March 2001 Volume 5 Number 1 H e a l t h C a r e Compliance Adviser OIG Issues New Advisory Opinion on Gainsharing Reversing July 1999 Special Advisory Bulletin In a welcome departure from its former position, the OIG recently breathed new albeit restricted life into gainsharing by issuing a favorable advisory opinion. On January 18, 2001, the U.S. Department of Health and Human Services Office of Inspector General ( OIG ) published its first Advisory Opinion No. 01-1 (the Opinion ) of the new year, approving a proposed gainsharing arrangement between an acute-care hospital (the Hospital ) and a group of cardiac surgeons (the Group ). Under the proposed arrangement, the Group would receive a percentage of the savings generated by the Group s implementation of certain cost-saving measures when performing surgery at the hospital. The OIG analyzed the proposed arrangement to determine whether the OIG would bring an enforcement action under the Civil Monetary Penalties Law, 42 U.S.C. 1320a-7a(b) (the CMP law ), or the Anti- Kickback Statute, 42 U.S.C. 1320a-7b(b), 1 and determined, subject to a number of safeguards, that the gainsharing arrangement would not be challenged. In the Opinion, the OIG eased away from its July 1999 Special Advisory Bulletin that stated that, absent further authorizing legislation, the OIG would not provide regulatory relief from the application of the CMP law through the issuance of advisory opinions on gainsharing arrangements. Background Gainsharing arrangements describe a variety of compensation arrangements under which physicians are paid a percentage of cost savings achieved by a hospital though improved management of patient care. Gainsharing arrangements received considerable attention after the OIG issued a Special Advisory Bulletin on July 8, 1999 in which it declared that certain gainsharing arrangements between hospitals and physicians violate the CMP law and that no favorable advisory opinion would be issued for gainsharing arrangements. The CMP law prohibits hospitals from making a payment directly or indirectly, to a physician as an inducement to reduce or limit services provided to Medicare or Medicaid beneficiaries under the physician s direct care. According to the OIG in the Special Advisory Bulletin, 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. The OIG declined to distinguish between gainsharing arrangements that may actually adversely affect patient care (i.e., arrangements that reduce medically necessary services) and those that may not (i.e., arrangements that do not reduce medically necessary services). 1 In keeping with its limited statutory authority, the OIG did not analyze the proposed arrangement under the physician self-referral law, 42 U.S.C. 1395nn ( Stark Law ) or the False Claims Act ( FCA ), 31 U.S.C. 3729. 2001 Jones, Day, Reavis & Pogue. All rights reserved.
In an industry publication, Jones Day critiqued the OIG s legal analysis in the 1999 Special Advisory Bulletin, concluding that the OIG s blanket proscription of gainsharing arrangements lacked adequate legal support and improperly pre-empted the advisory opinion process. The OIG posted a response to the Jones Day critique on its Web site and in industry publications, decrying the Jones Day critique and asserting that parties ignore the Special Advisory Bulletin at their own risk. 2 The Proposed New Arrangement Under the proposed arrangement analyzed in the OIG s recent Opinion, the Hospital would pay the Group 50 percent of the first-year cost savings directly attributable to specific changes in the Group s operating room practices. The terms of the proposed arrangement were to be memorialized by a one-year written agreement. A Program Administrator was engaged by the Hospital to identify cost-saving opportunities that would improve operating room practices and reduce the inappropriate use or waste of medical supplies. The Program Administrator identified 19 cost-saving opportunities, all of which were reviewed by the Hospital and the Group for medical appropriateness. The 19 specific opportunities fell into three major initiatives: (1) opening packaged items only as needed during surgery; (2) substitution of lesscostly items for items currently used by the surgeons; and (3) limiting the use of a certain pre-operative drug that prevents hemorrhaging to those patients clinically at risk of hemorrhage. The proposed arrangement incorporated a variety of safeguards to protect against inappropriate reduction in medically necessary services. First, the hospital established a floor below which no savings would accrue to the Group. For example, if the Hospital determined that a less-expensive suture could be used in X percent of cases without adversely affecting patient care, the Group would not receive any savings for using the less-expensive suture in more than X percent of cases. In addition, cost savings for each of the 19 recommendations would be calculated separately at the end of the year in order to preclude shifting of cost savings and ensure that savings resulting from utilization below set targets or floors were not credited to the Group. Finally, the aggregate payment to the Group would be capped at 50 percent of the projected cost savings as identified in a report prepared by the Program Administrator. The proposed arrangement also would limit the aggregate payment made by the Hospital to the Group. First, if the volume of procedures payable by any federal health care program in the current year exceeded the volume of such procedures in the preceding year, the Group would not receive a share of the cost savings for the additional procedures. Next, to minimize the incentive to steer patients with higher costs to other hospitals, the Hospital agreed to monitor the case severity, age, and payor mix of patients treated under the proposed arrangement. If a particular surgeon was responsible for significant changes from the historical measures, he or she would be terminated from participation in the proposed arrangement. Finally, the existence of the proposed arrangement would be disclosed in writing to all cardiac surgery patients, and patients would be permitted, upon request, to review the details of the proposed arrangement, including the specific cost-saving measures applicable to the patient s surgery. 