OIG Approves Co-Management Arrangement

by Akerman LLP

Hospitals across the country have been actively seeking to align physician interests with the interests of the hospital, in order to provide high quality patient care in a more coordinated and efficient manner. Many hospitals have acquired physician practices and employ physicians directly. Other hospitals, acting in response to the Accountable Care Act, have formed accountable care organizations, in an effort to generate and share savings in connection with the care of Medicare patients.

Another option for aligning the interests of physicians with the interests of the hospital is for the hospital to enter into a co-management arrangement with physician members of the hospital's medical staff. Under a co-management arrangement, the hospital engages a group of physicians to manage one or more service lines offered by the hospital. Alternatively, the hospital can form a management company and invite physician staff members to become part-owners of the management company and participate in the management of hospital services.

In either case, the payment of management fees to physicians who refer patients to the hospital raises potential regulatory concerns under the Civil Monetary Penalties Statute ("CMP Statute"), which prohibits hospitals from making payments to physicians as an inducement to reduce or limit services provided to Medicare or Medicaid beneficiaries. Co-management arrangements also raise concerns under the Anti-Kickback Statute, which prohibits the payment of remuneration to induce the referral of items or services reimbursable by any federal health care program. These statutes do not, however, present an insurmountable obstacle to the implementation of a co-management arrangement. If structured properly, a co-management arrangement enables a hospital to compensate physician staff members, without violating applicable healthcare statutes, for assisting the hospital in improving the quality and efficiency of hospital services.

In its final Advisory Opinion of 2012 (OIG Advisory Opinion 12-22, issued: Dec. 31, 2012, posted: January 7, 2012), the Office of Inspector General ("OIG") provides a useful road map for structuring a co-management arrangement to comply with applicable law. In that Opinion, the OIG approved a co-management arrangement in which a hospital paid a cardiology group to manage the hospital's cardiac catheterization laboratories (the "Arrangement"). The compensation paid by the hospital included a fixed management fee and a performance bonus, based upon achieving certain quality and costs savings benchmarks in connection with operation of the cath labs.

Pursuant to the Management Agreement between the hospital and the physician group, the group assumed responsibility for overseeing cath lab operations, providing strategic planning medical direction services, and various other management services. In consideration for providing such services, the hospital agreed to pay the group a guaranteed fixed payment, plus a potential performance-based fee, based upon achieving certain benchmarks relating to employee satisfaction, patient satisfaction, improved quality of care, and implementation of certain measures to reduce costs attributable to cath lab procedures. The largest component of the performance fee was related to achieving costs savings.

The OIG determined that, although the Arrangement (i) could potentially constitute an improper payment to induce the reduction or limitation of healthcare services, in violation of the CMP Statute, and (ii) could potentially generate prohibited remuneration in exchange for referrals under the Anti-Kickback Statute, the presence of certain "safeguards" minimized the possibility of violation of the applicable statutes. Because the likelihood of violation of these statutes was minimal, the OIG stated it would not seek to impose sanctions against the parties. The OIG identified the following features of the Arrangement as safeguards which minimized the potential for violation of the CMP Statute: (i) the hospital's certification that the Arrangement did not adversely affect patient care; (ii) low risk that the Arrangement would cause physicians to use medically inappropriate items to achieve cost savings; (iii) the financial incentives to achieve cost savings were reasonably limited in duration and amount; and (iv) the presence of certain other limitation on physician actions, including restrictions against a) stinting on patient care, b) increasing referrals to the hospital, c) cherry-picking healthy patients or patients with desirable insurance coverage, or d) accelerating patient discharges.

Safeguards which minimized the potential for violation after the Anti-Kickback Statute included: (i) the hospital's certification that both the fixed fee and the performance bonus represented fair market value compensation for the services performed; (ii) the compensation paid to the physicians did not vary with the number of patients treated; (iii) the Arrangement would not serve as an incentive for the physicians to refer patients to the hospital's cath labs instead of to a competing facility; (iv) the Arrangement was designed to improve quality rather than to reward referrals, and (v) the Arrangement had a limited duration.

Hospitals and physician groups which are considering entering into co-management arrangements pursuant to which the hospital would pay physicians to manage one or more hospital services should review Advisory Opinion 12-22 carefully and utilize it as a road map for structuring the arrangement. The parties should seek to incorporate as many of the "safeguards" identified in the Opinion as possible.

Attorneys in Akerman's Healthcare Practice Group have experience in setting up co-management arrangements, and welcome the opportunity to discuss such arrangements with interested parties.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akerman LLP | Attorney Advertising

Written by:

Akerman LLP

Akerman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.