[Federal Register Volume 64, Number 134 (Wednesday, July 14, 1999)]
[Notices]
[Pages 37985-37987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17889]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
Publication of the OIG Special Advisory Bulletin on Gainsharing
Arrangements and CMPs for Hospital Payments to Physicians to Reduce or
Limit Services to Beneficiaries
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Notice.
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SUMMARY: In its role of identifying and eliminating fraud, waste and
abuse in the Department's health care programs, the OIG periodically
develops and issues guidance, including Special Fraud Alerts and
Advisory Bulletins, to alert and inform health care providers and
program beneficiaries about potential problems or areas of special
interest. This Federal Register notice sets forth the recently-issued
OIG Special Advisory Bulletin addressing the civil money penalty (CMP)
for hospital payments to physicians as an inducement to reduce or limit
services to Medicare or Medicaid beneficiaries, and its application to
``gainsharing'' arrangements involving hospitals and physicians.
FOR FURTHER INFORMATION CONTACT: Joel Schaer, Office of Counsel to the
Inspector General, (202) 619-1306.
SUPPLEMENTARY INFORMATION:
I. Background
This Special Advisory Bulletin addresses the CMP for hospital
payments to physicians to induce reductions or limitations in services
to Medicare or Medicaid beneficiaries (section 1128A(b)(1) and (2) of
the Social Security Act (the Act)), and its application to
``gainsharing'' arrangements and potentially to certain other hospital-
physician clinical ventures. The OIG has concluded that section
1128A(b)(1) of the Act specifically prohibits any gainsharing
arrangements that involve payments by or on behalf of a hospital,
directly or indirectly, to induce physicians with clinical care
responsibilities to reduce or limit services to Medicare or Medicaid
patients.
II. Special Advisory Bulletin: Gainsharing Arrangements and CMPs
for Hospital Payments to Physicians to Reduce or Limit Services to
Beneficiaries
A. Introduction
The Office of Inspector General (OIG) was established at the
Department of Health and Human Services by Congress in 1976 to identify
and eliminate fraud, abuse and waste in the Department's programs and
to promote efficiency and economy in departmental operations. The OIG
carries out this mission through a nationwide program of audits,
investigations and inspections.
The Fraud and Abuse Control Program, established by the Health
Insurance Portability and Accountability Act of 1996, authorized the
OIG to provide guidance to the health care industry to prevent fraud
and abuse, and to promote the highest level of ethical and lawful
conduct. To further these goals, the OIG issues Special Advisory
Bulletins about industry practices or arrangements that potentially
implicate the fraud and abuse authorities subject to enforcement by the
OIG.
This Special Advisory Bulletin addresses the application of
sections 1128A(b)(1) and (2) of the Social Security Act (the Act) to
gainsharing arrangements.1 The civil money penalty (CMP) set
forth in section 1128A(b)(1) of the Act prohibits any hospital or
critical access hospital from knowingly making a payment directly or
indirectly to a physician as an inducement to reduce or limit services
to Medicare or Medicaid beneficiaries under the physician's care.
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\1\ Gainsharing arrangements may also implicate the anti-
kickback statute (section 1128B(b) of the Act) and the physician
self-referral prohibitions of the Act (section 1876 of the Act).
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While the OIG recognizes that appropriately structured gainsharing
arrangements may offer significant benefits where there is no adverse
impact on the quality of care received by patients, section 1128A(b)(1)
of the Act clearly prohibits such arrangements. Moreover, regulatory
relief from the CMP prohibition will require statutory authorization.
Some hospitals and physicians may have already implemented programs
that involve Medicare or Medicaid beneficiaries. In exercising its
enforcement discretion, and in the absence of any evidence that a
gainsharing arrangement has violated any other statutes or adversely
affected patient care, the OIG will take into consideration whether a
gainsharing arrangement was terminated expeditiously following
publication of this Bulletin.
