Hospital can share P4P bonus with physicians, OIG says

A hospital participating in a private insurer's pay-for-performance program can share its bonus with medical staff members without facing fraud or kickback sanctions, according to an Oct. 14 advisory opinion by the Dept. of Health and Human Services Office of Inspector General.

Legal experts believe the dispensation to be the first of its kind involving a pay-for-performance arrangement. The opinion not only recognizes the potential benefits of such agreements but also offers insight into what the government considers acceptable collaborative efforts on quality and efficiency of care, they said.

Under the proposed arrangement, the hospital would pay as much as 50% of its incentive award to physicians who help the facility achieve certain quality targets established by a private insurance company. The pay-for-performance agreement between the hospital and insurer requires the facility to track six different quality measures based on national standards from the Centers for Medicare & Medicaid Services and Joint Commission. OIG did not name the hospital or the insurer in this case.

Physicians on the hospital's active medical staff for at least one year who want to share in the bonuses would form a professional limited liability company. This entity would be responsible for developing various oversight procedures, including peer review and medical records audits, to ensure that the designated quality targets are achieved. The hospital and insurer also would monitor doctors' practice patterns to ensure compliance.

"Properly structured, such arrangements can serve legitimate business and medical purposes by improving efficiency and quality of care," OIG Chief Counsel Lewis Morris wrote. Still, OIG warned that improperly drafted agreements have the potential to limit patient care, encourage unnecessary procedures and disguise illegal payments in exchange for referrals.

In this case, the government highlighted certain safeguards the hospital and physician group planned to implement to mitigate potential problems, including:

• Using credible medical standards to support quality improvements and reduce adverse effects on patient care.
• Capping physicians' incentive payments and not linking them to patient referrals.
• Enabling ongoing supervision by the hospital, physician group and third-party insurer.
• Maintaining transparency by clearly defining quality targets, requiring affected patients to be notified of the program and holding doctors accountable for inappropriate care.

A model for collaboration

OIG has approved other types of so-called gainsharing agreements that allow hospitals to pass on some of their savings to doctors. Some of these collaborations have involved savings from physician efforts to improve quality and efficiency.

But those arrangements typically targeted a single specialty, and the latest opinion opens the door for a wide range of quality and cost measures to be tested, said Gary W. Eiland, a health regulatory expert and partner with King & Spalding in Houston.

Traditional gainsharing agreements "have limitations. Because after a while you've extracted all the gains from a specific program," he said. "Whereas here, hospital quality measures can evolve [under national pay-for-performance initiatives], and you can have long-term benefits and continue to expand the scope of quality improvement activities."

Such expansion could give doctors and hospitals another way to address financial pressures through collaborative rather than competitive efforts, said Janice A. Anderson, an antikickback lawyer and partner with Chicago-based Foley & Lardner LLP.

Although pay-for-performance remains a relatively new concept, the advisory opinion affirms its potential for improving health care quality and controlling costs, said Frederick Robinson, a Washington D.C.-based health care fraud lawyer. As a result, the OIG move is likely to trigger more experimentation in that area, he said.

"The OIG is saying, 'We are willing to hear what you have to say about pay-for-performance, but we want to make sure it's done in a way that doesn't put the federal health care program beneficiaries at risk,' " said Robinson, a partner with Fulbright & Jaworski LLP.

For example, the recent opinion noted that the proposed program would be open to all patients, not just those covered by the insurer offering the performance incentive. Safeguards include a commitment to track changes not only in doctors' referral patterns but also in patient mix, Robinson said.

Nevertheless, these gainsharing arrangements remain subject to government scrutiny, Anderson warned. The OIG letter also cautioned that its opinion does not apply universally.

Doctors looking to participate in such programs should seek legal counsel, Anderson said. Robinson suggested that physicians take note of the program requirements, including the performance criteria involved, how doctors' practice patterns are monitored and the consequences if terminated from the arrangement.

"There's no such thing as easy money," he said.