August 1999 Bulletin

IG issues warning on hospitals paying doctors to cut costs

The Inspector General of the Department of Health and Human Services issued a special advisory bulletin stating that although hospitals have a legitimate interest in enlisting physicians to help eliminate unnecessary hospital costs, existing federal law clearly prohibits hospitals from paying physicians to reduce or limit care for fee-for-service Medicare and Medicaid patients. Hospitals may encourage physicians to achieve cost savings by entering into personal services contacts in which hospitals pay physicians, based on a fixed fee that is fair-market value for services rendered rather than a share of cost savings. Examples of clinical joint ventures that violate the law include freestanding specialty hospitals such as heart, orthopaedic or maternity hospitals and arrangements in which a high-revenue unit or service of an existing hospital is carved out and recapitalized as a separate hospital with physician investors. These joint ventures may induce investor-physicians to reduce or limit services to patients to increase profits through cost savings in clinical care.

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