On January 7, 2012, the OIG posted Advisory Opinion No. 12-22 to address a comanagement arrangement between a hospital and physicians that is designed to align incentives by offering compensation based on quality, service, and cost saving measures. The OIG concluded that the arrangement could constitute improper payment to either reduce or limit services or induce referrals under the CMP Law, warranting civil monetary penalties or Anti-Kickback Statute sanctions; however, the OIG would not impose any sanctions due to several safeguards in the arrangement.

Co-management arrangements are frequently used to align and reward physicians for assisting the hospital in managing a service line and often include incentive compensation to improve the service line’s quality and efficiency. Although co-management arrangements are widely used in the industry, and the OIG has previously opined on numerous gainsharing arrangements, Advisory Opinion No. 12-22 marks the first time that the OIG evaluated a co-management arrangement.

The Advisory Opinion provides hospitals and physicians with helpful guidance as to the OIG’s view of co-management arrangements, although only the requestor can rely upon it for protection. Of importance to its analysis, the OIG emphasized safeguards that have long been recognized as important to protect any type of quality or efficiency payment made by hospitals to physicians. These safeguards include (i) independent monitoring to ensure that no inappropriate changes occur to quality or referral patterns and that no inappropriate reduction in care occurs, (ii) payments that are deemed fair market value based on the services rendered by the physicians, (iii) transparency in the metrics chosen, (iv) metrics that reward improvement and not just maintenance of previous levels of achievement, and (v) continued access by the physicians to the full panoply of treatment options, reasonable limitation in the duration of the arrangement, among others.

Facts of the Co-Management Arrangement and the Parties

The provider requesting the advisory opinion was a large, rural acute care hospital (“Hospital”) that operates four provider-based cardiac catheterization laboratories (“Labs”) on the Hospital’s main campus. The Labs are the only of their kind within a fifty-mile radius of the Hospital. The Hospital bills for and collects all non-professional fees generated by the Labs and also supplies space, nonphysician staff, and equipment. The Hospital entered into a co-management agreement with a group of physicians (“Group”) consisting of eighteen full-time physicians, six of whom perform procedures at the Labs. The Group bills Medicare Part B and other payors for professional services provided by its physicians. Further, the Group is the sole cardiology group on the Hospital’s staff , only provides cardiac catheterization services at the Labs, and refers patients to the Hospital for inpatient and outpatient procedures.

Under the three-year co-management agreement, the Hospital pays the Group for management and medical direction services provided at the Labs. Payment consists of two parts: 1) a guaranteed, fixed payment, and 2) a capped non-guaranteed annual performance-based payment. The Hospital certified that these payments are consistent with fair market value. As a prerequisite to receiving the performance payment, the Group must not “stint” on care provided to patients, increase referrals to the Hospital, cherry-pick healthy patients or patients with desirable insurance, or accelerate patient discharges. Further, the Group has agreed it will distribute any revenue derived from the agreement that results in paid dividends according to each shareholder’s  pro rata ownership share in the Group.

The performance payment is based on several factors in the Labs, including Hospital employee satisfaction, patient satisfaction, quality of care improvement, and implementation of measures to reduce costs of procedures performed. Many of the factors trigger payment if certain achievement levels are met, with higher payments resulting from higher levels of achievement. The two satisfaction measures are primarily determined by patient and employee survey results. The quality-based measures are based on national quality standards, and the Hospital’s performance is measured against that of other hospitals nationally. Finally, the cost savings measures are based on reductions in cardiac catheterization cost per case and average contrast cost per case.

The Hospital certified that it purchases clinically safe and effective supplies based on patient care interests. However, the Hospital reduces costs, in part, by contracting with a single vendor for certain supplies to obtain a competitive price, and by reducing waste of certain supplies by restricting them to an “as needed” basis. Despite these measures, no physician is prohibited from requesting certain supplies necessary to address a particular patient’s needs. Further, to protect against inappropriate reductions in services, the Hospital based its cost saving measures on clinical outcomes and utilizes internal and third-party review of the Labs’ data related to the performance payment.

No Imposition of Civil Monetary Penalties under the Arrangement

In assessing the Hospital’s liability under the CMP Law based on a finding that the arrangement led to the reduction or limitation of care, the OIG concluded that only the cost savings component of the performance-based payment could constitute an improper payment, thus finding that both patient satisfaction and quality measures, as defined in the co-management agreement, did not implicate the CMP Law. However, the OIG was concerned that the cost savings component may induce the Group to reduce or limit services, given the standardization of, and limitation on, t devices and supplies.

Despite this concern, the OIG concluded that it would not impose any penalties, because the arrangement provided following safeguards which the OIG determined to be sufficient to prevent any unlawful inducement to reduce or limit care.

  • The Hospital implemented internal and external monitoring of performance to protect against inappropriate reductions or limitations in patient care.
  • The tiered performance payment structure, allowing the Group to earn an increasing incentive amount based on achieving minimum, target or maximum measures, provided the Group general flexibility to use cost-effective yet clinically appropriate supplies, but did not dis‑incentivize physicians from requesting costlier supplies based upon patient need.
  • The annual performance payment was capped and the arrangement was limited to three years.
  • The agreement conditioned the performance payments on the Hospital’s determination that the physicians had not engaged in any inappropriate practices that could lead to a violation of the CMP Law (such as, “stinting on care”). (The OIG noted, however, that this safeguard, alone, would not have been sufficient to avert sanctions).

No Imposition of Anti-Kickback Statute Sanctions under the Arrangement

The OIG also evaluated whether the arrangement triggered sanctions under the Anti-Kickback Statute, because the Group may be encouraged to admit federal health care program beneficiaries to the Hospital given that the physicians would be receiving payments from the Hospital in addition to reimbursement for professional services. The OIG noted that the arrangement was not protected by any Anti-Kickback Statute safe harbor because the aggregate payment to the Group was not set in advance.

Failure to meet a safe harbor, however, was not dispositive, and the OIG concluded that it would not impose any Anti-Kickback Statute sanctions for several reasons:

  • The Hospital certified that payments made to the Group were based on a fair market value valuation and were provided in exchange for a substantial amount of services.
  • Payments to the Group did not vary with the number of patients treated by the Group, so there was no financial incentive for the Group to increase patient referrals.
  • It was unlikely that the Hospital was compensating the Group for referrals to the Labs because the Labs were located in a rural area where no competing services were available within a 50 mile radius, and the Group’s physicians already performed all of their cardiac catheterization procedures at the Labs.
  • The agreement reflected a defined quality component, with measures based upon nationally recognized standards and supported by particular actions.
  • The measures represented specific changes in the Labs’ procedures, which the Group’s physicians were responsible for implementing.
  • Payments could not be earned, even at the minimum level, unless there was improvement over the baseline measure.
  • The agreement was a written agreement with a three -year term and thus was limited in duration.

Dayna LaPlante