Biography: Glaser is a health care attorney at Fredrikson & Byron, P.A.
October 17, 2017
4 min read

BLOG: Gainsharing/co-management is a great opportunity for physicians, hospitals

Biography: Glaser is a health care attorney at Fredrikson & Byron, P.A.
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As a physician, you have a unique ability to make the delivery of health care more efficient and save hospitals money, which ultimately has the effect of lowering health care costs. This is true whether you are in independent practice or employed by a hospital. While the Stark law, antikickback statute and other laws place some restrictions on payments from a hospital to a physician, it is crystal clear that with some relatively simple planning, a hospital can compensate physicians for their effort to save money. While the labelling of these payments may differ (sometimes these are referred to as gainsharing arrangements, though I prefer co-management or gainsharing), the basic idea is the hospital is paying the physician for his or her assistance in improving the economic efficiency of the hospital.

There was a time when the legality of these relationships was less clear. However, in 2001, the Office of Inspector General issued the first of 16 advisory opinions allowing a gainsharing/shared savings program. Since then, the OIG has made it clear that as long as a hospital takes proper precautions, gainsharing arrangements are permissible. In fact, in October 2014, the OIG explained that “pending further notice from the OIG, gainsharing arrangements are not an enforcement priority for OIG unless the arrangement lacks sufficient patient in-program safeguards.”

The bottom line is that while it is often difficult for a lawyer to make completely unqualified statements, one can say categorically that it is possible to have a legal relationship between a physician and a hospital to share savings. That isn’t to say that every relationship will be legal but, if designed properly, the program can legally help the hospital, physicians and society.

Determine the scope

How do you launch a gainsharing/shared-savings program? The first question is determining the scope of the program. Some programs focus nearly exclusively on the acquisition of devices, while others are broader, extending into other cost savings. The broadest programs become co-management programs in which physicians may accept responsibility for managing some or all of the hospital’s OR services.

The most straightforward gainsharing/shared-savings programs involve a simple split of cost reductions. For example, if the physicians agree to use a new form of implant and that implant lowers costs by $5,000, the savings are shared between the hospital and the physicians. In the advisory opinions issued by the OIG, that savings is consistently 50-50. The OIG has suggested it might have some concerns if the physicians were to receive more than half of the savings, though there is no law that expressly requires a 50-50 split.

More elaborate programs are often referred to as co-management or management services agreements. Here the physicians become heavily involved in the operation of the OR. The physicians may provide training to the staff and assume responsibility for hiring, firing and other management. Physicians may provide assistance with billing and collection, purchasing, quality assurance and utilization review and other services. Compensation for this work may be done on an hourly basis, at a fixed rate, or, in an approach that offers both more upside and more risk to the physician, using payment linked to performance metrics.

A performance-oriented program typically develops one or more benchmarks for the use of particular protocols, on-time starts, infection control, patient satisfaction and cost targets, and often includes a graduated scale for achieving those goals. For example, a program may establish a threshold for “on-time starts” of 91%. If the physicians reach that benchmark, they receive the bonus. Many agreements include tiered targets with additional compensation as each threshold is reached. Additional increases may merit further compensation. This type of arrangement can be highly advantageous for both the physician and the hospital, but it is absolutely imperative that physicians ensure they have complete control over the metrics used to determine payment.

For example, if the hospital offers to pay an orthopedic surgeon a bonus if a certain percentage of cases start on-time, the physician should decline and reframe the metric to “the surgeon is present and ready to begin the case on time.” Without that change, the physician is subject to loss of payment if the anesthesia team is late or the patient is delayed coming from the floor.

Some programs include link payment to Press-Gainey or other patient satisfaction tools. Once again, care is necessary to verify that the tool won’t penalize you for factors beyond your control. The quality of the hospital’s food and the speed with which nurses respond to call buttons affect patient satisfaction scores, but should not reduce co-management payments.

Term of the agreement

One important question is the term of the agreement. As many of the agreements reviewed in the advisory opinion process were for a term of 1 year, many people, including many health lawyers, believe the term must be limited to 1 year. However, advisory opinion 12-22 permitted a 3-year agreement. The OIG analyzed a hospital’s plan to enter into a 3-year agreement with a cardiology group under which the hospital would share savings and compensate the physicians for co-management of the cardiology unit. The OIG concluded this agreement would not be subject to sanction under the antikickback statute. The advisory opinion explicitly recognized that the 3-year term of the agreement was acceptable. On page 14, the advisory opinion observes that, “The management agreement is written with a 3-year term, and thus is limited in duration.” That the advisory opinion views a 3-year term as “limited,” leaves no doubt that a 3-year term can be acceptable. It also leaves little doubt that a longer term is possible. The OIG does seem to believe, however, that an indefinite term is problematic.

One option you may consider is a multi-year agreement with the plan to revisit the performance targets each year. As long as you establish the new targets before the next year, this approach is both legal and practical.

The bottom line is physicians should not hesitate to suggest that a hospital consider entering into a co-management agreement. As you begin discussions, work with legal counsel who understand both the array of possibilities for structuring the agreement and who can help you spot traps that may prevent you from receiving payment even if you perform the work promised under the agreement.


Disclosure: Glaser reports no relevant financial disclosures.