set the target at 53 percent and, at the end of the year, 59 percent of the blocks were being used. In the prior year, only 45 percent of the blocks were used, so we saw improvement of nearly 15 percent in a year. So far in fiscal 2013, this market has sustained the 2012 performance and is continuing to improve, with the most recent month showing a 70 percent block utilization rate. In the remainder of the system, we targeted block utilization at 38 percent and, so far, have outperformed this goal, with the most recent month showing a 59 percent rate. 

Supply chain savings. Savings likely will be achieved due to the physicians' agreement to use common vendors for implants. For spinal surgeries, we project savings across southeast Wisconsin of 17 percent over last year's spine implant costs. For total hip and knee arthroplasty, we project we will save 7 percent over last year.

Our patient satisfaction and outcome scores on patient satisfaction measures have improved significantly throughout the system. We also specifically evaluate our performance monthly to ensure that we are progressing toward our predetermined goals based on many other clinical metrics in all of the subspecialty programs implemented at the clinical sites.

Other, nonquantifiable benefits of our co-management agreement include:

  • improved relationships between hospital administrators and orthopedic surgeons;
  • improved alignment among orthopedic surgeons from several competing groups to deliver enhanced orthopedic services for patients;
  • key programs to improve services for patients (common spine program across all Wheaton Franciscan hospitals and establishment of a common care pathway for joint patients);
  • shared protocols across all Wheaton Franciscan hospitals to enhance the patient experience and quality outcomes.

Capturing the Values of Physician-owned Hospitals

Delivering the highest-quality patient experience possible always has been the goal of physicians and hospital administrators. Physician-owned hospitals have demonstrated that engaging physicians in the administration of the patient experience most often leads to greater patient satisfaction and better clinical outcomes. In fact, the Physician Hospitals of America in January 2012 reported that 16 of the 37 hospitals awarded Press Ganey's Inpatient Satisfaction Summit Award honor were physician-owned hospitals.

With the ACA's prohibition on expanding physician-owned hospitals, health systems need to emulate the factors that lead to better satisfaction and outcomes. They can do that by enacting co-management agreements. 

William T. Pennington, M.D., is a partner and consultant with OSM Consulting LLC; a physician member-owner of Midwest Orthopedic Specialty Hospital, affiliated with Wheaton Franciscan Healthcare; and vice president of the Orthopedic Institute of Wisconsin in Franklin.