On January 7, 2013, the Department of Health and Human Services Office of Inspector General (“OIG”) posted a favorable advisory opinion concerning an existing co-management arrangement (“Arrangement”) between a large, rural, acute care hospital (the “Hospital”) and a physician group practice comprised of cardiologists (the “Group”) under which the Group and the Hospital jointly manage the Hospital’s cardiac catheterization laboratories (the “Cath Labs”). (The OIG Advisory Opinion No. 12-22 is available on the OIG’s website, www.oig.hhs.gov.) Under the Arrangement, the Hospital pays the Group a fixed base fee for its services, plus a potential performance-based fee (the “Performance Fee”) tied to both quality measures and cost savings. Bradley Arant Boult Cummings prepared the request for the applicant and assisted the applicant in obtaining a favorable opinion.

The OIG has previously issued a number of advisory opinions, including several on co-management arrangements, that address pay-for-performance (“P4P”) and gainsharing compensation paid to physician referral sources of hospitals. While the new advisory opinion echoes many long-standing principles regarding P4P and gainsharing arrangements, the OIG appears to have applied considerable scrutiny to the selection and calibration of the specific quality measures comprising the Arrangement, as well as the controls and safeguards implemented by the requestors with respect to the gainsharing elements.

Although the OIG concluded that it would not impose sanctions on the requestors under either the Anti-Kickback Statute (“AKS”) or the Civil Monetary Penalties (“CMP”) law, the advisory opinion demonstrates the challenges providers face in implementing value-based compensation arrangements with referral sources in light of existing laws that have not fully adapted to quality or cost-saving incentives.

The OIG recognized in the opinion that “incentive compensation arrangements like the Arrangement are designed to align incentives by offering physicians compensation in exchange for implementing strategies to meet quality, service, and cost-saving targets.” Notwithstanding the apparent consistency of the Arrangement with these current federal health care policy goals, the OIG’s approval required a fact-intensive analysis and the exercise of agency discretion to not impose sanctions.

The Arrangement

The Hospital operates four Cath Labs, which are the only ones within a 50-mile radius of the Hospital. The Group is comprised of 18 full-time cardiologists, including general cardiologists, interventional cardiologists, and electrophysiologists. Six interventional cardiologists in the Group perform procedures in the Cath Labs.

Under the Arrangement, the Group provides medical direction and management services for the Cath Labs. These services include overseeing Cath Lab operations, strategic planning, cardiology program training and development, credentialing of Cath Lab personnel, purchasing decision input, consulting regarding information systems and payor issues, and public relations.

In exchange for its services, the Hospital pays the group a fixed fee and offers the annual Performance Fee, which can equal an amount up to the fixed fee, depending on the Group’s performance relative to the quality and cost-saving measures. The requestors certified that the fees paid under the Arrangement are consistent with fair market value (“FMV”) and obtained an appraisal from an independent third party confirming this position.

The table below summarizes the components of the potential Performance Fee. The fee is comprised of employee satisfaction levels (5%), patient satisfaction levels (5%), clinical quality measures (30%), and cost-saving components (60%). Each of these components specify three tiers of performance improvement and an associated percentage of the fee allocation available at each tier (50% for tier 1, 75% for tier 2, and 100% for tier three). For example, with respect to a quality measure for prescribing Beta blockers upon discharge, the Group must rank at the 70th percentile of hospitals to achieve the tier 1 performance fee level, and is eligible for tier 3 (100% of the performance fee for this component) if it ranks in the 90th percentile. In addition to the tiered quality and cost-saving goals, the Group is eligible to receive additional compensation if the Hospital ranks in the Thomson Reuters Top 50 Cardiovascular Hospitals (subject to an overall Performance Fee cap equal to the fixed fee).

 Click here to view table.

