OIG Approves Two Arrangements between Hospitals and Physician Groups

Hospitals and physician groups are often interested in aligning incentives with regard to quality targets and cost savings. The United States Department of Health and Human Services Office of the Inspector General (HHS OIG) was recently asked to review two arrangements which took this goal into account. One allowed a hospital and a physician group to enter into a performance-based compensation arrangement. The other involved an arrangement offering physicians a portion of a hospital’s cost savings in exchange for implementing cost saving strategies. HHS OIG provided some guidance as to these matters in Advisory Opinions 08-15 and 08-16, issued on October 6, 2008, and October 7, 2008, respectively.

In its advisory opinions, HHS OIG noted that, if properly structured, such arrangements can serve legitimate business and medical purposes by improving efficiency and quality of care or by increasing efficiency and reducing waste, thereby increasing profitability. However, as with any payment arrangement between a hospital and physicians who refer business to it, payments intended to encourage quality or efficiency improvements can be misused to induce limitations or reductions in care or to disguise kickbacks for federal health care program referrals. Therefore, HHS OIG evaluates such arrangements in light of applicable federal statutes and the potential for abuse.

Advisory Opinion 08-15 — Arrangement Splitting Cost Savings Resulting From Cost Reduction Measures
In Advisory Opinion 08-15, HHS OIG evaluated an arrangement in which a hospital shared with groups of cardiologists a percentage of its cost savings arising from the cardiologists’ implementation of a number of cost-reduction measures in certain procedures. The measure of the cost savings was based on the cardiologists’ use of specific supplies during designated cardiac catheterization laboratory procedures.

In evaluating the arrangement’s terms in light of potential civil monetary penalties, HHS OIG noted eight features which, in combination, were found to provide sufficient safeguards:

• The specific cost-saving actions and resulting savings were clearly and separately identified in the arrangement, allowing for public scrutiny and for individual physician accountability for any adverse effects of the arrangement, including any difference in treatment among patients based on nonclinical indicators.
• The hospital and cardiology groups proffered credible medical support for the position that implementation of the recommendations did not adversely affect patient care.
• The amounts to be paid under the arrangement were based on all procedures, regardless of the patients’ insurance coverage, and the procedures to which the arrangement applied were not disproportionately performed on federal health care program beneficiaries.
• The arrangement protected against inappropriate reductions in services by utilizing objective historical and clinical measures to establish baseline thresholds beyond which no savings accrued to the cardiology groups.
• The product standardization portion of the arrangement further protected against inappropriate reductions in services by ensuring that individual physicians still had available the same selection of devices and supplies.
• The entities provided written disclosures of their involvement in the arrangement to patients whose care might be affected by the arrangement. Also, patients were provided an opportunity to review the cost savings recommendations prior to admission to the hospital.
• The financial incentives under the arrangement were reasonably limited in duration and amount.
  Because the cardiology groups distributed their profits to their members on a per capita basis, any incentive for an individual physician to generate disproportionate cost savings was mitigated.

Further evaluating the arrangement with regard to the Anti-Kickback Statute, HHS OIG noted three features of the arrangement which it felt reduced the risks of kickbacks:

• The arrangement’s terms reduced the likelihood that it was being used to attract referring physicians or to increase referrals from existing physicians.
• The arrangement’s structure eliminated the risk that it could be used to reward cardiologists or other physicians who refer patients to the group or its cardiologists.
• The arrangement set out with specificity the particular actions that generate the cost savings on which the payments are based and that the payments under the arrangement did not appear unreasonable.

HHS OIG therefore concluded that, while the arrangement potentially implicated both the civil monetary penalty prohibitions and the Anti-Kickback Statute, it would not impose civil monetary penalty sanctions, nor would it impose administrative sanctions under the Anti-Kickback Statute.

Advisory Opinion 08-16 — Arrangement Allowing Entities to Share Performance-Based Compensation From Insurer
In Advisory Opinion 08-16, HHS OIG evaluated an arrangement by which a hospital was to share with a physician-owned entity certain performance-based compensation available to the hospital under a quality and efficiency agreement with a private insurer. Its evaluation was very similar to that in Advisory Opinion 08-15.

Specifically, HHS OIG pointed to five features of the agreement that it believed provided sufficient safeguard:

• There was credible medical support for the position that the arrangement had the potential to improve patient care, since physicians were to be compensated for specific actions which have been recognized as improving patient care.
• There was to be no incentive for a physician to apply a specific standard in medically inappropriate circumstances.
• The arrangement’s quality targets were reasonably related to the hospital’s practices and patient population.
• The performance measures that could result in compensation to the physician group were clearly and separately identified, and affected patients were to be notified of the program, allowing for public scrutiny and individual physician accountability.
• The hospital had certified that it would monitor the quality targets and their implementation throughout the term of the agreement to protect against inappropriate reductions or limitations in patient care or services, and would take appropriate steps if problems arise.

HHS OIG therefore chose not to impose sanctions under the civil monetary penalty as a result of the proposed arrangement.

HHS OIG also noted five features of the arrangement that reduced the risk of kickbacks:

• The proposed arrangement’s circumstances and safeguards reduced the likelihood that the arrangement would be used to attract referring physicians or to increase referrals from physicians already on the hospital’s staff.
• Per capita distribution of compensation under the agreement among the members of the physician group would reduce the risk that the proposed arrangement might be used to reward individual physicians who refer patients to the hospital.
• HHS OIG determined that the proposed arrangement’s transparency would help to ensure that the arrangement’s purpose was to improve quality, rather than reward referrals.
• HHS OIG noted that the oversight role of the private insurer in the proposed arrangement would provide a safeguard ensuring that payments to the physicians would be based on achieving the quality targets, rather than on referrals of patients.
• The proposed arrangement was limited in time.

HHS OIG therefore determined that while the proposed arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute, it would not impose administrative sanctions.

Advisory Opinions 08-15 and 08-16, as with all HHS OIG Advisory Opinions, cannot be cited as precedential. However, they do give guidance as to HHS OIG’s policy position and demonstrate that arrangements such as those described above can be crafted to both further business objections and comply with applicable law.