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  04/18/2005

Momentum Building Behind Gainsharing

Sanford V. Teplitzky
410-347-7364
teplitzky@ober.com

William T. Mathias
410-347-7667
wtmathias@ober.com

Appeared in CCH Health Care Compliance Letter
April 18, 2005

Despite setbacks in 2004, the momentum behind gainsharing is building in 2005. Last year, a federal district court in New Jersey blocked a CMS-sponsored gainsharing demonstration plan. This represented a significant blow to proponents of gainsharing. In February 2005, however, the OIG issued six advisory opinions approving limited cardiology gainsharing arrangements. See OIG Advisory Opinions 05-01, 05-02, 05-03, 05-04, 05-05 and 05-06. In March 2005, the Medicare Payment Advisory Commission (MedPAC) recommended that Congress approve gainsharing arrangements.

Background
It has been said that "when you've seen one gainsharing arrangement, you've seen one gainsharing arrangement." In fact, gainsharing covers a host of financial arrangements between hospitals and physicians designed to encourage physicians to use more cost-effective methods in delivering quality care in hospitals. Typically, gainsharing involves payments from hospitals to physicians for designing and implementing programs to control costs and to improve the quality of medical services provided to hospital patients. The payments can be structured in a number of ways, from hourly rates for services performed by physicians to a percentage of the realized cost savings.

Historically, physicians make decisions about the care provided to hospital patients, and hospitals provide the care. Under the Medicare prospective payment systems, hospitals generally received fixed payments for different types of inpatient and outpatient services without regard to the hospitals' actual costs. Physicians are reimbursed separately based on fee schedules and thus have no financial incentive to minimize hospital costs. Interest in gainsharing has been growing over the years as hospitals try to reduce costs by aligning their economic interests with physicians through sharing cost savings with physicians.

In July 1999, the OIG stunned proponents of gainsharing when it issued a Special Advisory Bulletin taking the position that gainsharing between hospitals and physicians violates federal law. ¹ Specifically, the OIG concluded that hospitals sharing cost savings with physicians constitutes a violation of the civil monetary penalty prohibition on hospital payments to a physician to induce reductions or limitations of patient care services to Medicare or Medicaid beneficiaries under the physician's direct care. ² The OIG also noted that gainsharing arrangements potentially raise concerns under the anti-kickback law. ³

At the time, the Special Advisory Bulletin was viewed by many as closing the door on most gainsharing arrangements, absent a change in federal law. In January 2001, however, the OIG opened the door to gainsharing a crack, when it issued an advisory opinion approving a narrow gainsharing arrangement. ⁴

The OIG had very little to say about gainsharing for the next four years. In February 2005, however, the OIG issued six favorable gainsharing advisory opinions. While the issuances of these advisory opinions suggests a possible renaissance in gainsharing, caution is still warranted. The OIG found that virtually all of the elements of these six gainsharing arrangements implicated the CMP and the anti-kickback law. Nevertheless, in each advisory opinion, the OIG was able to identify sufficient protections to avoid imposing administrative sanctions against the respective gainsharing arrangements.

2005 Advisory Opinions
The analysis used by the OIG in examining these six recent gainsharing advisory opinions is identical to the analysis used in the gainsharing advisory opinion issued in 2001. However, the facts of the various gainsharing arrangements have some minor variations and the application of the OIG's analysis to the specific facts is instructive.

OIG Advisory Opinion 05-01 involved an agreement between a group of cardiac surgeons and a hospital, pursuant to which the group would share up to 50 percent of the hospital's savings arising from the surgeons' implementation of 24 cost savings recommendations in certain cardiac surgery procedures. The recommendations fell into four categories:

1. opening certain packaged items, including disposable components of cell saver units, only as needed;
   
   
2. performing blood cross-matching only as needed;
   
   
3. substituting less costly items for items currently being used; and
   
   
4. product standardization of cardiac devices.

OIG Advisory Opinion 05-02 involved an agreement between five cardiology groups and a hospital, whereby the groups would share up to 50 percent of the hospital's cost savings arising from the cardiologists' implementation of 18 cost reduction recommendations in certain cardiac catheterization laboratory procedures. The recommendations fell into two categories:

1. product standardization of cardiac catheterization devices (stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers and defibrillators) and
   
   
2. limiting the use of certain vascular closure devices.

OIG Advisory Opinion 05-03 involved an agreement between a group of cardiac surgeons and a hospital, in which the group would share up to 50 percent of the hospital's cost savings arising from the surgeons' implementation of 29 cost reduction recommendations in certain surgical procedures. The recommendations fell into four categories:

1. opening certain packaged items, including disposable components of a cell saver units, only as needed;
   
   
2. performing blood cross-matching only as needed;
   
   
3. substituting less costly items (e.g., slush drape, wrist splints, armboards, aortic punches, or suture boots) for items currently being used; and
   
   
4. product standardization of certain cardiac heart valves.