  • The requestors have implemented the following safeguards against the OIG’s AKS-related concerns and those stemming from the theoretical potential for inappropriate reductions in care that could result from gainsharing aspects of the Arrangement:
  • The requestor certified that it bases purchasing decisions on the best interests of patient care and utilizes products that are clinically safe and effective.
  • The Hospital uses an Interventional Cardiology Committee, including all of the Group’s interventional cardiologists, to generate initial product purchasing recommendations based on evidence of clinical effectiveness. 
  • The Hospital negotiates with vendors for favorable pricing on selected products, but does not require the Group physicians to use any particular products (e.g. contrast or stents) during procedures. The physicians remain free to use any product they judge as clinically appropriate for a particular situation.
  • The requestors use an independent third-party utilization review firm to verify the clinical appropriateness of procedures performed at the Cath Labs and to confirm that the Arrangement does not adversely impact patient care.
  • Multiple hospital committees monitor the performance of the Group under the Arrangement.
  • Cath Lab Patients and their families are notified of the Arrangement when they are providing informed consent to the procedures.

OIG Analysis

The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program. While noting that the Arrangement could potentially constitute improper remuneration under the AKS, the OIG gave relatively short shrift to the possibility that the fees paid under the Arrangement would violate the AKS. In concluding that it would not impose sanctions on the requestors under the AKS, the OIG cited the following favorable factors embodied in the Arrangement:

  • the requestors certified that the compensation paid to the Group is consistent with FMV;
  • compensation does not vary based on the number of patients treated;
  • because the Cath Labs are the only ones within 50 miles of the Hospital, and because the Group does not perform cardiac cath procedures at any other hospital’s labs, the fees paid under the Arrangement are unlikely to act as incentive for the physicians to refer cases to the Hospital, as opposed to any other provider;
  • the Performance Fee components are specific, based on nationally recognized measures, focused on quality improvement, and require measurable improvement over the status quo; and
  • the Arrangement is written and limited to a three-year term.

The CMP law establishes a civil monetary penalty against any hospital or critical access hospital that knowingly makes a payment to a physician as an inducement to reduce or limit services provided to Medicare or Medicaid beneficiaries under the physicians’ direct care. Notably, the CMP law does not distinguish between reductions in medical care that is necessary and care that may be wasteful or unnecessary. Payments for reductions in medically unnecessary care can technically violate the CMP law. Therefore, in order to have assurances that such payments will not result in penalties, an exercise of prosecutorial or agency discretion, such as an OIG advisory opinion, is required.

In evaluating the Arrangement under the CMP law, the OIG reiterated its consistently held concerns that P4P and gainsharing payments can result in stinting on-patient care, cherry-picking healthy patients, choosing clinically inappropriate products, or accelerating patient discharges. The OIG concluded that the Arrangement “has several features that, in combination, provide sufficient safeguards so that we would not seek sanctions” against the requestor under the CMP law. The opinion specifically cited the following aspects of the Arrangement in support of its CMP conclusion:

  • the requestor certified that the Arrangement has not adversely affected patient care, and certified that it monitors the Arrangement to detect and safeguard against inappropriate reductions or limitations in care;
  • based on safeguards included in the Arrangement, there is a low risk that Group physicians will make clinically inappropriate product selections as a result of the cost-saving components of the Performance Fee (supply and contrast costs per case);
  • the financial incentives tied to the cost-saving elements of the Performance Fee are capped and reasonable in amount and duration; and
  • the receipt of any portion of the Performance Fee is conditioned on the Group physicians not taking any of the following actions as a result of the fee—stinting on care, increasing referrals to the Hospital, cherry-picking healthy patients, or accelerating discharges.

Conclusion

A number of major Medicare initiatives, including accountable care organizations, the hospital value-based purchasing program, and bundled payments, emphasize reimbursement systems that encourage increased quality and reduced costs. The Performance Fee structure included in the Arrangement reflects these goals. Despite the recent push for payments based on value, current law and guidance under the AKS and CMP laws coexist in tension with payments to referral sources designed to improve quality and reduce costs. This tension is on full display in the advisory opinion, which required an extremely fact-intensive analysis of the Arrangement (rather than, e.g., a straightforward safe harbor or exception) in order to receive OIG approval for a relatively common form of co-management.