Question: We are considering an arrangement in which independent physicians on the medical staff would be paid a performance bonus for implementing certain patient service, quality and cost-saving measures on hospital patients.  Is there any guidance on such an arrangement?

Answer: Yes.  On December 31, 2012, the OIG issued Advisory Opinion 12-22, in which the OIG gave a thumbs-up to a proposed transaction in which a hospital would compensate a group of cardiologists a “co-management” fee comprised of two components:  a fixed fee and a potential annual performance-based payment.

In the fixed-fee portion of the arrangement, the physicians were compensated for providing certain specified services.  It was fairly standard.  However, the performance-based payment was most instructive.

The OIG permitted the hospital to pay the group a performance bonus the amount of which depended on whether the group exceeded the base line developed by the hospital for each component of the bonus.  The components of this bonus were:  a hospital employee satisfaction component; a patient satisfaction component; a component for improved quality of care; and a cost-saving component.

As with any OIG Advisory Opinion, the OIG required the hospital to show how it determined that the compensation paid to the physician was fair market value but does not describe how that compensation was valued.  There were also a number of features that the OIG required be included in the program.  So, as with any transaction described in an OIG Advisory Opinion, the devil is in the details.  However, this advisory opinion provides valuable guidance on the elements of a quality-based compensation arrangement that the OIG will permit a hospital to use to compensate physicians to improve care to the hospital’s patients.

Want more details on this and other hospital-physician arrangements?  Join Henry Casale and Dan Mulholland in Las Vegas, March 7-9 for our seminar on Hospital-Physician Contracts:  Survival Strategies.