Health Care Alert
July 2008
Authors:
Patricia Meador
patricia.meador@klgates.com
www.klgates.com
CMS Proposes New Stark Exception for Incentive
Payment and Shared Savings Programs
919.466.1180
Mary Beth Johnston
marybeth.johnston@klgates.com
919.466.1181
Amy Garrigues
amy.garrigues@klgates.com
919.466.1275
K&L Gates comprises approximately
1,700 lawyers in 28 offices located in
North America, Europe and Asia, and
represents capital markets participants,
entrepreneurs, growth and middle market
companies, leading FORTUNE 100 and
FTSE 100 global corporations and public
sector entities. For more information,
please visit www.klgates.com.
As a follow-up to the 2009 Inpatient Prospective Payment System proposed rule published April 30
in which CMS solicited comments on the potential for a new Stark exception covering gainsharing
arrangements, CMS proposed a new exception for incentive payment and shared savings programs
in its July 7 Proposed Physician Fee Schedule for Calendar Year 2009 (the “Proposed Rule”). This
new proposal, to be published as 42 C.F.R. §411.357(x), is at once one of the most extensive and most
narrow Stark exceptions to date. The suggested exception contains numerous specific requirements
with which an incentive payment or shared savings program must comply in order to qualify under
the exception. In its commentary, CMS acknowledges that its approach is a cautious, narrow one and
invites comments by August 29, 2008 to the proposed requirements, as well as to address methods
of expanding this current proposal.
The Proposed Rule applies to both incentive payment programs (those with the goal of rewarding
providers for reaching certain objective quality standards due to changes in physician administrative
or clinical practices) and shared savings programs (those in which physicians share some of the
cost savings that a hospital achieves, due to the physician’s efforts, without an adverse effect on
or diminition in the quality of patient care) in hospitals. Such programs also implicate the federal
Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b) (“AKS”), and, particularly with respect to shared
savings programs, the federal Civil Monetary Penalty Law, 42 U.S.C. § 1320a-7a (“CMP Law”). The
Office of Inspector General (“OIG”) has issued a number of Advisory Opinions in which the OIG
has agreed not to seek sanctions for proposed shared savings programs, referred to as “gainsharing”
programs by the OIG, containing certain safeguards under either the AKS or the CMP Law. Given
that the Proposed Rule is consistent with, but goes beyond, the Advisory Opinions issued by the
Office of Inspector General (“OIG”) to date, such programs must be analyzed for compliance with
both the AKS and CMP Law.1
CMS highlights, in commentary, its overarching goals and concerns with these types of programs.
Three aspects – transparency, quality controls, and safeguards against payments for referrals – are
listed as “critical” to a non-abusive incentive payment or shared savings program. CMS also lists
its principal concerns with such programs: (1) “stinting”: physicians’ limiting the use of qualityimproving, but more expensive, devices, tests, or treatments, (2) “cherry picking”: physicians’
choosing to treat only healthier patients, (3) “quicker-sicker” discharge: the discharge of patients
to home or post acute care settings earlier than clinically indicated, and (4) “steering”: physicians’
sending healthier patients to the hospital offering incentive payments.
The Proposed Rule contains many requirements related to the design and oversight of an incentive
payment or shared savings program, to payments made under such a program, and to the arrangement
between the hospital and the participating physician or qualified physician organization. Such
requirements are as follows:
1
Such programs are not currently afforded AKS safe harbor protection. However, a violation of the AKS requires
payment relating to referrals and an improper intent, and if a program contains the safeguards set forth in the
Proposed Rule, then exposure under the AKS is substantially reduced. However, regardless of any safeguards
adopted, concerns under the CMP Law, which prohibits a hospital from knowingly making a payment to a physician
to reduce or limit items or services furnished to Medicare and Medicaid beneficiaries under a physician’s direct
care, remain. Accordingly, we believe it would be helpful for CMS to propose language in the specific context of
the CMP Law to resolve any remaining concerns associated with Stark-compliant shared savings programs.
