Publications: Good News...The OIG has Opened the Door “Partway” to Gainsharing Arrangements

To read the original Client Update in PDF format, please click the Related Files link.

Last month the OIG issued a total of six Advisory Opinions – each dealing with gainsharing arrangements. All six Advisory Opinions dealt with cardiac services – half with cardiac surgeons and half with cardiologists.

A “gainsharing” arrangement is one in which the hospital pays physicians a percentage of the hospital’s cost savings attributable to certain changes in the physicians’ practice patterns – typically involving changes in clinical practice related to product standardization, limiting use of supplies to “as needed” and substituting less costly items.

As is always the case with a heavily regulated issue such as this, the devil is in the detail. That said, it now appears that properly structured gainsharing arrangements will likely not be challenged by the OIG – however, hospitals must also consider the reactions of CMS and the IRS(the agencies that enforce Stark II and tax-exempt organization obligations).

The OIG’s guidance as to what constitutes a “properly structured” gainsharing arrangement between a hospital and a group of physicians, establishes the following parameters:

1. Retain an independent Program Administrator to administer the gainsharing program to provide an independent verification of cost savings and quality of care indicators. Payment to the Program Administrator should be a fixed monthly fee that is not in anyway based on cost savings attributable to the program.

2. Limit the duration of the program to one year.

3. Limit the physician payment to 50% of cost savings.

4. Limit the program to specific cost saving actions that are clearly and separately identifiable and attributable to specific physician actions and that are transparent in nature such that the physicians retain professional liability and their actions can be scrutinized to make sure that quality of care is not reduced.

5. The program should be based on credible medical evidence that patient care will not be adversely affected.

6. Cost savings should be attributable to all payers. Further the program should provide for a cap on governmental payer patients based on historical utilization to avoid disproportionate affects on such patients.

7. Establish baseline “floors” to protect against inappropriate reductions in care.

8. Notwithstanding product standardization initiatives, offer all products previously available and allow physicians to make “patient-by-patient” decisions depending on the needs of the particular patient. 

9. Require written disclosures to patients affected by the program describing program details and obtain patient consent before hospital admission. If admission is due to an emergency, provide disclosure and obtain consent prior to surgery.

10. Make sure that the physician group receiving the gainsharing payment distributes it to its members on a per capita basis.

11. Limit the program to physicians already on staff and restrict potential cost saving payments to the physicians’ historical utilization.

12. Provide documentation of the details of the program to the Secretary of HHS.

Legal Issues Implicated By Gainsharing Arrangements And Addressed By The OIG

CMP Law Analysis (Sections 1128A(b)(1)-(2) of the Social Security Act, (the “Act”) – prohibits a hospital from making payment to a physician to induce reductions or limitations of services to Medicare or Medicaid beneficiaries. The OIG stated that except for recommendations regarding not opening packages in surgery until needed and substituting less costly patient care supplies, all other cost saving actions would in fact implicate this prohibition. Nonetheless the OIG stated that it would not impose sanctions because the particular gainsharing programs had sufficient safeguards built in to protect patient care.

Anti-Kickback Law Analysis (Sections 1128B(b) of the Act) - makes it a criminal offense to knowingly and willingly offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services paid for by a federal health care program. The OIG stated that the Anti-Kickback Statute is implicated by the gainsharing programs and that safe harbor protections is not available since the aggregate compensation (being a percentage of cost savings) would not be set out in advance as required by the applicable safe harbor. Nonetheless the OIG stated that it would not impose sanctions because the programs had safeguards built in to limit the risk that the hospitals would use the programs to garner referrals from new physicians or increase referrals from existing physicians. Indeed the programs were limited to existing medical staff members and the cost savings available to such physicians was based on each physician’s historical utilization.

Bottom Line Advice

Gainsharing arrangements can be good for hospitals, physicians and patients if properly structured to avoid stinting on patient care, cherry picking and steering patients, payments for referrals and unfair competition. Engage legal and consulting experts to help you design a program that will withstand governmental scrutiny. This is particularly neccessary in that the OIG’s guidance does not address Stark II, tax-exempt organization or state law issues.