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April 19, 2014

OIG Issues Detailed Co-Management Agreement Advisory Opinion

On the eve of the New Year, the Office of Inspector General (“OIG”) issued Advisory Opinion 12-22, which reviewed a cardiac catheterization co-management agreement between a hospital and a cardiology group.  The Advisory Opinion is notable for its detail, and may be instructive for hospitals and physician practices wishing to establish similar arrangements.

The hospital and the cardiology group were located in a rural, medically underserved area.  The hospital operated the only cardiac catheterization labs within a fifty (50) mile radius.  The cardiology practice was the only cardiology group on the hospital’s medical staff.

Under the co-management agreement, the cardiology practice provided management and medical direction services for the hospital’s cardiac catheterization labs in exchange for a co-management fee comprised of two (2) components:  (i) a guaranteed, fixed annual payment (the “Fixed Fee”); and (ii) a potential annual performance-based payment capped at a maximum of the amount equal to the fixed fee (the “Performance Fee”).  The hospital paid the fees to the practice.  The practice agreed that to the extent revenue derived from the arrangement resulted in dividends payable to its shareholders, the practice would distribute such dividends based on each shareholder’s pro rata share of ownership.  The distributions would not have any relationship to an individual physician’s participation in the arrangement.

Under the arrangement, the group performed the following duties: (1) overseeing lab operations, providing strategic planning, and medical direction services; (2) developing the hospital’s cardiology program; (3) serving on medical staff committees; (4) providing staff development and training; (5) providing credentialing for lab personnel; (6) recommending lab equipment, medical devices and supplies; (7) consulting with the hospital regarding information systems; (8) providing assistance with financial and payroll issues; and (9) providing public relation services.

The Performance Fee had a hospital employee satisfaction component; a patient satisfaction component; a quality component; and a cost savings component.  Most measures within the Performance Fee components incorporated three possible achievement levels that triggered payment.  If the group failed to achieve the lowest baseline achievement level, it would receive no payment for that measure. If the group met the baseline for a measure within a Performance Fee component, it would receive fifty (50%) percent of the total compensation available for that measure.  If it met the middle benchmark, it would receive seventy-five (75%) percent; and if it achieved the highest benchmark, it would receive one hundred (100%) percent.

The OIG analyzed the arrangement under both the civil monetary penalty law and under the anti-kickback statute.  While the OIG noted that properly structured arrangements may increase efficiency and reduce waste, such arrangements can potentially influence physician judgment to the detriment of patient care, and can result in stinting on patient care; “cherry-picking” of healthy patients; and steerage of sicker patients to other hospitals; payment to induce patient referrals; and unfair competition among hospitals to foster physician loyalty and to attract more referrals.  The OIG concluded that based on the hospital’s certifications, the fixed fee, employee satisfaction, patient satisfaction, and quality components contained in the co-management arrangement did not involve an inducement to reduce or limit services, and therefore, did not implicate the civil monetary penalty law.

The OIG also concluded that the cost savings component of the Performance Fee implicated the civil monetary penalty law because it might induce physicians to alter their current medical practice to reduce or limit services.  However, the OIG concluded that the arrangement had several features that, in combination, provided sufficient safeguards so that the OIG would not seek sanctions.  These factors included the following:

