Medicare: Implementation of Financial Incentive Programs under Federal Fraud and Abuse Laws
Released: 2012-04-30T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: GAO has long expressed concern that increases in Medicare spending are unsustainable and do not necessarily enhance health care quality. Traditional Medicare provider payment systems reward the volume of services instead of the quality or efficiency of care by paying physicians for each service provided. Some health systems, which can be hospitals, physicians, health plans, or a combination, use financial incentive programs to reward physicians for improving quality and efficiency with the goal of better outcomes for patients and savings for hospitals and payers. Federal laws that protect patients and the integrity of federal programs, including Medicare, limit health systems’ ability to implement financial incentive programs. These fraud and abuse laws include the physician self-referral law, or Stark law; the anti-kickback statute; and the Civil Monetary Penalties (CMP) law. The Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) within the Department of Health and Human Services (HHS), and the Department of Justice oversee and enforce these laws.

GAO examined how federal fraud and abuse laws affect the implementation of financial incentive programs, stakeholders’ perspectives on their ability to implement these programs, and alternative approaches through which HHS has approved implementation of these programs. GAO analyzed relevant laws and agency guidance and documentation; and interviewed agency officials, legal experts, and provider stakeholders.

section_title: What GAO Found
paragraphs: Certain financial incentive programs are permitted within the framework of federal fraud and abuse laws, but stakeholders GAO spoke with reported that the laws, regulations, and agency guidance have created challenges for program design and implementation. The Stark law and anti-kickback statute, which restrict financial relationships among providers, have statutory and regulatory exceptions and safe harbors, respectively, that permit financial incentive programs that meet specific criteria. However, there are no exceptions or safe harbors specifically for financial incentive programs intended to improve quality and efficiency, and legal experts reported that the constraints of existing exceptions and safe harbors make it difficult to design and implement a comprehensive program for all participating physicians and patient populations. The CMP law prohibits hospitals from paying physicians to reduce or limit services, and OIG has interpreted the law to apply to the reduction or limitation of any services, whether or not those services are medically necessary. The CMP law does not include statutory exceptions to this prohibition, and OIG does not have the authority to create exceptions through regulation. Through its advisory opinion process, OIG, however, has indicated that it would not impose sanctions for specific financial incentive programs that otherwise violated the CMP law but presented a low risk of fraud and abuse. Legal experts stated that innovative arrangements are difficult to structure and that the advisory opinion process is burdensome.

Through alternative approaches, HHS has approved implementation of otherwise prohibited financial incentive programs that incorporate safeguards, under its statutory authority to conduct demonstrations and other initiatives. Specifically, CMS has conducted demonstration projects to test financial incentive programs that reward quality and efficiency. These demonstration projects included safeguards, such as linking payments to quality measures, to protect program and patient integrity. CMS has incorporated safeguards into the Medicare Shared Savings Program, which allows eligible providers to participate as accountable care organizations to share savings with the Medicare program. As specifically authorized for the Medicare Shared Savings Program, CMS and OIG will waive fraud and abuse laws for, among other things, the distribution of shared savings in the Medicare Shared Savings Program, subject to certain requirements. The Center for Medicare and Medicaid Innovation within CMS is also implementing programs to test financial incentives.

GAO’s work suggests that stakeholders’ concerns may hinder implementation of financial incentive programs to improve quality and efficiency on a broad scale. Stakeholders—government agencies and health care providers—likely will continue to have different perspectives about the optimal balance between innovative approaches to improve quality and lower costs and retaining appropriate patient safeguards. HHS reviewed a draft of this report and in its written comments, clarified its position on CMS’s authorities to create exceptions and issue waivers to permit certain financial incentive programs, noting that its authority to issue waivers is broader than its authority to create Stark exceptions. We modified the draft to reflect the Department’s position.

section_title: Letter
paragraphs: For many years the United States has devoted an increasing proportion  of its gross domestic product (GDP) and federal budget to the provision of  health care services. National health expenditures rose from  approximately 7 percent of GDP in 1970 to approximately 18 percent— $2.5 trillion—in 2009. Over this same period, the proportion of federal  budget outlays devoted to health care increased even more rapidly from  approximately 8.3 to 26.9 percent. Medicare spending, which represents  a large share of federal health care expenditures, is projected to increase  from approximately $519 billion in 2010 to approximately $922 billion in  2020. We have long expressed concern that the increases in Medicare  spending are unsustainable, especially in light of evidence that suggests  that greater spending does not necessarily translate to better health care  quality.

The Medicare Payment Advisory Commission, Institute of Medicine  (IOM), and other experts have recommended that payments for health  care should contain stronger incentives for quality and efficiency. IOM, in  its 2001 report “Crossing the Quality Chasm: A New Health System for  the 21st Century”, recommended that payment methods should, among  other things, provide an opportunity for providers to share in the benefits  of quality improvement, align financial incentives with the implementation  of care processes based on best practices and the achievement of better  patient outcomes, and enable providers to coordinate care for patients  across settings and over time. However, current provider payment  systems used by traditional Medicare create conflicting incentives and  contribute to the growth in spending by rewarding volume of services  regardless of quality and cost, leading to duplication and overutilization  of services that is wasteful and potentially harmful. Specifically, under  traditional Medicare, hospitals are paid a predetermined fixed amount for  each hospital stay regardless of the number of services provided, but  physicians receive payment for each service delivered and have little  incentive to coordinate the provision of care or control the volume of  services.

Physicians play a central role in the generation of health care  expenditures, and the incentive for physicians to order more services has  a broad impact on total spending. While the services they provide directly  to patients account for an estimated 20 percent of total health care  expenditures, their influence is estimated to account for up to 90 percent  of these expenditures because they either directly or indirectly control or  influence most of the health services that are provided. For example,  physicians admit patients to hospitals, and they order services such as  imaging studies and laboratory tests. As some policy experts have noted,  many factors give physicians an incentive to order more services than  may be necessary, including a physician culture that values  meticulousness, the scarcity of data comparing the effectiveness of  different treatments and interventions, and the fear of malpractice  lawsuits. In conjunction with these factors, paying physicians for an  intervention that may only be justified by a slim clinical rationale adds a  strong financial incentive to deliver more services.

Faced with these challenges, policymakers, health care providers, and  others have sought ways to improve the quality of care and at the same  time reduce costs. While the federal government examines various  reforms to payment mechanisms, some health systems are  implementing financial incentive programs to promote the quality and  efficiency of care by rewarding physicians for meeting quality benchmarks  and improving efficiency. Proponents of these programs believe they  have the potential to result in better health outcomes for patients, and  savings for hospitals and third-party payers, such as private health plans  and public health programs including Medicare. Congress has included  various reforms in the Patient Protection and Affordable Care Act  (PPACA), including those that align incentives for hospitals and  physicians to improve health care quality and efficiency in conjunction  with efforts to develop collaborative care models for the Medicare  program. For example, PPACA requires that the Department of Health  and Human Services (HHS) establish a shared savings program—the  Medicare Shared Savings Program—that encourages coordination of  care under Medicare Parts A and B and promotes accountability for  patient populations. Under the Medicare Shared Savings Program,  eligible health systems that achieve savings for Medicare by improving  quality and efficiency may receive a share of the savings they generate  as financial incentive payments. Health systems that implement other  financial incentive programs must comply with various federal laws in  their efforts to reward quality and efficiency.

