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Physician Compensation: Legal and Valuation Trends Today, Tomorrow and Beyond

Physicians, Physician Organizations, Law Institute, Hospitals and Health Systems

February 12, 2013

Alignment Strategies

• Hospitals and health systems are utilizing a number of approaches to align independent physicians with their organizations. Some of these strategies include:

– Professional services agreements

• New approaches beyond traditional Medical Directorships

– Co-management arrangements

– Full employment

• These arrangements require different approaches to designing the compensation arrangement and ensuring the arrangement falls within fair market value (FMV)

• These arrangements present varying and sometimes novel legal/regulatory concerns

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Alignment Strategies

• These arrangements must comply with health care laws and regulations

• Key statutes:

– Stark

– Anti-Kickback

– IRS (if tax exempt organization)

– Civil Monetary Penalties Law Gainsharing

• Generally, they are considered higher risk than traditional employment

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Understanding Regulatory Risk

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Full-Time W-2 Employed Physicians

Part-Time Employees

“Free Agent” Independent Physicians

Medical Directors

Co-Management (with non-employed physicians)

Independent PhysiciansIntegration DecreasesFull-Time Bona Fide W-2 Employed

Physicians

Ris

k In

cre

ase

s

High Regulatory Risk

Lower Regulatory Risk

Professional Services Agreement

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• Employment is fully integrated and traditionally viewed as generally less suspect:

– Employer has greater control over means and methods of employee’s services through:

• Policies

• Procedures

• Protocols

• Training

• Setting work effort expectations

• Compliance and plan, etc.

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• Less integrated models more suspect:

– Less control over personnel who remain independent

– Less commitment/easier to unwind

– Greater risk that financial relationships may improperly influence referrals or “take into account” volume or value of referrals

– Greater risk that financial relationships may result in fraud and abuse:

• Stinting

• Cherry picking

• Lemon dropping

• Reducing care/services

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Less Integrated Models –Regulatory Concerns• Analyze as personal services and management contracts

under Anti-Kickback Statute (AKS) (vs. W-2 employment)

• Often cannot meet AKS safe harbor if compensation not “set in advance”

• Office of Inspector General (OIG) examines facts and circumstances; looks for safeguards mitigating fraud and abuse

• Stark

• Use requires written agreement

• Personal services or FMV exceptions

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Key Regulatory Concerns

• Compensation paid is FMV

• Compensation does NOT “take into account” volume or value of referrals (future or anticipated)

• Arrangement must be commercially reasonable

• Include safeguards against fraud and abuse

– Non-discrimination by payor source

– Consider selection of physicians

– Avoid stinting, cherry picking, lemon dropping, steering

– Reset terms and compensation

• Avoid improper reductions in care

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Enforcement Lessons

• Focus on Stark and compliance with FMV

• Does compensation “take into account” the volume or value of referrals?

• Is arrangement a known money loser? Is health care organization (HCO) planning on compensation exceeding net collections for physician’s professional services?

• Could some of the compensation be for referrals to HCO, such as payment for referral for technical/facility service (e.g., for inpatient or outpatient surgery)?

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Professional Services Agreements

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• Emerging practices for professional services agreements (PSAs) with independent physicians often include the following features:

– HCO leases physicians to furnish professional service

– The independent physician group (the “Group”) assigns collections for professional services to the contracting HCO

– The HCO compensates the Group based on work Relative Value Units (wRVUs) for personally provided services

– May include a lease of practice staff or pass through cost for practice expenses (space, non-physician personnel, practice assets)

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Professional Services Arrangement

Example Model

Independent Physician Practice

Hospital

• May continue to own practice assets

• Continues to employ physicians and non-physician personnel

• Continues practice pension/benefit plans

PSA

• Independent contractor arrangement (not W-2 employment)

• For physician professional services

• Can include hospital purchase of assets

• Can include lease/services of non-physician personnel and practice assets to hospital for fee or pass through of practice costs

• Bills and collects professional services

• Brands/markets practice

• Requires compliance with hospital policies, procedures, standards

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HCO:

• Alignment option for “free agents” who are not interested in employment (at this time)

• Create or expand access to clinical service or program

• Switch to provider-based reimbursement

• Aligned physician group will likely be more engaged in key hospital initiatives

• Preempt competition (defense or offense)

Physicians:

• Shifts payor mix risk to HCO

• Shifts risk of uncollectable charges

• Retain autonomy

• Easier to unwind vs. employment

• Compensation not directly tied to collections; therefore, secure income stream

• Reduced administrative burden of managing collections for professional services

• Dating before marry an HCO

Why a PSA?


