OIG Provides Guidance Regarding Gainsharing Arrangements

Consistent with Past Position

 

As the spotlight continues to focus on improving the quality of health care and reducing health care costs, it is no surprise that gainsharing arrangements have become a popular option among hospitals and physician groups recently.  Gainsharing arrangements describe various compensation structures that are designed to align the economic incentives of hospitals and physicians to provide cost effective care and the physicians then share in the resultant cost savings to the hospital through a percentage payment, hourly fee, fixed fee, or some combination thereof.  These types of arrangements fell into disfavor after the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a Special Advisory Bulletin in 1999 (the "Bulletin") indicating that gainsharing arrangements violated both the Civil Monetary Penalties (CMP) statute and the Anti-Kickback statute.  The CMP statute prohibits payments by hospitals to physicians that may induce physicians to reduce or limit items or services furnished to their Medicare and Medicaid patients.  The Anti-Kickback statute prohibits remuneration in exchange for patient referrals.  The arrangement analyzed in the Bulletin involved payment to physicians for overall cost-savings to the hospital without indicating the specific conduct in which the physicians were engaging to produce the cost-savings. 

 

The OIG has determined that when gainsharing arrangements are properly structured they can serve legitimate business and medical purposes.  Preventing arrangements that potentially influence physicians' judgment to the detriment of patient care is the OIG's primary concern.  Specifically, the OIG wants to avoid stinting patient care, "cherry picking" health 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 savings programs to foster physician loyalty and to attract more referrals.

 

In 2005, the OIG examined gainsharing arrangements in six separate advisory opinions (the "2005 Opinions"); Opinion No. 05-01, Opinion No. 05-02, Opinion No. 05-03, Opinion No. 05-04, Opinion No. 05-05, Opinion No. 05-06; that it deemed significantly different from the Bulletin arrangement.  Based on these arrangements, the OIG determined that although implicating the CMP statute and the Anti-Kickback statute, the arrangement would not be subject to sanctions due to several critical features of the arrangements that safeguard against Federal program and patient abuse.  The OIG determined that these arrangements were distinguishable from the Bulletin arrangement because they clearly and separately identified the specific cost saving actions to be implemented by the physicians in addition to the safeguards that minimized the potential for abuse.

 

            Recently, two additional advisory opinions (the "2008 Opinions"), Opinion No. 07-21A and Opinion No. 07-22A, were published addressing gainsharing arrangements, one involving a group of cardiac surgeons and the other involving a group of anesthesiologists.  These arrangements were very similar to the 2005 Opinions and the OIG took a position consistent with the 2005 Opinions stating that it would not impose sanctions for the arrangements.  The arrangements in the 2008 Opinions involve a hospital agreeing to share with a group of physicians (cardiac surgeons in one arrangement and anesthesiologists in the other) a percentage of the hospital's cost savings arising from the group's implementation of a number of cost reduction measures relating to the services the groups provide at the hospital.  The only factual difference between the arrangements in the 2008 Opinions and the arrangements in the 2005 Opinions is the groups in the 2008 Opinions had exclusive relationships with the hospitals.  Each of the arrangements are one year agreements between a hospital and a physician group in which the physician group is to be paid fifty percent (50%) of the hospital's cost savings directly attributable to specific changes in the group's practices.  In addition, each hospital engaged a program administrator to collect data and analyze and manage the arrangement and, in return, the program administrator receives a monthly fixed fee certified to be fair market value for the services and is in no way tied to the cost savings or the group's compensation. 

 

The arrangement involved cost-savings actions in the following categories: (1) opening certain packaged items on an "as needed" basis only, (2) substituting lower-priced items for items currently being used, and (3) standardizing the use of certain supplies where medically appropriate.  In addition, the cardiac surgeon group arrangement included a cost-saving measure involving refraining from opening disposable components of the cell saver unit until the patient experiences excessive bleeding.

 

Each of the proposed arrangements utilized several safeguards to protect against inappropriate reductions in services.  The safeguards included:

 

·        the use of historical and clinical measures related to the practice, patient population at the hospital, and national data to establish floors below which no savings would accrue to the group;

·        no cast savings were allocated to the group for procedures involving reductions in historical Society of Thoracic Surgeons (STS) quality indicators;

·        physicians made patient-by-patient determinations of the most appropriate device and the availability of the full range of devices was not compromised by the product standardizations; and

·        cost savings were calculated separately for each of the categories to preclude shifting of cost savings. 