A number of federal laws apply to financial relationships among hospitals,  physicians, health plans, and other entities. Among other things, these  laws limit health systems that deliver care to Medicare beneficiaries from  implementing financial incentive programs that could, for example,  influence providers to recommend medically inappropriate services or  withhold costly services that are medically necessary. These federal laws  were designed to protect patients and the integrity of federal health care  programs, including Medicare. They include, among others, the physician  self-referral law (known as the Stark law), the anti-kickback statute,  and the Civil Monetary Penalties (CMP) law. For purposes of this  study, we refer to these three laws as the fraud and abuse laws. Federal  agencies with oversight and enforcement responsibilities under these  laws—including the Centers for Medicare & Medicaid Services (CMS) and  the Office of Inspector General (OIG) within HHS—have issued  regulations and guidance regarding financial incentive programs, while  guarding against patient and program abuse. The Department of Justice  (DOJ) also enforces the anti-kickback statute.

You asked us to review how federal laws and regulations may affect the  development of collaborative health care delivery arrangements designed  to promote quality and efficiency, specifically financial incentive programs.  Our report examines (1) how federal fraud and abuse laws, regulations,  and guidance affect the implementation of financial incentive programs,  and the perspectives of stakeholders on their ability to implement such  programs; and (2) alternative approaches to the federal fraud and abuse  laws through which HHS has approved certain financial incentive  programs.

To determine how federal fraud and abuse laws, regulations, and  guidance affect the implementation of financial incentive programs, and  the perspectives of stakeholders on their ability to implement such  programs, we interviewed officials from CMS, HHS’s OIG, and DOJ who  have responsibility for enforcing the federal fraud and abuse laws. We  also analyzed relevant federal laws, regulations, and advisory opinions.  To obtain the stakeholders’ perspectives, we interviewed eight legal  experts about their experiences in advising clients in implementing  financial incentive programs, and representatives from five health care  industry groups that represent hospitals, physicians, and the health  insurance industry. We also reviewed stakeholders’ published statements  on fraud and abuse laws. Additionally, we interviewed officials of 10  health systems to obtain illustrative examples of financial incentive  programs to improve quality and efficiency, and a prominent financial  incentive program expert with experience designing financial incentive  programs to improve efficiency.

To identify alternative approaches to federal fraud and abuse laws  through which HHS has approved certain financial incentive programs,  we interviewed CMS officials, including officials responsible for Medicare  demonstrations, for the Medicare Shared Savings Program, and from  the Center for Medicare and Medicaid Innovation (Innovation Center). We  also reviewed CMS documentation on selected Medicare  demonstrations and proposed and final rules for the Medicare Shared  Savings Program. Finally, we reviewed the joint CMS and OIG notice  and final rule regarding the waiver of certain federal fraud and abuse laws  for the Medicare Shared Savings Program.

We conducted this performance audit from October 2010 through  February 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Health systems may use a variety of financial incentive programs to  encourage improvements in the quality and efficiency of health care  delivery. The payment of rewards to physicians, however, creates  financial relationships that may implicate, that is, give rise to concern  under, federal fraud and abuse laws designed to protect against undue  influences on medical judgment.
subsections: section_title: Financial Incentive Programs
paragraphs: Health systems may offer a variety of financial incentive programs to  encourage improvements in quality and efficiency, including those that  help align incentives between hospitals and physicians. Health systems  can use pay-for-performance programs to reward physicians for  adherence to clinical protocols or objective improvement in individual  patient care outcomes. They can also use shared savings programs to  align physician incentives with those of hospitals by offering physicians a  percentage of the hospitals’ cost savings attributable to the physicians’  efforts in controlling the costs and improving or maintaining the quality of patient care. These are often referred to as gainsharing arrangements.

Although results from financial incentive programs tried to date have been  mixed, some experts believe they have the potential to increase quality  and efficiency. explicit goals of quality improvement rather than efficiency improvement,  these programs can improve quality and efficiency by rewarding  physicians for adhering to clinical protocols. For example, these  programs may result in savings for Medicare if the programs lead to  better patient health outcomes, fewer medical interventions, and a  reduction in the provision of services that are not medically necessary.  Similarly, shared savings programs that reward physicians for using less  expensive hospital supplies may result in savings for Medicare by  lowering hospital costs. Specifically, shared savings programs, if  implemented on a broad scale, could lower hospital costs sufficiently to  reduce Medicare’s hospital payments.

While pay-for-performance programs tend to have  The availability of financial incentives, however, may affect a physician’s  judgment, introducing a profit motive that may lead to inappropriate  referrals or reductions or limitations in services. In this respect, financial  incentive programs may implicate federal fraud and abuse laws designed  to protect patients and the integrity of the Medicare program.

In its January 2012 issue brief on programs tested by CMS, the Congressional Budget  Office examined, in part, independent evaluations of four CMS programs where health  care providers were given financial incentives to improve the quality and efficiency of care  rather than payments based strictly on the volume and intensity of services delivered. The  Congressional Budget Office concluded that results of these four programs were mixed. In  one program where payments were bundled to cover all hospital and physicians services  for heart bypass surgeries, Medicare spending was reduced by 10 percent, and there  were no apparent adverse effects on patients’ outcomes. The remaining three programs  appeared to have produced little or no savings for Medicare. Of these three programs, two  slightly improved quality of care based on the measures adopted for the program. The  third program had little or no effect on Medicare spending or quality in its first year.

section_title: Federal Fraud and Abuse Laws and Enforcement Mechanisms
paragraphs: Federal fraud and abuse laws designed to protect the integrity of services  that are reimbursed under federal health care programs, including  Medicare, regulate certain types of conduct, including financial  relationships that may influence the delivery of care. Health systems must  operate within the framework of federal fraud and abuse laws when  designing and implementing financial incentive programs. Table 1, which  follows the section on advisory opinion authority, summarizes the federal  fraud and abuse laws and enforcement mechanisms.

The Stark law and its implementing regulations prohibit physicians from  making referrals for certain “designated health services” paid for by  Medicare, including hospital services, to entities with which the physicians  (or their immediate family members) have a financial relationship,  unless the arrangement satisfies a statutory or regulatory exception.  Studies have found that these self-referrals encouraged overutilization  and increased health costs. The Stark law also prohibits these entities  that perform the designated health services from presenting, or causing to  be presented, claims to Medicare or billing any individual, third-party  payer, or other entity for these services. The Stark law includes a  number of exceptions and authorizes the Secretary of HHS to create  regulatory exceptions for financial relationships that do not pose a risk of  patient or program abuse. The Stark law was enacted to prevent  physicians from referring patients and ordering tests and services that  may be unnecessary—and result in overutilization—for the purpose of  financial gain. Financial incentive programs implicate the Stark law  because they create a financial relationship between the entity paying the  incentive and the physician who receives it, which could give the  physician an incentive to refer patients to that entity.