• A PSA must demonstrate value to the HCO in the absence of:

– Future anticipated referral stream

– HCO’s collections rate (relative to the Group’s rate)

• Such benefits might include:

– New or increased access to services offered to patients in the community (e.g., offering service locally vs. patient leaving the community for services)

– Improved quality of services due to alignment with the physician/physician group

– Strategic or financial benefit to the HCO

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PSA Red Flags

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• Benchmark practice expenses to market survey data

– Need to ensure the practice expense pass through is within FMV


Compensation Approach

• If providing a pass through for practice expenses, do not include expenses related to:

– Ancillaries which the practice owns

– Professional services that are not outlined in the PSA (i.e., Group has multiple PSAs and provides services to more than one HCO)

• May require allocation methodology to establish expenses related to the professional services outlined in the PSA (e.g., work effort, revenue, sq. footage, FTE)

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• Benchmark labor costs to market survey data

– To ensure the labor costs are within FMV

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• The emerging approach under a PSA is to compensate the physicians on a per wRVU basis. There are a number of issues to address when considering this approach

– Do the wRVUs and collections align relative to the market benchmarks?

• The compensation on a per wRVU basis should not exceed the projected collections for the services

• For example, if the wRVUs approximate the 75th

percentile of the market and the collections approximate market median, they are not in alignment

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Example Analysis

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• If the wRVUs and collections do not align, it could be due to a number of issues including:

– Payor mix

– Contracting

– Collections

– Coding

To test for coding issues, compare CPT codes to national market norms

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• The compensation for professionally provided services should not result in a “windfall” for the physicians

– When comparing historical compensation relative to projected compensation, must ensure you are comparing compensation received for professional services versus compensation received for ancillaries

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• Do the wRVUs include productivity for Advanced Practice Clinicians (APC)?

– Groups often have difficulty separating the APC wRVUs from the physician wRVUs

• Check to see if the APCs have their own provider numbers

– The compensation approach for incident to wRVUs performed by the APCs will vary based on which entity employs and incurs the APC expense

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• The arrangement may include other compensation components including:

– Compensation for medical directorship

– On-call pay

• Must balance with wRVUs provided if called in to provide services

– Quality incentives

– APC supervisory stipend

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Co-Management Arrangements

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• HCO engages physicians to manage clinical service line

• Can involve a multi-disciplinary service line

• Common services lines include orthopedic surgery, cardiology/cardiovascular surgery, neurosurgery, oncology

• Evolving to continuum of care across a number of specialties (less common)

• Typically includes a fixed, annual base fee for ongoing fixed management and oversight and an annual “at risk” bonus payment for achieving pre-set goals

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Example Model

HospitalService Line Management

Company

Management Services

•Base fee•Performance fee

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Management Fees

Often management company is joint venture owned by hospital and physicians. Can also be a direct contract between hospital and physician practice

Physician Owners

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• Common objectives of a co-management arrangement include:

– Development of clinical protocols

– Participation in development of strategic initiatives

– Workflow process improvements

– Patient satisfaction improvements

– Physician and staff satisfaction improvements

– Patient caseload/management and scheduling activities

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– Focus on improving quality outcomes

– Standardization in use of equipment, devices and supplies

– Oversight of certain hospital staff

• Cannot overlap with other HCO staff who may be paid to oversee staff

– Developing budgets

– Community relations

– Develop objective performance goals and benchmarks

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• Co-management arrangements

– Require significant investment of time and commitment from physicians and HCO leadership

– Can be expensive to implement

– Require transparency between the HCO and physicians

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– Have a higher degree of risk from a regulatory perspective than more integrated models or traditional medical director agreements

• Stark

• Anti-Kickback

• IRS

• Gainsharing Civil Monetary Penalties (CMP)

• Bond financed space Rev Rule (97-13)

• Provider-based status

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• Compliance with Anti-Kickback safe harbor and Stark exception for personal or FMV (may be indirect) services

– Document justification for engaging physicians to manage (e.g., clinical improvement, quality, productivity)

– Selection of physicians to manage (e.g., all on staff in specialty vs. big referrers only)

– Include detailed description of specific services to be performed by physician and require documentation of services

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• Even if management fee is FMV, it will not meet Anti-Kickback statute personal services safe harbor if “aggregate compensation” is not “set in advance”

