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CMS's 2009 Fee Schedule: a New Stark Exception for Gainsharing Programs

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Gary J. McRay, Nicole E. Stratton
Foster Swift Health Care Law Report
August 2008

In the past the Office of Inspector General ("OIG") had issued eight Advisory Opinions endorsing gainsharing arrangements between hospitals and members of their medical staffs, despite concluding that these arrangements implicated the Civil Monetary Penalties Law ("CMP") of the Social Security Act ("Act"), 42 U.S.C. §1320a-7a and the Anti-Kickback Statute ("AKS"), 42 U.S.C. §1320-7b.  However, it was not until July of this year that the government finally addressed the impact of the Stark law with such gainsharing arrangements.  CMS proposed, in the 2009 Medicare Physician Fee Schedule, a new exception for Stark law violations for incentive payment and shared saving programs at 42 C.F.R. §411.357(x).  See 73 Fed. Reg. 38502, July 7, 2008.  The following 16 conditions have to be met for the hospital and the physicians to fit within the new Stark gainsharing exception:

  1. The payment to the physicians is part of a documented incentive payment or shared savings program to achieve (i) the improvement of the quality of hospital patient care services through changes in physician clinical or administrative practices or (ii) actual cost savings for the hospital resulting from the reduction of waste or changes in physician clinical or administrative practices, all of which must occur without an adverse effect or diminution in the quality of hospital or patient care services.
  2. The program identifies patient care quality measures or cost saving measures or both that (i) use an objective methodology, which is verifiable, supported by credible medical evidence and individually tracked; (ii) are reasonably related to the hospital's or comparable hospital's practices and patient population; (iii) with respect to patient care quality measures are listed in CMS's Specification Manual for National Hospital Quality Measures; and (iv) are monitored throughout the term of the program to protect against inappropriate reductions or limitations in patient care services.
  3. The program establishes (i) baseline levels for the performance measures using the hospital's historical and clinical data; (ii) target levels for the performance measures that are developed by comparing historical data for the hospital's practices and patient populations to national or regional data for comparable practices and patient populations; and (iii) thresholds above or below which no payment will accrue to physicians.  (This has been a constant in prior OIG approvals where no savings may be shared above the hospital's historical volume in order not to reward additional referrals.)
  4. At least five physicians participate in each performance measure from the participating physician pool.  The participating physicians must be on the medical staff of the hospital, may not be selected in a manner that takes into account the volume or value of referrals or other business between the parties.  The hospital may elect to make the program available to physicians in a particular department or specialty provided the hospital offers the opportunity to participate to all physicians in the department or specialty.
  5. The program requires (i) independent medical review of the program's impact on the quality of patient care services and (ii) corrective action if the independent review indicates a drop in the quality of hospital patient care services.  The independent medical review must be commenced prior to the commencement of the program and at least annually thereafter.
  6. Under the program (i) physicians must have access to the same selection of items, supplies or devices that was available at the hospital prior to the program and must not be restricted in their ability to make medically appropriate decisions for their patients; (ii) the hospital may not make a payment to a participating physician if the physician has an ownership or investment interest in or compensation arrangement with the manufacturer, the distributor or the group purchasing organization that arranges for the purchase of the item, supply or device; and (iii) the hospital may not limit the availability of new technology that is linked through objective evidence to improved outcomes and is clinically appropriate and meets the same federal regulatory standards as technology available through the program.
  7. The hospital provides effective prior written notice to patients affected by the program that (i) identifies the physicians participating in the program; (ii) discloses that the participating physicians receive payments for meeting targets for certain performance measures; and (iii) describes the performance measures in a manner reasonably designed to inform patients about the program.
  8. The arrangement is set out in writing, signed by the parties and specifies the payment (or the formula for the payments) in detail sufficient to be independently verified.  To satisfy this verification requirement, each specific performance measure and the resulting payment (or formula for the payment) to the participating physician must be clearly and separately identified.
  9. The performance measures used by the program do not involve the counseling or promotion of a business arrangement or other activity that violates any federal or state law and in the aggregate, are reasonable and necessary for the legitimate business purposes of the program.
  10. The term of the program is no less than one year and no more than three years.
  11. Payments must take into account previous payments for performance measures already achieved to insure that the participating physician does not receive payment relating to patient care quality improvements or cost savings that were achieved during a prior period before the commencement of the program.  No payment may be made for any achievement of cost savings that results in a decrease of hospital patient care quality.
  12. Payments are limited in duration and amount under the program.  For purposes of calculating the actual payments to the physician, cost savings are measured by comparing the hospital's acquisition costs for the items and supplies or costs of providing the specified services that are subject to the gainsharing program to the hospital's baseline costs for the same items, supplies or services during the one year immediately preceding the commencement of the program.
  13. The payment is to be paid over the term of the program and (i) is set in advance and does not vary during the term of the program and is not determined in a manner that takes into account the volume of referrals; (ii) is not based in whole or in part on a reduction in the length of stay for a particular patient or in the aggregate for the hospital; (iii) is distributed to the physician in each physician pool on a per capita basis with respect to each performance measure (and obviously not based on volume at the hospital); and (iv) is paid directly to participating physicians.
  14. The payments made to participating physicians may not include any amount that takes into account the provision of a greater volume of federal health care patient procedures or services than the volume provided by the participating physicians during the period immediately preceding the gainsharing program.
  15. The hospital maintains accurate and contemporaneous documentation of the program and makes the documentation available to the Secretary upon request.
  16. The arrangement does not violate AKS or any federal or state law or regulation governing billing or claims submission.

In most respects, CMS has followed the guidelines established by the OIG to endorse gainsharing programs that reduce costs for hospitals without lowering the quality of patient care and without rewarding physicians for increased volume.  What is noteworthy is that the OIG in its past Advisory Opinions and CMS in its new proposed Stark exception have finessed the worrisome concept of whether the gainsharing program is really paying physicians a fair market value fee for their change in behavior and consulting.  Usually, to avoid claims of violating the AKS or Stark law, the hospital must show that it's paying its physicians a fair market value rate for services rendered.  However, what is an appropriate fair market value rate for consulting services or for services that require a modification of clinical practices when there is no real market to measure?  Typically, there are not enough physician groups providing gainsharing strategies to create a national or local market to judge what is a fair market value payment.  Instead, the government has conceded that the payments need to be reasonable and has suggested that if they are limited in duration and amount then the payments are indeed reasonable and permitted.  Based upon the previous eight gainsharing programs that were endorsed by the OIG, it would appear that allowing physicians to receive cost savings for at least one year and only allowing physicians to receive 50% of the variable cost savings to the hospital was reasonable.  Here, the Stark law exception would allow the program to last from one to three years. 

Although the proposed Stark exception appears to be very complicated, it is an endorsement by the government of gainsharing programs that do not reward increased volume or permit a diminution in patient quality, but do create cost savings and efficiencies for the hospital.  This is certainly good news for hospitals and physicians who should be appropriately incentivized to change behavior in order to lower health care costs.