Shared Savings and Co-Management: Are They the Same?

I often emphasize the importance of choosing your words carefully, and today I’d like to do that in the context of what is often called “gain sharing.” Starting in about 2001, the government formally approved programs through which a hospital or other healthcare organization compensates physicians for working with the hospital to lower costs and improve quality.

Originally, those programs were generally referred to as gain sharing. Subsequently, “shared savings” and “co-management” have gained popularity. While all three terms are commonly used to describe the same approach to lowering costs and improving outcomes. I strongly prefer referring to the program as co-management, and I think it is worth talking about why.

The biggest regulatory issue surrounding co-management programs is a concern that the payments to the physician are actually functioning as a kickback, attempting to curry the physician’s favor with cash, rather than compensation for work. Imagine that you’re begin investigated for your cost savings program. Would you rather be talking to the investigators about how you are “jointly managing a program to improve quality” or how you’re “gain sharing?” It’s not a close call. Patients want physicians to manage their care. The idea that the physician will “gain” from the care will trigger immediate concern. While it is certainly true that everyone involved in healthcare is getting paid for it, actually talking about money or profit is widely considered gauche. 

The term “shared savings” is far superior to “gain sharing.” But since the Centers for Medicare & Medicaid Services (CMS) has also used the term when referring to Accountable Care Organizations (ACOs), I think co-management is by far the clearest term.

The legal analysis of co-management programs is one of the most interesting you will find. During the 1990s, the government, including both CMS and the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) consistently indicated that programs it referred to as gain sharing were illegal. Suddenly, right around 2000, the OIG began issuing advisory opinions permitting co-management programs. What makes this so interesting is that the law didn’t change. Instead, it was entirely the OIG’s view of an existing statute that changed.

The provision in question is part of the Civil Monetary Penalty statute. It prohibits payments that are intended to limit beneficiary access to services. CMS’s original position was that a program to standardize implants or otherwise reduce costs was reducing beneficiary access to services. But then, without any change in the law, CMS realized that if the services being reduced due to either being unnecessary or an equivalent service was being substituted, the provision didn’t apply. Basically, the government had a complete change of heart with respect to interpreting the law.

Last week, the U.S. Supreme Court heard a case that, when decided, we will be talking about at length, because it will shape how much courts defer to regulatory agencies. The experience with co-management is a reminder that government agencies are as fallible as the rest of us. 

I want to make one final point with respect to interpreting the law, with respect to co-management programs. I’ve seen many lawyers insist that the programs must be limited to one year. This conclusion is based on the fact that most of the advisory opinions review one-year deals. But this reflects a terrible understanding of the advisory opinion process. When an advisory opinion permits a payment lasting a year, that doesn’t mean longer programs are inherently improper. In fact, an advisory opinion issued in 2012, Opinion 12-22, reviewed a management agreement with a three-year term and described it as “limited in duration.”  Nevertheless, I’ve seen many lawyers insist that programs must be limited to one year. The take-home lessons are that it’s important to choose your words carefully, so it becomes hard for a naysayer to reframe your legitimate cost-saving efforts as an improper money-grab – and read legal opinions, whether issued by the government or private attorneys, with a very critical eye.

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David M. Glaser, Esq.

David M. Glaser is a shareholder in Fredrikson & Byron's Health Law Group. David assists clinics, hospitals, and other health care entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David's goal is to explain the government's enforcement position, and to analyze whether this position is supported by the law or represents government overreaching. David is a member of the RACmonitor editorial board and is a popular guest on Monitor Mondays.

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