In early October, the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) released a proposed rule that included, among other provisions, a proposed gainsharing regulation (“Proposed Rule”), and a specific request for comments on a definition of what it means to “reduce or limit services” under the statutory prohibition against certain “gainsharing” arrangements among hospitals and physicians. The OIG’s goal with this Proposed Rule and subsequent final rule is to “interpret the statutory [gainsharing] prohibition broadly enough to protect beneficiaries and the Federal health care programs, but narrowly enough to allow low risk programs that further the goal of delivering high quality health care at a lower cost.” More specifically, the OIG seeks to implement a “narrower interpretation of the phrase “reduce or limit services.” Industry analysts are touting the final regulation as a potential game changer in the battle to deliver “high quality health care at a lower cost.”

The existing gainsharing civil monetary penalty statute (“Gainsharing CMP”) is a law that broadly “prohibits hospitals and critical access hospitals from knowingly paying a physician to induce the physician to reduce or limit services provided to Medicare or Medicaid beneficiaries who are under the physician’s direct care.” Violation of the Gainsharing CMP by a hospital that makes such payment, and a physician that in turn knowingly accepts the payment, results in CMPs that are no greater than $2,000 per each beneficiary for whom such payment is made.

Determining what does and what does not constitute a payment designed to reduce or limit services can be difficult, particularly because, as HHS has taken pains to point out, the statute technically prohibits payments from hospitals to physicians to limit any services, not just medically necessary services. However, as far back as 2005 the Medicare Payment Advisory Commission and the Chief Counsel to the OIG have supported gainsharing when safeguards are in place to evaluate risks posed by such programs, including “measures that promote accountability, adequate quality controls, and controls on payments that may change referral patterns,” and to date, the OIG has approved 16 gainsharing arrangements through the advisory opinion process.

More recently, under Section 3022 of the Affordable Care Act, the secretary of HHS established  waivers under the Medicare Shared Savings Program (MSSP) with respect to the Gainsharing CMP under certain conditions. These waivers have limited applicability as they apply only to accountable care organizations that participate in the MSSP. The final gainsharing regulations presumably will cover all hospitals and could potentially have a much broader impact upon hospital physician compensation arrangements. Overall, the Proposed Rule and the OIG’s request for comments on what should and should not constitute prohibited payments from hospitals to physicians to reduce or limit services is yet another example of how the regulatory  landscape is changing to adapt to a reimbursement model that is evolving from a fee-for-service dominated model to one in which pay-for-performance will play a much larger role.

The comment period closed under the Proposed Rule in early December, and the final rule is expected in 2015.