|
|
||||||
|
12/20/1999 |
||||||
|
Sanford V. Teplitzky
William T. Mathias Appeared in The National Law Journal Over the summer, the Department of Health and Human Services' Office of Inspector General (OIG) issued its first Special Advisory Bulletin, in which it took the position that so-called gain-sharing arrangements between hospitals and physicians are impermissible under federal law. See 64 Fed. Reg. 37, 985 (July 14, 1999). The OIG's hard-line stance still reverberates The premise behind the OIG's position is that sharing cost savings with physicians constitutes payments to induce the physicians "to reduce or limit" care to Medicare or Medicaid beneficiaries, in violation of §§ 1128A(b)(1) and (2) of the Social Security Act (42 U.S.C. 1320a-7a[b][1] and [2]). The OIG's hard-line stance against most gain-sharing arrangements is being felt across the country as hospitals and physicians struggle to reduce costs in the face of decreasing payments from government health programs and managed care plans. The term "gain-sharing" is generally used to describe a variety of financial arrangements between hospitals and physicians undertaken to encourage physicians to use more cost-effective methods in delivering quality care in hospitals. Typically, gain-sharing involves payments from hospitals to physicians for designing and implementing programs to control costs and improve the quality of specific 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 cost savings achieved by the program. In many cases, gain-sharing arrangements require an independent third-party appraisal that the payments to the physicians constitute fair market value for the services they provide. Traditionally, physicians have been responsible for making decisions about the clinical care provided to hospital patients, and hospitals have been required to provide the care. With prospective payment systems, hospitals receive a fixed amount for inpatient services without regard to the hospitals' actual costs. In contrast, physicians are reimbursed separately, based on fee schedules, and have no incentive to minimize hospital costs. Interest in gain-sharing arrangements has been aroused over the past several years as hospitals and physicians have experienced the financial impact of decreasing payments from government health programs and managed care plans. The rationale behind gain-sharing is to align the economic incentives of physicians and hospitals by sharing the hospitals' cost savings with physicians. In the bulletin, the OIG acknowledged that hospitals have a legitimate interest in enlisting physicians to assist in efforts to eliminate unnecessary hospital costs. Significantly, the OIG conceded that "appropriately structured" gain-sharing arrangements can offer "significant benefits" to hospitals by achieving cost savings without lessening the quality of patient care. Nevertheless, the OIG concluded that the plain language of the civil monetary penalty (CMP) provisions prohibits tying the compensation of physicians to achieving cost savings by reducing services provided to the physicians' patients. Specifically, § 1128A(b)(1) imposes CMPs on hospitals for making direct or indirect payments to physicians "to reduce or limit" the care provided to fee-for-service Medicare or Medicaid patients under the physicians' direct care, and § 1128A(b)(2) imposes similar CMPs on physicians for receiving such payments. Payments are not tied to a reduction in care The OIG broadly interpreted § 1128A(b) to mean that payments to not have to be tied to an actual diminution in care, if hospitals know that the payments may influence physicians, directly or indirectly, to reduce clinical services. As support for its broad interpretation, the OIG pointed to the legislative history of §1128A(b). The OIG indicated that the accompanying House committee report said that physician incentive payments may create conflicts of interest and limit physicians' ability to exercise their independent medical judgment and to act in the best interest of their patients when rendering medical care. The OIG further noted that the enactment of section 1128A(b) was prompted, in part, by a report from the GAO examining the incentive plans that were being instituted in response to the implementation of the hospital prospective payment system. The GAO report concluded that, although the incentive plans included safeguards to protect against substandard care, no combination of features examined by the GAO could guarantee that the incentive plans would not lead to abuse. The OIG also concluded that no meaningful difference exists between the gain-sharing arrangements being implemented today and those proposed at the time of the GAO report. Having concluded that § 1128A(b) prohibits gain-sharing arrangements, the OIG asserted that it lacked the authority to provide regulatory relief absent a legislative change. In essence, the OIG attempted to shift the battle over gain-sharing to Congress. In a comment in the bulletin that seemed largely unrelated to gain-sharing, the OIG questioned whether certain joint-venture hospital arrangements involving physicians investors may violate §1128A(b). The OIG expressed particular concern over investments by physicians in a position to refer patients to freestanding specialty hospitals for heart, orthopedic or maternity care and to separate hospitals specializing in cardiology or cardiac surgery. The OIG reached no definitive conclusion on whether physician ownership in whole hospital joint ventures is illegal. Instead, the OIG raised a yellow caution flag, identifying this as an area it may examine in the future. The OIG concluded the bulletin by calling on hospitals and physicians to terminate existing gain-sharing arrangements. Recognizing that many gain-sharing arrangements exist, the OIG said that it would exercise its prosecutorial discretion in light of whether gain-sharing arrangements were terminated expeditiously after publication of the bulletin (which occurred on July 14). The OIG warned, however, that it would also consider whether gain-sharing arrangements violate any other statutes or adversely affect patient care. The health care industry goes on the offensive Almost immediately after the bulletin was issued, the