[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]
BILLING CODE 4150-04-P