– Typically, base fee set in advance and total, maximum opportunity for bonus fee stated

– But bonus fee potential fails “set in advance” if it is “at risk”

– OIG views percentage fees not “set in advance” under Anti-Kickback statute

– FMV appraisal of management fee negates inference of payment to induce referrals

– Limit term (three years or less) and reset duties and performance goals to avoid payments for status quo

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• Consider performance-based/incentive compensation carefully

– Example: Patient satisfaction targets, on-time surgery starts

– Will not comply with Anti-Kickback personal services safe harbor because not “set in advance”

– Avoid any incentives that could induce physicians to limit or reduce Medicare or Medicaid services in violation of Gainsharing CMP Law

– Avoid volume-based/revenue-based performance measures (e.g., rewards for increased volume utilization, revenue, profit, change in case mix)

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• Gainsharing CMP

– Cannot reward changes in volume or case mix (steering/cherry picking/lemon dropping)

– Must maintain and measure quality and case mix

– Disclose to patients

– Hospitals can be liable for civil penalties of up to $2,000 per patient

– Hospitals can be excluded from Medicare/Medicaid for violation

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• OIG Advisory Opinion 12-22 (December 31, 2012)

– Payments for quality, service and cost savings goals could be misused by unscrupulous parties to induce limitations or reductions in care or disguise kickbacks

– Avoid stinting on care, cherry picking, steering, increasing referrals, accelerating patient discharges

– Ensure physicians provide substantial, actual services and document

– Caution regarding selection of physicians; don’t offer co-management to induce group to switch referrals to HCO

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• OIG Advisory Opinion 12-22 (December 31, 2012), continued

– Ensure goals and achievement required for payment require a material change from status quo

– Limit term (three years) and reset quality and cost savings measures to require continued, future improvement

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Hmmm…so, why develop a co-management arrangement?


• Co-management arrangements (a.k.a. – Medical Directorships on steroids)

– Align physicians and the HCO to achieve the same goals –operational and strategic, depending on how designed

– Measurable improvements in quality, patient satisfaction if properly designed and implemented

– May be first step in moving away from physicians working in silos to a more collaborative environment – a team based approach

• Will be required with changes to reimbursement which are based on bundled payments, achievement of quality/patient satisfaction metrics and other variables not related to volume

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• The compensation for co-management duties must fall within FMV

– The identification of the range of time required to perform base line duties may not a preferred methodology to determine FMV for fixed duties

• Some use an approach which provides the physicians with a percentage of the historical service net line revenue – typically 3-10%

• Treated as a Management Fee (tied to outcome of co-management arrangements vs. time)

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• Concerns with management fee approach:

– Stark law requires that compensation paid to physicians must be for defined services which are actually provided by the physician

– Generally, Stark law does not allow for compensation to be tied to anticipated or actual referrals

• Can percent of service line net revenue be construed as taking into account referrals (higher revenue, more compensation)?

– Organizations providing management services typically have operating expenses and risk which go well beyond those incurred by physicians providing co-management services

– Limited (no) data on management fees for these types of services

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Example Approach Using Hours and Performance Incentive

1) Identify leadership duties/hours

2) Identify committee/staff range of hours

3) Benchmark to identify baseline compensation


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• Among the spectrum of physician compensation arrangements, co-management arrangements have a relatively “high” degree of regulatory risk particularly if FMV cannot be demonstrated:

– By design, these agreements exist between hospitals and physicians who refer patients to the hospital

– However, proper design and implementation of a co-management arrangement can be an effective tool to accomplish HCO strategic objectives including:

• Quality and process improvements

• Patient satisfaction improvements

• Faster implementation of key strategic initiatives

• Physician alignment

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Physician Compensation for Employed Physicians

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Compensation Approaches for Employed Physicians

Base Salary

wRVU Threshold

Total Cash

Compen-sation

wRVU Rate

Traditional Productivity Model

Each component must be in balance

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Base Salary

wRVU Threshold

wRVU Rate

What happens when incentives for quality and patient satisfaction are

added to the compensation approach?

