OIG Advisory Opinion 12-22 – No Sanctions Imposed For Hospital’s Bonus Payments to Physician Group

On December 31, 2012, the OIG issued a favorable Advisory Opinion, No. 12-22, concerning a cardiology co-management agreement between a hospital and a private cardiology group practice (the “Management Agreement”).  Although the  Management Agreement potentially implicates the Anti-Kickback Statute and includes bonuses provided to a physicians’ group in exchange for implementing quality-improvement and cost-saving measures at the hospital’s cardiac catheterization laboratories (the “Arrangement”), the OIG advised that it would not impose sanctions on the requesting parties under the Civil Monetary Penalty or the Anti-Kickback Statute.  The OIG also noted that while the physician self-referral law may have been implicated by the Arrangement, the self-referral law falls outside the scope of the OIG’s advisory opinion authority and therefore it expressed no opinion on the application of the physician self-referral law to the Arrangement.


The Requestor is a large, rural acute care hospital located in a medically underserved area.  Requestor operates on its campus four cardiac catheterization laboratories; the only such laboratories within a fifty-mile radius.  All non-professional fees generated for services provided in the laboratories are billed for and collected by the Requestor.  The Requestor provides space, certain non-physician staff, equipment and supplies for the labs, and certified that the labs are operated as a provider-based department of the Requestor’s hospital.


Under the Arrangement, the Requestor entered into a cardiac catheterization Management Agreement with an 18-member physician group for a limited three year duration.  The physician group includes general cardiologists, interventional cardiologists and electrophysiologists.  The group bills Medicare Part B and other payors for cardiology services rendered by its physicians.  Further, the group does not provide cardiac catheterization services at any other location and refers patients to the Requestor for inpatient and outpatient procedures, and for cardiac catheterization procedures.

Specifically, under the Management Agreement, the group provides management and medical direction services for the laboratories, including overseeing lab operations, offering strategic planning, serving on committees and recommending equipment.  In exchange, the group receives co-management fees paid by the Requestor comprised of a fixed payment and a potential annual performance-based payment, based on financial, purchasing, employee satisfaction, patient satisfaction and quality measurement data systems, as well as certain national cardiology quality measures.  Notably, the quality component is based on nationally recognized standards for patient care.  Further, the fixed fee and potential performance fee are consistent with fair market value and are commercially reasonable.

The group then distributes any dividends resulting from revenue derived from the Arrangement based on each shareholder’s pro rata share of ownership, with no relation to any individual physician’s participation in the Arrangement. To monitor the group’s performance under the Arrangement, the Requestor uses several approaches, including multiple hospital committees, an internal audit department, and an independent accounting firm to review the audit department’s findings.  Additionally, the Requestor’s Board of Directors’ Compliance and Audit Committee reviews the independent accounting firm’s findings and approves payment of any amount under the performance fee.  Lastly, patients and their families are notified in writing about the Arrangement and their physician’s participation in the Arrangement prior to the performance of a lab procedure and concurrent with obtaining the patient’s consent to the procedure.

 Civil Monetary Penalty Analysis

While the cost savings component of the management fee implicates the Civil Monetary Penalty, Social Security Act §§ 1128(b)(1)-(2) (the “CMP”) because the Arrangement could induce physicians to alter their current medical practice to reduce or limit services, the Arrangement has enacted safeguards to ensure that cost reductions were not achieved by decreasing its patient care.

Specifically, the OIG positively noted that the hospital uses internal auditors and third-party reviewers to ensure patient care is not being adversely affected.  Additionally, the Arrangement includes benchmarks to allow the physicians flexibility to use the most cost-effective clinically appropriate items and supplies and are not prevented from using higher-cost medical devices when appropriate.  Further, the financial incentive in cost savings is reasonably limited in duration and amount, the performance fee has a maximum annual cap and the Arrangement is limited in term to three years.  Lastly, the performance bonus is conditioned on the group not stinting on care, increasing referrals, cherry-picking healthy patients for treatment in labs or accelerating discharges.

For these reasons, the OIG determined not to impose sanctions under the CMP as a result of the Arrangement.

Anti-Kickback Analysis

The Arrangement does not fit squarely within any potentially applicable safe harbors.  Specifically, the OIG considered and rejected the applicability of the personal services and management contracts safe harbor because the aggregate payment to the physician group is not set in advance.  Nevertheless, the OIG concluded that the facts and circumstances specific to the Arrangement do not warrant the imposition of sanctions under the Anti-Kickback Statute.

First, with respect to the management fees, the OIG concluded that the varied, substantial services provided by the physician group under the Management Agreement reduces the risk that the compensation paid by the hospital is a payment for referrals, rather than for actual services rendered.  Additionally, the compensation does not vary with the number of patients treated, and so the payments under the Arrangement do not vary based on an increase in patient referrals to the Requestor.

With respect to the lab’s location, because the cardiac catheterization laboratories at issue are the only ones within a fifty-mile radius, and the group does not provide these services at any other location, it is unlikely that the compensation received by the group under the Arrangement is an incentive to refer business to the labs instead of to a competing cardiac catheterization laboratory.

Additionally, the Arrangement bases a portion of payments on nationally recognized standards for patient care, something the OIG found to help ensure that the Arrangement’s purpose is to improve quality rather than reward referrals.  Lastly, the OIG noted that the Management Agreement is a written agreement with a limited three-year term.  Notably, the OIG also explained that this advisory opinion only applies to the current three-year term, and was not commenting on the automatic renewal provision because quality improvement and cost saving measures under the Arrangement would have to be subject to adjustment over time in order to avoid implicating the Anti-Kickback Statute.

For these reasons, among several others, the OIG determined that the Arrangement poses a low risk of fraud or abuse under the Anti-Kickback Statute.

Ultimately, the OIG concluded that it would not impose sanctions on the Requestor in connection with the Arrangement under the CMP and it would not subject the Requestor to administrative sanctions under the Anti-Kickback Statute.  However, the OIG expressed that the Advisory Opinion is limited to the Arrangement and is not reflective of any ancillary agreements or arrangements

You can get a copy of the Advisory Opinion here —–> Advisory Opinion 12-22

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