B. Prohibition on Hospital Payments to Physicians to Induce
Reduction or Limitation of Services
Under section 1128A(b)(1) of the Act, a hospital is prohibited from
making a payment, directly or indirectly, to induce a physician to
reduce or limit services to Medicare or Medicaid beneficiaries under
the physician's direct care. Hospitals that make (and physicians that
receive) such payments are liable for CMPs of up to $2,000 per patient
covered by the payments (section 1128A(b)(2) of the Act).
The statutory proscription is very broad. The payment need not be
tied to an actual diminution in care, so long as the hospital knows
that the payment may influence the physician to reduce or limit
services to his or her patients. There is no requirement that the
prohibited payment be tied to a specific patient or to a reduction in
medically necessary care. In short, any hospital incentive plan that
encourages physicians through payments to reduce or limit clinical
services directly or indirectly violates the statute.
The breadth of the prohibition was intentional. As initially
enacted by Congress, section 1128A(b)(1) of the Act prohibited payments
by both hospitals and Medicare managed care plans to induce physicians
to reduce clinical services.2 Section 1128A(b)(1) of the Act
was subsequently amended to delete the reference to Medicare managed
care plans, and to add a new subsection to section 1876 of the Act that
permitted
[[Page 37986]]
Medicare managed care plans to implement physician incentive plans,
provided the managed care plan did not induce the reduction of
medically necessary care to individual patients and did not place the
physician at substantial financial risk for services not provided by
the physician.3 Further, Congress explicitly gave the
Secretary authority to regulate physician incentive plans offered by
Medicare risk managed care plans. Because the resulting two provisions
address the same issues and were drafted together, the stark difference
in otherwise parallel language reflects a congressional decision to
prohibit any payment arrangement between hospitals and physicians that
is intended to induce a reduction or limitation in services.
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\2\ Section 9313(c) of the Omnibus Budget Reconciliation Act
(OBRA) of 1986 ( P.L. 99-509).
\3\ Sections 4204(a) and 4731 of the Omnibus Budget
Reconciliation Act of 1990 (P.L. 101-508) (codified at section
1876(i)(8) of the Act).
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This reading of the statute is also consistent with the legislative
history surrounding the enactment of section 1128A(b)(1) of the Act.
The prohibition was prompted in part by a General Accounting Office
(GAO) report for the Chairman of the Subcommittee on Health of the
House Ways and Means Committee regarding the physician incentive plans
being implemented by hospitals in response to the then-recently enacted
diagnostic related group prospective payment system and their potential
detrimental effects on quality of care for Medicare
patients.4 The report analyzed four types of hospital-
physician incentive plans, of which at least two bear strong
similarities, and contain safeguards comparable, to the gainsharing
arrangements currently being marketed by the healthcare consulting
industry.5 While the GAO report discussed several features
in these plans that reduced the incentive to give substandard care, it
concluded that no combination of features could guarantee that such
plans would not be subject to abuse.6
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\4\ U.S. General Accounting Office, Physician Incentive Payments
by Hospitals Could Lead to Abuse, GAO/HRD-86-103 (July 1986).
\5\ Id. at 14-21.
\6\ Id. at 23.
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Congress concurred. The House Committee Report that accompanied the
House provision that became section 1128A(b)(1) of the Act stated that
``[t]he Committee believes that such incentive payments may create a
conflict of interest that may limit the ability of the physician to
exercise independent professional judgment in the best interest of his
or her patients.'' 7 In explaining the inclusion of the
prohibition in the final budget reconciliation bill that became OBRA
1986, the Chairman of the Subcommittee on Health of the House Ways and
Means Committee, who was also a member of the Conference Committee,
stated on the floor of the House that:
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\7\ H.R. Rep. No. 99-727, at 441 (1986).
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``[T]he House held firm in its insistence on outlawing certain
physician incentive plans. We must not tolerate hospitals paying
physicians to reduce or limit services to the elderly.''
8
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\8\ 144 Cong. Rec. H11,446 (October 17, 1986).
