Published 9/1/2015
Craig R. Mahoney, MD; Leslie H. Kim, MD; Kyle Shah, MHA

Two Ways to Achieve Hospital-Physician Alignment

IPAs and co-management arrangements may be attractive options

One of the aims of the Affordable Care Act was to increase alignment between doctors and hospitals. Alignment strategies such as accountable care organizations (ACOs), clinically integrated networks (CINs), medical homes, or bundled payment programs all encourage collaboration between doctors and hospitals, enabling more efficient and effective care.

The advantages of these enhanced alignment strategies include the following:

  • more and better communication among physicians to improve patient care and create tighter bonds between providers
  • a steadier stream of patient referrals to specialists from within a system
  • extra revenue to specialists through shared savings or improved efficiencies

However, participation has downsides as well, including an increased reporting burden, increased labor costs, delayed or reduced payments, a potential decrease in referrals from outside the health system, and internal governance issues.

As a result, many independent orthopaedic surgeons and groups remain apprehensive about participating in these new payment models. Maintaining practice independence, having influence in patient care, and sustaining financial success can be difficult without changing the practice’s business strategy.

One option is to increase the size of the group, resulting in increased bargaining power. Another option is to align with the hospital system while continuing to maintain practice independence. This article examines independent practice associations (IPAs) and service line co-management agreements as options for self-employed orthopaedic surgeons.

Because physician-hospital alignment is the means, not the end, alignment can take several forms. The following guiding principles should be considered when examining alignment options: shared vision and goals, integrated identity, transparency and communication, trusted and trustworthy governance, and physician leadership.

It is axiomatic that culture trumps strategy, and, like politics, that health care is local. Questions that can be asked to help determine readiness for alignment are listed in Table 1. In many areas, particularly those with a strong managed care legacy, IPAs can provide a support structure that effectively addresses these questions and concerns.

IPAs have typically and successfully navigated the transition from volume to value by managing the largest bundled payments (ie, capitation), balancing cost and quality, clinically integrating to overcome antitrust constraints, gaining size (which matters) and standing with payers and hospitals, fostering healthy private practices, and cultivating a culture of cooperation. They also have the requisite legal, accounting, consulting, and organizational staff infrastructure. All of this can be created de novo, but IPAs may offer a head start for independent practices.

IPAs serve as an organizational structure for negotiating health plan contracts and for creating processes to improve quality and control healthcare costs. IPAs negotiate contracts with health insurers on behalf of their physician members and are subject to antitrust regulations.

IPAs were first developed with a capitated HMO-style medical services agreement and can be converted to ACOs under the Affordable Care Act. An advantage of IPAs is that physicians maintain ownership of their practices, while eliminating the duplicative costs such as office management. For example, technology has become more important as regulatory burdens increase. IPAs can provide technology that a small practice or individual physician may not be able to afford. IPAs enable physicians in small and medium-sized practices to remain competitive. The benefits of this alignment can lead to higher reimbursement schedules with insurance companies and service providers, improved internal billing practices, and shared data.

IPAs can be established in several ways. Guidance may be available from trade groups such as The Independent Physician Association of America (TIPAAA), which has nearly 677 IPAs and represents more than 303,000 affliated physicians. Legal issues must also be considered. IPAs can be set up as professional entities (ie, a professional corporation or a professional limited liability corporation) or as lay entities (ie, incorporation or a limited liability company).

The structure of an IPA must comply with antitrust laws, so integration through financial risk sharing (ie, accepting a capitated rate) or clinical integration among physicians should be included. Physicians looking into IPAs should consult a qualified attorney for legal advice on these and other matters (compensation and governance).

Service line co-management
Service line co-management is a way for physicians to work with—not for—hospitals. It is the management or co-management of medical services provided by a physician or group within an affiliated hospital. Although not employed, physicians are paid by the hospital as consultants. They can work on specific projects with well-defined goals for a predetermined time under a well-defined reimbursement schedule.

