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SGR Legislation Includes Gainsharing Fix and More Anti-Fraud Measures

The legislation repealing the Medicare sustainable growth rate formula (SGR), signed by President Obama on April 16, 2015, contained several anti-fraud related provisions that affect the health care industry.  The provision with the potential to have the greatest impact on hospital-physician relationships is the amendment limiting the scope of the “gainsharing” civil monetary penalty (CMP) to payments to reduce or limit medically necessary services.  This change, effective on the enactment date, removes a significant obstacle that hospitals faced in creating gainsharing programs with physicians.  While that obstacle has been removed, gainsharing payments continue to require careful review.   

The statutory provision at issue is section 1128A(b)(1) of the Social Security Act (42 U.S.C. § 1320a-7a(b)(1)), which prohibits a hospital or a critical access hospital from knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services provided to Medicare or Medicaid beneficiaries who are under the direct care of the physician.  A hospital or a critical access hospital that makes such payment and the physician who knowingly accepts such payment are subject to CMPs of not more than $2,000 for each beneficiary for whom the payment is made.  The SGR legislation added the words “medically necessary” to modify the term “services,” so now the CMP only applies to payments to induce reducing or limiting medically necessary services.

This change addresses the historical position of the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) that the gainsharing statute prohibited all payments to reduce or limit any services, whether the services were medically necessary or not.  Over the years, the OIG issued a number of favorable advisory opinions approving different gainsharing programs, while maintaining its position that such arrangements would otherwise violate the gainsharing statute.  This created perpetual uncertainty about how to properly align physicians with hospitals in delivering care in a more efficient and cost-effective manner without running afoul of the CMP. 

Congress’ amendment limits the CMP to medically necessary services, but the development of gainsharing programs still requires careful review.  First, medical necessity can be subject to different interpretations.  From an enforcement perspective, the government will likely scrutinize the appropriateness of how the items and services that are the subject of the gainsharing program were selected for inclusion and how the program operated in practice.  In addition, other fraud and abuse authorities, such as the federal anti-kickback statute, the physician self-referral law (the Stark law) and state laws, may affect the design and scope of gainsharing programs. 

Further, there is a potential for additional rulemaking in this area, which may result in a shifting regulatory landscape.  The OIG released a proposed rule in October 2014 concerning its interpretation of what “reduce or limit” means.  How the OIG will approach this pending rulemaking, and whether it will conclude that a revised proposed rule is necessary to address the amended law, is an open question.  Also, the OIG’s interpretation of “reduce or limit” may continue to pose limitations on gainsharing programs.

Congress also directed HHS and OIG to issue a report within a year that examines the fraud and abuse laws and regulations to identify potential exceptions, safe harbors or statutory changes to permit gainsharing or similar arrangements between physicians and hospitals “that improve care while reducing waste and increasing efficiency.”  HHS and OIG were directed to 1) consider whether to recommend new provisions to apply to ownership interests, compensation arrangements or other relationships; 2) describe how the recommendations address accountability, transparency and quality, including how best to limit inducements to stint on care, discharge patients prematurely, or otherwise reduce or limit medically necessary care; and 3) consider whether a portion of any savings generated by such arrangements should accrue to the Medicare program. 

The issues that Congress directed HHS and OIG to examine indicate that the gainsharing landscape remains unsettled.  The historic approach of HHS and OIG in creating exceptions and safe harbors under the Stark law, anti-kickback statute and CMP authorities is to be quite conservative and narrowly draw the boundaries of the protected conduct.  Also, Congress’ indication that it may expect the government to receive a financial benefit from the savings in a gainsharing program, in combination with the changes to the Medicare payment structure towards quality measures, is another sign that further gainsharing developments are likely.

Other notable anti-fraud related measures in the SGR legislation include the following:

  • Removing Social Security numbers from beneficiary Medicare cards and creating new Medicare identity numbers by 2023

  • Requiring valid national provider identifiers for all Medicare Part C and Medicare Part D pharmacy claims beginning in plan year 2016

  • Directing Medicare Administrative Contractors (MACs) to create outreach and education programs for providers and suppliers focused on reducing improper payments, and sharing a list of improper payments identified by Recovery Audit Contractors with the MAC for a given region

  • Requiring surety bonds and valid state licensure for organizations submitting bids to the Medicare competitive acquisition program for durable medical equipment, prosthetics, orthotics and services.  Surety bonds must be between $50,000 and $100,000 for contracts beginning not earlier than January 1, 2017, and not later than January 1, 2019

  • Expanding the types of professionals who can document the face-to-face encounter for providing durable medical equipment beyond physicians to physician assistants, practitioners and specialists

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Partner

Eric B. Gordon is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Los Angeles office.  He is the partner-in-charge of the Los Angeles office and head of the California Health Industry practice. Eric focuses his practice on fraud and abuse and compliance issues and health care transactions.  Eric represents a wide range of clients, including proprietary and tax exempt hospital systems, medical groups, academic medical centers and faculty practice groups, pharmaceutical companies and medical device manufacturers,...

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Tony Maida Health Care Attorney McDermott WIll Law Firm
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Tony Maida is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal Anti-Kickback and Physician Self-Referral/Stark laws, false claims and overpayments, and government investigations.    He works closely with our health and white collar teams on criminal, civil, and administrative investigations and counseling clients on corporate transactions and compliance programs.

Tony previously served as a senior official in the Office of Counsel to the Inspector General at the United States Department of Health and Human Services, where he worked for nine years.  As Deputy Chief of the Administrative and Civil Remedies Branch, Tony led a team of attorneys representing the agency on False Claims Act and Civil Monetary Penalty Law cases, including conducting investigations and negotiating settlements and Corporate Integrity Agreements in some of the largest settlements obtained by the United States.  He participated in defending the OIG in numerous exclusion appeals, including appeals pursued by high-level corporate executives.  

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Daniel H. Melvin is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office.  Daniel focuses his practice on counseling clients on Federal health care program fraud and abuse, Stark law, and Medicare reimbursement issues. 

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Joan Polacheck, Health Care industry Lawyer, McDermott Will Emery, Chicago Law Firm
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Joan Polacheck is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. She represents a broad range of health care industry clients, including hospitals, suppliers, and drug and device companies.

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