OIG Advisory Opinion 05-04 involved an agreement between eight cardiology groups and a hospital. The groups would share a maximum of 50 percent of the hospital's cost savings arising from the cardiologists' implementation of 17 cost reduction recommendations during certain cardiology procedures. The recommendations were grouped into three categories:

1. product standardization of certain cardiology devices (stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators);
   
   
2. limiting the use of certain vascular closure devices; and
   
   
3. substituting less costly items related to contrast agents.

OIG Advisory Opinion 05-05 involved an agreement between a group of cardiologists and a hospital, whereby the group would share a maximum of 50 percent of the hospital's first year cost savings arising from the cardiologists' implementation of 12 cost reduction recommendations in designated cardiac catheterization laboratory procedures. The recommendations were grouped into two categories:

1. product standardization of cardiac catheterization devices (stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators) and
   
   
2. limiting the use of certain vascular closure devices

OIG Advisory Opinion 05-06 involved an agreement between a group of cardiac surgeons and a hospital. Here, the group would share a maximum of 50 percent of the hospital's first year cost savings arising from the surgeon's implementation of 27 cost reduction recommendations in certain cardiac surgery procedures. The recommendations were grouped into four categories:

1. opening certain packaged items only as needed;
   
   
2. limiting the use of certain surgical supplies (e.g., gelfoam, surgical, and vancomycin paste) to an as needed basis;
   
   
3. substituting less costly items (e.g., disposable head supports, disposable k-termia blankets, and instrument pouches) for items currently being use; and
   
   
4. product standardization of certain cardiac devices and supplies

Each of the recent gainsharing advisory opinions included a product standardization recommendation. The OIG drew comfort in these advisory opinions from the fact that the individual surgeons would continue to make patient-by-patient choices as to the appropriate device and would have the same selection of devices as before the implementation of the gainsharing arrangements.

In those advisory opinions that involved either opening packaged items or substituting less costly items, the OIG concluded that the recommendations would have no appreciable clinical significance and thus would not implicate the CMP. One exception was for the items used with the cell saver units. For these, the OIG was concerned that the time it took for the cell saver units to warm up after the items were opened could have an appreciable clinical significance and therefore these items fell within the ambit of the CMP. Nevertheless, the OIG's finding that certain cost savings recommendations would not have an appreciable clinical significance suggests that hospitals may have greater flexibility in implementing gainsharing arrangements that focus on such savings.

Interestingly, a footnote in Advisory Opinions 05-04, 05-05, and 05-06 indicated that there were originally additional cost savings recommendations that were eliminated because they posed an unacceptable risk of fraud and abuse. This seems to reinforce the limited nature of the gainsharing arrangements approved in the advisory opinions and highlights the interactive nature of the advisory opinion process.

CMP Analysis
The OIG found that nearly all of the cost savings recommendations could induce physicians to reduce or limit the current medical practices at the hospital and thus implicated the CMP. While the OIG acknowledged that current medical practices at the hospitals may exceed what is medically necessary, the OIG found this fact irrelevant under the CMP. The OIG found that limiting medically unnecessary care could still violate the CMP. Nevertheless, the OIG found that the proposed gainsharing arrangements contained sufficient safeguards so that sanctions need not be imposed. The specific safeguards in each of the advisory opinions were as follows:

• Identified Cost Saving. Specific cost-saving actions and resulting savings were clearly and separately identified to allow public scrutiny and individual physician accountability.
  
  
• Credible Medical Support. Credible medical support existed for the position that the cost savings recommendations would not adversely affect patient care. In addition, periodic reviews of any impact on clinical care would be conducted.
  
  
• Limited Impact on Federal Health Care Programs. Credible medical support existed for the position that the cost savings recommendations would not adversely affect patient care. In addition, periodic reviews of any impact on clinical care would be conducted.
  
  
• Protections Against Inappropriate Reductions in Service. Baseline thresholds would be established through the use of objective historical and clinical measures to protect against inappropriate reductions in services.
  
  
• No Limits on Device Selection. Savings from product standardization would be obtained from "inherent clinical and fiscal value." Individual physicians would continue to have access to the same selection of devices.
  
  
• Patient Disclosure. The hospital and the physician groups would provide patients with written disclosures about the arrangements.
  
  
• Limits on Incentives. Financial incentives would be reasonably limited in duration and amount.
  
  
• Protections Against Disproportionate Cost Savings. The physician groups distribute profits, and thus, any gainsharing payments, on a per capita basis, which should limit any incentive for individual physicians to generate disproportionate cost savings.

