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Tip of the week: Determine the provider and the payer when outsourcing patient services

Managed Care Weekly Advisor, May 16, 2007

Before a hospital enters into contracts with managed care payers that might encompass outsourced patient care services, it's important to determine who provides the service and who expects to be paid. Consider these three basic outsourcing structures:

  1. A joint venture. The hospital and partners provide the service mutually and split the profits. Although true joint ventures are limited by the Stark law and reimbursement, the arrangement is straightforward. For example, in a joint venture between a hospital and its surgeons to provide outpatient surgery services, the joint venture itself would be the provider that collects revenue from the services and splits the profit among the owners.

  2. A contractual agreement. An outside vendor provides the service and retains individual profits. Contractual agreements are the least integrated approach but make up a larger variation of models. Outsourced relationships within this structure can include simple management agreements, purchased service agreements or an underlying agreement between the hospital and the service vendor.

  3. A third party. The third party would provide the service through an outside vendor agreement, but the hospital or health system retains the profits. This structure is typically used when a hospital seeks outside expertise for a limited period of time. When using this approach, it is crucial to make sure there is a legal system that satisfies federal, state and contractual billing obligations and avoids kickbacks and self-referrals.