OIG Challenges Hospital Physician “Gainsharing” Arrangements What Is Left For Hospitals?

— Summary of Office of the Inspector General ("OIG") Bulletin

— Implications for Typical "Gainsharing" Arrangements

— Implications for Certain Risk-Sharing Arrangements

— Implications for Foundations and Owned Medical Groups

— Permissible Incentive Arrangements

— Legislation and Advice

"Any hospital incentive plan that encourages physicians through payments to reduce or limit clinical services directly or indirectly violates the statute." In a Special Advisory Bulletin issued July 8, 1999, the Office of the Inspector General interpreted Sections 1128A(b)(1) and (2) of the Social Security Act (42 U.S.C. ' 1320a-7a) (the "CMP Act") to prohibit arrangements in which a hospital pays physicians a share of cost savings attributable to Medicare and Medicaid patient care. The Bulletin advises the "expeditious" termination of gainsharing arrangements, in order for hospitals to avoid the imposition of the civil monetary penalties of up to $2,000 per patient covered.

Implications for Typical "Gainsharing" Arrangements

• "Gainsharing" payments from a hospital to physicians from cost savings generated from providing care to Medicare and/or Medicaid patients violate the CMP Act.

• Hospital-to-physician "gainsharing" payments focused on commercial patients probably do not violate the CMP Act. However, these arrangements should not be structured simply to compensate for the termination of a Medicare/Medicaid gainsharing program and should contain safeguards to avoid errors in excluding Medicare or Medicaid patients.

Implications for Certain Risk-Sharing Arrangements

Risk-sharing arrangements generally involve payments to physicians from hospital capitation revenues, after deducting certain costs. The Bulletin contrasts risk-sharing arrangements permitted by Section 1876(i)(8) of the Social Security Act (42 U.S.C. § 1395mm) with those prohibited under the CMP Act. Section 1876(i)(8) permits Medicare managed care plans to "operate" a physician incentive plan related to Medicare and Medicaid patient care if certain requirements are met (the "PIP Rules").

• The PIP Rules prohibit physician incentive plans operated by a Medicare managed care plan from making a "specific payment" directly or indirectly "to a physician or physician group as an inducement to reduce or limit medically necessary services provided with respect to a specific individual" enrolled in the plan. (If the financial incentive places a physician or physician group at substantial risk, the managed care plan must comply with additional requirements.)

• Risk-sharing plans operated by Medicare managed care plans that meet the PIP Rules are permitted.

• With the OIG's new focus in this area, risk-sharing plans that have no Medicare managed care plan involvement appear more vulnerable to a charge that they violate the CMP Act.

• There is no clear guidance on how much managed care plan involvement is necessary for a physician incentive arrangement to qualify under the PIP Rules. Risk-sharing programs that involve Medicare risk plans should be reexamined.

Implications for Foundations and Owned Medical Groups

• The CMP Act prohibits indirect payments by hospitals to reduce or limit services to Medicare or Medicaid patients, whether or not the services occur in the hospital.

• It is possible that the CMP Act is implicated when a hospital participates in design of a foundation's or medical group's incentive payments to physicians for cost savings generated by services rendered to Medicare and/or Medicaid patients, if it is likely that the hospital will provide the funding for physician compensation.

Permissible Incentive Arrangements

• According to the Bulletin, hospitals may enter into agreements with physicians based on a fixed fee that is fair market value for services rendered. However, it is not clear that a fixed fee payment is consistent with the OIG's otherwise literal reading of the CMP Act prohibition. Perhaps OIG believes fixed payments are not an incentive for service reduction and hospitals with existing gainsharing arrangements may consider using a fixed payment to compensate for actual time previously invested by participating physicians.

• Since the CMP Act is directed at "payments" made to physicians treating Medicare/Medicaid patients, a program that does not make direct or indirect payments to physicians should be permissible. For example, arrangements where a portion of savings are committed to departmental or service improvements (facilities, equipment, staffing) do not appear to be prohibited. The key will be to focus on genuine improvements to patient care, avoiding more than incidental physician benefits.

• Hospitals may enter into arrangements with Medicare managed care payors to provide incentives to physicians as part of a risk-sharing arrangement operated by the payor in compliance with PIP Rules.

• Hospitals may enter into gainsharing arrangements with physicians engaged in an administrative or managerial capacity, if Medicare/Medicaid patients in the gainsharing program are not under such physicians' care.

• Hospitals may be able to structure consulting arrangements with physicians for fixed fees paid for successfulresults to rationalize inventory, develop clinical pathways or provide other services.

• Even if incentive arrangements comply with the CMP Act and, if applicable, the PIP rules, these arrangements must still comply with the Anti-Kickback Statute, Stark and state law.

Legislation and Advice

The Bulletin states that legislative relief is necessary to allow private gainsharing arrangements. It suggests that regulatory oversight of hospital incentive plans would be necessary, like the PIP Rules.