Many physician gainsharing programs across the country must be dismantled or restructured, following a finding by HHS' inspector general's office last month that such arrangements are illegal.
The brief, four-page special advisory bulletin leaves many questions unanswered and many physicians wondering how they will structure doctor-hospital partnerships in the future.
A number of healthcare providers and attorneys say the inspector general's opinion is a major obstacle to market development, as it will hinder integration and render some existing hospital-physician partnerships illegal.
"I don't think this is in tune with the direction the health system needs to go. If we're going to make advances in managing healthcare costs, it has to be through giving doctors and hospitals incentives to work together," says Mark Lutes, a partner with the Washington law firm Epstein, Becker & Green.
Gainsharing programs are partnerships that seek to align hospital and physician incentives to achieve cost savings. Typically, physicians assume the management of a high-cost hosital department, such as cardiology, and implement cost-savings procedures. The hospital then pays physicians a percentage of any savings achieved.
An estimated 50 to 100 such partnerships are up and running, and many more are in the planning stages, according to one attorney who structures such deals.
During the past year and a half, seven groups that wanted to be certain of HHS approval before implementing partnerships appealed to the inspector general's office. Many more providers were waiting for publication of the advisory opinion before implementing their own programs.
The bulletin, posted on an HHS Web site July 8, declares that gainsharing partnerships are illegal because they violate a section of the 1986 Social Security Act. The section prohibits any hospital from knowingly paying physicians as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries. "While the OIG recognizes that appropriately structured gainsharing arrangements may offer significant benefits where there is no adverse impact on the quality of care received by patients . . . the Act clearly prohibits such arrangements," the bulletin reads.
"In order to retain or attract high-referring physicians, hospitals will be under pressure from competitors and physicians to increase the percentage of savings shared with the physicians, manipulate the hospital accounts to generate phantom savings, or otherwise game the arrangement to generate income for referring physicians."
The bulletin also includes the harsh reminder that such illegal payments are subject to fines of $2,000 per patient.
Some observers say the inspector general's office erred by issuing one sweeping gainsharing ban, and that each program should be evaluated individually.
"I think the advisory bulletin was overly broad and they are trying to throw the baby out with the bath water," Lutes says. "Each gainsharing program has to be examined on its facts and circumstances to see whether there is a problem under that statute."
The bulletin did acknowledge that not all partnerships are illegal. Though most existing gainsharing arrangements involve payments based on a percentage of savings, hospitals and physicians can enter into personal services contracts in which hospitals pay physicians a fixed fee based on fair market value for services rendered, rather than a percentage of costs saved.
Craig Nelson, senior manager for healthcare consulting in the Dallas office of Ernst & Young, says his firm has helped a number of providers establish gainsharing-like partnerships that fit within the inspector general's new window. Such programs pay physicians a flat fee to develop practice protocol or provide medical management of clinical redesign.
Nelson says hospitals could approach cardiologists, for example, and ask them to manage a service line that offers an opportunity to improve overall efficiency and quality of care, such as heart bypass or angioplasty. The hospital could hire the physicians under a professional services contract and the physicians would become involved in case management, post-acute care services and clinical-care resource management. The hospital would not be paying for cost savings, but rather for medical management and care management services, Nelson says.
Jim Wiehl, partner in the St. Louis office of the law firm Sonnenschein, Nath & Rosenthal, says administrative efficiencies could be achieved in scheduling and medical record completion.
"The timeliness of getting in and reading tests -- just the flow of patients through the hospital and how physicians can, by changing their behavior, better move patients through the facility -- that's the kind of thing I think is certainly still fair game," he says.
Health law attorney Robert Homchick, of the Seattle-based firm Davis, Wright, Tremaine, says conditions have to be right for a flat-fee arrangement to succeed. There would have to be a level of trust and cooperation between physicians and hospitals, he says.
However, even flat-fee payments are illegal if they induce any limitation or withdrawal of services to Medicare beneficiaries, Murphy cautions.
Another potential obstacle to flat-fee partnerships will be hospitals' reluctance to participate, says Lou Pavia, director of the Washington healthcare consulting firm MMI.
"For hospitals it increases the risk. If they're going to pay fees to get costs down and the costs don't get reduced, they've paid these fees and they didn't get any benefit from them," he says. "And frankly, some hospitals may say (the bulletin) is great news. 'When physicians come to us and say they want to work with us and share in the savings, we'll say it's illegal.' "
In addition to squashing gainsharing partnerships, the bulletin also spells bad news for clinical joint ventures such as heart, orthopedic and maternity hospitals. Although the bulletin grants just two brief paragraphs to a discussion of such ventures, it declares them illegal for the same reason gainsharing is illegal -- they may induce investor-physicians to reduce services to patients.
At St. Luke's-Shawnee Mission Health System in Kansas City, Mo., a plan for the MidAmerica Heart Institute is on indefinite hold, according to a spokeswoman.
St. Thomas Hospital in Nashville, Tenn., is another hospital circling the wagons and trying to decide on an appropriate course of action, according to a spokesman.
Until further clarification, attorneys and consultants agree that petitioning Congress may be the only option for those still interested in gainsharing.