Co-management with doctors is difficult arrangement

With healthcare reform efforts encouraging hospitals to align with physicians more closely, questions are arising about how to do that without running afoul of rules prohibiting kickbacks and collusion. A recent advisory opinion from the Department of Health and Human Services’ Office of Inspector General (OIG) addresses co-management for the first time and offers some guidance on how to structure hospital/physician arrangements to stay out of trouble.

Changes in the Medicare payment system mandate that hospitals and physicians align with physicians, and “co-management” agreements are one option, explains Janice Anderson, JD, shareholder with the law firm of Polsinelli Shughar in Chicago. Accountable care organizations (ACOs) are another option. “The OIG opinion is good news for hospitals making these arrangements,” Anderson says. “It is the first guidance that really addresses co-management and should be really helpful.”

The OIG posted Advisory Opinion No. 12-22 to address a co-management arrangement between a hospital and physicians that is designed to align incentives by offering compensation based on quality, service, and cost-saving measures. The OIG concluded that the arrangement could constitute improper payment to reduce or limit services or induce referrals, warranting civil monetary penalties or Anti-Kickback Statute sanctions; however, the OIG would not impose any sanctions due to several safeguards in the arrangement.

Co-management arrangements are frequently used to align and reward physicians for assisting the hospital in managing a service line and often include incentive compensation to improve the service line’s quality and efficiency, Anderson explains. Although co-management arrangements are widely used in the industry, and the OIG has previously opined on numerous gainsharing arrangements, Advisory Opinion No. 12-22 marks the first time that the OIG evaluated a co-management arrangement, she says.

“Risk managers need to know that, as with any hospital arrangement, there are fraud and abuse issues to be concerned about,” Anderson says. “Co-management definitely raises several issues that need to be addressed.”

The advisory opinion provides hospitals and physicians with helpful guidance as to the OIG’s view of co-management arrangements, although only the requestor can rely upon it for protection, Anderson says. Of importance to its analysis, the OIG emphasized safeguards that have long been recognized as important to protect any type of quality or efficiency payment made by hospitals to physicians.

These safeguards include, among others:

  • independent monitoring to ensure that no inappropriate changes occur to quality or referral patterns and that no inappropriate reduction in care occurs;
  • payments that are deemed fair market value based on the services rendered by the physicians;
  • transparency in the metrics chosen;
  • metrics that reward improvement and not just maintenance of previous levels of achievement;
  • continued access by the physicians to the full panoply of treatment options,
  • reasonable limitation in the duration of the arrangement.

“Be aware that an advisory opinion only protects the party that obtained the opinion, so this isn’t something that you can rely on as actual protection in these arrangements,” Anderson says. “But it’s helpful in giving you an idea of where the OIG is heading in this area and what they are thinking about how to interpret these situations.”


  • Janice Anderson, JD, Shareholder, Polsinelli Shughart, Chicago. Telephone: (312) 873-3623. Email: