OIG Advisory Opinion Engenders Hospital-Physician Collaboration

Federal efforts for several years, including “Obamacare,” have focused on encouraging consolidation in a historically fragmented industry.  This has been driven through incentive programs (EHR funding, eRx, Medicare’s Shared Savings (ACO) Program, etc.) and through targeted cuts in reimbursement (to physician ancillaries, outpatient services, readmissions, and the general legislated slowdown in future rate increases).

In the face of these pressures, there has been a significant amount of consolidation and other non-employment alignment arrangements.  However, there are a variety of rules that prohibit both payment for referrals and incentivizing a reduction in healthcare services to federal healthcare beneficiaries (the Anti-kickback Statute, Civil Monetary Penalties, etc.).  Therefore, cost is a measure that isn’t tracked or rewarded financially, despite obvious potential for cost-savings without reducing the accessibility or quality of patient care, such as utilizing a common formulary or selecting a more common set medical supplies.

One of the arrangements that is permissible is called a clinical co-management agreement.  This is a hospital-physician collaboration arrangement where the hospital purchases contracted services from a group of physicians with the intention of improving the performance of a hospital service line, such as surgery, orthopedics, oncology, etc.  The intent of the arrangement is to improve quality, safety, outcomes, efficiency, patient satisfaction, and related items.

An Advisory Opinion, is the first signal that the government will accept a co-management arrangement that contains cost-savings as a specifically allowable component of compensation to the management company (physician-owned).  This will allow hospitals to be more thoughtful about the financial commitment necessary to attract a group of physicians to improve the hospital’s performance.  That is, if cost savings is measured, tracked, and modeled up front, a hospital can make better decisions about the significant commitment of resources that some co-management arrangements represent.  This is especially important in an era of reduced reimbursement.

There are a number of safeguards associated with following the Advisory Opinion, so it is a nuanced task to create co-management arrangement that is compliant from a regulatory standpoint (including ensuring the fees paid are “fair market value”).  However, for interested hospitals and health systems, this will surely be a new tool in creating more or improved win-win physician alignment arrangements.

— Tom Watson is the managing partner of BKD’s Dallas-Waco practice.

Posted in Expert Opinions.