Anti-kickback Law Analysis
In analyzing the implications of the gainsharing arrangements under the anti-kickback law, the OIG noted that the arrangements would not satisfy the personal services and management contracts safe harbor. Specifically, the OIG noted that the payments to the physicians groups were based on a percentage of the cost savings and thus the aggregate compensation would not be set in advance as required by the safe harbor. The OIG warned that gainsharing arrangements could be used to disguise illegal remuneration from the hospitals by encouraging physicians to admit more federal health care program beneficiaries to the hospitals. Despite the potential risk of illegal remuneration, the OIG declined to impose administrative sanctions based on several aspects of the gainsharing arrangements that suggested the risk of fraud or abuse was low.

• The circumstances and safeguards associated with the gainsharing arrangements reduced the likelihood that the arrangements would be used to attract referring physicians or to increase referrals from existing physicians: (1) the arrangements are limited to physicians on the medical staffs of the hospitals; (2) savings derived from procedures for federal health care program beneficiaries are capped based on the prior year's admission; and (3) the arrangements are limited to one year.
  
  
• The structure of the proposed arrangements eliminates the risk that they would be used to reward non-surgeons for referring patients to the surgeon groups. Profit within the groups are distributed on a per capita basis, which minimizes any incentive for an individual physician to inappropriately reduce services to achieve savings.
  
  
• The arrangements describe the particular actions that would generate the cost savings on which the payments are based. The physicians may have some increased malpractice liability risk from making the cost-saving changes for which it is reasonable to compensate them. Payments are limited in amount, duration, and scope.

MedPAC Recommendation
In March 2005, MedPAC issued a Report to Congress on Physician-Owned Specialty Hospitals. One of the five recommendations of the Report was that Congress should grant HHS the authority to allow gainsharing arrangements between physicians and hospitals. The Report recognizes the value of aligning the financial incentives of physicians and hospitals. Physician ownership of hospitals fully aligns their incentives. However, such alignments may raise concerns about self-referrals. The Report speculates that efficiencies could be achieved by allowing physicians to share in savings from re-engineering clinical care. The Report ultimately concludes that "[s]tructured properly, gainsharing arrangements could garner the benefits of aligning incentives while allaying legitimate concerns."

Conclusion
The OIG has drawn a distinction between generalized gainsharing arrangements tied to overall cost savings, which it views as prohibited, and limited gainsharing arrangements tied to specific, identifiable, and verifiable cost savings, which it may permit on a case-by-case basis. While the OIG has warned that the recent gainsharing advisory opinions should not be seen as throwing the door wide open to gainsharing, hospitals will almost certainly look to replicate these arrangements.

Given the relatively narrow scope of the advisory opinions, however, hospitals will have to carefully consider whether and how to implement gainsharing. First hospitals will need to consider whether they can implement gainsharing without first obtaining individual advisory opinions in light of the OIG's assertion that the gainsharing arrangements that were approved through the recent advisory opinions violated the CMP and only the requesting parties are protected by those advisory opinions. Second, the recent advisory opinions express no opinion as to how, or if, gainsharing might be permitted under the Stark physician self-referral law. This is not unexpected given that CMS, not the OIG, is responsible for interpreting the Stark law. In any event, hospitals will need to carefully analyze any gainsharing arrangements for compliance with the Stark law.

While recent events have opened the door to gainsharing, the door is still just opened a crack. Without action by Congress to amend the CMP and probably the Stark statute, hospitals will continue to lack the tools necessary to effectively align their economic interest with physicians to control hospital costs.

Sanford Teplitzky is a Principal and Chairman of the Health Law Department of Ober, Kaler, Grimes & Shriver and is resident in the Baltimore office of the firm. Mr. Teplitzky offers his experience to clients – typically large health care companies and delivery networks – who seek help with fraud and abuse problems and representation in federal or state investigations. He is a former president of the American Health Lawyers Association and a frequent writer and lecturer on various health care fraud and abuse issues.

Bill Mathias is a Principal in the Health Law Department of Ober, Kaler, Grimes & Shriver. He represents a broad ranger of health care businesses across the country with respect to fraud and abuse, corporate compliance, and reimbursement matters. He also represents health care clients in federal, state and internal investigations and false claims cases.

Notes

¹ Gainsharing Arrangements and CMPs for Hospital Payment to Physicians to Reduce or Limit Services to Beneficiaries (July 1999), reprinted in 64 Fed. Reg. 37,985 (July 14, 1999).

² 42 USC §1320a-7a(1) & (2) (the CMP).

³ 42 USC 1320a-7b(b).

⁴ OIG Advisory Opinion 01-01.

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