The Stark law prohibits physicians from making referrals to entities with  which they or their immediate family members have a financial  relationship, regardless of whether that relationship is intended to result in  these referrals. In this regard, the Stark law is a strict liability statute.  Those physicians or health systems that violate the Stark law by either  making prohibited referrals or billing for the services for which the referral  was made may be subject to a number of sanctions. Any amounts  received for claims in violation of the Stark law must be refunded. Those  who know or should know that they are submitting (or causing to be  submitted) a claim in violation of the Stark law may be subject to civil  monetary penalties of up to $15,000 for each service, an assessment of  three times the amount claimed, and exclusion from federal health care   CMS is responsible for issuing regulations under the Stark  programs. law and collecting payments made in violation of the law. OIG is  responsible for enforcing the Stark law’s civil monetary penalties.

Civil monetary penalties of up to $100,000 may be imposed on those who enter into  arrangements that they know or should know have the principal purpose of assuring  referrals that would violate the Stark law if made directly.
subsections: section_title: Anti-kickback Statute
paragraphs: The anti-kickback statute makes it a criminal offense for anyone to  knowingly and willfully solicit, receive, offer, or pay any remuneration to  induce or reward referrals of items or services reimbursable under  Medicare, subject to statutory exceptions and regulatory safe harbors  promulgated by OIG. The law helps to limit the potential for money to  influence providers’ health care decisions, and, in this respect, helps to  prevent overutilization of services, the provision of unnecessary or  substandard services, and the inappropriate steering of patients.

A financial incentive program under which a hospital paid physicians who  referred patients for admission would implicate the anti-kickback statute.  Unlike the Stark law, the anti-kickback statute is intent-based; the action  must be knowing and willful. Penalties under the anti-kickback statute  include imprisonment for up to 5 years and criminal fines of up to  $25,000. In addition, those individuals and entities violating the anti- kickback statute are subject to civil penalties of up to $50,000 per act, an  assessment of three times the remuneration, and exclusion from  participation in federal health care programs. OIG and DOJ are charged with enforcing the anti-kickback statute. OIG is responsible for issuing  regulatory safe harbors under the anti-kickback statute and, as under the  Stark law, has administrative enforcement responsibilities. DOJ  prosecutes cases under the anti-kickback statute.

In addition to providing for the imposition of civil monetary penalties for  certain enumerated activities, such as knowingly presenting a Medicare  claim that is part of a pattern of claims for items or services that a person  knows are not medically necessary, the CMP law provides penalties for  hospitals that knowingly make an indirect or direct payment to a physician  as an inducement to reduce or limit services to hospital patients, and for  physicians who accept such payments. The statute does not contain exceptions for this prohibition and does not authorize OIG to establish  exceptions by regulation. Like the Stark law and the anti-kickback statute,  the CMP law reflects congressional concern that incentive payments may  create a conflict of interest that may limit the ability of the physician to  exercise independent professional judgment in the best interest of the  patient. Financial incentive programs that reward physicians with a  share of hospital cost-savings realized through a reduction or limitation of  items and services implicate the CMP law. In addition, payments from a  hospital to a physician designed to reward quality that lead to a reduction  or limitation of services furnished to hospital patients also implicate the  CMP law. Hospitals or physicians who violate the CMP law are subject to  civil penalties of up to $2,000 per patient covered by the payments, and  exclusion from participation in federal health care programs. OIG is  responsible for enforcing the CMP law.

The False Claims Act (FCA) serves as another enforcement mechanism  for federal fraud and abuse laws. Claims that are submitted in violation of  the Stark law or the anti-kickback statute may also be considered false  claims and, as a result, create additional liability under the FCA.  FCA  prohibits certain actions, including the knowing presentation of a false  claim for payment by the federal government. For example, a financial  incentive program under which a hospital submitted a claim to Medicare  for a service provided by a physician when the physician and hospital had  a financial relationship in violation of the Stark law, would implicate the  FCA if the requisite intent were present.

Those who violate the FCA are liable for a civil penalty of not less than $5,000 and not  more than $10,000, as adjusted by inflation, plus three times the amount of damages the  government sustains, though the court may reduce damages. 31 U.S.C. § 3729(a)(1)-(2).  Violators are also liable for the cost of the action. 31 U.S.C. § 3729(a)(3). alleging the submission of false claims and these “whistleblowers” can  receive between 15 and 30 percent of a monetary settlement or recovery  plus expenses and attorneys’ fees and costs.

section_title: Advisory Opinion Authority
paragraphs: In response to requests for specific guidance from providers on whether  an existing or proposed financial arrangement, including a financial  incentive program, violates the fraud and abuse laws, CMS and OIG have  the statutory authority to issue advisory opinions. CMS is required to  issue advisory opinions on the Stark law, and OIG is required to issue  advisory opinions on the CMP law and the anti-kickback statute, among  other matters. Advisory opinions are issued only in response to a  request regarding an existing or proposed arrangement to which the  requester is a party. Advisory opinions are binding on the Secretary of  HHS and the individual or entity requesting the opinion; no other parties  can rely on an advisory opinion. The time between when CMS and OIG  receive an advisory opinion request and when the advisory opinion is  released can depend on, for example, the information contained in the  request and the amount of time needed for the agencies to obtain  additional information from the requester. Requesters must submit  certified written requests that include information specified in regulations.  If the initial request for an advisory opinion does not contain all the  information the agencies need, the agencies may request whatever  additional information is necessary to respond to the request. When  requesting an advisory opinion, requesters must agree to pay all costs the  agencies incur in responding to the request.has 10 days to notify the requesters whether their requests have been  formally accepted or declined or whether additional information is needed.  Once a request has been accepted, CMS has 90 days and OIG has   60 days to respond, with certain exceptions.