2 See Luce & Witten, OIG s Gainsharing Prohibition Lacks Legal Support, BNA (Bureau of National Affairs, Inc.), vol. 3, no. 16, at 753 62 and the government s response: http://oig.hhs.gov/fdalrt/ bnagain.htm. In its response, the OIG appeared to retreat somewhat from its three-point basis for declining to issue any favorable advisory opinions on gainsharing arrangements. See note 6, below. 2
OIG Analysis CMP Law. The OIG evaluated the 19 cost-saving measures individually and concluded that all but one of the measures 3 implicated the CMP law. The OIG acknowledged that the Hospital s current practices may well involve care that exceeds the requirements of medical necessity, but nevertheless concluded that the proposed cost-saving opportunities would violate Section 1128A(b) because such measures, in the OIG s opinion, are an inducement to reduce or limit the current medical practices at the Hospital. Again, consistent with its 1999 Special Advisory Bulletin, the OIG did not distinguish between medically necessary and medically unnecessary medical practices. Although it concluded that the proposed arrangement violated the CMP law, the OIG stated that it would not impose sanctions on the Hospital if it implemented the proposed arrangement. The OIG noted that the arrangement had several features that in combination, provide sufficient safeguards so that we would not seek sanctions against the Requestors [under the CMP]. The features include: (i) separate and identifiable cost-savings proposals; (ii) medical support that the proposed cost-saving actions would not adversely affect patient care; (iii) uniform treatment of procedures, regardless of payor; (iv) baseline thresholds below which no savings would accrue to the Group; (v) patient disclosure; (vi) limits on total financial incentive (50 percent of projected cost savings) and agreement duration (one year); and (vii) per-capita distribution of the Group s cost savings. The OIG did not explain why the impact on the quality of care was relevant to its analysis. Anti-Kickback Statute. The OIG next examined the proposed arrangement to determine whether, in its opinion, the remuneration paid to the Group in the form of a percentage of cost savings would implicate Section 1122B(b) of the Social Security Act (the Anti-Kickback Statute ). The Anti- Kickback Statute makes it a criminal offense to knowingly offer, pay, solicit, or receive any remuneration to induce referrals of items or services reimbursable by any federal health care program. The OIG first noted that the proposed arrangement would not fit within any of the Anti-Kickback Statute safe harbors 4 and ultimately concluded that the proposed arrangement would potentially generate prohibited remuneration under the antikickback statute, if the requisite intent to induce referrals were present. The OIG stated that the Proposed Arrangement could encourage the surgeons to admit federal health plan program patients to the Hospital because the more procedures a surgeon performs at the Hospital, the more money he or she is likely to receive under the Proposed Arrangement. As it concluded under its CMP law analysis, the OIG stated that although the proposed arrangement could result in illegal remuneration under the Anti- Kickback Statute (if the requisite intent were found), it would not seek sanctions. The OIG noted that the risk of fraud and abuse under the anti-kickback statute was low because the proposed arrangement s safeguards reduced the likelihood that the arrangement would be used as a vehicle to attract referring physicians or increase referrals from existing physicians. For example, profits from cost savings would be distributed to individual surgeons 3 The OIG found that the open-as-needed policy would not result in a reduction or limitation in the provision of items or services sufficient to trigger the CMP law, so long as the extent of the delay in providing items or services is the insubstantial time it takes to open a package of supplies readily available in the operation room. 4 According to the OIG in the Opinion, the requestors could not avail themselves of the personal services and management contracts safe harbor because the Group would be paid on a percentage basis, and thus the compensation paid to the Group would not be deemed to be set in advance, as required by the safe harbor. 3
