OIG Issues Advisory Opinion On Co-Management Incentive Compensation Arrangement

On January 7, 2012, the OIG posted Advisory Opinion No. 12-22 to address a co-management arrangement between a hospital and physicians that is designed to align incentives by offering compensation based on quality, service, and cost saving measures. The OIG concluded that the arrangement could constitute improper payment to either reduce or limit services or induce referrals under the CMP Law, warranting civil monetary penalties or Anti-Kickback Statute sanctions; however, the OIG would not impose any sanctions due to several safeguards in the arrangement.

Co-management arrangements are frequently used to align and reward physicians for assisting the hospital in managing a service line and often include incentive compensation to improve the service line's quality and efficiency. Although co-management arrangements are widely used in the industry, and the OIG has previously opined on numerous gainsharing arrangements, Advisory Opinion No. 12-22 marks the first time that the OIG evaluated a co-management arrangement.

The Advisory Opinion provides hospitals and physicians with helpful guidance as to the OIG's view of co-management arrangements, although only the requestor can rely upon it for protection. Of importance to its analysis, the OIG emphasized safeguards that have long been recognized as important to protect any type of quality or efficiency payment made by hospitals to physicians. These safeguards include (i) independent monitoring to ensure that no inappropriate changes occur to quality or referral patterns and that no inappropriate reduction in care occurs, (ii) payments that are deemed fair market value based on the services rendered by the physicians, (iii) transparency in the metrics chosen, (iv) metrics that reward improvement and not just maintenance of previous levels of achievement, and (v) continued access by the physicians to the full panoply of treatment options, reasonable limitation in the duration of the arrangement, among others. Click here for more detailed information about Advisory Opinion No. 12-22.

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