section_title: Certain Financial Incentive Programs Are Permitted under Federal Fraud and Abuse Laws, Regulations, and Guidance, but Stakeholders Reported Challenges in Designing and Implementing Programs within This Framework
paragraphs: Certain financial incentive programs are permitted within the framework of  federal fraud and abuse laws through various Stark law and anti-kickback  statute exceptions and safe harbors, respectively or because they do not  implicate one or more of the laws in the first instance. OIG has interpreted  the CMP law to prohibit hospitals from rewarding the reduction or  limitation of services, but permits certain financial incentive programs  through its advisory opinion process. However, stakeholders we spoke  with reported that the laws, regulations, and agency guidance have  created challenges for financial incentive program design and  implementation, and some health systems have terminated or refrained  from implementing these programs. Neither OIG nor DOJ took any  enforcement actions against financial incentive programs in fiscal years  2005 through 2010.
subsections: section_title: Financial Incentive Programs May Be Permitted under Stark and Anti-kickback Exceptions and Safe Harbors; Stakeholders Nevertheless Reported Challenges Structuring Permissible Programs
paragraphs: CMS and OIG have acknowledged new exceptions and safe harbors may  be necessary to facilitate financial incentive programs. CMS has  acknowledged that existing Stark law exceptions may not be sufficiently  flexible to encourage a wider array of nonabusive and beneficial incentive  programs that both promote quality and achieve cost savings. CMS can  create additional exceptions as long as the exception does not pose a risk  of program or patient abuse. According to CMS officials, this “no risk”  requirement is high and limits their ability to create new regulatory  exceptions to the Stark law. In 2008 CMS attempted to use its authority to  propose a new exception covering financial incentive programs.  However, the “no risk” requirement necessitated a narrow exception with  many structural safeguards in light of the risk that financial incentive  programs could be used to disguise payments for referrals or adversely  affect patient care. In its proposed rule, CMS noted that the design of the  proposed exception created a challenge in providing broad flexibility for  innovative, effective programs while at the same time protecting the  Medicare program and patients from abuses. The agency solicited  comments, and many of the comments it received criticized the number  and complexity of safeguards needed to achieve the “no risk” standard.  To date, the agency has taken no further action to finalize this regulatory  exception, and CMS officials told us the agency has no plans to do so in  the near future. Similarly, OIG officials told us that they recognize that  industry innovation may be significant enough to warrant new anti- kickback safe harbors, and the agency annually solicits input from  providers on potential safe harbors, as required by statute.

Financial incentive programs could be structured so that they do not implicate one or  more of these laws. For example, HHS stated that a program limited to commercial  patients might not implicate any of the laws. exception. Employed physicians are rewarded for meeting certain  clinical outcome quality measures, such as diabetes glucose measures  and pediatric immunizations, as well as patient satisfaction measures.  The program only includes the hospital’s employed physicians, who  constitute less than 10 percent of the physicians who provide services at  the hospital. As a result, this financial incentive program does not align  incentives between the health system and independent physicians who  have privileges at the hospital. To incentivize quality improvement on a  broader scale, hospital officials told us they were able to use another  Stark law exception to implement a separate financial incentive program  to include independent physicians. Specifically, because the health  system had a health plan component, the health system was able to use  the physician incentive plan exception in creating a financial incentive  program for independent physicians to reward them for meeting a  separate set of quality measures—the Healthcare Effectiveness Data  Information Set (HEDIS). The physician incentive plan exception  permits financial incentive plans that are administered and paid through  health plans under certain conditions. Hospitals or health systems without  a health plan component would have to design a financial incentive  program to fit into other exceptions to include independent physicians.  Additionally, operating multiple financial incentive programs covering  different populations of physicians may create potential inefficiencies  through redundancy or conflicting program objectives.

In addition, most of the legal experts we spoke with told us that it is  difficult for health systems to navigate the Stark law, and one legal expert  told us that as a result health systems have terminated existing financial  incentive programs or refrained from starting new programs. Some legal  experts also told us that the requirements for complying with the Stark  exceptions are difficult to apply when crafting financial incentive  programs. In particular, they told us it is challenging to establish whether  incentive payments meet the Stark fair market value exception, which in  part requires that compensation be consistent with fair market value of  services provided. One legal expert we spoke with noted that the Stark  law’s fair market value exception potentially applies to payments from  hospitals to physicians. For salary, the fair market value exception can be  satisfied by using published surveys of wages to determine the fair  market value of services provided. However, according to this legal  expert, the exception becomes more difficult to apply when trying to  determine the fair market value in connection with incentive payments,  separate from compensation, for meeting performance goals. Specifically,  some legal experts told us that the exception is unclear about how to  measure the fair market value of services when those services involve  meeting a clinically based outcome measure for a financial incentive  program to improve quality. Additionally, it would be difficult to calculate  the value of services not provided as a result of the physician providing  higher quality care leading to better health outcomes.

Some legal experts also told us that many of the Stark exceptions on  which they rely require that compensation, including incentive payments  from hospitals to physicians, not reflect the volume or value of referrals  made by the physician. incentive programs may be structured so that incentive payments are  distributed to all participating physicians without being directly related to  any individual physician’s compliance with quality improvement criteria.  Therefore, all participating physicians would receive the same payment  without necessarily contributing the same level of effort. As a result,  according to some of the legal experts we spoke with, an  underperforming physician would not have an incentive to change his or  her practices to improve the quality of care.

E.g., 42 U.S.C. §§ 1395nn(e)(2)(ii), 1395nn(e)(3)(A)(v), 1395nn(e)(5)(B).

Financial incentive programs limited to commercial patients may also  implicate federal fraud and abuse laws. Some legal experts and health  systems we spoke with told us it is difficult to separate commercial  patients from Medicare patients for the purposes of financial incentive  programs. Financial incentive programs limited to commercial patient  populations may “spill over” to Medicare patients. For example, a financial  incentive program that rewards quality improvement for commercial  patient outcomes may influence how a participating physician treats  Medicare patients. To protect themselves from Stark law and anti- kickback statute violations, health systems may structure their programs  to fit into an exception or safe harbor in case a Medicare patient is  inadvertently included in the program. For example, officials from a  hospital system in a major urban area in the Midwest told us the hospital  entered into a financial incentive program to share savings with a  commercial payer for its commercial patient population only. These  officials told us their program only includes employed physicians to further  protect the providers from Stark law or anti-kickback statute violations if a  Medicare patient is inadvertently included in the program.

Financial incentive programs limited to commercial patients also might  include Medicare patients in other ways. For example, a commercial  insurer that used a hospital’s achievement of quality benchmarks could  include the hospital’s Medicare patients in determining whether the  benchmarks are met. In 2008, OIG issued a favorable advisory opinion in  response to a request from a hospital seeking to implement a financial  incentive program to reward physicians for meeting quality targets for  commercial patients. The requester-hospital was participating in a pay- for-performance program with a private insurer, under which the hospital  would be rewarded with a bonus payment for achieving quality targets  based on health outcomes of all patients, including Medicare patients.  The hospital stated that it needed to implement a financial incentive  program with its physicians in order to achieve those quality targets and  would reward physicians with a share of the bonus payment received  from the private insurer. OIG determined that the program implicated the  anti-kickback statute because the program relied on all hospital patient  data, which included data for Medicare patients, instead of using only  commercial patient data, to determine incentive payments for  physicians.not to impose sanctions for this program.

