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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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