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Advisory Opinion Guides Structuring of Co-Management Agreements

The OIG issued Advisory Opinion 12-22 on December 31, 2012, and posted it on January 7, 2013. The Advisory Opinion focused on an arrangement (the “Arrangement”) involving a large rural acute care hospital (the “Hospital”) and a cardiology group (the “Group”), whereby the Hospital would pay the Group compensation that included a performance bonus based on implementing certain patient service, quality, and cost savings measures associated with procedures performed at the Hospital’s cardiac catheterization laboratories. The OIG addressed whether the Arrangement would constitute grounds for the imposition of sanctions arising under (i) Sections 1128A(b)(1)-(2) of the Social Security Act (the “Act”), the civil monetary penalty (“CMP”) for a hospital’s payment to a physician to induce the reduction or limitation of services to Medicare or Medicaid beneficiaries under the physician’s direct care, or (ii) the exclusion authority at Section 1128(b)(7) of the Act or the civil monetary penalty provision at Section 1128A(a)(7) of the Act, as those sections relate to the commission of acts described in the federal antikickback statute, Section 1128B(b) of the Act.

The Hospital and physicians would enter into a Co-Management Agreement, whereby the Hospital would pay a fixed management fee and a performance fee based on achieving specified metrics across predetermined measures such as enhanced patient satisfaction, quality improvement and cost containment. The OIG concluded that (i) the OIG would not impose sanctions, even though the Arrangement would have the potential to constitute an improper payment to reduce or otherwise limit services that would implicate the CMP, and (ii) the OIG would not impose administrative sanctions, even though the Arrangement could potentially generate prohibited remuneration under the antikickback statute if the requisite intent to induce or reward referrals of federal health care program business were present.

The OIG cited the following factors in concluding that the Arrangement does not violate the antikickback statute:

  1. The Hospital certified that the compensation to be paid would be fair market value.
  2. The compensation paid to the Group would not vary with the number of patients treated.
  3. There were no competing labs in the area, and the Group did not provide catheterization procedures at any location other than the Hospital’s labs, so it was unlikely that the Hospital could be considered to be offering the Group incentives to refer patients to the Hospital’s labs.
  4. The specificity of the measures helps ensure that its purpose is to improve quality rather than received referrals. Baselines and benchmarks were established for all of the components, so that, when the Group met certain baselines, a percentage of the performance fee was paid. Also, the lowest baseline achievement level for any measure reflected an improvement over the Hospital’s performance prior to the effective date of the Agreement.
  5. The Agreement was written and had a three-year term, so it was limited in duration.

The OIG cited the following factors in concluding that the Arrangement does not violated the CMP Sections of the Act:

  1. The Hospital certified that the Arrangement had not negatively impacted patient care and that it had a program in place to monitor the performance of the Group under the Arrangement.
  2. The risk of the Group applying specific cost savings measures in medically inappropriate circumstances was low.
  3. The financial incentives tied to the cost savings component were reasonably limited in duration and amount.
  4. Incentives were not conditioned on the physicians (i) stinting on care, (ii) increasing referrals to the Hospital, (iii) cherry-picking healthy patients or those with desirable insurance, or (iv) accelerating patient discharges.

The Advisory Opinion contains enough analysis and specificity that it can be used to assist in structuring a co-management or similar agreement to comply with the antikickback and CMP sections of the Act.

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