In its advisory opinion on the matter, however, OIG elected  OIG officials told us that they did not take any Stark law or anti-kickback  statute enforcement actions on the basis of providers’ implementation of  pay-for-performance programs or gainsharing arrangements from fiscal  years 2005 through 2010. Additionally, DOJ officials were unable to  identify any DOJ FCA settlements involving the Stark law or anti-kickback  statute that were based on the implementation of such programs during  the same time period. However, some legal experts we spoke with told us  that although there have not been any FCA cases or settlements, the  threat of being the first case has created a chilling effect for providers.  Some legal experts told us that as a result, their clients were conservative  when implementing such programs.

section_title: Stakeholders Reported That OIG Interpretation of CMP Law Diminished Ability to Reward Any Service Reduction or Limitation, Including Services Not Medically Necessary
paragraphs: In addition to the Stark law and anti-kickback statute, hospitals must  comply with the CMP law, which OIG interpreted in a 1999 Special  Advisory Bulletin (SAB) as prohibiting payments from hospitals to  physicians to induce a reduction or limitation in Medicare services for  hospital patients, even if the services are not medically necessary.violation of the CMP law may result if the hospital knows that the payment  may influence the physician to reduce or limit services, even if the  payment is not tied to a specific patient or to an actual diminution in care.  Any hospital financial incentive program that encourages physicians  through payments, indirectly or directly, to reduce or limit clinical services  violates the CMP law. Unlike the Stark law and anti-kickback statute, the  CMP law does not have any statutory exceptions nor does it give OIG the  authority to create regulatory exceptions. However, OIG has issued   A  advisory opinions effectively permitting certain financial incentive  programs that would otherwise violate the CMP law.

OIG considers the CMP law a reflection of congressional concern that  payments from hospitals to physicians may result in stinting on care. In  its SAB, OIG stated that the CMP law is intentionally broad, and noted in  the SAB that the plain language of the statute does not limit its application  to those services that are “medically necessary.” According to OIG  officials, historically the CMP law developed as a patient quality of care  law, not just a restriction on financial relationships. In addition, the SAB  indicated that OIG’s interpretation of the CMP law was based, in part, on  Congress’s inclusion of “medically necessary” in the law for MCOs.  According to OIG officials, OIG interpreted the enactment of a separate  law for MCOs to reflect the difference between MCOs and hospitals. They  stated that MCOs, unlike hospitals, can more readily identify the patients  participating in the network. OIG further reasoned that patients who enroll  in an MCO understand that their physicians will have an economic  incentive with respect to managing their care, and in return, patients  share in any savings through increased benefits, such as reduced  copayments and the addition of outpatient prescription drug coverage.  By contrast, in OIG’s view, patients in traditional Medicare incur  substantial additional financial obligations in exchange for access to  physicians of their choice.

According to OIG, hospitals may align incentives with physicians to  achieve cost savings through means that do not violate the CMP law. For  example, depending on the circumstances, an arrangement where the  hospital pays the physicians a fixed fee that is fair market value for  specific services rendered would compensate the physicians for their  effort and not for a reduction or limitation in services. Achieving savings  through actions that do not adversely affect the quality of patient care  may require substantial effort on the part of the physicians. Depending on  the circumstances, if the financial incentive program is based on the  physician’s efforts rather than a percentage of cost savings, the program  may not violate the CMP law. According to OIG officials, even if the  program leads to a reduction or limitation of services, as long as the  payment is not for the purpose of reducing services, the program would  not violate the CMP law. For example, a hospital could pay a physician to  complete his or her rounds by a specific time, which may result in patients  being evaluated for discharge earlier. The payment is not tied to a  reduction or limitation of services, but if patients are not hospitalized  longer than necessary, this arrangement makes it possible for the hospital  to be efficient and reduce costs.

One legal expert and an industry group stakeholder we spoke with  consider OIG’s interpretation of the CMP law overly broad—prohibiting  payment from hospitals to physicians to induce the reduction or limitation  of any service, regardless of medical necessity. In February 2009, an  industry group stakeholder wrote to OIG contending that the agency  should interpret the CMP law in the context of Medicare’s requirements  that only medically necessary services are covered by the program. Since  Medicare only covers medically necessary services, and the CMP law  prohibits reduction or limitation of Medicare services, according to this  stakeholder, the CMP law should be interpreted as prohibiting a reduction  or limitation of medically necessary services.

Some legal experts we spoke with and two industry group stakeholders  consider the CMP law a major hurdle to the development and  implementation of financial incentive programs that allow the hospital to  reward physicians for lowering hospital costs and improving quality by  reducing medically unnecessary services. Similarly, an industry group  stakeholder, in a September 2010 statement to OIG, claimed that the  CMP law constrains the development of financial incentive programs that  would align hospital and physician incentives to provide more cost- effective care by, for example, encouraging more careful choice among  available generic and brand name drugs or use of outpatient rather than  inpatient services. This stakeholder noted that physicians are concerned  that participation in such gainsharing arrangements exposes them to  liability under the CMP law. Another industry group stakeholder, in a   May 2008 statement, asserted that the CMP law has dissuaded providers  from pursuing financial incentive programs using specific practice  protocols, even those based on clinical evidence and recognized as best  practices, because of provider concern that OIG might find that the  program provided an incentive to reduce or limit services.

Some legal experts told us that their health system clients have  implemented financial incentive programs to reward quality, and they also  include efficiency measures that could reduce or limit services but do not  tie incentive payments to these measures to avoid implicating the CMP  law. Although physicians are not rewarded for meeting these efficiency  measures, their performance in meeting these benchmarks may be  monitored and information may be shared with the physician as  feedback, possibly providing a nonfinancial incentive to improve  efficiency. For example, one legal expert described an arrangement  between a hospital and its independent physicians to reward quality. The  original goal of the program was to reduce the length of stay for patients.  In addition to quality measures such as adhering to clinical protocols and  meeting patient satisfaction benchmarks, the hospital wanted to include  efficiency measures, such as standards for inpatient admission that could  have limited admissions, but the physicians’ attorney was concerned that  the program would violate the CMP law. Specifically, the attorney was  concerned that including standards for inpatient admissions could lead to  a reduction of services if, for example, a patient who did not meet these  standards was denied admission to the hospital even if admission was  not necessary. In response to these concerns, the hospital tied incentive   Although the program retained the  payments only to quality measures.efficiency measures, such as medically inappropriate days, these  measures were tied to widely used clinical standards, no payment was  tied to them, and they were used only to collect information on physician  performance.

section_title: OIG Permits Certain Financial Incentive Programs through Its Advisory Opinion Process, but Stakeholders Reported Challenges in Implementing These Programs
paragraphs: In its 1999 SAB, OIG interpreted the CMP law to prohibit gainsharing  arrangements in response to hospitals’ implementation of “black box”  gainsharing arrangements in the 1990s. In OIG’s view, those gainsharing  arrangements, in which physicians were paid for overall cost savings  without the hospitals determining the specific actions the physicians took  to generate the savings, posed a high risk of abuse. According to OIG,  the black box gainsharing arrangements provided little accountability,  insufficient safeguards against improper referral payments, and lacked  objective performance measures to ensure that quality of care was not   In various documents addressing the matter, OIG  adversely affected.has noted its concern with the potential effect gainsharing has on the  quality of care provided to Medicare patients. Specifically, OIG’s concerns  include stinting on patient care, “cherry picking” healthy patients and  steering sicker and more costly patients to hospitals that do not offer such  arrangements, payments in exchange for patient referrals, and unfair  competition among hospitals offering cost-sharing programs to foster  physician loyalty and to attract more referrals.

