OIG Posts Latest Guidance for Physician-Hospital Gainsharing Arrangements

By Joseph J. Feltes, JD
Thursday, March 1, 2018

Joseph J. Feltes, JD

On January 5, 2018, the Office of Inspector General posted an advisory opinion stating that it would not impose criminal or civil monetary sanctions against a physician group and hospital that agreed to implement a cost-reduction arrangement for spinal fusion surgeries performed at the hospital and share a percentage of cost savings resulting from those measures.

The parties to the proposed arrangement included a non-profit hospital, a wholly-owned subsidiary of the hospital that provides managerial services, a multi-specialty physician group including four neurosurgeons on the hospital’s active medical staff who perform spinal fusions, and a third-party administrator.

The hospital, through its subsidiary, would pay the neurosurgeons participating in the arrangement a share of three years’ cost savings for selecting standardized products and implementing other evidence-based, cost-sharing measures, without compromising quality or denying services to Medicare/Medicaid beneficiaries.

The arrangement’s administrator, who collected data on a national scale, identified 34 cost-savings opportunities that included using bone morphogenetic protein on an “as needed” basis, and encouraging neurosurgeons to use cost-effective standardized devices and supplies for performing spinal fusions.

The arrangement would include safeguards, such as monitoring and documentation requirements to assure quality of care and to protect against inappropriate reductions of services. The parties promised to appoint an oversight committee to monitor the arrangement’s operation and to minimize the risk of “cherry-picking” or steering away more costly patients. For example, the doctors would be prohibited from selecting patients to participate in, or withdrawing patients from, the arrangement.

To promote transparency, the hospital, subsidiary and physician group would maintain documentation certifying the nature and cost of services furnished under the arrangement. Patients also would receive notice of the arrangement, along with an opportunity to review details regarding cost-saving measures and the compensation arrangement with the physicians.

At the end of each year in the three-year arrangement, cost savings would be calculated for each recommendation using a multi-step process that would consider historical costs of each product covered by the arrangement (base year cost), divided by the total number of units. The parties would reset the base year annually to remove earlier-accomplished savings. Next, the total cost for each product used in spinal surgeries covered by the arrangement in the performance year would be divided by the total number of products used. Third, the performance year cost would be compared to the base year cost for each product to determine the performance year savings.

Once the performance year savings are calculated, the hospital would transfer an amount equal to 50 percent of the total performance year savings to the subsidiary, which would make separate payments to the physician group for the first, second and third performance years’ savings. Following the physician group’s receiving the adjusted total performance year savings from the subsidiary, payment would be paid on a per capita basis.

The OIG analyzed the arrangement under the Gainsharing Civil Monetary Penalty statute and Anti-Kickback Statute. It determined that the Requestors had implemented sufficient, reasonable safeguards to develop cost-savings, without sacrificing quality or limiting medically necessary services to Medicare/Medicaid patients. Therefore, it concluded that the arrangement would not violate the Gainsharing Civil Monetary Penalty statute. The OIG also concluded that the arrangement, as structured, presented a low risk of fraud and abuse under the Anti-Kickback Statute.

This latest pronouncement on permissible gainsharing is limited only to the Requestors, but the opinion provides valuable guidance for other physician specialties looking to enter into cost-sharing arrangements with hospitals.


Joe Feltes is an attorney with Buckingham, Doolittle & Burroughs in Canton OH and a member of its Health & Medicine Practice Group. He is also the managing partner of Buckingham Canton. For more information about the law firm, go to www.BDBLAW.com or email Mr. Feltes at Jfeltes@BDBLAW.com.