health care industry began criticizing the OIG for its interpretation of § 1128A(b), as well as its reading of the legislative history. Some suggested that the bulletin contradicted an earlier OIG analysis of § 1128A(b) in proposed regulations. See 59 Fed. Reg. 61,571 (Dec. 1, 1994). The OIG also was criticized for the bulletin's breadth and its failure to give more meaningful guidance. Some questioned whether risk-sharing arrangements between managed care organizations and physicians were permitted. Serious concerns were raised over the suggestion at the end of the bulletin that all physician ownership of hospitals may be illegal. Not only did the OIG come under fire for its legal analysis, but also for the manner in which it announced its position on gain-sharing. Many commentors expressed the view that the OIG abdicated its statutory responsibility under the advisory opinion process by issuing the Special Advisory Bulletin. Others suggested that the use of a notice and comment rulemaking process would have been more appropriate, because it would have allowed the OIG to solicit advice and to respond to comments from the health care industry before issuing a final pronouncement on gain-sharing. Further Clarification from OIG To address some of the concerns raised by the Bulletin within the health care industry, the OIG issued a letter on August 19, 1999 stating that hospital-physician incentive plans limited to Medicare or Medicaid beneficiaries enrolled in risk-based managed care programs are not prohibited by section 1128A(b). The OIG opined that Congress did not intend to use § 1128A(b) to regulate physician incentive arrangements with risk-based managed care contractors. The OIG makes a rare move on the World Wide Web In a second uncharacteristic move, the OIG posted a statement on its Web site (at www.dhhs.gov/oig) defending the bulletin and responding to some of the health care industry's criticism. The OIG said that the principal evil addressed by § 1128A(b) is not the actual reduction in services but the potential for hospital payments to corrupt the physicians' medical judgment. Further, the OIG indicated that the bulletin was consistent with the position it took in its proposed regulations in 1994 and suggested that critics had taken the language of the proposed regulations out of context. Next, the OIG said that the bulletin was "the most appropriate way to communicate to the regulated community." The OIG added that the bulletin did not subvert the advisory opinion process, which is continuing. In light of the bulletin, two requesters have revised their requests, one has withdrawn its request, and the other requesters are considering their options. Finally, the OIG warned that "parties ignore the Special Advisory Bulletin at their own risk" Beyond § 1128A(b), gain-sharing arrangements raise several thorny legal issues. The federal anti-kickback statue, 42 U.S.C. 1320a-7b(b), is potentially implicated to the extent that payments to physicians for participating in gain-sharing arrangements are viewed as payments for referrals. The OIG has not addressed the anti-kickback statute because of the impediments posed by § 1128A(b). The federal Stark physician self-referral statute, 42 U.S.C. 1395nn, is implicated because gain-sharing arrangements create financial relationships between physicians and the hospitals to which they make referrals for designated health services. The Health Care Financing Administration, which is charged with interpreting the Stark statute, has yet to determine whether gain-sharing arrangements fit within the statutory exception for personal services or the proposed regulatory exception for fair-market-value compensation. IRS issues two unpublished private letter rulings Gain-sharing arrangements pose special problems for tax-exempt hospitals, which must be wary of private inurement, as well as issues related to tax-exempt bond financing. Earlier this year, the Internal Revenue Service issued two unpublished private-letter rulings concluding that two separate gain-sharing arrangements between tax-exempt hospitals and physician groups did not involve private inurement. The IRS has not specifically addressed the issues surrounding tax-exempt bond financing. Recently, the IRS indicated that it is unlikely to issue any further private letter rulings on gain-sharing arrangements in light of the OIG's conclusion that gain-sharing arrangements violate the civil money penalty provisions. The Fall-out from the Bulletin Despite broad statements from the OIG suggesting that most gain-sharing arrangements violate section 1128A(b), it seems clear that gain-sharing will not go away. A fundamental need exists to align the economic interest of physicians and hospitals. The Clinton administration has discussed the possibility of adopting a global payment system whereby Medicare would make a single payment per case for all services at a site of care, including physician services. This would certainly connect the financial interest of physicians and hospitals, but such a radical change is unlikely in the near term. On the other hand, the pressure on hospitals to cut costs in response to lower payments from government health programs and managed care plans will only grow in the coming years. The reality is that many existing and proposed gain-sharing arrangements can load to significant patient benefits, both in terms of quality of care and the reduction of costs to patients. Further, there has been little substantive discussion of gain-sharing arrangements that are not based on cost savings relating to clinical services, but rather are related to appropriate reduction in overhead and administrative costs, such as staffing, scheduling, and purchasing efforts. Both the health care industry and the OIG share a common goal-namely, improving patient care and avoiding unnecessary costs. Meaningful dialogue is needed to move past the current standoff toward achieving this common goal. Waiting for congressional action will not suffice. Mr. Teplitzky is the chair of the health law department of Baltimore's Ober, Kaler, Grimes & Shriver. Mr. Mathias is an attorney in the same department of Ober|Kaler. |
||||||
|
Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia |
||||||
