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OIG Signals Flexibility for Evolving Healthcare Reform Initiatives  
October 10, 2014

 On October 3, 2014 the Office of Inspector General (OIG) published a proposed rule that, among other things, proposes safe harbors and interpretations that signal an intent to allow healthcare providers to adapt more quickly to the changing healthcare reform environment (Proposed Rule).  Of particular note, the Proposed Rule provides more latitude for gainsharing and similar arrangements designed to incentivize more cost effective treatment, and a proposed safe harbor for free local transportation offered by providers to patients.  Also, a number of regulatory safe harbors enshrine ACA safe harbors, and the OIG indicates it will take a more lenient approach to financial incentives offered to beneficiaries to help maintain their health or manage chronic conditions.  An overview of the Proposed Rule, along with more detail regarding particular areas of note, follows.

Overview of Major Provisions

In the Proposed Rule, the OIG proposes to codify the gainsharing CMP provision, and seeks comments on whether to include a definition of “reduce or limit services,” to assist with interpretation of the gainsharing CMP.  The OIG also proposes to codify revisions to the definition of “remuneration” under the CMP authorities, as added by the Balanced Budget Act of 1997 and ACA.  In addition, the OIG proposes to amend certain currently existing safe harbors to the anti-kickback statute (AKS) and the civil monetary penalty (CMP) rules, and also to add three new safe harbors to the AKS and CMP, some of which are intended to codify existing statutory exceptions set forth elsewhere.

Gainsharing Arrangements

The gainsharing CMP prohibits hospitals and critical access hospitals from knowingly paying a physician as inducement to reduce or limit services to Medicare and Medicaid beneficiaries under the physician’s direct care.  “Gainsharing” is the term used to describe financial incentives to physicians to control healthcare costs.   

The Proposed Rule indicates that OIG has backed away from its historic antipathy to any type of gainsharing arrangement.  Although the OIG did not propose a formal safe harbor to protect certain gainsharing arrangements under the CMP (stating that it does not have authority to do so), it signaled that pursuing such arrangements will be a low priority for the OIG, stating:

OIG has never pursued any gainsharing CMP case. . . .  Pending further notice from OIG, gainsharing arrangements are not an enforcement priority for OIG unless the arrangement lacks sufficient patient and program safeguards.

The OIG provides that such safeguards could include measures that promote accountability, ensure quality controls, and limit the risk of shifting referral patterns.  The OIG further emphasizes that gainsharing can be beneficial, and cites its sixteen prior favorable advisory opinions issued on the topic that have permitted specific arrangements to go forward, along with other authority, in support.  The OIG also notes that because the gainsharing CMP applies to inducements that “reduce or limit services,” it believes it cannot interpret the provision as applying only as to medically necessary services.  However, the OIG indicates it is considering a narrower interpretation of “reduce or limit services,” and is requesting comments as to the inclusion of such a  definition in the regulations.

This is extremely welcome news in light of the preponderance and rapid growth of such arrangements not just in traditional gainsharing, but in incentives and reward programs developed in concert with the growth of accountable care organizations, in the context of clinical co-management agreements, and in the incentive compensation typically provided in hospitalist arrangements and other physician coverage arrangements. 

Exceptions to Remuneration Prohibition for Beneficiary Inducements

Included in the Proposed Rule are exceptions to the definition of “Remuneration” which would otherwise constitute prohibited beneficiary inducements under CMP law.  Among the exceptions are hospital outpatient department service copayment reductions and retailer rewards programs, as well as exceptions for demonstrated financial need and waivers of cost-sharing for the first fill of a generic drug.  One of the most significant exceptions is for remuneration which both “promotes access to care” and “poses a low risk of harm” to patients of Federal health care programs.  The Proposed Rule seeks to define remuneration that “promotes access to care” as remuneration that “improves a particular beneficiary’s ability to obtain medically necessary health care items and services.” The OIG has not yet provided specific regulatory text for this proposed exception.  Instead, the OIG acknowledges in the Proposed Rule that more patient engagement is needed in the movement towards more coordinated care, and is seeking comment on whether a broader interpretation of “promotes access to care” is needed, that would also focus on measures that encourage patients to access care, support a patient’s access to care and make care more convenient to obtain.  Similarly, the OIG is seeking comment on whether the exception should include care that is non-clinical (such as social services). 

