On January 7, 2013, HHS OIG published a favorable advisory opinion on a management arrangement between a hospital and a cardiology group related to the provision of certain cardiac catheterization services at the hospital.  OIG concluded that the contractual arrangement, under which the cardiology group receives certain performance-based payments, will not trigger sanctions even though it might constitute an improper payment to limit services provided to government health program beneficiaries and could potentially generate prohibited remuneration under the anti-kickback statute (AKS).  The opinion is consistent with OIG’s position, reflected in previous advisory opinions, that certain hospital-physician “gainsharing” arrangements (similar to the one at issue) are not subject to sanctions if properly structured.

According to OIG, the party that requested the opinion is a large acute care hospital in a medically underserved rural area.  The hospital operates four cardiac catheterization laboratories on its main campus—which are considered a provider-based department of the hospital pursuant to 42 C.F.R. § 413.65—and there are no other labs providing the same services within fifty miles of the hospital.  The hospital provides staffing and equipment for the labs and oversees non-professional fee billing and collections.  The physicians who deliver cardiac catheterization services at the labs are members of a cardiology group.  Apart from the physicians in the group, the hospital has no other cardiologists on its medical staff.  The group bills its services to Medicare Part B, does not provide cardiac catheterization services anywhere but at the hospital’s labs, and refers patients to the hospital for inpatient and outpatient care. 

The arrangement at issue, OIG said, is a three-year co-management agreement, in writing, between the hospital and the cardiology group. Pursuant to the agreement, the hospital pays the group a fee in exchange for the group’s provision of certain management and medical direction services at the labs.  This fee consists of two parts: (i) an annual fixed payment and (ii) an annual performance-based payment that, if earned, cannot exceed a certain percentage of the fixed-payment component.  The performance-based payment is calculated based on the following four measures, which are each tied to certain benchmarks set out in the agreement: employee satisfaction, patient satisfaction, quality of care, and cost savings.

OIG evaluated whether the parties’ performance-based arrangement violates federal health care statutes, specifically the civil monetary penalty (CMP) provisions of the Social Security Act and the AKS.  With regard to the CMP provisions, OIG noted that arrangements like the one at issue—particularly ones with incentives for cost containment—can detrimentally influence medical judgment and lead to the reduction in the provision of services to Medicare and Medicaid beneficiaries.  OIG concluded, however, that it would not impose sanctions in this case because the co-management agreement has adequate safeguards.  Those safeguards include, among other things, the hospital’s use of a third-party utilization review agent to monitor patient care, and limits on the duration (three years) and scope (subject to an annual cap) of the performance-based payment.

With regard to the AKS, OIG noted that while the co-management agreement did not fall within the statute’s personal services/management contract safe harbor (because payment to the group is not an aggregate amount set in advance), the facts and circumstances surrounding the arrangement supported a conclusion that the arrangement poses a low risk of abuse and does not trigger sanctions.  According to OIG, those facts and circumstances include the following:

• The cardiology group’s compensation was deemed to be fair market value for the services provided and payments do not fluctuate based on the number of referrals to the hospital;
• The hospital is the only provider with cardiac catheterization labs within a fifty-mile radius;
• The performance-based payment is tied to specific benchmarks (e.g., quality measures based on nationally recognized standards), demonstrating it is designed to reward improvements in the provision of cost-effective care, not to induce referrals; and
• The co-management agreement is in writing and has a fixed three-year term.

Nevertheless, OIG noted its concern that the arrangement and others like it could be used to impermissibly reward or induce physician referrals, as they could encourage the physicians to admit Medicare and Medicaid beneficiaries—who would generate Medicare Part B professional fees—to the hospital. 

OIG’s advisory opinion is available by clicking here. 

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, gsicilian@kslaw.com.