On September 27, 2007, the Office of the Inspector General (“OIG”) posted an Advisory Opinion regarding whether a hospital’s payments to physicians in exchange for call coverage and uncompensated inpatient follow-up care violate the federal anti-kickback statute. The OIG indicated that with the safeguards included in the proposed arrangement (the “Arrangement”), it presented “a low risk of fraud and abuse.”

The Arrangement

The not-for-profit hospital (the “Hospital”) has an emergency department (“ED”) where one in four patients visiting the ED has no form of health insurance. Prior to the Arrangement, the growing financial burdens of uncompensated patient care and malpractice costs had depleted the local supply of physicians providing ED on-call coverage. As a result, the Hospital was increasingly unable to meet the medical needs of the community. In response, a committee of Hospital board members, staff, and administration developed the Arrangement whereby all Medical Staff physicians in relevant specialties are offered a two-year contract to compensate them for covering ED calls. The contract requires participating physicians to: 1) divide the monthly call coverage within a particular specialty equally based on a rotation schedule; 2) provide inpatient follow-up care to all uninsured patients admitted while the physician is on-call; 3) respond to calls in a reasonable time; 4) cooperate with specified risk management and quality initiatives; 5) complete medical records in a timely manner; and 6) donate call and follow-up services for the first one and one-half days of each month, which amounts to eighteen (18) days contributed annually by each physician. Physicians not fulfilling the requirements shall have their payments suspended; continuous failure to fulfill requirements results in termination from the Arrangement.

Participating physicians are compensated on a per diem basis for each day spent on-call at the ED. The per diem rate varies upon the specialty of the physician and whether the on-call day was a weekday or weekend. The differing per diem rates for each specialty are based upon: 1) the severity of illnesses typically encountered by that specialty when treating ED patients; 2) the likelihood of having to respond to a call involving that specialty during the on-call period; 3) the likelihood of having to respond to a consult on an uninsured inpatient during the on-call period; and 4) the degree of inpatient care typically required of that specialty for patients admitted after their presentation at the ED. An independent consultant certified that the per diem rates were fair-market value for the services rendered.

Following the institution of the Arrangement, the Hospital found that the ED is running more efficiently, physician response to on-call requests has improved, and patient satisfaction with ED service has increased.

Analysis Under Anti-Kickback Statute

The anti-kickback statute 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. The Department of Health and Human Services has promulgated safe harbor regulations that define practices that are not subject to the anti-kickback statute because such practices would be unlikely to result in fraud or abuse. The OIG found that, while the Arrangement did not fall directly within any of the safe harbors, the Arrangement did not violate the anti-kickback statute.

After acknowledging that many hospitals are experiencing difficulty obtaining necessary on call physician services without compensating physicians for on-call coverage, and that legitimate reasons exist for compensating on-call physicians, the OIG reaffirmed that on-call arrangements present a risk of fraud and abuse and are subject to a case-by-case facts and circumstances analysis. The OIG’s key concerns are whether compensation is: 1) fair-market value determined on an arm’s length basis for actual and necessary services and 2) not based on the volume or value of referrals or other business generated between the parties. Notably, the OIG also identified four compensation schemes that could disguise improper payments: 1) payments not reflecting bona fide lost income by the physician; 2) compensation when no identifiable services are provided; 3) aggregate payments that are disproportionately high compared to a physician’s regular medical practice income; and 4) structures which allow physicians to “double dip” by collecting both the on-call payment and reimbursement from third party payors or patients for the services provided.

In this particular case, however, the OIG found that the Arrangement presented a low risk of fraud and abuse because:

  • Payments are fair market value for services needed and provided, without regard to referrals.
  • The difference in per diem rates among specialties is based on the different extent of the uncompensated responsibilities that likely fall on physicians from each specialty.
  • The Arrangement places additional demands on the physician beyond the actual time spent on-call.
  • All physicians must document their services in medical records, which promotes transparency and accountability.
  • The per diem payments are administered uniformly for all physicians in a given specialty, without regard to the individual physician’s referrals.
  • The Hospital had a legitimate and unmet need for on-call coverage.
  • The Arrangement is offered uniformly to all physicians in the relevant specialties.
  • Monthly call obligations in each specialty are divided as equally as possible suggesting that call is not being used selectively to reward high referrers.
  • A physician’s ability to “cherry pick” only lucrative ED patients is limited by the requirement that physicians must provide inpatient follow-up care to any patient seen in the ED while on-call, regardless of the patient’s ability to pay.
  • The Arrangement promotes an obvious public benefit in facilitating better emergency on-call and related uncompensated care physician services at the Hospital; these advances aid the Hospital in fulfillment of its charitable mission.
  • All costs of the Arrangement are absorbed by the Hospital; none accrue to Federal health care programs.

The OIG stressed that these types of safeguards differentiated the Arrangement from other on-call programs not tied to identified physician responsibilities, which could result in improper payments for referrals.

Importantly, the OIG emphasized that this Opinion should not be construed as to require compensation for on-call coverage. Rather, an on-call coverage program providing compensation to physicians should be carefully structured to ensure that it is not a vehicle to disguise payments for referrals.