Rural hospital operated catheterization labs

Co-management with physician group was in question

Janice Anderson, JD, shareholder with the law firm of Polsinelli Shughar in Chicago, provides this explanation of the situation prompting a recent Office of Inspector General (OIG) opinion regarding co-management:

The provider requesting the advisory opinion was a large, rural acute care hospital that operates four provider-based cardiac catheterization laboratories on the hospital’s main campus. The labs are the only of their kind within a 50-mile radius of the hospital. The hospital bills for and collects all non-professional fees generated by the labs and also supplies space, nonphysician staff, and equipment. The hospital entered into a co-management agreement with a group of physicians consisting of 18 full-time physicians, six of whom perform procedures at the labs. The group bills Medicare Part B and other payers for professional services provided by its physicians. Furthermore, the group is the sole cardiology group on the hospital’s staff, only provides cardiac catheterization services at the labs, and refers patients to the hospital for inpatient and outpatient procedures.

Under the three-year co-management agreement, the hospital pays the group for management and medical direction services provided at the labs. Payment consists of two parts:

  • a guaranteed, fixed payment;
  • a capped non-guaranteed annual performance-based payment.

The hospital certified that these payments are consistent with fair market value. As a prerequisite to receiving the performance payment, the group must not “stint” on care provided to patients, increase referrals to the hospital, cherry-pick healthy patients or patients with desirable insurance, or accelerate patient discharges. Furthermore, the group has agreed it will distribute any revenue derived from the agreement that results in paid dividends according to each shareholder’s pro rata ownership share in the group.

The performance payment is based on several factors in the labs, including hospital employee satisfaction, patient satisfaction, quality of care improvement, and implementation of measures to reduce costs of procedures performed. Many of the factors trigger payment if certain achievement levels are met, with higher payments resulting from higher levels of achievement. The two satisfaction measures are primarily determined by patient and employee survey results. The quality-based measures are based on national quality standards, and the hospital’s performance is measured against that of other hospitals nationally. Finally, the cost savings measures are based on reductions in cardiac catheterization cost per case and average contrast cost per case.

The hospital certified that it purchases clinically safe and effective supplies based on patient care interests. However, the hospital reduces costs, in part, by contracting with a single vendor for certain supplies to obtain a competitive price and by reducing waste of certain supplies by restricting them to an “as-needed” basis. Despite these measures, no physician is prohibited from requesting certain supplies necessary to address a particular patient’s needs. Furthermore, to protect against inappropriate reductions in services, the hospital based its cost-saving measures on clinical outcomes and uses internal and third-party review of the labs’ data related to the performance payment.

In assessing the hospital’s liability under the Civil Monetary Penalties (CMP) Law based on a finding that the arrangement led to the reduction or limitation of care, the OIG concluded that only the cost-savings component of the performance-based payment could constitute an improper payment, thus finding that patient satisfaction and quality measures, as defined in the co-management agreement, did not implicate the CMP Law. However, the OIG was concerned that the cost savings component might induce the group to reduce or limit services, given the standardization of, and limitation on, devices and supplies.

Despite this concern, the OIG concluded that it would not impose any penalties, because the arrangement provided following safeguards which the OIG determined to be sufficient to prevent any unlawful inducement to reduce or limit care.

The hospital implemented internal and external monitoring of performance to protect against inappropriate reductions or limitations in patient care, Anderson says.

The tiered performance payment structure, allowing the group to earn an increasing incentive amount based on achieving minimum, target or maximum measures, provided the group general flexibility to use cost-effective yet clinically appropriate supplies, but did not disincentivize physicians from requesting costlier supplies based upon patient need.

The annual performance payment was capped, and the arrangement was limited to three years. The agreement conditioned the performance payments on the hospital’s determination that the physicians had not engaged in any inappropriate practices that could lead to a violation of the CMP Law, such as, “stinting on care.” The OIG noted, however, that this safeguard alone would not have been sufficient to avert sanction.

The OIG also evaluated whether the arrangement triggered sanctions under the Anti-Kickback Statute, because the group might be encouraged to admit federal health care program beneficiaries to the hospital given that the physicians would be receiving payments from the hospital in addition to reimbursement for professional services.