The HHS inspector general's ruling that all physician-hospital gain-sharing arrangements violate federal prohibitions against payments to physicians (July 26, p. 8) is confusing and troubling, and its logic is potentially fatal to many hospitals in troubled financial positions.
In February 1999 the IRS issued a private-letter ruling that indicated it was permissible for hospitals to make monetary payment to physicians as an incentive for the doctors to develop high-quality clinical-care plans that are cost-effective. Typically this would involve the use of home care over inpatient care, the monitoring of a patient's progress so he or she can be moved to a less-intense level of care at the earliest possible time, and the use of medications and techniques that have proven effective. The IRS indicated such payments did not violate inurement prohibitions-the payments were tied to good and valuable services.
The inspector general's advisory indicated that such programs violate the physician-incentive law and are, without exception, illegal. Unfortunately, the inspector general indicated in 1994 that such programs were complex and needed to be reviewed on a case-by-case basis. These two approaches cannot be reconciled.
The inspector general's ruling ignores the underlying value of gain-sharing programs. Federal, state and private payers have valid concerns about the cost and complexity of care. The administration has concerns about the long-term viability of Medicare. Cost-reduction programs provide incentives for physicians to study the course of treatment related to specific conditions and to design an alternative approach. The IRS ruling required that the quality of care be measurable, that an auditing system be in place and that payments be directly tied to the auditable cost reductions of the effort. That approach seems reasonable.
If we in healthcare are encouraged to reduce costs yet cannot enlist the active participation of physicians-those most able to have an impact on costs-what alternatives are left? The inspector general offers no suggestions.
Amazing as it seems, the IRS approach makes sense. At the very least, someone in the administration should develop a consistent policy and communicate it to the various regulators.
Virginia Beach, Va.