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In sum, we believe that section 1128A(b)(1) of the Act prohibits
any hospital payments that induce physicians to reduce or limit
clinical services to the physicians' patients.
C. Gainsharing Arrangements
While there is no fixed definition of a ``gainsharing''
arrangement, the term typically refers to an arrangement in which a
hospital gives physicians a percentage share of any reduction in the
hospital's costs for patient care attributable in part to the
physicians' efforts. In most arrangements, in order to receive any
payment, the clinical care must not have been adversely affected as
measured by selected quality and performance measures. In addition,
many plans require a determination by an independent consultant that
the payment represents ``fair market value'' for the collective
physician efforts. Medicare Part B and Medicaid payments to physicians
generally are unaffected by a gainsharing arrangement.
Gainsharing arrangements seek to align physician incentives with
those of hospitals by offering physicians a share of the hospital's
variable cost savings attributable to Medicare and Medicaid
reimbursement. Since the institution of the Medicare Part A DRG system
of hospital reimbursement and with the growth of managed care,
hospitals have experienced significant financial pressures to reduce
costs. However, because physicians are paid separately under Medicare
Part B and Medicaid, physicians do not have the same incentive to save
hospital costs. Gainsharing arrangements are designed to bridge this
gap by offering physicians a portion of the hospital's cost savings in
exchange for identifying and implementing cost saving strategies.
The OIG recognizes that hospitals have a legitimate interest in
enlisting physicians in their efforts to eliminate unnecessary costs.
Savings that do not affect the quality of patient care may be generated
in many ways, including substituting lower cost but equally effective
medical supplies, items or devices; re-engineering hospital surgical
and medical procedures; reducing utilization of medically unnecessary
ancillary services; and reducing unnecessary lengths of stay. Achieving
these savings may require substantial effort on the part of the
participating physicians. Obviously, a reduction in health care costs
that does not adversely affect the quality of the health care provided
to patients is in the best interest of the nation's health care system.
Nonetheless, the plain language of section 1128A(b)(1) of the Act
prohibits tying the physicians' compensation for such services to
reductions or limitations in items or services provided to patients
under the physicians' clinical care.
D. Application of Section 1128A(b)(1) of the Act to Gainsharing
Arrangements
Gainsharing arrangements that directly or indirectly provide
physicians financial incentives to reduce or limit items or services to
patients that are under the physicians' clinical care are precisely the
kind of physician incentive plans that Congress prohibited when it
enacted section 1128A(b)(1) of the Act. The language of the statute,
the language of the companion statute on managed care physician
incentive plans, and the legislative history compel the conclusion that
section 1128A(b)(1) of the Act prohibits any hospital-physician
incentive plan that compensates a physician directly or indirectly
based on cost savings on items and services furnished to patients under
the physician's clinical care. We can perceive no meaningful difference
between the kinds of incentive plans proposed in 1986 at the time of
enactment of section 1128A(b)(1) of the Act (as reflected in the GAO
report) and the variants being promoted by hospitals and health care
consultants today.
Moreover, given the clear statutory prohibition on hospital-
physician incentive plans, the OIG cannot provide any regulatory relief
absent further authorizing legislation. Where Congress intended the
Department to regulate physician incentive plans, such as plans offered
by risk-based Medicare managed care plans, it did so explicitly.
Congress' omission of comparable regulatory authority for the Secretary
over hospital-physician incentive plans represents its considered
judgment that such plans are flatly prohibited.
We note, however, that hospitals may align incentives with
physicians to achieve cost savings through means that do not violate
section 1128A(b)(1) of the Act. For example, hospitals and physicians
may enter into personal services contracts where hospitals pay
[[Page 37987]]
physicians based on a fixed fee that is fair market value for services
rendered, rather than a percentage of cost savings. Such contracts must
meet the requirements of the anti-kickback statute (section 1128B(b) of
the Act).
