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September 26, 2014

American Hospital Association Supports Stark and Anti-Kickback Safe Harbors for “Gainsharing,” as Proposed by Medicare Anti-Fraud Act


In August, House Ways and Means Subcommittee on Health Chairman, Kevin Brady (R-TX), released the Protecting Integrity in Medicare Act of 2014 (PIMA), a discussion draft aimed at combating fraud, waste, and abuse in Medicare . The Act put forth more than 20 measures, which range from removing social security numbers from Medicare cards to implementing programs to prevent prescription drug abuse for “high-risk beneficiaries” under Medicare Part D. Rep. Brady noted that he looked forward to hearing from stakeholders about their comments and concerns regarding the Act.

The American Hospital Association (AHAs) obliged and recently offered step-by-step feedback to the Subcommittee. Perhaps most interesting was AHA’s discussion of the potential negative impact of fraud and abuse laws on “gainsharing,” or clinical integration. Under a typical gainsharing agreement, a hospital pays participating physicians a share of any reduction in the hospital’s costs attributable to the physicians’ cost-saving efforts in providing medical services. 

Current fraud and abuse laws, including the Stark law and Anti-Kickback statute call into question the legality of such gainsharing arrangements. Understanding the benefits of hospitals and doctors working towards efficient care, PIMA seeks to amend these existing fraud and abuse laws in “through exceptions, safe harbors, or other narrowly targeted provisions, to permit gainsharing arrangements that otherwise would be subject to the civil money penalties…or similar arrangements between physicians and hospitals, and that improve care while reducing waste and increasing efficiency.”

AHA noted that they appreciated the “Committee’s interest in moving forward in the area of clinical integration by studying how gainsharing could work and what laws would need to be changed to yield more effective and efficient care under Medicare.” 

“Hospitals are increasingly working more closely with physicians, including a growing trend of employing physicians,” AHA states. “A primary factor in this trend is barriers to clinical integration when physicians are not employed by the hospital.” Addressing the Stark Law and Anti-Kickback Statute in particular is "a good first step to comprehensively addressing these barriers to clinical integration in the following ways.”

Stark Law

The Stark law was enacted to ban doctors from self-referrals, that is, sending patients to facilities in which the doctor has a financial interest. Despite the law’s good policy, AHA states that the “tight web of regulations and other prohibitions that have grown up around the law can now ban arrangements designed to encourage hospitals and doctors to team up to improve patient care in a clinical integration program.”

For one, “the Stark law requires that compensation for health care providers be fixed in advance and paid only for hours worked,” AHA states. “As a result, payments that are tied to achievements in quality and efficiency (such as gainsharing contemplated in the draft bill) instead of hours worked do not meet the law’s strict standards.” Under the Stark Law, AHA notes, “a hospital or clinic that rewards a doctor, and the doctor who earns the reward for following protocols that guide the clinical integration program, can be found in violation.”

The best solution, AHA argues “is to return the Stark law to its original focus of regulating self-referral to physician-owned entities. This could be accomplished by removing compensation arrangements from the definition of ‘financial relationships’ that are subject to the Stark law.” AHA notes that these compensation agreement would still be regulated under the more appropriate anti-kickback and civil monetary penalty laws, which they address in turn.  

Anti-Kickback Law

The anti-kickback law states that anyone who knowingly and willfully receives or pays anything of value to influence the referral of federal health program business, including Medicare and Medicaid, can be held accountable for a felony. “Today, the law has been stretched to cover any financial relationship between hospitals and doctors,” AHA states. “If, as part of a clinical integration program, a hospital rewards a doctor for following evidence-based clinical protocols, the reward could be construed as violating the anti-kickback law.” Such a reward could technicaly “influence a doctor’s order for treatment or services.”

AHA notes that the law carries both civil and criminal penalties and can result in both the hospital and the doctor being barred from Medicare, Medicaid and other federal programs, effectively shutting down the hospital and ending the doctor’s career. “Congress, recognizing that the anti-kickback statute sometimes thwarts good medical practices, has periodically created ‘safe harbors’ to protect those practices,” states AHA. “However, there is no safe harbor for clinical integration programs that reward physicians for improving quality, such as gainsharing.”

“Congress should create a safe harbor for clinical integration programs,” AHA concludes. “The safe harbor should allow all types of hospitals to participate, establish core requirements to ensure the program’s protection from anti-kickback charges, and allow flexibility in meeting those requirements so the programs can achieve their health care goals.”

AHA also notes that the Civil Monetary Penalties law prohibits hospitals from rewarding physicians for reducing or withholding services to Medicare or Medicaid patients. These penalties have also stood in the way of hospitals and physicians effectively working together to lower costs and improve care in a gainsharing arrangement. 


We will continue to follow PIMA, as the legislation could signal changes in Medicare fraud and abuse laws. 

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