Health Law Advisory Bulletin
Gainsharing Opportunities Expand for Physicians
and Hospitals
By John
P. Krave, Brent
R. Eller, and Thomas
E. Jeffry, Jr.
[June 2005]
If the health care industry has been waiting for express
governmental approval of gainsharing the OIG’s recent advisory
opinions on the topic are at least a small step in that direction.
In no less than six separate advisory opinions issued earlier this
year the OIG sent a clear message that some precise and well-crafted
gainsharing arrangements will pass legal muster. Despite this encouragement
from the regulators, a number of structural and accounting barriers
to a successful gainsharing program remain. At first blush, gainsharing
seems like an all-around winning recipe for encouraging efficiencies
in hospital patient care. Most gainsharing programs involve a contractual
arrangement in which a hospital agrees to share cost savings with
a physician or medical group to the extent that their practice patterns
reduce the hospital’s costs. The hospital thereby reduces
the cost of medical care at its facility while the physicians benefit
financially by adjusting their clinical practices in a manner that
promotes efficiency. Patients may, in the long run, benefit through
the adoption of a thoughtful cost-saving strategy that serves to
lower the cost of hospital goods and services without increasing
clinical risk.
The OIG believes itself constrained by federal law
from providing an across the board blessing for the concept of gainsharing.
The OIG commented in a Special Advisory Bulletin published in 1999
that “appropriately structured” gainsharing arrangements
may offer “significant benefits” with no adverse impact
on quality of care. However, the OIG also noted in 1999 and reaffirmed
in 2005 that the Hospital Physician Incentive Plan (“Hospital
PIP”) statute (Section 1128A(b) of the Social Security Act)
technically prohibits such arrangements and that Congressional action
is necessary to grant significant regulatory relief from its restrictions.
The OIG has adopted a very literal and expansive interpretation
of Hospital PIP statute and so far has declined to issue regulations
to define gainsharing plans that it considers acceptable. Instead,
the OIG has elected to review gainsharing plans on a case-by-case
basis pursuant to its advisory opinion process to determine whether
particular arrangements violate the intent of Hospital PIP law,
or alternatively, pose such minimal risk of abuse that the OIG will
decline to prosecute the proposed program. The advisory opinion
process allows the OIG to offer carefully circumscribed relief from
technical violations of Hospital PIP statute in situations in which
the OIG believes prosecution is not in the public interest. Unfortunately,
the advisory opinion process is subject to detailed regulation and
requires many months to successfully complete with no guarantee
of eventual approval. Any meaningful deviation from facts submitted
to the OIG may be cause for later prosecution, invalidating the
benefits of the ruling. The advisory opinion process also lacks
precedential value, meaning that other parties cannot cite an earlier
ruling to bind the OIG to the same favorable outcome based upon
the same essential facts.
Even if not useful as precedent, the uniformity of
the OIG’s approach to gainsharing in its six opinions on the
topic this year suggests that the odds of obtaining a favorable
opinion are good if participants are willing and able to devote
the time and resources necessary to compile the data required to
justify the arrangement.
All of the gainsharing advisory opinions involved
a cardiac surgery or cardiac catheterization program. In each case,
the OIG stated that the reviewed arrangement technically violated
the Hospital PIP law but included sufficient safeguards against
abuse as to avoid prosecution.
In each instance, a neutral Program Administrator
conducted a departmental study that measured specific cost factors
within the hospital on an historical basis for use as a baseline
for rewarding physicians’ future conduct. Each arrangement
provided for continued use of the Program Administrator on a prospective
basis to measure physician achievements in light of defined objectives.
The proposed cost saving measures bear marked similarities in structure
from program to program, with extreme specificity critical in each
instance.
Cardiac surgery programs entailed the following cost-saving
measures:
- Substituting less expensive products where the replacement product
did not impact quality of care
- Opening certain surgical kits and comparable sealed supplies
only when needed in the course of the surgery
- Ordering blood cross-matching only when a patient required a
transfusion in the course of a procedure
- Standardizing the cardiac devices used in the course of surgery
In the case of cardiac catheterization programs, the
cost-saving measures included the following:
- Standardizing the cardiac devices used
- Using certain vascular closure devices only “as needed”
for inpatient coronary interventional and diagnostic procedures
- Substituting less expensive products where the replacement product
did not impact quality of care
In general, the OIG stated that each of these measures
technically violated Hospital PIP statute because they provided
for compensation intended to induce physicians to limit care to
Medicare or Medicaid beneficiaries. Only the “open as needed”
recommendation for surgical trays and the substitution of products
in cardiac surgery cases, were deemed not to implicate the statute
because neither of these measures curtailed patient care.
Despite broad technical violations, the OIG elected
not to impose administrative sanctions against any of these gainsharing
programs because all included significant safeguards:
- Transparency. Program mechanics permit clear identification
of specific cost-saving measures and resulting savings. In each
instance, the hospital and physicians shared equally in identified
savings as compared to historical practices.
- Credible Medical Support. The parties offered credible
medical support to demonstrate that the arrangement would not
adversely impact clinical care. Promised periodic updates of the
review were also important.