Co-management arrangements are becoming more common; as hospitals and physician groups align more closely. Sg2, a data-driven provider of healthcare information, reported this year that 50 percent of hospitals surveyed have co-management agreements with their orthopaedic staff. The popularity of service line co-management is due to the fact that it can not only improve quality of care but also reduce costs. Co-management is designed to engage non-employed physicians in process improvement and quality initiatives. In reality, many physicians are already involved in these quality initiatives, so a formal agreement seems logical.

Both physician and hospital champions are necessary to facilitate success. Both sides will need to devote considerable time and effort to the initiative. Well-defined, clearly thought-out goals need to be outlined prior to entering the agreement.

Although the Office of the Inspector General (OIG) has ruled favorably on service line co-management agreements, they must be properly structured to be legal. The OIG opinion stressed that performance-based compensation must be “designed to align incentives by offering physicians compensation in exchange for implementing strategies to meet quality and service and cost-saving targets.” Hospitals cannot provide physicians with benefits or income greater than services they provide in return.

The contract must be reviewed from both legal and accounting standpoints; physician groups should hire their own healthcare attorney to organize and review the arrangement. The legal structure will facilitate the accounting review and make ongoing accounting easier to track as the arrangement matures.

The following steps are required to initiate a co-management arrangement:

  • Establish the interest levels of both parties.
  • Find leaders within the hospital and the physician groups to act as champions of the initiative.
  • Establish a legal structure within a physician group if necessary.
  • Create a work plan that addresses scope, time, goals, and compensation.

Service line co-management can help improve hospital processes, such as operating room (OR) turnover times, thus reducing physician frustration, improving efficiency, reducing surgical backlogs, and increasing profitability. Through these agreements, physicians can be reimbursed for the time that they spent working on the projects.

Co-management arrangements also provide an opportunity for hospitals and physicians to establish needed service lines. Some hospitals, especially those located in rural settings, may want to expand their orthopaedic services but cannot support a full-time orthopaedic surgeon. An orthopaedic group that aligns with such a hospital can assist with OR management, provide orthopaedic education, and create more efficient clinical schemes. Larger groups can provide subspecialty care on a scheduled basis along with call coverage.

Physician-hospital alignment involves people, structures, and processes. Physician employment does not necessarily equal productive alignment, nor do “independent” practices preclude productive alignment. Several structures and processes can be used to achieve the goals of alignment, including IPAs or similar organizations of independent practices and service line co-management. The arrangement selected must fit the local medical community and satisfy the described preconditions for success.

Service line co-management arrangements are great ways for physicians and hospitals to work together. Physicians can stay independent and be recognized for their work while hospitals can increase efficiency, so that both sides benefit from the arrangement. Some relationships, like directorships, are relatively easy to establish and administer, but other arrangements that may require more work can often have a broader scope of applicability.

The key is establishing the hospital’s interest in partnering. Co-management agreements require participation from both hospitals and physicians, and their legal organization is critical. Hospitals can expect improvements in care delivery and efficiencies, and physicians should expect to have a closer relationship with the hospital while benefitting financially from participation.

Craig R. Mahoney, MD, and Leslie H. Kim, MD, are members of the AAOS Health Care Systems Committee. Kyle Shah, MHA, is the clinical quality and medical affairs coordinator in the AAOS office of government relations.

Bottom Line

  • IPAs (independent practice associations) and service line co-management agreements are among the options available to self-employed orthopaedic surgeons to enable them to retain their independence while aligning their practices with hospitals to improve care.
  • IPAs enable smaller practices to remain competitive by enabling them to eliminate duplicative costs, to update technology, and to negotiate better contracts with insurers and service providers.
  • A physician group can contract with an affiliated hospital to provide service line co-management, including process improvement and quality initiatives designed to reduce costs and improve patient care.
  • Outside legal counsel and financial advice may necessary to establish either of these options, particularly in light of anti-trust laws and anti-kickback regulations.


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