OIG has recognized, however, that certain gainsharing arrangements  may reduce costs and improve quality without compromising care or  rewarding referrals. Specifically, OIG has recognized that certain  gainsharing arrangements, while potentially violating the CMP law and  the anti-kickback statute, present a minimal risk of fraud and abuse that  these laws were intended to address. On this basis, OIG has indicated  that it would not subject specific arrangements approved in advisory  opinions to sanctions. Through its advisory opinion process, OIG has  evaluated certain gainsharing arrangements that could implicate the CMP  law and anti-kickback statute. Since 2001, OIG has issued 14 advisory   In these opinions, OIG  opinions on specific gainsharing arrangements.concluded that the arrangements presented a low risk of abuse and that  they would not, therefore, be subject to sanction. While OIG advisory  opinions provide important guidance to providers about what may or may  not be sanctioned by OIG, the opinions only address the anti-kickback  statute and the CMP law. Because CMS, not OIG, has responsibility for  interpreting the Stark law, OIG gainsharing opinions do not address the  legality of these arrangements under the Stark law. CMS has not received  any requests to issue advisory opinions on gainsharing arrangements,  and therefore has not done so.

In evaluating the risks posed by these gainsharing arrangements, OIG  looked for measures that promote accountability, provide adequate  quality controls, and protect against payments for referrals. The cost  saving measures included in the approved gainsharing arrangements can  generally be categorized as product standardization measures, product  substitution, opening packaged items only when needed, or limiting the  use of certain supplies or devices.features that, when taken together, OIG determined they provided  sufficient safeguards to reduce the risk of program and patient abuse so  that OIG would not seek sanctions against the health system for violation  of the CMP law. These safeguards include  specific cost-saving actions and resulting savings that are clearly and  separately identified; credible medical support that implementation of the arrangement  would not adversely affect patient care; payments that are based on all procedures and do not reflect the  differences among individual patients’ insurance coverage; protection against inappropriate reductions in services by utilizing  objective historical and clinical measures to establish baseline  thresholds below which no savings accrue to the physicians; protections in the product standardization portion of the arrangement  to further protect against inappropriate reductions in services by  ensuring that individual physicians will still have available the same  selection of devices after implementation of the arrangement as  before; written disclosure provided to patients whose care may be affected by  the arrangement and an opportunity for patients to review the cost  savings recommendations prior to admission to the hospital; financial incentives that are reasonably limited in duration and  amount; and profits that are distributed to the physicians on a per capita basis,  mitigating any incentive for an individual physician to generate  disproportionate cost savings.

According to OIG, improperly designed or implemented arrangements  could be vehicles to disguise payments for referrals. OIG found that the  specific gainsharing arrangements evaluated in the advisory opinions  could violate the anti-kickback statute, but the agency stated it would not  impose sanctions for those arrangements because they included  safeguards that reduced the likelihood that the arrangement would be  used to attract referring physicians or to increase referrals from existing  physicians. Due to the circumstances of the arrangements, as well as the  included safeguards, OIG determined that the arrangements presented a  low risk of fraud or abuse under the anti-kickback statute. Although the  advisory opinions have focused on specific service lines, such as cardiac  and orthopedic surgery, OIG officials stated that they are willing to  evaluate gainsharing arrangements for other service lines. However, to  date, OIG has not been asked to do so.

In February 2009, one industry group stakeholder asked OIG in writing to  withdraw the agency’s SAB that interpreted the CMP law as prohibiting  gainsharing. The industry group asserted that the agency’s subsequent  advisory opinions permitting implementation of certain gainsharing  arrangements represent an “implicit acknowledgment that the  experiences and context that gave rise to the 1999 Bulletin  have  changed significantly.” Specifically, according to this stakeholder, tools,  such as the proliferation of quality measures, are now available to prevent  financial incentives from causing harm to patients. However, according to  OIG officials, although the health care delivery environment has changed  since the CMP law was enacted, the payment systems that led to the  enactment of the CMP law are still in use.

Legal experts and stakeholders told us that multiple challenges are  associated with implementing gainsharing arrangements since OIG  issued its SAB, despite the availability of OIG’s advisory opinion process.  Some legal experts told us they were reluctant to use the advisory opinion  process because it is expensive and time-consuming. Some experts  noted that, in their experience, legal expenses incurred in obtaining an  advisory opinion ranged from $15,000 to over $50,000 depending on the  complexity of the arrangement, in addition to other costs associated with  developing arrangements. The financial incentive program expert we  spoke with reported that it took over a year of review before OIG issued  its first advisory opinion approving a novel gainsharing program. Some  industry group stakeholders said that because the advisory opinions are  only applicable to the requesting health system, other health systems  cannot rely on the advisory opinions for assurance that OIG will not  enforce the CMP law, even though OIG officials told us the agency did  not take any enforcement actions against financial incentive programs for  fiscal years 2005 through 2010.

Health systems implementing gainsharing arrangements have structured  their arrangements to be identical to those already approved, thereby  lowering but not eliminating the overall risk that the arrangement would  result in sanction for violating the CMP law. For example, we spoke with  officials from a health system in the Northeast that is implementing a  gainsharing arrangement with its orthopedics division. According to these  officials, the health system is relying exclusively on the elements of  previous OIG gainsharing advisory opinions to define the parameters of  its gainsharing arrangement. Officials told us that they will not be pursuing  areas for savings that OIG has not previously approved. However, even  when implementing a gainsharing arrangement that has already been  approved, legal experts told us there are challenges. Some legal experts  told us that gainsharing arrangements permissible under OIG’s advisory  opinions are narrow, and the approved gainsharing arrangements focus  on certain procedural areas and include specific measures, such as  limiting the use of certain surgical supplies and substitution of less costly  items for those items currently used by the physicians. In addition,  financial incentives to physicians must be distributed equally per capita  regardless of the level of effort on the part of the physician.

section_title: HHS Has Approved Otherwise Prohibited Financial Incentive Programs That Incorporate Safeguards, under Demonstration Project and Other Authorities
paragraphs: HHS has permitted implementation of certain financial incentive programs  that otherwise might not be permitted under federal fraud and abuse laws,  but it has required safeguards to protect program and patient integrity.  CMS has conducted these programs through authorized demonstration  projects, the Medicare Shared Savings Program, and the Innovation  Center. These demonstration projects and programs are designed for  specific types of providers and health systems, and some health systems  may not be willing or eligible to participate.

