Change in CMP Law Affecting Gainsharing Arrangements

In addition to the well-publicized permanent repeal of the sustainable growth rate (SGR) formula for physician reimbursement under Medicare included in H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015 (the “Act”), another provision of interest to hospitals and physicians is the change to the Civil Monetary Penalties (“CMP”) Law in Section 512 of the Act that impacts gainsharing arrangements. The change could clear the way for hospitals and physicians to share payments for reducing or limiting medically unnecessary services provided to Medicare and Medicaid beneficiaries.

Gainsharing Arrangements and Prior Restrictions

Generally, gainsharing programs allow hospitals and physicians to share among themselves the savings realized from improving patient quality of care and reducing unnecessary and wasteful spending in hospital services. Prior to passage of the Act, the CMP Law prohibited a hospital from “knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services” for Medicare and Medicaid beneficiaries under the direct care of the physician. The CMP Law did not distinguish between medically necessary and medically unnecessary care. Therefore, the CMP Law had prevented hospitals and physicians from structuring compensation arrangements through which hospitals could pay physicians a percentage of patient care cost savings resulting from the physician’s participation in cost-saving efforts even for savings achieved by limiting or reducing medically unnecessary care. To make gainsharing arrangements more confusing, the Office of Inspector General of the Department of Health and Human Services (“OIG”) has issued a number of Advisory Opinions over the years that approved certain gainsharing arrangements, while still saying the arrangements could violate the CMP Law in the absence of sufficient safeguards, many of which placed limitations on the effectiveness of the gainsharing arrangements.

Gainsharing for Medically Unnecessary Services Now Permissible

The Act amended the CMP Law by inserting the words “medically necessary” after the words “reduce or limit.” As such, the Act eliminates civil monetary penalties for inducements made to physicians to limit services that are not medically necessary, effective as of April 16, 2015, the date of the Act’s enactment. Thus, hospitals and physicians may consider fashioning gainsharing arrangements that share savings generated by reducing or limiting services that are not medically necessary, so long as those payments do not run afoul of other regulatory authorities, such as the Stark Law, the Anti-Kickback Statute and state law analogs.

Future of Gainsharing Arrangements

The Act’s modification of the CMP law will provide hospitals and physicians with a path to begin to develop innovative programs that improve patient quality of care and reduce unnecessary and wasteful spending in hospital services. The Act also more closely aligns gainsharing programs with the Affordable Care Act’s shared-savings arrangements. Nevertheless, there is still some uncertainty regarding the government’s interpretation of the CMP Law that may impact gainsharing programs. On October 3, 2014, the OIG published a proposed rule containing several proposed amendments and additions to the Anti-Kickback Statute safe harbors and guidance on the gainsharing provisions of the CMP Law. The OIG proposed to define the phrase “reduce or limit services” and sought comments on safeguards to be included in the definition to ensure that the goal of the CMP Law, that is, to prevent hospitals from paying physicians to discharge patients too soon or take other action that inappropriately limits a beneficiary’s care, would be met. See 79 Fed. Reg. 59730 (Oct. 3, 2014).

It is likely these rules will not be finalized soon because the Act specifically requires the Department, in consultation with the OIG, to provide a report to Congress on suggested amendments, exceptions and safe harbors to existing Medicare fraud and abuse laws that would permit gainsharing arrangements that improve care and increase efficiency while reducing waste. The Act requires the report to set forth:

  • Considerations as to whether such provisions should apply to ownership interests, compensation arrangements, or other relationships;
  • A description of how the recommendations address accountability, transparency and quality, including how best to limit inducements to stint on care, to discharge patients prematurely, or to otherwise reduce or limit medically necessary care; and
  • Considerations about whether a portion of any savings generated by such arrangements should accrue to the Medicare program.

This report is due within one year of the date of enactment, or by April 15, 2016. Providers can thus expect further guidance on the permissible scope of gainsharing arrangements.

For More Information

Please contact Charles M. Honart at 610.205.6017 or Harriet Franklin at 610.205.6014 if you have any questions concerning the Act and changes to the CMP Law.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.