Health Care Alert
• The Design of the Program Must Include:
• P
atient care quality or cost savings measures
that are supported by objective, independent
medical evidence indicating that measures will
not adversely affect patient outcome;
• O
nly patient care quality measures that are listed in
CMS’ Specifications Manual for National Hospital
Quality Measures;
• C
ost savings measures that use an objective
methodology, are verifiable, are supported by
credible medical evidence that such measures will not
adversely affect patient care, are individually tracked,
and reasonably relate to the services provided;
• R
eview of the program, prior to commencement and
annually thereafter, by a person or organization which
is independent and contains relevant clinical expertise
and that results in written findings;
• P
rovisions for immediate corrective action in the
event a review reveals an adverse impact on quality;
• L
imitations on participation to only those physicians
who are on the medical staff at the hospital at the
commencement of the program;
• A
requirement that the program be offered to all
physicians on the medical staff who practice in the
relevant department or specialty;
• M
easures to ensure that physicians have the same
selection of items, devices, and supplies available to
them, as compared to prior to the start of the program,
and that new, clinically appropriate technologies
that have linked through objective evidence to
improved outcomes, are also available to participating
physicians; and
• T
he inability for a physician to receive payments
for the use of an item, supply, or device if he or she
has a financial relationship with its manufacturer or
distributor.
• Payments Made Under Such a Program:
• M
ust be distributed to “pools” of five or more
physicians and shared by such physicians on a per
capita basis;
• M
ust be made either to a physician directly or to a qualified
physician organization (“QPO”), defined as a physician
organization (“PO”) in which all physicians participate in
the quality incentive or shared savings program;
• M
ust not include any amount that takes into
account a greater volume of procedures or services
by a physician for Federal health care program
beneficiaries, as compared to prior to the start of the
program; and
• M
ust be limited in duration (program must be at least
one, but less than three, years) and amount (limited
to gains between an agreed-upon baseline and target).
Note that CMS has set forth two proposals for limiting the
amount of the payments: (a) a flat 50 percent limit on sharing
cost savings and potentially “re-basing” the baseline at
certain intervals (e.g., altering the historical benchmark
to reflect gains already achieved during the program, such
that payments would decrease as a result) or “scaling”
the payments such that they decrease over the course of a
program, or (b) an amount that takes into account payments
that have already been made by “re-basing” certain
performance measures at certain defined periods.
• T he Arrangement Between the Physician/QPO
and Hospital:
• M
ust be set out in writing, signed by the parties, have a
one-three year term, specify compensation that is set in
advance and does not take into account the volume or
value of referrals or other business generated between
the parties, and not violate the anti-kickback statute or
any Federal or State law governing billing or claims
submission;
• Document the applicable performance measures;
• C
learly and separately delineate the payments related to
each performance measure; and
• R
equire written disclosure of the existence of the program
and the physician/PO’s participation to applicable patients
either prior to hospital admission or to the procedure.
Finally, CMS proposes additional safeguards that have not yet
been incorporated into the proposed regulatory text. These
include: (a) that the case severity and the ages and payors
of the patient population be monitored by the physician, and
if there are significant departures, a requirement that the
physician be removed from participation in the program, (b)
that physicians are only eligible for payments related to the
efforts of their “pool,” and (c) that cost-savings measures are
not disproportionately applied to Medicare beneficiaries.
July 2008 | 2
Health Care Alert
CMS invites comments on a number of broad and specific
aspects of the Proposed Rule. Regarding the latter, it
appears that certain areas are particularly well-suited for
comments, such as (a) the requirement that all patient
care quality measures under a program be listed on the
CMS Specifications Manual for National Hospital Quality
Measures and, alternatively, which performance standards,
either individually or as a list, are appropriate, (b) the
requirement that hospitals create “pools” of physicians at
the commencement of the program to share in distributions
of payments, the minimum number of physicians in such a
pool, the per capita method of distributing such payments,
and potential ways of handling specialties at certain hospitals
containing fewer than five physicians eligible to form a
pool, (c) the method of establishing limits and baselines
for payments and whether an absolute or percentage-based
limit should be adopted, and (d) the proposed definition of
“qualified physician organization” (i.e., whether payments can
be made only to POs in which all physicians participate in the
incentive payment or shared savings program) and whether
payments to POs that pass directly through to physicians may
be considered as direct payments to physicians.
Please feel free to contact us with any questions or concerns
regarding the Proposed Rule and its potential implications
for your organization.
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July 2008 | 3