OIG Issues Advisory Opinion on Gainsharing Arrangement Between Physician Group and Medical Center

Health Care Law Update

Date: January 17, 2018

Key Notes:

  • Gainsharing arrangements can implicate the Civil Monetary Penalty Law and the Anti-Kickback Statute.
  • Appropriate safeguards can minimize the risk of fraud and abuse.

The Office of Inspector General of the Department of Health and Human Services (OIG) indicated in an advisory opinion posted on January 5, 2018, that it would not impose administrative sanctions in connection with a gainsharing arrangement between a physician group (Group) and a medical center (Medical Center) involving certain cost-saving measures associated with spinal fusion surgeries performed by the Group’s neurosurgeons.

Under the proposed arrangement, the Medical Center would pay the Group 50 percent of three years of cost savings attributable to changes the neurosurgeons made when selecting and using products during spinal fusion surgeries. The parties identified 34 cost-savings opportunities based on a study of historical practices in spinal fusion surgeries performed by the neurosurgeons at the Medical Center. Three of the recommendations involved the neurosurgeons using bone morphogenetic protein (BMP) only on an as-needed basis (but in no less than 4 percent of their spinal fusion surgeries), rather than the current use of BMP in approximately 29 percent of spinal fusion surgeries performed at the Medical Center. The recommendations were based on an evidence-based medical review of relevant literature to develop clinical guidelines for implementing the recommendations. The other 31 recommendations involved standardizing certain devices and supplies used in spinal fusion surgeries. The cost savings would be calculated based on the difference in costs for each recommendation between a base year (the most recent 12-month period) and a performance year. The base year would reset annually so that all earlier-accomplished savings would be removed from the accounting. The Medical Center and the Group would provide patients with written notice of the cost-savings arrangement and which cost-saving measures would apply to each patient’s surgery.

The OIG acknowledged that the payments from the Medical Center to the Group would implicate both the (i) Gainsharing Civil Monetary Penalty (Gainsharing CMP)[i], because the arrangement potentially could induce the neurosurgeons to reduce or limit medically necessary care for their Medicare and Medicaid patients, and (ii) Anti?Kickback Statute[ii], as the payments from the Medical Center for implementing the cost-savings measures potentially could be payments to induce or reward the surgeons’ referrals to the Medial Center. Because of the safeguards implemented by the Medical Center, the Group and the neurosurgeons, though, the OIG concluded that the arrangement presented a sufficiently low risk of fraud and abuse under the Gainsharing CMP and the Anti-Kickback Statute, and it would not impose administrative sanctions on the parties to the arrangement. Some of the safeguards included:

  1. The incentive payments would be distributed to the neurosurgeons on a per capita basis, thus reducing the risk that the arrangement could create an incentive for any particular neurosurgeon to generate disproportionate cost savings.
  2. The potential savings would be capped based on the number of spinal fusion surgeries performed by the neurosurgeons on federal health care program beneficiaries in the relevant base year.
  3. The aggregate payment to the Group would not exceed 50 percent of the projected cost savings estimated by the program administrator at the beginning of the term of the arrangement.
  4. Data on patient severity, age and payor for the spinal surgeries covered by the arrangement would be reviewed to confirm a historically consistent selection of patients.
  5. The payments from the Medical Center would be allocated in accordance with a longstanding formula in the Group’s operating agreement.
  6. The base year for the savings calculation would be reset each year to ensure that the performance year savings would be calculated only as compared to the most recent base year, thus preventing improper duplicate payments to the neurosurgeons.
  7. The neurosurgeons performed an evidence-based medical review to develop clinical guidelines for the use of BMP, and conducted a clinical review of the proposed standardized products to determine whether the products under consideration were clinically safe and effective.
  8. The product standardization recommendations could require additional training or changes to the neurosurgeons’ clinical practices, and the use of BMP on an as-needed basis would necessitate a new clinical process for the neurosurgeons. As it a result, it was not unreasonable for the Medical Center to compensate the neurosurgeons for these activities.
  9. For the products covered by the product standardization recommendations, the neurosurgeons would have available the same selection of devices and supplies as they did prior to the arrangement, and would continue to make patient-by-patient determinations as to the most appropriate device or supply.

Relying on the certification of the requesting parties that the arrangement would not reduce or limit medically necessary services for patients, and because of the safeguards established for the arrangement that the OIG found to be reasonable, the OIG concluded that it would not impose sanctions under the Gainsharing CMP and the Anti-Kickback Statute. The OIG noted, however, that it did not express any opinion regarding whether the federal physician self-referral law (the “Stark Law”) would be violated by the distribution to the neurosurgeons.


For more information, please contact:

Cori R. Haper

John L. Green

Rebeccah C. Raines

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[i] The Gainsharing Civil Monetary Penalty (Gainsharing CMP) prohibits a hospital from knowingly making payments, directly or indirectly, to a physician to induce the physician to reduce or limit medically necessary services. Section 1128A(b)(1) of the Social Security Act, as revised by Section 512(a) of the Medicare Access and CHIP Reauthorization Act of 2015, Public Law 114-10.

[ii] The Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program. Section 1128B(b) of the Social Security Act.