ABA Health eSource
 November 2005 Volume 2 Number 3

The New Gainsharing – Has Anything Really Changed?
by Mitch Dean, Stewart Stimmel, LLP, Dallas, Texas

Mitch DeanHospital-physician gainsharing arrangements have recently re-emerged as the subject of interest and commentary. These arrangements had generally been abandoned in the wake of a disapproving OIG Special Advisory Bulletin in 1999. 1 Then, in early 2005, the Office of Inspector General for the Department of Health and Human Services (“OIG”) issued six advisory opinions which approved certain gainsharing arrangements. This development began a flurry of activity in which some health care providers have again focused on instituting gainsharing arrangements. 2 However, even after the OIG’s recent approval of certain gainsharing arrangements, these arrangements still carry significant legal risk and their status remains unclear. Commentaries and articles on gainsharing are readily available from a variety of health care industry publications but sometimes lead clients to misunderstandings and misconceptions about what gainsharing is and when it is allowed. This article offers a process for communicating several key concepts and recent developments in this area to clients.

Step 1 – Clarify the client’s understanding of the concept of gainsharing.

First – make sure that you understand what your client means by gainsharing. There are many arrangements which can be referred to as gainsharing, and the term is often used without a full understanding of its meaning. The OIG says that while there is no fixed definition of “gainsharing,” the term generally refers to an arrangement in which a hospital gives physicians a percentage share of any reduction in the hospital's costs for patient care where such reductions result in part from the efforts of the recipient physicians. 3 Specific examples include: (i) “substitution policies” in which physicians use less costly but equally effective items in surgical procedures or patient care and share in the resulting savings and (ii) “open as needed policies” in which sterile supplies are opened only on an as-needed basis during the performance of a surgery to prevent the opening and discarding of unneeded supplies.

Though most clients are sophisticated health care professionals, discussing how the OIG describes gainsharing and talking through examples can be extremely useful and should provide your clients the working understanding of gainsharing necessary to assist in planning or assessing participation in a particular arrangement.

Step 2 – Explain the exaggeration of OIG’s “shift” in its position on gainsharing.

Clients are likely to have seen headlines in their health law publications pertaining to the 2005 OIG Advisory Opinions regarding gainsharing which imply that the OIG has changed its position and now allows all gainsharing arrangements. In reality, gainsharing arrangements are still technically considered to be violations of the federal Civil Monetary Penalty Statute (“CMP”) 4 which prohibits payments to physicians as an inducement to reduce or limit services furnished to Medicare or Medicaid beneficiaries under the physician’s direct care. 5 The OIG continues to stress that these arrangements have the potential to violate the federal Anti-Kickback Statute (“Anti-Kickback”) 6 as they have the potential to generate “prohibited remuneration” to physicians as payment for referrals. 7 In fact, in congressional testimony given last month, Lewis Morris, Chief Counsel to OIG stated unequivocally that gainsharing arrangements “implicate the fraud and abuse laws” and that “absent a change in law, it is not currently possible for gainsharing arrangements to be structured without implicating the fraud and abuse laws.” 8

Even so, the circumstances presented in the 2005 Advisory Opinions on gainsharing led the OIG to conclude that although the proposed arrangements presented technical violations of CMP and Anti-Kickback, it would not seek sanctions because of safeguards that minimized the potential for abuse. 9 Clients should be aware from the outset that the OIG has not changed its position to create a blanket allowance of gainsharing arrangements. Instead it has indicated cautionary approval for specific fact scenarios that it believes provide sufficient protection from abuse.

Step 3 – Review safeguards viewed favorably by OIG.

The OIG Chief Counsel’s recent comments and the text of the applicable 2005 Advisory Opinions provide the current keys to workable gainsharing arrangements. Specifically, the Chief Counsel has stated that “when evaluating a particular gainsharing program, OIG has generally focused on three aspects: accountability; quality controls; and safeguards against payments for referrals.” 10 He elaborated further by recounting the following favorable characteristics of the arrangements reviewed in this year’s Advisory Opinions:

1. Specific cost-saving actions and the resulting savings will be clearly and separately identified, to allow for public scrutiny and individual physician accountability.

2. There will be credible medical support that implementation of the cost-saving recommendations will not adversely impact patient care.

3. Cost sharing payments will be based on all surgeries, regardless of payor, and the procedures will not be disproportionately performed on Medicare or Medicaid patients.

4. There are protections against an inappropriate reduction in services with objective historical and clinical measures used to establish limits on physicians’ receipt of cost savings.

5. In the case of product standardization incentives, individual physicians will still have available the same selection of devices and can make a case-by-case determination of the most appropriate device for the patient.

6. The hospital and physician group will be required to disclose the arrangement to the patient in advance and in writing.

7. The financial incentives will be reasonably limited in duration and amount.

8. Payments by the hospital to the physician group will be distributed by the physician group to the individual physicians on a per capita basis in order to mitigate any incentive for an individual physician to generate disproportionate cost savings.