Patient Satisfaction

Quality

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Compensation Approaches for Employed Physicians• This compensation approach includes three components:

– Base salary

– Incentive compensation based on:

• wRVU conversation factor for each wRVUs exceeding a specified threshold

• Multiplier based on performance score

Base Salary + wRVU Rate

$40.00 +/- $10.00wRVUs Exceeding

Threshold

= Total Cash Compensation

Low Performance

Score

( x )High

Performance Score

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Compensation Approaches for Employed Physicians• The wRVU-based component of the incentive is based

on individual productivity for wRVUs exceeding 4,500

• The performance-based component is determined by multiplying the annual wRVUs generated by a rate per wRVU of $40.00 (conversion factor). The conversion factor is then adjusted based on a performance score (1 through 5). Below illustrates possible conversion factors for each performance score:

Performance Score 1(Low)

2 3(Baseline)

4 5(High)

Conversion Factor $30.00 $35.00 $40.00 $45.00 $50.00

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Compensation Approaches for Employed Physicians• This compensation plan includes three components:

– Base salary

– Quality incentive

– wRVU productivity incentive tiers

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Base Salary

+ Productivity Incentive

+QualityIncentive

= Total Cash Compensation

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Phys.Base

Salary

wRVUs

wRVULevel

Prod.Incentive

Max.Quality

Incentive

Clinical TCC Clinical TCC per wRVU

# %ile $ %ile $ %ile

A $260,000 5,000 56 0 $0 $26,000 $286,000 65 $57.20 62

B $260,000 5,500 65 1 $20,000 $26,000 $306,000 75 $55.64 58

C $260,000 6,000 73 2 $40,000 $26,000 $326,000 79 $54.33 55

D $260,000 6,500 79 3 $60,000 $26,000 $346,000 82 $53.23 52

E $260,000 7,000 83 4 $80,000 $26,000 $366,000 85 $52.29 50

F $260,000 7,500 87 5 $100,000 $26,000 $386,000 88 $51.47 47

G $260,000 8,000 91 6 $120,000 $26,000 $406,000 91 $50.75 45

H $260,000 9,000 > 95 7 $140,000 $26,000 $426,000 93 $47.33 34

Illustrations based on varying levels of wRVU productivity

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Example Performance Criteria

•Patient satisfaction (Compared to organizational or national benchmarks)

•Quality or patient outcomes (Core Measures, PQRS)

•Implementation of clinical guidelines/protocols

•Health screening rates

•Reduction in error rates

•Readmission rates

•Meaningful use of Electronic Health Records (EHR)

•Charting or coding compliance

•Resource or expense management

•Patient access, wait times

•Citizenship

Incentives Based on Performance Goals

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Physician Compensation Governance

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• Consequences if payments are not FMV or violate regulations

– Penalties under Stark, Anti-Kickback and Tax Exempt Laws include:

• Fines and penalties, including $11,000 per claim and treble damages for false claims

• Exclusion from Medicare/Medicaid programs

• Imprisonment

• IRS intermediate sanctions excise taxes on “disqualified persons” and management

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Why Should Board Members Care?

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– Reputational risk

– Diversion of organizational resources to addressing investigations, prosecutions, and resolution of non-compliance

– Potential use of responsible Corporate Officer Doctrine (Testimony of OIG Chief Counsel, Lewis Morris, see Attachment C)

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Why Should Board Members Care?

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Physician Compensation Oversight

8. Update the Board

7. Document Findings

6. Get Engaged in Transaction Early in the Process

5. Conduct a Program Audit

4. Determine Which Arrangements Require Board Level Review

3. Develop Governance Documents and Process

2. Ensure Proper Oversight

1. Educate the Board

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• Update the Board on physician compensation and regulatory trends

• Educate the Board on its role and responsibility

• Use prudent business judgments

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Action Item 1: Educate the Board

• Committee of disinterested Board members:

– Current regulatory climate

– Fiduciary responsibility for significant lines of business

– Major shift in approach?

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Action Item 2: Ensure Proper Oversight

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Physician Compensation Review Process

• Board Committee comprised of disinterested members and staffed by key members of mgt (e.g., general counsel, etc.)

• Approves compensation and contract parameters/templates on annual basis

• Reviews and approves individual contracts if outside contract parameters/ templates

• Follow IRS “rebuttable presumption” for physician contracts with “disqualified persons”

• Delegates authority to review physician compensation to Board committee

Physician CompensationReview Committee

• FMV

• Commercial reasonableness

• Compliance with Stark, AKS, Civil Monetary Penalties, etc.

