3 Tips for Developing Compliant Pay for Performance Models

According to a report from the Catalyst for Payment Reform only 11 percent of payments to doctors and hospitals are value based.  The report explains that nearly half of those value based programs are based on performance incentives and the other half are based on financial risk if goals are not met.  In the era of accountable care, hospitals are undoubtedly looking to alternative compensation plans to align the interests of practitioners and the hospitals.  Nevertheless, aligning the interests of quality of care and patient satisfaction can be difficult given the many laws affecting how hospitals can implement new payment models.

In particular, hospitals should pay special attention to the Stark Law, the Anti-Kickback Statute, and the Civil Monetary Penalties Statute when implementing pay for performance models.  Here are 3 tips to remember when implementing performance based payment models:

  1. Any Incentive Payments Must be Consistent with Fair Market Value and Commercially Reasonable.
Under the Stark Law, physician compensation arrangements must fit within an applicable exception.  Those exceptions include personal services, employment, and fair market value.  To satisfy all of these, any compensation paid under these exceptions must be fair market value and commercially reasonable.

  1. Reducing Costs Should Never be Based on Limiting Services, But May be Based on Overall Financial Improvement of the Organization.
The Civil Monetary Penalties Statute prohibits hospitals from making payments to physicians to induce the reduction of services.  During a time in which reduction in costs is essential and reduction in readmissions is necessary, hospitals must ensure that many metrics used do not have the possibility of inducing physicians to limit services.

  1. The Purpose of a Pay for Performance Model Should be to Improve Quality of Care.
The Anti-Kickback Statute prohibits payments to physicians if the purpose of the arrangement is to induce referrals.  There are multiple reasons for implementing a pay for performance model; however any of those reasons should never include the purpose to include referrals.  Otherwise, such a purpose would violate the Anti-Kickback Statute.

Health care reform is incentivizing hospitals to increase quality and reduce costs, but the legal barriers still remain the same.  If your hospital is planning to implement a model based on quality and reduction of costs, such a model must adhere to these laws.

If you have any questions regarding the implementation of pay for performance models, or questions related to these fraud and abuse laws, please feel free to contact Robert A. Wade at (574) 485-2002 or Alex T. Krouse at (574) 485-2003.