  1. The hospital certified that the arrangement had not adversely affected patient care.  In addition, the hospital also certified that it monitored both the performance of the cardiology group under the arrangement and its implementation of the cost savings component to protect against inappropriate reductions or limitations in patient care or services.  The hospital’s Board of Directors, internal auditing staff, and certain hospital staff committees monitored the group’s performance under the arrangement.  In addition, the hospital also used an independent, external third-party utilization review firm to annually review data related to the components of the Performance Fee and the clinical appropriateness of the cardiac catheterization procedures performed.
  2. The parties structured the benchmarks within the cost savings component to allow the group’s physicians the flexibility to use the most cost-effective, clinically appropriate items and services.  The hospital certified that unique size stents, or other types of drug eluting stents remained available upon request by an interventional cardiologist, and that no physician was ever prohibited from requesting a particular device or supply required to address a patient’s unique health needs.  The OIG also found that the arrangement was designed to produce cost savings through inherent clinical and fiscal value and not from restricting the availability of devices or supplies.  The OIG also found that the benchmarks were based on aggregated performance by the practice and were not based on meeting a specific standard in the case of a particular patient, if a standard was contra-indicated with regard to that patient.
  3. The financial incentive tied to the cost savings component was reasonably limited in duration and amount, since it was subject to a maximum annual cap, and the term of the arrangement was limited to three (3) years.
  4. Receipt of any part of the Performance Fee under the arrangement was conditioned upon the cardiologists not taking any of the following actions:  (i) stinting on care provided to the hospital’s patients; (ii) increasing referrals to the hospital; (iii) cherry-picking healthy patients or those with desirable insurance; or (iv) accelerating patient discharges.

The OIG also reviewed the arrangement under the anti-kickback law.  While the OIG indicated that the arrangement could result in prohibited remuneration if the requisite intent to induce referrals was present, the OIG determined that it would not impose sanctions under the particular circumstances presented.  The OIG based its determination upon the following factors and qualifications:

  1. The hospital certified that the compensation paid to the cardiology group under the management agreement (including the Fixed Fee and the Performance Fee) was fair market value for the services provided.  The fact that the practice provided substantial services under the management agreement reduced the risk that the compensation paid was a payment for referrals, rather than for actual services rendered.
  2. The compensation paid to the cardiology practice did not vary with the number of patients treated; thus, an increase in patient referrals to the hospital did not result in an increase in compensation paid to the practice under the arrangement.
  3. Because the hospital operated the only cardiac catheterization labs within a fifty (50) mile radius, and because the practice did not provide cardiac catheterization services elsewhere, it was unlikely that the hospital offered compensation to the practice as an incentive for the practice physicians to refer business to the hospital, instead of to a competing lab.
  4. The specificity of the measures within the arrangement helped to ensure that its purpose would improve quality, rather than reward referrals.  The arrangement specifically defined the quality component and based the included measures on nationally recognized standards. The OIG also noted that the arrangement set out particular actions that generated the quality improvements upon which the payments were based.  The measures contained in the quality and cost-savings components represented significant changes in cardiac catheterization lab procedures, which the physicians were responsible for implementing. Additionally, the lowest, baseline achievement level for any measure reflected improvement over the hospital’s status quo performance for that measure prior to the effective date of the agreement.
  5. The management agreement was a written agreement with a three (3) year term, which was limited in duration.  The OIG qualified its opinion by stating that while the agreement contained an automatic renewal provision, the advisory opinion applied to the current three (3) year term.  The OIG set forth an expectation that quality improvement and cost savings measures under the arrangement would be subject to adjustment over time, to avoid payment for improvements achieved in prior years, and to provide incentives for additional improvements in the future.  The OIG noted that “continuing compensation for conduct that has come to represent the accepted standard of care could, depending on the circumstances, implicate the anti-kickback statute.”
  6. The OIG also noted that the cardiology practice distributed dividends pro rata, based on percentage ownership in the practice.  The OIG indicated that it had no facts indicating that the practice allocated ownership interest based on individual physician participation or performance under the arrangement.  The OIG stated that a different conclusion may have been reached had this been the case.

It is difficult to determine how much importance the OIG placed upon the fact that the hospital requesting the advisory opinion was located in a rural setting with no other cardiac catheterization laboratories within a fifty (50) mile radius.  However, the amount of detail included within the OIG Advisory Opinion 12-22 may provide useful guidance for the development of cardiac co-management arrangements.

© 2014 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

About the Author

Beth Christian, Giordano Law firm, Health Care Attorney
Shareholder

Ms. Christian's practice is devoted to Health Care Law and legal issues facing Health Care facilities licensed professionals and non-profit organizations. She has over twenty years of experience counseling clients on legal issues facing the modern health care and non-profit communities.

732-219-5485

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