Any gainsharing arrangement your client considers should incorporate these factors in some way. Even so, an arrangement may still be seen by the OIG as having insufficient safeguards against abuse. Thus, without a specific regulatory exception for gainsharing arrangements, your clients should understand there is risk involved in any gainsharing arrangement.

Step 4 – Review the possibility of new legislation and greater legitimacy for gainsharing.

In its March 2005 report to Congress, the Medicare Payment Advisory Commission (“MEDpac”) recommended legislation permitting gainsharing arrangements and providing for their regulation by the Secretary of Health and Human Services. 11 Specifically, MEDpac condemned the current application of federal law to gainsharing, stating:

“Currently the civil monetary penalty provision of the Social Security Act prohibits gainsharing, a practice that allows physicians to share in the savings they generate for hospitals under Medicare prospective payment. Although this provision is intended to protect beneficiaries from the possibility of physicians stinting on care to benefit financially, it can undermine the incentive for hospitals and physicians to cooperate in efforts to reengineer clinical care and change physician practice patterns in the hospital. If gainsharing were permitted with appropriate safeguards, hospitals and physicians could be expected to use resource use measurement to address variation in physician care patterns for hospitalized patients.” 12

This recommendation is one of the suggested policy changes MEDpac has advanced as a way to encourage “effective resource use management” 13 and is thus an influential statement to Congress which could lead to legislation specifically allowing some forms gainsharing.

Shortly after the release of MEDpac’s March report, Senators Charles Grassley (R-IA) and Max Baucus (D-MT) introduced the Hospital Fair Competition Act (“HFCA”). 14 This bill, which incorporates many MEDpac recommendations, would permit certain gainsharing arrangements by creating exemptions from CMP, Anti-Kickback and the federal Physician Self-Referral Act (“Stark Law”) 15 for arrangements which comply with guidelines that the Secretary of Health and Human Services is directed to develop. However, HFCA will likely face strong opposition, as the bill also includes a provision which would permanently ban physician investment in specialty hospitals. At deadline, there had been no action on the bill since it was introduced and referred to the Senate Committee on Finance on May 11, 2005. Though this particular bill may die in committee, its introduction indicates a renewed interest in the subject and possible future congressional action.

1 DHHS-OIG Special Advisory Bulletin, Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries (July 1999). http://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm
2 OIG did issue one favorable Advisory Opinion on gainsharing arrangements in January of 2001. DHHS-OIG Advisory Opinion 01-1. http://oig.hhs.gov/fraud/docs/advisoryopinions/2001/ao01-01.pdf This Advisory Opinion involved a similar arrangement and analysis to those presented in the 2005 Advisory Opinions. In the author’s opinion, the 2001 Advisory Opinion failed to generate the response that the 2005 Advisory Opinions have drawn because: (i) the 2001 Advisory Opinion was issued only 18 months after the negative Special Advisory Bulletin of July 1999, (ii) this was only one approving Advisory Opinion and not the six that have been issued consecutively in 2005, and (iii) 2005 has seen the MEDPac recommendations and proposed federal legislation to allow gainsharing (discussed infra) which have generated additional new interest in this concept.
3 DHHS-OIG Special Advisory Bulletin, Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries (July 1999). http://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm
4 42 U.S.C. § 1320a-7a(b)(1).
5 DHHS-OIG Advisory Opinion 05-01. http://oig.hhs.gov/fraud/advisoryopinions/opinions.html
6 42 U.S.C. § 1320a-7b.
7 DHHS-OIG Advisory Opinion 05-01.
8 Testimony of Lewis Morris, Chief Counsel to the Inspector General, U.S. Department of Health and Human Services; House Committee on Ways and Means; Subcommittee on Health; Hearing October 7, 2005. http://oig.hhs.gov/testimony/docs/2005/Gainsharing10-07-05.pdf
9 DHHS-OIG Advisory Opinions 05-01, 05-02, 05-03, 05-04, 05-06. http://oig.hhs.gov/fraud/advisoryopinions/opinions.html
10 Testimony of Lewis Morris, Chief Counsel to the Inspector General, U.S. Department of Health and Human Services; House Committee on Ways and Means; Subcommittee on Health; Hearing October 7, 2005. http://oig.hhs.gov/testimony/docs/2005/Gainsharing10-07-05.pdf
11 MEDpac Report to the Congress: Medicare Payment Policy, March 2005, Page 153. http://www.medpac.gov/publications/congressional_reports/Mar05_EntireReport.pdf
12 Id.
13 Id.
13 Hospital Fair Competition Act of 2005, Senate Bill 1002, 109 th Congress, 1 st Session. http://www.theorator.com/bills109/s1002.html
13 Health lawyers may also want to make clients aware that Stark Law issues potentially raised by gainsharing are not addressed in any of the OIG authority discussed above as OIG does not oversee enforcement of the Stark Law and its implementing regulations.