CMS Proposes Stark Exception for Gainsharing and Incentive Pay Arrangements

October 2008Newsletters Staying Well Within the Law

Printer Friendly

From Staying Well Within the Law, a newsletter on the current legal issues facing today's health care industry.

One of the most persistent challenges in health care is the alignment of economic incentives, particularly as they relate to hospitals and physicians who often face diametrically opposed financial forces. Physicians make decisions that impact hospitals’ financial health, yet often see no benefit in conserving resources and in fact are rewarded by the current Medicare system that pays physicians by the service but pays hospitals a fixed DRG amount per admission when they maximize the use of those resources. Additional pressures on doctors from malpractice liability exposure encourage overutilization, often without financial consequences. Unfortunately, when hospitals and physicians try to cooperate to achieve cost control while maintaining quality of care, they are met with a number of complex legal barriers.

One of those barriers may be coming down if CMS’s latest proposal is finalized. On July 7, tucked into the proposed 2009 Physician Fee Schedule, CMS addressed for the first time “gainsharing” arrangements under which hospitals pass along cost savings achieved by physician decisions, and expanded that discussion to include the latest wave of incentive alignment techniques, “Pay-for-Performance” (P4P). The new exceptions would permit certain incentive-pay programs notwithstanding the general Stark prohibition against referrals to hospitals by physicians who have financial relationships with those hospitals. Although an existing catch-all “Fair Market Value” exception may have provided some limited protection for these deals, the new rule would expressly permit them if they met certain criteria.

The Stark law is one of two major barriers to gainsharing arrangements, the other being the Civil Monetary Penalties (CMP) Law that prohibits payments that reduce the quantity of services or care provided to Medicare patients. The last round of battles over gainsharing was fought before the Office of Inspector General (OIG), the agency responsible for enforcement of the CMP Law. Initially ruling that they had no authority to grant exceptions under the CMP Law, the OIG ultimately published a series of advisory opinions approving gainsharing programs that contained certain safeguards against abuse. All of these opinions involved cardiology programs except the most recent opinion, AO 08-09, which extended similar principles to a program sharing cost savings with orthopedic surgeons and neurosurgeons.

Only CMS has the authority to grant exceptions under the Stark Law, and its advisory opinions have been few and limited in scope. CMS has instead concentrated on refining the various regulatory exceptions, and has tended to roll back existing exceptions in its recent rulemaking efforts. In contrast, CMS largely elected to follow the blueprint established by OIG in its advisory opinions by establishing a new category of transaction permitted under Stark. The new exception is limited to payments made by hospitals to physicians or physician organizations, but CMS may consider expanding its analysis to other providers.

The criteria adopted by CMS include:

  • a documented program intended to achieve improvement in the quality of patient care through changes in physician clinical or administrative practice (P4P) or actual costs savings for the hospital from reduction in waste or changes in physician clinical or administrative practice (gainsharing)
  • measurement of the cost savings or quality improvement (“performance measures”)
  • objective, independent evidence that the performance measures will not have an adverse affect the quality of care provided
  • baseline measurements, targets to be achieved, and thresholds above or below which no payments will accrue to physicians
  • preservation of physicians’ rights to use the same range of technologies, items, supplies and services that were available before the adoption of the program. CMS raises concerns that P4P or gainsharing programs may otherwise limit patients’ access to the best treatment options.
  • prohibitions against programs that would allow a physician to benefit from the selection of products, supplies or devices made or distributed by a company with which the physician has a financial relationship
  • independent monitoring and medical review
  • payments must be limited to those physicians who actively participate in or contribute to the cost savings or quality improvements, and may not include those who merely refer patients. Only existing members of a medical staff would be permitted to participate, not those who join during a program’s term.
  • payments must be made to “pools” of at least five physicians and divided equally among the pool participants. CMS believes this method will prevent thinly-disguised rewards to high-volume admitters.
  • programs must be for a limited duration of no more than three years
  • cost-saving programs may not pass along more than 50 percent of the hospital’s total cost savings
  • the terms of the program must be disclosed to patients, and patients must be given the chance to opt out

The preamble to the new exception indicates that CMS is seeking guidance from the industry regarding whether these proposed provisions are workable, practical and feasible in the real world. In the past, CMS has modified Stark changes significantly between the proposed and final versions of the Medicare Fee Schedule. Stay tuned for the next episode in this regulatory saga, coming to the Federal Register later this year.