CMS has conducted demonstration projects to test financial incentive  programs that include safeguards to protect program and patient integrity.  For example, CMS, as authorized by the Deficit Reduction Act of 2005,  designed the Medicare Hospital Gainsharing Demonstration to determine  whether gainsharing arrangements could align incentives between  hospitals and physicians to improve the quality and efficiency of care as  well as hospital operation and financial performance. The demonstration  project involved arrangements between hospitals and physicians under  which the hospitals made gainsharing payments to physicians that were a  share of the savings incurred directly as a result of collaborative efforts to  improve overall quality and efficiency. CMS officials told us that this  demonstration incorporated safeguards to protect program and patient  integrity. Specifically, these safeguards included the requirement that  providers meet quality thresholds by linking incentive payments to quality  measures; that the financial incentive payment be limited to 25 percent of  the amount normally paid for similar cases; and that payments not be  based on the volume or value of referrals. CMS monitored physician  referral and admission patterns throughout the demonstration to ensure  that care provided to patients was not compromised. Although CMS has  not completed its evaluation of this demonstration, officials told us they  had not observed participants engaging in fraudulent behavior or become  aware of harmful effects on patients.

According to CMS officials, CMS has incorporated safeguards from  previous demonstrations and MCOs in its rule for the Medicare Shared  Savings Program, which allows ACOs to participate in a shared savings  arrangement with the Medicare program. The Medicare Shared Savings  Program is designed to pay providers on a fee-for-service basis, and will,  at least in theory, help align incentives by sharing potential savings with  providers that agree to meet quality and efficiency standards. According  to CMS, the program incorporates the following broad categories of  safeguards: quality measures; legal structure and governance  requirements; patient-centeredness; monitoring; disclosure and  transparency requirements; and program integrity screens. These  safeguards are intended to protect patient and program integrity by  ensuring that patient needs and experiences inform the delivery of care  and ACO governance. An ACO’s continued participation in the Medicare  Shared Savings Program is contingent on its performance. CMS has the  authority to terminate an ACO’s participation in the program based on the  agency’s findings.

CMS and OIG have issued an interim final rule with comment period that  establishes waivers of the fraud and abuse laws for the Medicare Shared  Savings Program, including, among others, a shared savings distribution  waiver. This waiver applies to distribution of shared savings from the  ACO and within the ACO to ACO participants or ACO providers or  suppliers. It also applies to the distribution of shared savings to providers  outside the ACO but only for activities that are reasonably related to the  purposes of the Medicare Shared Savings Program. In both cases,  among other requirements, CMS and OIG require that the ACO does  not limit or reduce medically necessary services.distribution of savings accrued during the period in which the ACO is   The waiver covers the  participating in the Medicare Shared Savings Program, even if those  savings are distributed after this period. According to CMS and OIG, the  waiver for the distribution of shared savings within the ACO is premised,  in part, on recognition that an award of shared savings necessarily  reflects the collective achievement by the ACO and its constituent parts of  the quality, efficiency, and cost reduction goals of the Medicare Shared  Savings Program. These goals are consistent with interests protected by  the fraud and abuse laws.

See Medicare Program; Pioneer Accountable Care Organization Model: Request for  Applications, 76 Fed. Reg. 29,249 (May 20, 2011). models it tests through multiple mechanisms, including routinely  analyzing data on service utilization, measuring beneficiary experience of  care through surveys, and assessing beneficiary complaints. In the  Pioneer ACO Model, CMS stated it will determine whether there are  systematic differences in health status or other characteristics between  patients who remain aligned with a given ACO over the life of the Pioneer  ACO Model, and those who do not. ACOs that participate in the Pioneer  ACO Model will also conduct surveys of their aligned beneficiaries on an  annual basis, and according to CMS, the agency may investigate the  practices of ACOs that generate beneficiary complaints. CMS stated it will  also publicly report the performance of ACOs on quality metrics, including  patient experience ratings, on its website.

section_title: Concluding Observations
paragraphs: CMS and OIG recognize that properly structured financial incentive  programs have the potential to improve quality and reduce costs but that  improperly structured programs can disguise payments for referrals or  adversely affect patient care. The federal fraud and abuse laws discussed  in this report apply variously to financial relationships among hospitals,  physicians, and health plans, among other entities. As a type of financial  relationship, health systems must take these laws into account when  structuring financial incentive programs. Health systems can implement  certain types of financial incentive programs through, for example, various  Stark law exceptions, anti-kickback safe harbors, or the agencies’  advisory opinion processes, although hospitals may not reward the  limitation or reduction of services—even those services that are not  medically necessary—without first obtaining OIG approval.

Although health systems can implement certain types of financial  incentive programs that may result in better patient health outcomes and  lower health care costs, the challenges of implementing these programs  within the current legal framework may, for some health systems,  outweigh the potential benefits of doing so. As the stakeholders we spoke  with reported, there are significant challenges to designing and  implementing financial incentive programs through the available options.  There are no exceptions and safe harbors specifically for financial  incentive programs, and the Stark law’s “no risk” requirement for new  exceptions, makes it difficult for CMS to craft an exception that allows for  innovative, effective programs while ensuring that the Medicare program  and patients face no risk from abuses. As such, the constraints of existing  exceptions and safe harbors make it difficult to design and implement a  comprehensive program for all participating physicians and patient  populations. Furthermore, for some health systems, OIG’s interpretation  of the CMP law constrains the development of financial incentive  programs that would align hospital and physician incentives to provide  more cost-effective care, and hospitals may be reluctant to pursue an  advisory opinion because of the time, expense, and uncertainty involved.  As a result, health systems are more likely to implement only those  programs that mirror already approved programs or none at all.

CMS’s various demonstrations, the Medicare Shared Savings Program,  and programs implemented by the Innovation Center provide other  opportunities for some health systems to implement these programs  without the associated challenges of conforming to some of the federal  fraud and abuse laws. The demonstrations, however, are time-limited and  not all health systems are eligible or willing to participate. Under the  Medicare Shared Savings Program, which is a permanent program, CMS  and OIG will waive fraud and abuse laws for financial incentive programs  under certain circumstances, but there may be limits on health systems’  ability to participate.

Our work suggests that stakeholders’ concerns may hinder  implementation of financial incentive programs to improve quality and  efficiency on a broad scale. Different stakeholders—government agencies  and health care providers—will likely continue to have differing  perspectives about the optimal balance between innovative approaches  to improve quality and lower costs and retaining appropriate patient and  program safeguards.

section_title: Agency Comments and Our Evaluation
paragraphs: HHS provided written comments on a draft of this report, which are  reprinted in appendix I. HHS and DOJ provided technical comments  which we incorporated as appropriate.

