NJ Gainsharing Legislation Signed Into Law

New Jersey Governor Chris Christie recently signed into law S-913/A-3404, which took effect on May 1, 2017.  This new legislation permits New Jersey hospitals to establish commercial gainsharing programs that meet certain requirements and amends the Codey Law accordingly.

A New Jersey acute care hospital may now establish a hospital and physician incentive plan, with a physician or physician group.  The hospital must contract with an independent party to administer the plan and establish a hospital steering committee, with physicians making up at least half of the committee membership.

The committee will be charged with establishing institutional and specialty-specific goals related to patient safety, quality of care and operational performance.  The committee must ensure that:

  1. no payments are made for reducing or limiting medically necessary care;
  2. the appropriate course of treatment for each patient is determined, in consultation with the patient or the patient’s representative, by the attending physician or surgeon of record;
  3. safeguards are in place to ensure that there are no incentives to avoid difficult or complex medical cases, or to withhold, reduce or limit quality care;
  4. no payment is made for exceeding best practice standards established under the plan;
  5. overall payments to individual physicians under a plan shall not exceed 50 percent of the total professional payments for services related to the cases for which that physician receives incentive payments under the plan;
  6. individual physician performance is objectively measured, taking into account the severity of the medical issues presented by an individual patient;
  7. payments objectively correlate with physician performance and are applied in a consistent manner to all physicians participating in the plan;
  8. participating physicians are treated uniformly relative to their respective individual contributions to institutional efficiency and quality of patient care;
  9. performance and best practice standards established under the plan are based primarily on local and regional data;
  10. the methodology recognizes both individual physician performance, including a physician’s utilization of inpatient resources compared to the physician’s peers, and improvements in individual physician performance, including a physician’s utilization of inpatient resources compared with the physician’s own performance over time; and
  11. the elements of the methodology are properly balanced to meet the needs of physicians, hospitals and patients.

The plan can include multiple hospital participants, provided that the plan utilizes a facilitator-convener who will coordinate with the plan administrator and the hospital steering committee to facilitate plan administration, disseminate information concerning best practices and serve as the point of contact for the New Jersey Department of Health (“NJDOH”).

Except for plans limited to specific clinical specialties or diagnosis related groups, the plan must apply to all admissions and all inpatient costs related to those admissions in a given program.  Plans are to be open to all surgeons and attending physicians of record and may, at the discretion of the hospital, include other physicians involved in the provision of inpatient care.  A physician must have been on the medical staff of the hospital for at least one year to participate in the plan, except for hospitalists and physicians who are new to the hospital’s geographic area.  The plan must include a mechanism to limit incentives attributable to year-to-year increases in patient volume for physicians on staff with multiple admitting privileges. Patients are to be notified of the plan in advance of admission to the hospital.

The plan must be filed with NJDOH by the hospital or facilitator-convener prior to the anticipated start date of the plan.  The filing must include the incentive methodology, institutional and specialty-specific goals, quality and cost performance standards, and any standards, programs or protocols designed to ensure that the plan meets the requirements of the legislation.  Annual reports must be submitted to NJDOH setting forth the distributions made to physicians, quality and cost performance standards, proposed revisions to the plan, if any, and such other information as NJDOH may require.  NJDOH will review the plan and shall notify the hospital if its plan does not meet the requirements of the legislation.  NJDOH will provide the hospital with a reasonable opportunity to remedy any deficiencies in the plan, and may terminate a plan that continues to fail to meet the requirements of the legislation.

With respect to the amendment to the Codey Law, the definition of “significant beneficial interest” now excludes “payments made by a hospital to a physician pursuant to a hospital and physician incentive plan.”  It is important to note that the definition under the Codey Law of a “hospital and physician incentive plan” is limited to a plan that meets the requirements of this legislation.

While gainsharing programs are not new to New Jersey, it is clear that the state government has recognized the trend of the expansion of such programs in health care and is supportive.  Providers may wish to seize this opportunity to explore affiliations that align their visions for health care, but preserve some independence between hospitals and physicians, which appears to have become a mutual goal after the most recent spate of acquisitions of physician practices.  Hospitals should also review their physician employment agreements and professional service agreements to ensure that such agreements allow the hospitals to develop these incentive plans with their physicians or prepare amendments for the next round of renewals.  Beware, though, of simply following the requirements of this new legislation, while ignoring federal law restrictions, which will still be applicable.