On April 16, 2015, President Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”).1 MACRA covers a variety of healthcare measures, including the repeal of the Sustainable Growth Rate formula, significant changes to the way Medicare will pay physicians in the future, and an extension of the Children’s Health Insurance Program. Among these reforms are two important provisions related to gainsharing: (i) a modification of the circumstances under which a gainsharing arrangement would trigger a civil money penalty (“CMP”), and (ii) a directive requiring the Secretary of Health and Human Services (the “Secretary”) to develop options for amending existing fraud and abuse laws and regulations to permit certain gainsharing arrangements. Both of these provisions became effective on April 16, 2015, the date of enactment of MACRA. This Client Alert focuses on these gainsharing-related provisions.
Overview and Existing Law
“Gainsharing” typically refers to an arrangement in which a hospital agrees to share with a physician or group of physicians defined reductions in the hospital’s costs that are attributable to the physician’s or group’s efforts. While beneficial to hospitals and physicians, gainsharing has been a cause of concern for regulatory agencies tasked with protecting federally funded healthcare programs from fraud and abuse. The Office of Inspector General of the Department of Health and Human Services (the “OIG”) has described gainsharing arrangements as posing a risk of abuse by creating pressure for hospitals to increase the percentage of savings shared with high-referring physicians, manipulate hospital accounts to generate “phantom savings,” or otherwise game the arrangement to generate income for referring physicians.2
The CMP law, found at 42 U.S.C. § 1320a-7a, is one of three key federal statutes that affect the structure of gainsharing arrangements.3 The subsection of the CMP law applicable to gainsharing arrangements (the “Gainsharing CMP”) authorizes a CMP of up to $2,000 when a hospital or critical access hospital “knowingly makes 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.4 Any physician who knowingly accepts such payment is likewise subject to a CMP of up to $2,000.5 Prior to MACRA, this broad proscription encompassed payments to reduce or limit services whether or not the items or services in question were medically necessary.
Nevertheless, the OIG has recognized that appropriately structured gainsharing arrangements may offer significant benefits, provided there is no adverse impact on quality of care. To this end, the OIG has approved a number of specific gainsharing arrangements through its advisory opinion process.6 More recently, in October 2014, the OIG proposed a rule that would create a narrower interpretation of the Gainsharing CMP.7 The OIG acknowledged that a change in medical practice does not necessarily constitute a limitation or reduction of services and expressed concern that the statute prohibited payments to reduce any services, rather than restricting only payments to reduce medically necessary services. The OIG sought comments as to how the phrase “reduce or limit services” should be defined. However, without a change in the language of the statute, the OIG stated it was unable to read an element of medical necessity into the statute.
Amended Gainsharing CMP Rule
In that respect, MACRA is a game-changer for the structure of future gainsharing arrangements. Particularly, MACRA § 512(a) narrows the Gainsharing CMP by adding the words “medically necessary” to the statute, so that now the Gainsharing CMP prohibits only inducements made to reduce or limit medically necessary services to Medicare or Medicaid beneficiaries.
Section 512(b) also directs the Secretary, in consultation with the OIG, to submit to Congress a report setting forth options for amending the existing healthcare fraud and abuse laws and related regulations to permit gainsharing arrangements that improve care while reducing waste and increasing efficiency. These options may include additional exceptions, safe harbors, or other narrowly targeted provisions. The report, which must be submitted by April 16, 2016, must:
- Consider whether such provisions should apply to ownership interests, compensation arrangements, or other relationships
- Describe how the recommendations address accountability, transparency, and quality, including how best to limit inducements to stint on care, discharge patients prematurely, or otherwise reduce or limit medically necessary care
- Consider whether a portion of any savings generated by such arrangements should accrue to the Medicare program
The Future of Gainsharing
MACRA does not define the phrase “medically necessary,” so it remains to be seen how significantly this change will affect gainsharing arrangements. Armed with this authority, we believe the OIG is likely to adopt regulations that could open new doors for the development of appropriately structured gainsharing programs that will encourage providers to make cost conscious healthcare decisions that drive efficiency and quality. This would be consistent with other actions the OIG and affiliated agencies have taken in this area. For example, the OIG and CMS have already created broad gainsharing exceptions applicable to Accountable Care Organizations (“ACOs”) under the Shared Savings Program in the form of waivers, consistent with the purposes of ACOs to reduce costs to the Medicare program without sacrificing quality.8 Additionally, payment programs developed and administered by the CMS Innovation Center (e.g., the BPCI Program) allow gainsharing arrangements under certain conditions. Accordingly, given this activity and the trend of the healthcare industry generally toward a system that rewards a higher quality of care delivered at a lowered cost, it is likely that the amendment will have the effect of encouraging arrangements whereby hospitals share with physicians cost savings resulting from the implementation of certain measures (e.g., use of lower-cost implants), as long as appropriate patient protections are a part of the arrangement.
Whether this change is an open door or a crack in the window remains to be seen, but we anticipate that the OIG will issue proposed regulations in the near future that will interpret the added language to the Gainsharing CMP and provide further guidance as to how hospitals may properly structure compliant gainsharing programs. In the meantime, healthcare providers may enter into gainsharing arrangements that do not limit medically necessary services and are structured to comply with other applicable laws and regulations. Members of Kutak Rock’s healthcare practice group would be glad to discuss this development with you or assist in the structure and development of your physician integration and alignment strategies.
Additional Information
For assistance or additional information about gainsharing arrangements, please contact your Kutak Rock attorney, a member of Kutak Rock’s National healthcare practice, or one of this Client Alert’s authors.
1Pub. L. 114-10.
2OIG Special Advisory Bulletin: Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries (July 1999).
3The other two key federal statutes are the Physician Self-Referral Law (“Stark”) and the Anti-Kickback Statute (“AKS”).
442 U.S.C. § 1320a-7a(b)(1) (2013).
542 U.S.C. § 1320a-7a(b)(2) (2013).
6See OIG Advisory Opinion Nos. 00-02, 01-01, 05-01, 05-02, 05-03, 05-04, 05-05, 05-06, 06-22, 07-21, 07-22, 08 09, 08-15, 08-21, 09-06, and 12-22.
7Medicare and State healthcare Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements and Gainsharing, 79 Fed. Reg. 59717 (proposed Oct. 3, 2014).
8See Medicare Program; Final Waivers in Connection with the Shared Savings Program, 76 Fed. Reg. 67992 (Nov. 2, 2011).