In two recently published Advisory Opinions, the HHS Office of Inspector General provided guidance concerning financial relationships between hospitals and members of their medical staffs.  Advisory Opinion No. 12-15 involved per diem fees paid by a hospital to physicians to provide on-call coverage for the hospital’s emergency department.  Advisory Opinion No. 12-20 involved a proposal by a hospital to provide free access to an electronic interface to community physicians.  The electronic interface would allow those physicians and their practices to transfer orders for certain services to, and receive the results of those services from, the hospital.  The Advisory Opinions are evidence of recognition on the part of the OIG of the changing nature of hospital-physician on-call relationships, as well as the increased use of electronic communications between hospitals and medical practices.  Today, we'll outline the OIG’s conclusions regarding the on-call arrangement.  Next week we will continue tomorrow with a discussion of the OIG’s findings regarding the electronic interface.

Under the arrangement considered by the OIG in Advisory Opinion No. 12-15, the hospital paid a per diem fee to specialist physicians to provide unrestricted call coverage for the emergency department.  The opportunity to participate in the arrangement was offered to all specialists on the medical staff who were subject to unrestricted call.  The on-call arrangements were memorialized in one-year, written agreements, which contained automatic renewal provisions, and which required participating physicians to be available to respond to the emergency department within the hospital’s required response times.  Participating physicians who admitted emergency department patients were required to provide care to the patients during their inpatient stays, and were also required to see the patients for follow-up care in their office practices regardless of the patients’ insurance status or ability to pay.

Each year, the Hospital allocated an aggregate annual payment amount per specialty for on-call coverage payments based on: (1) the likely number of days per month that physicians in that specialty would be called; (2) the likely number of patients a participating physician would see per on-call day; and (3) the likely number of patients requiring inpatient care and post-discharge follow-up care in a participating physician’s office.  The aggregate dollar amount per specialty would be divided by 365 days per year to create the per diem fee for on-call coverage in a particular specialty.  Participating physicians received the per diem fee for each day of coverage provided under the arrangement, irrespective of whether or not they were contacted by the emergency department to treat patients.

The per diem rates were evaluated by an independent consultant and were compared to national survey data.  The hospital certified that based upon the independent valuation, the per diem rates paid under the arrangement would be commercially reasonable and fair market value for the services provided, and would not take into account in any way the volume or value of referrals or business generated between the parties.  The hospital further certified that the per diem payments would be administered uniformly for all doctors in a given specialty without regard to the individual participating physician’s referrals to, or other business generated for, the hospital.  The hospital used a uniform methodology to ensure that call was distributed evenly among all participating physicians, and monitored performance by participating physicians through medical staff peer review processes.

In analyzing the proposed arrangement, the OIG acknowledged that “depending on market conditions, it may be difficult for hospitals to sustain necessary on-call physician services without providing compensation for on-call coverage.”  The OIG noted that notwithstanding legitimate reasons for such arrangements, on-call coverage compensation potentially creates considerable risk that physicians may demand such compensation as a condition of doing business at a hospital.  The OIG also noted that there is a substantial risk that improperly structured payments for on-call coverage could be used to disguise unlawful remuneration to physicians.  Notwithstanding these findings, the OIG concluded that even though the arrangement did not fit squarely within the terms of the safe harbor for personal services and management contracts, the arrangement appeared to contain safeguards sufficient to reduce the risk that the remuneration was intended to generate referrals of federal health care program business.

The OIG found the following factors to be indicative of a low risk of fraud and abuse:

• The hospital certified that, based on an independent valuation, the per diem payment amounts were commercially reasonable, and within the range of fair market value for actual and necessary services provided without regard to referrals or other business generated between the parties.  The OIG expressly stated that it had relied on the certification in issuing the opinion.  The OIG also noted that the per diem rate appeared tailored to reflect the burden on participating physicians and the likelihood that physicians of a particular specialty would actually be required to respond while on call; the likelihood that they would have to provide uncompensated treatment; and the likely extent of that treatment.  The OIG also noted that the per diem payments were tailored to cover substantial quantifiable services, a portion of which would be furnished to uninsured patients in the emergency department and afterwards.
• The hospital allocated funds for call coverage for each participating specialty and calculated the per diem annually, in advance.  The hospital also uniformly administered the per diem payments to physicians in a given specialty without regard to individual physician referrals.  The OIG found that these factors mitigated the risk that the payments were determined in order to selectively reward high volume referrers or incentivize low volume referrers to generate business.
• Participating physicians provided actual and necessary services, for which they were not otherwise compensated.  While the OIG noted that in some cases a participating physician could collect a per diem payment and receive separate reimbursement from the patient or an insurer, the arrangement required participating physicians to provide a significant amount of care for which they receive no compensation (other than the per diem payment), due to the percentage of uncompensated care provided to emergency department patients at the hospital.
• The opportunity to participate in the arrangement was offered to all specialists on the medical staff who were required by the hospital’s bylaws to take unrestricted call.
• The arrangement was structured so that the hospital absorbed all costs, and none accrued to federal health care programs.

The OIG’s findings in Advisory Opinion 12-15 are significant because they appear to recognize the need for hospitals to develop alternative means of ensuring that they have sufficient on-call coverage.  Traditionally, physicians provided on-call coverage without compensation as a condition of their medical staff membership.  However, hospitals are finding it increasingly difficult to obtain such coverage in many markets without providing physicians with compensation.  Hospitals that wish to develop similar on-call compensation programs would be well advised to obtain an independent valuation of the proposed on-call compensation, as the use of an independent valuation by the requesting hospital appeared to be an important factor in the OIG’s issuance of a favorable Advisory Opinion.