on a per-capita basis, thus reducing the incentive for surgeons to generate disproportionate cost savings. In addition, the proposed arrangement identified specific cost-saving actions, capped overall compensation to the Group, and limited the duration of the arrangement. 5 The OIG concluded that while the incentive to refer will not necessarily be eliminated by these features, such incentive will be substantially reduced. Conclusions In a partial reversal from its former stance, the OIG is now willing to evaluate gainsharing arrangements on a case-by-case basis. The Opinion represents the OIG s first advisory opinion analyzing a hospital/physician gainsharing arrangement since the 1999 Special Advisory Bulletin. In issuing the Opinion, the OIG retreated from its position in the 1999 Special Advisory Bulletin that it would not afford any regulatory relief [through the advisory opinion process] absent further authorizing legislation. 6 In addition, the OIG appears to have modified its position on the per se impermissibility of gainsharing arrangements when it concluded that it would not take action against the proposed arrangement due to the low risk of abuse presented by the arrangement. Thus, the OIG appears to acknowledge that gainsharing arrangements may convey benefits to hospitals, physicians, and the Medicare program without endangering patient care. The OIG continues to maintain, however, that the CMP law is violated by any reduction of care or services, regardless of whether such services were medically necessary. Benefits under the Opinion are limited. Hospitals should bear in mind the limitations of the Opinion, and the shortcomings of advisory opinions in general. First, although the OIG stated that it would not seek sanctions against the requestors under the CMP law or the Anti-Kickback Statute, it nevertheless maintained its original position that gainsharing arrangements violate both laws. Second, the OIG did not analyze the arrangement under other potentially applicable laws, such as the False Claims Act ( FCA ) or the Stark Law. Third, the Opinion, as with all advisory opinions, is limited to the facts of the proposed arrangement and cannot be relied upon as precedent by anyone other than the requestors. Indeed, it appears to be limited to the first year only of the proposed arrangement. In effect, the Opinion could be a poison pill to the requestors. By declaring that the Proposed Arrangement violated the CMP law and the Anti- Kickback Statute (notwithstanding that the arrangement would not subject the requestors to sanctions under those laws), the Opinion essentially exposes the requestors to FCA liability if a reviewing court in an FCA case were to accept the OIG s interpretation of those laws and the gainsharing arrangement. Hospitals may still consider gainsharing arrangements. With all due respect to the OIG s position, gainsharing arrangements should not be illegal unless they actually violate the provisions of 5 The OIG was careful to point out that payments of 50% of cost savings in other arrangements, including multi-year arrangements or arrangements with generalized cost savings formulae, could well lead to a different result. 6 In its 1999 Special Advisory Bulletin, the OIG provided three reasons why it would not issue favorable advisory opinions on gainsharing arrangements: (1) immunizing such arrangements from sanctions would be imprudent and inappropriate; (2) gainsharing requires ongoing oversight both as to quality of care and fraud that is not available through the advisory opinion process; and (3) case by case determinations by advisory opinions are an inadequate and inequitable substitute for comprehensive and uniform regulation in this area. 4
the CMP law (or other applicable statutes). Although the OIG s 1999 Special Advisory Bulletin depicted gainsharing arrangements as illegal per se, the 1999 Special Advisory Bulletin does not have the force of law. It is simply a legal interpretation, although one due considerable attention because the OIG is charged with enforcing the CMP law. Moreover, the OIG s Opinion lays out a road map to construct gainsharing arrangements that may not be challenged by the OIG. Before implementing gainsharing arrangements, hospitals should consult with qualified counsel to discuss the design of a gainsharing arrangement and to assess the risks of noncompliance under the CMP law and other potentially applicable laws, including the Anti-Kickback Statute, FCA, Stark Law, and applicable private inurement and private benefit provisions under section 501(c)(3) of the Internal Revenue Code. Finally, given the likely poison pill effect of any favorable gainsharing advisory opinion that declares the practice illegal but not subject to the OIG s enforcement, hospitals should carefully consider the legal benefits and detriments of requesting an OIG review of a proposed gainsharing arrangement. Further Information This Health Care Compliance Adviser is a publication of Jones, Day, Reavis & Pogue and should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general informational purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at its discretion. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers are urged to consult their regular contacts at Jones Day or Greg Luce (202/879-4278), Jesse Witten (202/879-5451), or Heather O Shea (202/879-3932) in our Washington Office concerning their own situations or any specific legal questions they may have. General e-mail messages may be sent via the Internet to healthcare@jonesday.com. We invite you to visit our Web site at www.jonesday.com. Facsimile requests for a copy of the OIG s Advisory Opinion 01-1 can be directed to Elizabeth Hesmer (404/581-8330) in Jones Day s Atlanta Office, or to your regular Jones Day attorney contact. 5