- Uniform Application Subject to Federal Cap. The measure
for savings included all surgeries, regardless of patients’
insurance coverage. In addition, the programs excluded shared
cost savings to the extent that procedures payable by the Medicare
and Medicaid programs in the measured year exceeded the volume
of like procedures performed during the base year. The measurement
of savings by reference to actual acquisition costs rather than
an abstract accounting formulation was also persuasive.
- Protection Against Inappropriate Reductions. The programs
each used objective historic and clinical measures to establish
baselines beyond which no savings benefits would accrue to the
physicians, thereby removing the incentive to implement cost-saving
measures where inappropriate.
- Written Disclosure. The hospital and physicians would
make written disclosure (and presumably consent) to the arrangement
to patients before their admission to the hospital. Where impracticable
prior to admission, the parties would make disclosure prior to
obtaining surgical consent.
- Reasonableness in Amount. The financial incentives were
deemed reasonable in amount and duration.
- Per Capita Distribution of Profits. In each case, the
contracting the physician group agreed to distribute profits from
the arrangement on a per capita basis. As a result, no single
physician was incentivized by personal productivity to seek excessive
remuneration from the Program.
With its customary thoroughness, the OIG also described
the hallmarks of gainsharing plans that posed the risk of inappropriate
reductions of limitations of services and were thus subject to prosecution.
These included (i) no demonstrable connection between compensable
physician conduct and reduction in hospital out of pocket costs;
(ii) overly general descriptions of individual physician actions;
(iii) insufficient safeguards that other hospital actions, rather
than actions taken by the physicians, would account for savings;
(iv) quality of care indicators of dubious validity and significance;
and (v) no independent verification of cost savings, quality of
care indicators or other essential aspects of the arrangement.
The OIG also commented that gainsharing arrangements
technically violated the federal anti-kickback statute, which prohibits
the payment of remuneration in exchange for referrals. Again, the
OIG indicated that it would decline to prosecute any of the six
cases, but for the following reasons: (i) the arrangements applies
only to contracting group members, and was not a hidden recruitment
device; (ii) the structure of the arrangements eliminated the risk
of reward to physicians who referred to members of the physician
group under review; and (iii) the relative specificity of the proposed
arrangement.
Finally, the OIG commented that gainsharing arrangements
also implicated the Stark law, which generally prohibits referrals
by physicians to a hospital with which they have a financial relationship,
except where an exception to the statute applies. However, the OIG
declined to comment on that statute because it lay outside the OIG’s
authority. It may be noteworthy, however, that the OIG went so far
as to comment that it was “not unreasonable” for physicians
to receive compensation for increased risk for proposed changes
in practice, perhaps signaling the at least the possibility that
one or more Stark exceptions linked to reasonable compensation may
apply to gainsharing arrangements.
Earlier this year, MedPAC recommended that Congress
change the current law to allow for gainsharing arrangements. The
Hospital Fair Competition Act (S.1002) introduced in May included
provisions that would eliminate the Stark and Civil Monetary Penalty
law issues and require CMS to authorize certain gainsharing arrangements.
Many proponents of the moratorium on the development of Specialty
Hospitals, which recently expired, believe that gainsharing is a
better alternative to allow physicians to financially benefit from
cost savings. In the absence of clearer legislative direction, proposed
gainsharing arrangements should be constructed consistent with the
criteria described in prior advisory opinions and should be formally
submitted as a request for an advisory opinion to the Department
of HHS.
The Health Law practice at Davis Wright Tremaine is nationally
known and serves clients from across the nation. If the Hospital
Fair Competition Act of 2005 is enacted, it will have significant
effect on DRG reimbursement, joint venture options and gainsharing
opportunities. Our Health Law practice has working groups dedicated
to areas of special interest enabling us well equipped to help clients
navigate these changing waters.
Our Payment and Accreditation Group assists a variety of clients,
including, community hospitals, physicians, nursing homes, ancillary
providers and academic medical centers. We advise these clients
on payment and accreditation matters, including obtaining coverage
for new services and products, securing provider status, resolving
payment disputes, assisting with audits, conducting internal investigations
and advising on compliance issues.
Our Joint Ventures Group works with a wide variety of clients on
joint ventures involving hospitals, physicians, pharmacies, long-term-care
and ancillary providers and management companies of various types.
We strive to help our clients structure these ventures in a way
that maximizes business potential while limiting the regulatory
risks.
For assistance with health law matters or for additional
information, please contact:
Ingrid
Brydolf, Portland, (503) 276-5804, IngridBrydolf@dwt.com
M. Steven
Lipton, San Francisco, (415) 276-6550, SteveLipton@dwt.com
This Health Law Advisory is a publication
of the Health Law Group of Davis Wright Tremaine LLP. Our purpose
in publishing this Advisory is to inform our clients and friends
of developments in health care law. It is not intended, nor should
it be used, as a substitute for specific legal advice as legal counsel
may only be given in response to inquiries regarding particular
situations.
Copyright 2005, Davis Wright Tremaine LLP.
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