Notwithstanding the statutory prohibition, the OIG has given
extensive consideration to whether it would be appropriate to protect
individual gainsharing arrangements from OIG administrative sanctions
through the issuance of favorable advisory opinions. Based on our
review of a number of requests, we have concluded that they contain
common elements that preclude our issuance of any favorable opinion.
First, to date, the OIG has exercised its discretion to protect various
arrangements from sanction only where such arrangements pose a minimal
risk of fraud or abuse. By contrast, gainsharing arrangements pose a
high risk of abuse. In order to retain or attract high-referring
physicians, hospitals will be under pressure from competitors and
physicians to increase the percentage of savings shared with the
physicians, manipulate the hospital accounts to generate phantom
savings, or otherwise game the arrangement to generate income for
referring physicians. Given these pressures and the potential adverse
impact on patient care from gainsharing arrangements, the OIG believes
that immunizing such arrangements from sanction would be imprudent and
inappropriate.
Second, gainsharing arrangements will require ongoing oversight
both as to quality of care and fraud that is not available through the
advisory opinion process. Apart from the potential for fraud and abuse,
a critical inquiry is whether the arrangements have adequate and
accurate measures of quality of care that would provide assurance that
there is no adverse impact on patient care. Based on discussions with
experts both within and without the Federal Government, the OIG has
determined that any performance measures would require extensive
verification through audits or review by an independent party on a
continuing basis. The Office of Counsel to the Inspector General, which
issues advisory opinions, has neither the resources nor the expertise
to police a multitude of such arrangements on an ongoing basis.
Third, case by case determinations by advisory opinions are an
inadequate and inequitable substitute for comprehensive and uniform
regulation in this area. Were the OIG to issue a favorable opinion to
one provider, that provider would have a significant competitive
advantage in recruiting and attracting physicians to admit patients to
its facility, since the physicians would have the opportunity to earn
significant additional income not available at other institutions. The
consequences would be that every hospital in the country would request
an advisory opinion for its own program, and many would implement their
own programs in the hope that their programs were close enough. Given
the potentially serious adverse effects on patient care from improperly
designed or implemented gainsharing arrangements, regulation of
gainsharing arrangements requires clear, uniform, enforceable and
independently verifiable standards applicable to all affected providers
and not case by case decision-making.
E. Application to Other Arrangements
We are aware of reports that hospitals and physicians are engaging
in a number of clinical joint ventures, including both freestanding
specialty hospitals (e.g., heart, orthopedic, or maternity hospitals),
and arrangements in which a high revenue generating unit or service
(e.g., cardiology or cardiac surgery) of an existing hospital is
restructured and legally incorporated as a separate hospital.
Typically marketed only to physicians in a position to refer
patients to the venture and structured to take advantage of the
exception in the physician self-referral law for physician investments
in ``whole hospitals'', these ventures may induce investor-physicians
to reduce services to patients through participation in profits
generated by cost savings in clinical care. Accordingly, we believe
such arrangements may also violate section 1128A(b)(1) of the Act, in
at least some circumstances. In addition, such arrangements may
implicate the anti-kickback statute (section 1128B(b) of the Act).
F. Conclusion
Absent legislative relief, section 1128A(b)(1) of the Act prohibits
any gainsharing arrangements that involve payments by or on behalf of a
hospital to physicians with clinical care responsibilities, directly or
indirectly, to induce a reduction or limitation of services to Medicare
or Medicaid patients. Parties interested in pursuing gainsharing
arrangements that are currently prohibited by section 1128A(b)(1) of
the Act should seek legislative relief. In the light of reports that
some hospitals may already have such arrangements in place, the OIG
will, in the absence of any evidence that an arrangement has violated
any other statutes or adversely affected patient care, take into
consideration in exercising its enforcement discretion whether a
gainsharing arrangement was terminated expeditiously following
publication of this Bulletin in the Federal Register.
Dated: July 6, 1999.
June Gibbs Brown,
Inspector General.
[FR Doc. 99-17889 Filed 7-13-99; 8:45 am]
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