• Follow IRS “Rebuttable Presumption” for disqualified persons

Hospital Board Example

• “Rebuttable Presumption”

- Approve in advance

- Receive and rely on appropriate comparability data

- Document decision

• Define physician compensation philosophy

• Approve parameters

• Limit personnel handling physician arrangements

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Action Item 3: Develop Governance Documents and Process

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• All physician Chair positions

• Disqualified individuals

• Compensation > $XXX,XXX

• Physicians reported on IRS Form 990s

• Compensation > 75th percentile

• Overall compensation plan

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Action Item 4: Determine Which Arrangements Require Board-Level Review

• New IRS Form 990 discloses highly compensated physicians

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IRS Form 990

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Action Item 5: Conduct Program Audit

• Critical aspects of physician acquisitions

• Have documentation/issues in advance of meeting

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Action Item 6: Get Engaged With Transactions Early in Process

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Action Item 7: Document Findings

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Action Item 8: Update the Board

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Questions and Answers…

Kimberly Mobley Claire Turcotte

Sullivan, Cotter and Associates, Inc. Bricker & Eckler LLP

4000 Town Center 9277 Centre Pointe Drive

Suite 1750 Suite 100

Southfield, MI 48075 West Chester, OH 45069

248.204.9520 513.870.6573

[email protected] [email protected]

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Attachment A:

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Regulatory Supplement

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Commercial Reasonableness Guidelines

• The test for commercial reasonableness applies to broader business issues related to the arrangement. This is especially important in arrangements that include compensation for administrative and other non-clinical services

• The services should attest to the existence of relevant commercial reasonableness factors. Such factors typically include:

– The services covered by the arrangement are essential to the operation of the organization and/or addressing the community’s unmet needs and are fully defined in the form of a job description or similar document

– There is a sound business reason/need to pay for the services and the services to be provided require that a licensed physician perform the services. If applicable to the situation, the services require a physician from a specific specialty

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Commercial Reasonableness Guidelines

• The services should attest to the existence of relevant commercial reasonableness factors. Such factors typically include:

– The number of physicians assigned to perform the services is appropriate

– The physician is actually providing the designated services as evidenced by documented work product, time logs/records and periodic performance reviews

• Review and approval of the commercial reasonableness factors specific to the compensation arrangement by an entire disinterested Board or committee in a manner that is designed to qualify for the rebuttable presumption of reasonableness, based on appropriate comparability data, is a strong protection, regardless of the actual placement of compensation in relation to market data

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Fair Market Value

• Stark, AKS and Tax Exempt laws ALL require physician compensation arrangements to be FMV

Stark Law

Tax Exempt

Anti-Kickback Statute

FMV

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Fair Market Value

• These statutes and opinions indicate that compensation arrangements must represent FMV:

– No specific guidance on what represents FMV; however, Stark III states:

• “reference to multiple objective, independently published salary surveys remains a prudent practice”

• Penalties:

– Fines and penalties up to three times the amount paid for Medicare/Medicaid services, $10,000 fine per payment

– Exclusion from Medicare/Medicaid programs

– Intermediate sanctions excise taxes and disgorgement

– Imprisonment

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Fair Market Value

• May be required by bonding agency:

– To assess compliance risk

• Reputational risk

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Practice Valuation and Physician CompensationThe standard of value is fair market value:

• Revenue Ruling 59-60 Definition of Fair Market Value

…the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts…

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Practice Valuation and Physician CompensationThe standard of value is fair market value:

• Additional Guidance Included in Stark:

…the value derived by parties in an arm’s length transaction, consistent with the general market value. General market value means the price that an asset would bring, as a result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party; or the compensation that would be included in a service agreement, as a result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement…

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Regulatory Environment Today

Current physician compensation models present legal challenges under fraud and abuse and other

laws

Anti‐Kickback Law

Stark Law

Civil Monetary Penalties (CMP) Law (Prohibiting Payments to

Reduce Services)

Tax Exempt IRS Laws

False Claims Acts

Anti‐Trust Laws

Insurance Laws

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• Stark Law– Prohibits physician from referring to an entity for

“designated health services” (DHS) if physician has a“financial relationship” with the entity UNLESS:• Arrangement satisfies ALL requirements of Stark exception• Exceptions for common compensation arrangements require

that compensation is “FMV”- Employment- Personal services- FMV- Indirect compensation

• DHS include ALL inpatient and outpatient hospital services– Prohibits DHS entity from billing Medicare for DHS

referred services by a physician if “financial relationship”does not meet a Stark exception

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The Stark Law

Community Hospital

Physician

Community Hospital

Physician


NO

Referral for Inpatient or

Outpatient Hospital Service

• UNLESS, satisfies Stark Personal Services Exception

Example

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• Stark Law and FMV

–Value in arm’s length transactions, consistent with the general market value

–General market value means the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, at the time of the service agreement

