July 19, 2010

While hospitals’ efforts to align themselves more closely with physician practices have been increasing, so has the attention of the Office of the Inspector General (OIG) of the Department of Health and Human Services. Relationships between physicians and facilities offer numerous, more or less creative and often unintended ways of violating the ban on self-referral and the ban on kickbacks. A review of a seminal OIG Advisory Opinion on a cost-saving arrangement between a hospital and its anesthesiology group will help readers navigate the territory.

In the classic relationship model, the hospital seeks to integrate its physicians, whether through employment or through independent contractor arrangements, with various objectives, including containing costs, improving clinical quality standards and attracting patients. According to the accounting firm Grant Thornton (E. Gonzaga, Growing Scrutiny of physician compensation in acquisitions),

Hospitals began acquiring physician practices and employing those physicians in the late 1980s and early 1990s as a means of increasing market share in their communities. Yet since doctors were often paid fixed salaries by the hospitals without any productivity requirements, practice revenues tended to decline under the hospitals’ ownership. By the mid- to late 1990s, hospitals began divesting themselves of these unprofitable practices and selling them back to the physicians — often at a much lower price than they had paid initially.

But hospitals have learned a number of lessons since the 1990s. First and foremost, they have recognized that they need to establish an appropriate physician compensation structure that rewards physicians for goals shared by physicians and hospitals, including productivity, quality and patient satisfaction. Consequently, performance-based compensation models are the norm today, not the exception.

The lawyers (who should always be involved in structuring hospital-physician relationships) will tell you that compensation of physicians by their hospitals or surgery centers must be “reasonable,” in line with fair market value. This is important both to preserve the tax-exempt status of not-for-profit hospitals and to rebut any argument that the purpose of the compensation is to pay physicians for referrals (anti-kickback laws) or to give them a return on their volume-driven ownership interest in the facilities (Stark self-referral rules and state equivalents).

Attracting patients to the O.R. is not something that hospitals typically seek from anesthesiologists, except to the extent that anesthesiologists order significant volumes of pain medicine services. Hospitals do need an anesthesiology staff, however, in order to be able to run an O.R. Beyond running a standard anesthesia service, quality measurement and productivity improvement are areas to which anesthesiologists can and do contribute. Lewis Morris, Chief Counsel to the OIG, testified before the House Ways and Means Committee on June 15, 2010, “In addition, we are seeing an increase in quality-of-care cases involving allegations of substandard care.” Anesthesiologists have the best overall and continuous view of quality issues in the O.R. and should consider seizing the opportunity to help hospitals continuously improve standards of care.

Of particular concern to the OIG are gainsharing, bundled payments and other new health system models envisaged in the Affordable Care Act. The OIG has defined “gainsharing” as an “arrangement in which a hospital will share with each physician group a percentage of the hospital’s cost savings arising from the physician groups’ implementation of a number of cost reduction methods.” Such arrangements can technically look like a perfect model of a kickback; moreover, they are expressly barred by the civil monetary penalty law, which prohibits hospitals from rewarding physicians for reducing services to patients. The Deficit Reduction Act of 2005 therefore directed CMS to conduct demonstration projects, and the first gainsharing demo project is underway. CMS is also operating the three-year Physician Hospital Collaboration Demonstration to examine the effects of gainsharing on improving quality of care in a health delivery system that included post-acute care.

Some of the means by which physicians can help hospitals achieve savings are as follows:

• Only open disposable products as needed,
• Change processes to limit use of products (eg, cell saver) to medically indicated clinical circumstances,
• Substitute less costly products to achieve identical results, and
• Standardize products where medically appropriate.

It is easy to see the potential for abuse in limiting products, supplies and equipment to the less or least costly varieties. The OIG has been cautious, therefore, in evaluating such arrangements. In January 2008, the OIG issued an important advisory opinion, No. 07-22, addressing an anesthesiology group scenario. Advisory opinions have no precedential value in other cases, unlike judicial decisions, but the guidance that they provide on the OIG’s perspective is considered highly valuable.

In the situation that led to the request for the AO, the anesthesiology group and the hospital had entered into an arrangement to reduce unnecessary spending in cardiac surgery. The hospital and the group were to share 50-50 in any cost savings achieved. The program consisted of five clinical practice recommendations:

• Use a specific drug based on individual patient need, not routinely. The drug was not identified in the AO, but the anesthesiology group had indicated “that its routine use is not supported by evidence and that its use significantly increases costs without proven increases in benefits.”
• Eliminate the routine use of a brain function monitoring device, although the device remained available for any procedure in which it was clinically indicated.
• Substitute a less expensive specific type of catheter.
• Substitute a nasogastric tube made with a less expensive material.
• Standardize the use of certain fluid warming hot lines.

All of these items remained available to the anesthesiologists; “the economies gained through the Arrangement resulted from inherent clinical and fiscal value and not from restricting the availability” of the full range of products.

Nevertheless, the five recommendations on their face violated the civil monetary penalties statute’s prohibition on payments by hospitals to physicians for reductions of direct patient care services provided to Medicare and Medicaid patients. They had the apparent potential not only to induce stinting on patient care, but also to lead to cherry-picking healthier patients and to stimulate a “race to the bottom” among hospitals offering gainsharing programs that would foster physician loyalty.

The OIG found, however, that there were enough safeguards in the AO No. 07-22 “Arrangement” to advise that the Office would not seek sanctions under the civil monetary penalties law. These safeguards included:

• Transparency of very specific cost-saving actions and resulting savings, allowing for public scrutiny and individual anesthesiologist accountability;
• Evidence-based opinions that the recommendations would not adversely affect patient care, subject to periodic review;
• Gainsharing payments calculated without regard to patients’ insurance coverage, overrepresentation of Medicare population, or accounting conventions substituting for actual out-of-pocket acquisition costs;
• Protection again inappropriate utilization reductions by analyzing historical measures and establishing baseline thresholds beyond which no savings would accrue to the anesthesiologists;
• Written disclosures of the Arrangement to affected patients plus an opportunity to review the cost-savings recommendations before surgery;
• Reasonable limitation of financial incentives in duration (1 year agreement), scope (total savings limited by prior utilization levels), and
• Equal shares income distribution among anesthesiologists, mitigating incentives for any individual physician to generate disproportionate savings.

Some of these factors also entered into the OIG’s determination not to seek sanctions for a possible violation of the anti-kickback statute. Of paramount importance in that regard was the fact that the anesthesiology group did not do any pain medicine and thus did not refer patients to the hospital. This rationale for the inapplicability of the anti-kickback rules is familiar to the anesthesia community.

In sum, the OIG has long been very ready to find illegal financial incentives in hospital-physician relationships. Recent activity and pronouncements from that Office suggest that its attorneys will keep their eyes on attempts to launch new arrangements inspired by the Affordable Care Act’s emphasis on systems efficiencies and quality improvement. That should in no way dissuade anesthesia groups from seeking out new relationships that increase their value to the patients and facilities that they serve. Be sure, though, to obtain expert advice! As always, we are ready to help.

Sincerely,

Tony Mira
President and CEO