Cherilyn G. Murer, JD, CRA

The primary goal of the recent health care reform law is, in the broadest terms, to increase access and quality while lowering cost. Even the law’s most vociferous critics agree that this is a worthy aim and disagree only as to the methods by which that goal should be achieved. For this reason, improving quality and access while lowering costs will remain a political, economic, and social priority of the United States for the foreseeable future.

It is therefore critical to find the best method to achieve this goal. Accountable Care Organizations (ACOs) hold a great deal of promise, but implementation remains difficult at this time. As a result, health care providers are in search of a more immediate solution, and attention has turned to the concept of the co-management agreement, which many regard not only as a useful tool to implementation of an ACO, but an effective model in its own right.

Co-management is guided by similar principles in order to achieve similar results as an ACO. Regardless of the specific methods used for health care reform, the American health system will tend toward greater integration of vision and responsibility between hospital providers and physicians. It is only by understanding co-management and its relationship to ACOs that this process can be understood and successfully carried out.


The Patient Protection and Affordable Care Act (PPACA) was passed with the goal of increasing access and quality while lowering cost. In 2008, health care expenditures in the United States reached $2.3 trillion, or 16.2% of GDP. In both absolute and relative terms, this is more than any other country in the world, and without reform the problem is only expected to grow. The Congressional Budget Office estimates that, without reform, health care expenditures in the United States will rise to 25% of GDP by 2025. Despite the vast sums of money spent, there are serious questions as to whether the quality of care in the United States exceeds or even meets that which is available in other developed countries.

The PPACA has recently come under attack, both in the courts and in Congress. Recently, the Republican-controlled House of Representatives passed a repeal of the bill, but a full repeal is exceedingly unlikely at present. However, even the law’s most ardent critics object only to some of its methods, rather than its overall goals. In fact, Republicans have promised to introduce a new one that would serve the same objectives of cutting costs and improving quality.

It is clear that sheer economic necessity will force some reform of the American health care system. This push for reform enjoys broad political support in general, even if there are disagreements as to the specific means to achieve the desired ends. Therefore, it is certain that health care providers will be forced to find a way to provide more effective care at a lower cost. The ACO appears to be the best vehicle to accomplish that goal.


An ACO is, in its simplest form, an organization of health care providers who voluntarily agree to be accountable for the quality, cost, and overall care of a population of at least 5,000 Medicare beneficiaries enrolled in the traditional fee-for-service program. It is an organizational structure that allows providers and payors to align financial incentives in order to improve care and reduce cost. Unfortunately, no one knows what the precise legal structure of an ACO is. It is such a broad concept that it could encompass many types of provider organizations under a variety of conditions. This uncertainty should be resolved when the Centers for Medicare and Medicaid Services releases detailed rules on ACOs, as expected, within a few weeks.

The principal way that ACOs achieve the goal of higher quality for lower cost is by aligning financial incentives. Today, physicians are reimbursed using the Fee for Service Model while hospitals are reimbursed under the Prospective Payment System. The former incentivizes greater service utilization, while the latter incentivizes less. In an ACO model, providers are no longer working at cross purposes, and they share responsibility for treating patients across the full continuum of care. This fosters cooperation because both physicians and hospital providers are now rewarded for value not volume.

The Congressional Budget Office estimates that ACOs could save Medicare at least $4.9 billion through 2019. This is only a small fraction of total Medicare spending, but these programs would be greatly expanded if they prove successful. Through projects such as the Shared Savings Program and the Medicare Payment Bundling Program, ACOs can receive a portion of those savings. As a result, there is understandable enthusiasm for the ACO concept among many providers.


The transition to the ACO model is a big step for many providers, who will not find it easy to implement. First, it is so different from the way things are currently done that some providers may find the adjustment daunting. Second, the requisite coordination among different providers within an ACO will require large investments in information technology. For example, to effectively cooperate in treating patients, it will be necessary for different providers to switch to electronic health records and then establish methods of sharing that information. It may not be feasible for some providers to pay for these improvements on their own.


Co-management may be the ideal model to transition to ACOs. Co-management agreements are promising vehicles for integrating providers in an effort to increase quality while lowering cost. Under this model, physicians provide medical management services to a hospital well beyond the scope of standard medical director agreements. A co-management company (in which physicians have an ownership interest) contracts with a facility to manage a service line or the entire facility. In return for these services, the new company is paid not only a standard management fee but also incentive fees tied to improvements in quality, efficiency, and satisfaction. This way, physicians and hospitals have a mutual interest in reducing cost while improving care.

There are other benefits too. Co-management agreements allow physicians to have a greater day-to-day oversight of care delivery. Physicians can also be more involved in important administrative issues with the hospital, such as policy drafting, budgeting, and human resources. Also, these agreements help to prepare both hospitals and physicians for future transition to other health care delivery models, including ACOs.


A co-management agreement is very similar to an ACO in terms of integration between hospital and physician providers, the degree of integration in the former being slightly less than in the latter. Therefore, it is this author’s opinion that co-management agreements will often be a precursor to adoption of the full ACO model.

One might opt for the co-management model over the ACO, at least in the interim, because it can be less expensive and less rigid. It requires very little start-up funding, whereas ACOs are likely to need large investments, especially in information technology. Also, because it is essentially a matter of contract, the agreement can tailor the scope of physician involvement and the resulting degree of integration with the hospital to suit the needs of all providers. ACOs are only loosely defined, but because they are a regulatory creation, it is unlikely that they will have the same degree of flexibility. However, it would be prudent to await the final regulations before making any definitive conclusions.

Another reason a co-management agreement might be used as a precursor to an ACO is that it allows hospitals and physicians to improve quality and reduce cost without the same degree of integration of operations and responsibility as they would assume in an ACO. By definition, an ACO requires providers to have joint responsibility for quality of care and cost, meaning they are all in the same proverbial boat. Co-management agreements, on the other hand, give incentives for management companies (and therefore physicians) to achieve the same goals but do not otherwise hold them jointly accountable in the same manner as providers would be in ACOs. Essentially, an ACO can be thought of as a single organization trying to increase efficiency. In a co-management, there are still two distinct entities. It would be understandable if providers were wary of becoming part of an ACO without first testing the waters. This trial can occur with a co-management agreement.


Co-management agreements are useful in their own right, but in the coming years are likely to serve as precursors to implementation of full-fledged Accountable Care Organizations. ACOs are widely regarded as holding promise to meet the urgent needs of the American health care system regarding cost and quality. It is critical that providers looking to lower costs while improving care understand both models in order to optimize their chances of success. Organizations will have to determine the most appropriate way to embrace this new environment, because change is most assuredly here.

Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal-based health care management consulting firm in Joliet, Ill, specializing in strategic analysis and business development. She also serves on the editorial advisory board of Rehab Managment. Murer may be reached at (815) 727-3355, or on her Web site at