The Office of Inspector General (OIG) has approved a pay-for-performance program among a hospital, insurer and physicians. In a recent Advisory Opinion, the OIG concluded that a hospital may share a percentage of the bonus payments it receives from a private insurer with a physician-owned entity.

In the proposed arrangement, a hospital would participate in a private insurer's pay-for-performance program, in which the insurer would pay the hospital base compensation for the care of certain patients over a year, along with a percentage of the base compensation if certain quality and efficiency standards were met. As proposed by the hospital, the hospital would enter into an agreement with a physician-owned entity, which would require its member physicians to perform tasks with the goal of achieving quality targets, such as creating policies and procedures, engaging in peer review and auditing medical records. The hospital would share a percentage of the incentive payments received from the private insurer with the physician-entity, which would then distribute the earnings to its members on a per capita basis.

While the OIG found that the program could trigger the Civil Monetary Penalty provision and the Anti-Kickback Statute, it determined that the program posed a low risk of fraud and abuse, so no sanctions would be imposed. The OIG found the following safeguards in the program that it concluded protected against fraud and abuse:

  • The program would improve patient care, and was unlikely to reduce the quality of care.
  • Bonus compensation would not be reduced for not meeting a quality standard in a situation in which the standard was not medically appropriate.
  • The hospital would monitor the quality standards so that patient care would not be compromised.
  • The program would be transparent, allowing for public awareness and physician accountability for any harmful effects of the program.

To mitigate the Anti-Kickback risks, the OIG found the following factors relevant:

  • Only physicians who had been on the hospital's medical staff for at least one year could be members of the physician entity.
  • The distribution of incentive payments on a per capita basis among the physicians would reduce the risk that the program would reward physicians for referring patients to the hospital.