Government Applauds Gainsharing, But It's Still Illegal

It's frustrating enough when the government opposes a good idea and makes it illegal. But "gainsharing" presents an even more frustrating situation for hospitals. Why? Because the government continually signals its agreement that gainsharing is a good idea, but it won't take concrete steps to change the rules that make it a crime.

"Gainsharing" is the term applied to an arrangement by which a hospital shares financial savings with the physicians who work with the hospital to reduce the cost of care. Everyone, including Medicare authorities, agrees that it's a valuable tool — not only in reducing costs but also in improving the efficiency and quality of health care.

So what's the problem? The problem is that there's a statute — the "Gainsharing CMP" — that flatly makes it illegal for a hospital to reward a physician "as an inducement to reduce or limit services" to a Medicare or Medicaid patient. Common sense dictates that the prohibition should apply only to reducing care that is medically necessary. But to date, the Centers for Medicare & Medicaid Services (CMS) continue to interpret the prohibition as applying to any and all services. What's more, CMS interprets the term to include "items" used in medical care. That means that it's illegal to reward physicians for standardizing surgical instruments, medical devices or drugs — even if the standard item is the one that's best for patients.

On October 2, 2014, CMS published a lengthy set of proposed regulations and invited comments. The introductory language acknowledged that the CMP prohibition should be limited to medically necessary services but also acknowledged that without a statutory change, it could not interpret it that way: "We have no authority to create an exception to the statute." So instead of issuing the text of a proposed regulation, CMS simply announced that it "welcomes" ideas on how to fix the problem.

On December 1, 2014 — the day before the comment deadline — the American Hospital Association sent a letter expressing its frustration, pointing out that it can't comment on a proposed regulation until CMS provides the proposed language. And the October 2, 2014, publication fails even to hint at what the language will be.

On December 9, 2014, at the American Bar Association's annual Health Law Summit, the Senior Counsel for the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) offered this reassurance to the assembled hospital attorneys: "Gainsharing arrangements are not an enforcement priority for the OIG." But for cautious hospital executives and attorneys, that's hardly enough comfort. To date, gainsharing arrangements are still illegal.