On April 16, President Barack Obama signed into law the “Medicare Access and CHIP Reauthorization Act of 2015,” ending a perennial struggle over the Medicare reimbursement formula for physicians.[1] Although the law is most commonly known for narrowly averting a scheduled 21% cut in physician reimbursement and for establishing a new merit-based incentive payment system (“MIPS”) for Medicare providers, there are several additional provisions notable for health care providers. This is one of several Client Alerts on the new law that K&L Gates will publish in the coming weeks.

Among such notable changes is the addition of two words—“medically necessary”—to the Civil Monetary Penalties (“CMP”) statute’s prohibition on gainsharing.[2] Accordingly, the CMP law now prohibits payments to physicians for reducing or limiting medically necessary services to beneficiaries under that physician’s direct care.

Gainsharing and Medical Necessity—Background

Since 1986, the Gainsharing CMP has prohibited hospitals from making direct or indirect payments to a physician as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries under the physician’s direct care.[3] The prohibition has been broadly construed to encompass any reduction in service or care.[4] As the Office of Inspector General (“OIG”) stated in its July 1999 Special Advisory Bulletin on gainsharing:

The breadth of the prohibition was intentional. As initially enacted by Congress … the Act prohibited payments by both hospitals and Medicare managed care plans to induce physicians to reduce clinical services.… [T]he Act was subsequently amended to add a new subsection… that permitted Medicare managed care plans to implement physician incentive plans, provided… [they] did not induce the reduction of medically necessary care to individual patients and did not place the physician at substantial financial risk for services not provided by the physician.… [T]he stark difference in otherwise parallel language reflects a congressional decision to prohibit any payment arrangement between hospitals and physicians that is intended to induce a reduction or limitation in services.[5]

In an October 4, 2014, Proposed Rulemaking, the OIG announced that it would consider a narrower interpretation of the “reduce or limit services” provision in the Gainsharing CMP. It noted that advances in areas such as quality monitoring, data analytics, and evidence-based practice have facilitated greater accountability in the health care sector, making it easier for hospitals “to ensure that the goal of the statute is met: to prevent hospitals from discharging patients too soon or to take other action that inappropriately limits a beneficiary’s care.”[6] Given the availability of new protections, the OIG stated that “pending further notice… gainsharing arrangements are not an enforcement priority for OIG unless the arrangement lacks sufficient patient and program safeguards.”[7]

CMP Law Changes

Section 512 of the new law brings the Gainsharing CMP closer into step with efforts under the Patient Protection and Affordable Care Act to allow providers to enter certain shared‑savings arrangements with physicians. However, what remains an open question is how the government will interpret the phrase “medically necessary.”

In addition, the new law directs the Secretary of Health and Humans Services and the OIG to submit a report to Congress within one year outlining options for amending existing fraud and abuse laws and regulations affecting Medicare and Medicaid through safe harbors, exceptions, and other “narrowly targeted” provisions aimed at permitting gainsharing arrangements.[8] It also directs the OIG to consider: 1) whether the new provisions should apply to ownership interests, compensation arrangements, or other relationships; 2) recommendations to address any perverse incentives to reduce or limit medically necessary care; and 3) whether a portion of the shared savings generated by the new approach should accrue to the Medicare program.

Health care providers and institutions should monitor OIG guidance and Advisory Opinions for interpretations of this new language and be alert for further proposed changes to fraud and abuse laws.

Notes:

[1] Medicare Access and CHIP Reauthorization Act of 2015, H.R. 2, 114th Cong. (2015) (enacted) (to be codified in scattered sections of 16 and 42 U.S.C.).

[2] See  H.R. 2 § 512.

[3] 42 U.S.C. § 1320a-7a(b)(1) (2014); see also OIG Special Advisory Bulletin: Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries 3 (July 8, 1999); Medicare and State Health Care 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. 59,717, 59,729 (proposed Oct. 3, 2014). 79 Fed. Reg. at 59,729.

[4] OIG Special Advisory Bulletin at 2.

[5] Id.

[6] 79 Fed. Reg. at 59,730.

[7] Id. at n. 15.

[8] For example,the “Stark” Law (42 U.S.C. § 1395nn), the False Claims Act (31 U.S.C §§ 3729–3733), and the Anti-Kickback Statute (42 U.S.C. § 1320a-7(b)).