In its written comments, HHS sought to clarify the Department’s position  on CMS’s use of its authorities to permit certain financial incentive  programs—using regulatory exceptions and waivers—that the  Department did not believe we had clearly described in the draft.  Specifically, we had attributed the narrowness of the proposed 2008 Stark  law exception to agency concern that financial incentive programs could  be used to disguise payments for referrals or adversely affect patient  care, as the agency had noted in the proposed rule. HHS clarified that the  SSA requirement that Stark law exceptions pose “no risk of patient or  program abuse” is a high standard that prevents the agency from  balancing flexibility with beneficiary protection in creating exceptions.  HHS commented that the narrowness of the proposed 2008 Stark law  exception was dictated by this strict legal standard. HHS also commented  that CMS has much greater authority in balancing flexibility with  beneficiary protection under its waiver authority, and crafted much  broader waivers when authorized to do so by the statutory authorities of  the Medicare Shared Savings Program and Innovation Center. We  modified the draft to reflect the agency’s position on this issue.

In addition, HHS commented that our draft focused on the shared  savings-only waiver, rather than the full scope of waivers that CMS and  OIG determined were necessary for the success of the program. We  highlighted the shared savings distribution waiver as an example of a  waiver of the fraud and abuse laws that ACOs can use when distributing  savings to providers and suppliers, and included a description of the  additional waivers in a footnote, which we determined was sufficient detail  for this report.

HHS also commented that our discussion of the proposed 2008 Stark law  exception does not include a discussion of the Medicare Shared Savings  Program or Innovation Center waivers, which cover substantially the  same gainsharing arrangements addressed in the proposed exception.  We added a footnote addressing this issue but maintain that  organizations that do not have programs under either the Medicare  Shared Savings Program or Innovation Center are still required to comply  with the Stark Law and its existing exceptions, which our stakeholders  noted was challenging.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  date of the report. At that time we will send copies of the report to the  Secretary of Health and Human Services and the U.S. Attorney General.  This report also will be available at no charge on the GAO Web site at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our  offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.

section_title: Appendix I: Comments from the Department of Health and Human Services

section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Christine Brudevold, Assistant  Director; Helen Desaulniers, Assistant General Counsel; Jasleen Modi;  Elizabeth T. Morrison; Sarah Resavy; Lillian Shields; Hemi Tewarson;  and Jennifer Whitworth made key contributions to this report.

section_title: Related GAO Products
paragraphs: Medicare Physician Feedback Program: CMS Faces Challenges with  Methodology and Distribution of Physician Reports. GAO-11-720.  Washington, D.C.: August 12, 2011.

Value in Health Care: Key Information for Policymakers to Assess Efforts  to Improve Quality While Reducing Costs. GAO-11-445. Washington,  D.C.: July 26, 2011.

High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February  2011.

Medicare: Private Sector Initiatives to Bundle Hospital and Physician  Payments for an Episode of Care. GAO-11-126R. Washington, D.C.:  January 31, 2011.

Medicare: Per Capita Method Can Be Used to Profile Physicians and  Provide Feedback on Resource Use. GAO-09-802. Washington, D.C.:  September 25, 2009.

Medicare Physician Payment: Care Coordination Programs Used in  Demonstration Show Promise, but Wider Use of Payment Approach May  Be Limited. GAO-08-65. Washington, D.C.: February 15, 2008.

Medicare: Focus on Physician Practice Patterns Can Lead to Greater  Program Efficiency. GAO-07-307. Washington, D.C.: April 30, 2007.

Medicare: Advisory Opinions as a Means of Clarifying Program  Requirements. GAO-05-129. Washington, D.C.: December 8, 2004.

Medicare: Referrals to Physician-Owned Imaging Facilities Warrant  HCFA’s Scrutiny. GAO/HEHS-95-2. Washington, D.C.: October 20, 1994.

Medicare: Physician Incentive Payments by Prepaid Health Plans Could  Lower Quality of Care. GAO/HRD-89-29. Washington, D.C.:   December 12, 1988.

Medicare: Physician Incentive Payments by Hospitals Could Lead to  Abuse. GAO/HRD-86-103. Washington, D.C.: July 22, 1986.


Question-summary annotations: questions: question: What are the Stark law and anti-kickback statue?
answer: The Stark law and anti-kickback statute, which restrict financial relationships among providers, have statutory and regulatory exceptions and safe harbors, respectively, that permit financial incentive programs that meet specific criteria.
child_questions: question: What challenges do these laws introduce?
answer: However, there are no exceptions or safe harbors specifically for financial incentive programs intended to improve quality and efficiency, and legal experts reported that the constraints of existing exceptions and safe harbors make it difficult to design and implement a comprehensive program for all participating physicians and patient populations.

question: What is the effect of the CMP law?
answer: The CMP law prohibits hospitals from paying physicians to reduce or limit services, and OIG has interpreted the law to apply to the reduction or limitation of any services, whether or not those services are medically necessary.
child_questions: question: To what extent does the CMP law include exceptions?
answer: The CMP law does not include statutory exceptions to this prohibition, and OIG does not have the authority to create exceptions through regulation.

question: How does OIG persecute violators of the CMP law?
answer: Through its advisory opinion process, OIG, however, has indicated that it would not impose sanctions for specific financial incentive programs that otherwise violated the CMP law but presented a low risk of fraud and abuse.

questions: question: How may stakeholders' concerns affect the implementation of these programs?
answer: GAO’s work suggests that stakeholders’ concerns may hinder implementation of financial incentive programs to improve quality and efficiency on a broad scale.
child_questions: question: How varied are the stances of these stakeholders?
answer: Stakeholders—government agencies and health care providers—likely will continue to have different perspectives about the optimal balance between innovative approaches to improve quality and lower costs and retaining appropriate patient safeguards.

question: How did HHS comment on this report?
answer: HHS reviewed a draft of this report and in its written comments, clarified its position on CMS’s authorities to create exceptions and issue waivers to permit certain financial incentive programs, noting that its authority to issue waivers is broader than its authority to create Stark exceptions.
child_questions: question: How did GAO make use of HHS's opinions?
answer: We modified the draft to reflect the Department’s position.

questions: question: What is GAO's stance regarding increased Medicare spending?
answer: GAO has long expressed concern that increases in Medicare spending are unsustainable and do not necessarily enhance health care quality.
child_questions: question: How do traditional Medicare payment systems operate?
answer: Traditional Medicare provider payment systems reward the volume of services instead of the quality or efficiency of care by paying physicians for each service provided.
child_questions: question: How does this compare to financial incentive programs used by some health systems?
answer: Some health systems, which can be hospitals, physicians, health plans, or a combination, use financial incentive programs to reward physicians for improving quality and efficiency with the goal of better outcomes for patients and savings for hospitals and payers.

question: How does Medicare affect financial incentive programs?
answer: Federal laws that protect patients and the integrity of federal programs, including Medicare, limit health systems’ ability to implement financial incentive programs. These fraud and abuse laws include the physician self-referral law, or Stark law; the anti-kickback statute; and the Civil Monetary Penalties (CMP) law.
child_questions: question: How are these laws enforced?
answer: The Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) within the Department of Health and Human Services (HHS), and the Department of Justice oversee and enforce these laws.