All in all, these exceptions to beneficiary inducement prohibitions are very encouraging because they will help providers navigate their way through payment models and an industry trending towards patient centered care, medical homes, and population health, with a focus on keeping people healthy and effectively treating patients with chronic illness, instead of being reactive when patients get sick.  With these exceptions, the door is opening wider for providers to implement programs that will promote patient involvement and incentivize patients’ compliance with plans of care.  

 New Safe Harbor – Free or Discounted Local Transportation

Twelve years ago the OIG issued informal guidance permitting free local transportation by hospitals under certain limited conditions, but only if they had been in place prior to the issuance of the announcement.  While this guidance was very helpful in offering insight into the OIG’s priorities with respect to how to reduce risk in this area, it was frustrating to hospitals that wished to offer such services to promote access to beneficiaries in their community but had not been doing so prior to the issuance of the guidance. 

In the Proposed Rule, the OIG is now proposing a safe harbor to protect free and discounted local transportation services to Federal health care program beneficiaries.  On a helpful note, the protection offered will be broader than in the guidance, in that other types of providers such as clinics and medical groups and physicians will be able to offer free or discounted local transportation to beneficiaries, not just hospitals.  Also the free transportation can be provided between hospitals and physicians’ offices and is not limited to hospital/patient residence transportation. 

Unfortunately, the proposed safe harbor protects all such patient transportation other than for the first visit the patient makes to the healthcare provider.  In other words, the OIG will protect only free transportation offered to “established” patients.  This appears to be the OIG’s effort to prevent providers from using free transportation as a way to expand their market share and lure new patients.  Unfortunately, this effort to protect against potential abuse will also significantly hurt the beneficial aspects of the safe harbor because it will limit its application to new patients who do not have access to transportation of their own, and lack the financial means to obtain it.

An additional potential concern for those seeking to adopt their practices to this proposed safe harbor, is the fact that potential Stark law issues are not addressed (this is because CMS, not OIG, has rule making jurisdiction over the Stark law).  This issue could arise in the context of a hospital offering free or discounted local transportation services to patients to and from physician offices.  The question in such a  context is whether the transportation could be viewed not only as remunerative to the patients, but also as potentially remunerative to the physician offices who are able to transport patients to and from the hospital or other locations without sharing in the costs.  If this is considered remuneration to the physicians, and they also are referring to the hospital, then a Stark law exception likely is required.  However, there is no obviously applicable Stark law exception for free transportation to a physician practices’ patients, to the extent that this is considered remuneration to the physicians.  Either CMS will have to step into the void to provide guidance on the Stark law side, or hospitals leery of the potential risk of a Stark law violation may be reticent to offer free and/or discounted local transportation services to and from physicians’ offices. 

Other Safe Harbors

In addition to the safe harbor for certain free or discounted local transportation, the Proposed Rule seeks to add other new safe harbors, including:

  • Medicare Coverage Gap Discount Program:  Discounts to beneficiaries under the Medicare Coverage Gap Discount Program will be protected.  Under this program, certain prescription drug manufacturers enter into an agreement with the Secretary of HHS to provide discounted drugs to beneficiaries while the beneficiaries are in the Medicare coverage gap. 
  • Federally qualified health centers (FQHC) and Medicare Advantage Organizations (MAO):  Payments between a FQHC and MAO made pursuant to a written agreement will be protected.  Under these agreements, MAOs agree to pay the contracting FQHC no less than the level and amount of payment that the plan would make for the same services if the services were furnished by another type of entity.

The Proposed Rule also seeks to amend and expand several existing safe harbors.  First, the rule clarifies a technical ambiguity in the safe harbor for referral services by reverting the language back to a previous version of the rule.  As proposed, the provision will read, “payments to referral services cannot be based on the volume or value of any referrals or business otherwise generated by either party for the other party.”  Second, the proposed rule adds two low-risk arrangements to the existing safe harbor for cost sharing waivers.  As proposed, cost sharing waivers for pharmacy Part D and emergency ambulance services will be protected so long as certain conditions are met. 

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Overall, the Proposed Rule  indicates a shift in approach by the OIG that will provide more flexibility in the changing healthcare reform environment.  As noted by the OIG, it is attempting to codify and interpret certain provisions “in a manner that reflects today’s health care landscape.”  OIG is accepting comments to the Proposed Rule through December 2, 2014. 

For additional information, please contact Charles Oppenheim, Amy Joseph, Sandi Krul or Yanyan Zhou in Los Angeles at 310.551.8111.

For media inquiries, please contact Barrett McBride at bmcbride@health-law.com or 916.456.5855.