 

In calculating the payment to the group, the hospital imposed the following limitations: (1) if the group's volume of procedures payable by a Federal health care program in a year exceeded the volume of like procedures performed in the previous year, then there was no sharing of cost savings for the additional procedures, (2) the hospital monitored the case severity, ages and payors of the patient population treated under the arrangement to reduce the physicians' financial incentive to steer more costly patients to other hospitals, and (3) the hospital identified the projected cost savings and the total payment to the group will not exceed 50% of that amount.  The hospital makes an aggregate payment to the group and the group distributes its profits to each of its members on a per capita basis.  The hospital and group documented the activities and payment methodology and agreed to make the documentation available to the Secretary of HHS upon request.  Additionally, patients were notified of the arrangement and given an opportunity to review the arrangements details, including the cost-savings measures and the group's compensation structure.

 

The OIG concluded that the arrangements implicated the CMP statute because the arrangement might have induced the groups to reduce or limit the physicians' then-current medical practices at the hospital; however, the inclusion of various safeguards in the arrangements ultimately led the OIG to decide that it would not impose sanctions for the arrangements.  Eight components of the arrangements contributed significantly to the OIG's decision:

 

1.                  The specific cost-saving actions and resulting savings involved in the arrangements were clearly and separately identified promoting transparency and accountability.

2.                  Credible medical evidence supported the position that implementation of the cost-saving actions pursuant to the arrangement did not adversely affect patient care.

3.                  The amount paid under the arrangement is based on all surgeries, regardless of the patient's insurance coverage, subject to a cap on payment for Federal health care program procedures.

4.                  The arrangements protected against inappropriate reductions in services by utilizing objective historical and clinical measures to establish baseline thresholds beyond which no savings accrued to the group.

5.                  The product standardization component of the arrangement provided that physicians still had available the same selection of devices and supplies as before to further protect against inappropriate reduction in services.

6.                  The group provided written disclosures of the arrangement to patients and provided an opportunity for patients to review the arrangement details.

7.                  The financial incentives under the arrangement were reasonably limited in duration and amount.

8.                  The group distributes to its members on a per capita basis mitigating the incentive for individual physicians to generate disproportionate cost savings.

 

As with any compensation arrangement between a hospital and a physician who admits or refers patients to the hospital, the OIG is concerned that the arrangement could have been used to disguise remuneration from the hospital to reward or induce referrals by the group.  Based on the OIG's analysis under the Anti-Kickback statute, it determined that it would not impose sanctions for three reasons: (1) the arrangements contain safeguards that reduce the likelihood that the arrangement was used to attract referring physicians or to increase referrals from existing physicians, such as limiting the arrangement to physicians already on the hospital's medical staff, capping potential savings from Federal health care program procedures based on information from previous years, and limiting the term of the arrangement to one year thereby reducing the incentive for physicians to switch facilities to receive the payment; (2) the structure of the arrangement eliminated the risk that it might have been used to reward physicians who refer patients to the group because the group was the sole participant in the arrangement and because the group distributes profits to its members on a per capita basis; and (3) the arrangement set out with specificity the particular actions that generated the cost savings on which the payments are based, the arrangement is limited in amount, duration and scope, and the payments under the arrangement are considered reasonable.

 

Similar to the 2005 Opinions, the OIG stated that its position in the 2008 Opinions is consistent with the Bulletin and the OIG emphasized the distinction between paying physicians a percentage of generalized cost savings and compensation which is tied to specific, identifiable cost-saving activities.  The 2008 Opinions reiterate the approach provided in the 2005 Opinions and the OIG's evaluation of such arrangements.  The OIG continues to place a strong emphasis on the safeguards implemented as part of gainsharing arrangements that prevent inappropriate reductions in items and services to beneficiaries of Federal health care programs and that reduce the risk that the remuneration provided under these arrangement is used to reward or induce referrals to the hospital.  The OIG has provided consistent guidance over the past several years on how to properly structure these types of arrangements.  With this consistent guidance, hospitals and physician groups can take advantage of these types of arrangements to coordinate their efforts to improve the efficiency and quality of health care.

 

If you have questions about this article, please contact Kevin Woodhouse, Lisa Gethers or another attorney in Ice Miller's Health Care Practice Group.

 

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.