–Fair market price is generally based on bona fide comparable services agreements, where the compensation has not taken into account the volume or value of anticipated or actual referrals

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• Anti-Kickback Law- 42 USC 1320a-7b

– Prohibits knowingly and willfully offering, paying, soliciting or receiving any “remuneration” = anything of value (direct, indirect, overt or covert, in cash or in kind)

– To induce or in return for:

• Referring an individual, or arranging for furnishing

• Purchasing, leasing, ordering, or arranging for

• Any item or service payable by federal health care program

– Are statutory exceptions and regulatory safe harbors to protect certain relationships

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• Anti-Kickback Safe Harbors - 42 CFR 0001.952

– Includes exception/safe harbor and personal service for Medicare/Medicaid services, which generally require:

• Commercially reasonable (i.e., intrinsic commercial value to purchaser) items or services

• Exchanged for FMV

• Written agreement covering all services

• W-2 employment has broader protection (no express FMV/commercial reasonableness requirement)

• The reason exceptions/safe harbors are OK is if ALL criteria are met Government says little risk of fraud and abuse!

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• IRS and FMV:

– Price expressed as price at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller acting at arms’ length in an open and unrestricted market when neither is under compulsion to buy or sell and when both parties have reasonable knowledge of relevant facts (Rev Rule 59-60)

– Reasonable compensation is the amount that would ordinarily be paid for like services by like enterprises under like circumstances (IRC Section 162)

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• Stark requires compensation arrangement to be commercially reasonable even if no referrals to the DHS entity:

– An arrangement will be considered “commercially reasonable” in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of like type and size and a reasonable physician…of similar scope and specialty, even if there were no potential DHS referrals. 69 Fed Reg 16093, 16107 (Mar 26, 2004)

• Commercial reasonableness applies to broader business issues related to the arrangement

– Community need to retain or add service/specialty; ability to increase indigent care; patient care benefits such as quality, continuum of care

– Documentation should attest to the existence of relevant commercial reasonableness factors

• Especially arrangements providing compensation for administrative and other non-clinical services

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• Consequences if payments are not FMV

– Penalties under Stark, Anti-Kickback and Tax Exempt Laws include:• Refund of overpayments (if arrangement fails to meet Stark

exception)• Fines and penalties, including $11,000 per claim and treble

damages for false claims• Exclusion from Medicare/Medicaid programs• Imprisonment• IRS intermediate sanctions excise taxes on “disqualified

persons” and management

– Reputational risk

– Diversion of organizational resources to addressing investigations, prosecutions, and resolution of non-compliance

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• Prohibits hospitals from knowingly making payments, directly or indirectly, to a physician to induce the physician to reduce or limit services to Medicare or Medicaid beneficiaries under the physician’s direct care

• Applies to reductions in service even if not medically necessary

• Affects limits on quality and efficiency that could be viewed as inducing reductions in services (clinical protocols, product standardization, service line co-management)

• Hospitals liable for civil penalties of up to $2,000 for each payment to a physician, and $50,000 penalty for each altercation and up to 3x total remuneration

• Can be excluded from Medicare/Medicaid for violation

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OIG AOs on Gainsharing

• Relevant to payments for meeting quality and efficiency goals

• Required quality targets based on credible, national standards with limits on reductions in services

• Limited duration (1-2 years)

• Physician services necessary to achieve shared savings

• Transparency

• Not based on referrals (i.e., limited to current physicians on medical staff). See AO 8-16

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Attachment B:

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Testimony of OIG Chief Counsel, Lewis Morris

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Summary Testimony

Testimony of OIG Chief Counsel Lewis Morris Before Congress (March 2, 2011)

“Some hospital systems, pharmaceutical manufacturers, and other providers play such a critical role in the care delivery system that they may believe that they are ‘too big to fire’ and thus OIG would never exclude them and thereby risk compromising the welfare of our beneficiaries. We are concerned that the providers that engage in health care fraud may consider civil penalties and criminal fines a cost of doing business. As long as the profit from fraud outweighs those costs, abusive corporate behavior is likely to continue.”

“One way to address this problem is to attempt to alter the cost-benefit calculus of the corporate executives who run these companies. By excluding the individuals who are responsible for the fraud, either directly or because of their positions of responsibility in the company that engaged in fraud, we can influence corporate behavior without putting patient access to care at risk.”