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Gainsharing Programs May Now Promote Quality Targets

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Gary J. McRay
Foster Swift Health Care Law E-News
December 4, 2008

Advisory Opinion 08-15, issued by the Office of Inspector General (the "OIG"), followed in typical fashion the ten prior advisory opinions which endorsed gainsharing arrangements that promoted cost saving measures as long as quality of care to patients was not adversely affected and other safeguards were implemented. However, with Advisory Opinion 08-16 posted on October 14, 2008, the OIG endorsed payments made by a private insurer to a hospital that were then split with a physician-owned entity made up of members of the medical staff for meeting certain quality targets. The quality targets that were promoted by the private insurer were among the measures discussed in the Specifications Manual for National Hospital Quality Measures (the "Manual"), published by the Joint Commission. This Manual represented collaborative efforts between CMS and the Joint Commission to create a uniform set of national hospital quality measures.

The OIG first discussed whether the proposed program would constitute grounds for sanctions arising under the Civil Monetary Penalty ("CMP") portion of the Social Security Act (the "Act"), which include sanctions levied if a hospital pays a physician to reduce or limit services to Medicare or Medicaid beneficiaries. The OIG concluded it would not seek sanctions against the hospital for the following reasons:

First­, there was credible medical support that the proposed program had potential to improve patient care.

Second, there would be no incentive for a physician to apply a specific standard in medically inappropriate circumstances. The bonus paid under the arrangement was not reduced because the specific standard was not met if the standard was contraindicated with regard to that patient.

Third, the quality targets were reasonably related to the practices and patient population of the hospital. The target patients were likely to be treated at the acute care hospital and would receive procedures routinely used at the hospital.

Fourth, the performance measures were clearly and separately identified and the affected patients would be notified of the program, creating transparency with the proposed arrangement.

Fifth, the hospital had certified that it would monitor the quality targets to protect against inappropriate reductions or limitations in patient care.

The OIG also discussed in Advisory Opinion 08-16, the possibility that the proposed gainsharing arrangement might violate the Anti-Kickback Statute ("AKS") by paying for referrals by the physician entity or its members. The government never wishes to endorse any arrangement that would encourage physicians to join the staff of the hospital in order to share in the bonus from the private insurer or to admit additional patients to the hospital to increase the bonus split between the hospital and the physician entity.

The OIG concluded it would not impose sanctions arising in connection with the AKS because of various safeguards. First, membership in the physician entity would be limited to physicians who had been on the medical staff of the hospital for at least a year, thus limiting the likelihood that physicians would join the medical staff to share in the gainsharing bonus opportunity. In addition, the compensation paid to the physician entity would be subject to a cap tied to the base compensation paid by the private insurer to the hospital in the base year, which was the fiscal year prior to the start of the program. Plus, if the hospital determined that a physician's referral pattern significantly changed in a manner that benefited the hospital due to the financial rewards, then the physician in question would be terminated from the physician entity.

In addition, compensation by the physician entity to its members would be distributed per capita, reducing the risk of just rewarding high-referring physicians. The proposed gainsharing arrangement would set specific quality targets with payments linked to achieving these quality targets, rather than on any referrals of patients. The government acknowledged that the private insurer had no incentive to over-compensate either the hospital or the physicians, but only to pay for achieving the quality targets. Finally, the proposed arrangement, at least initially, was a three-year contract and thus limited in time.

In past gainsharing arrangements, the OIG typically permitted a hospital to reduce costs by changing physician behavior. The resulting cost savings was split between the hospital and the physicians who had altered their practice. The OIG simply ensured that quality would not be reduced through these cost-cutting measures. This Advisory Opinion had a different focus. Payments were not made to reduce costs but were made to directly enhance quality. The private insurer paid a hospital and much of its medical staff to adopt national best practices. This is another positive example where the government has permitted hospitals and members of their medical staff to align to jointly share a reward for improving patient care.