United States: Gainsharing; is it now Safe to go in the Water?

The past few weeks have witnessed a spate of favorable advisory opinions from the Office of Inspector General ("OIG") on gainsharing arrangements between hospitals and physicians. "Gainsharing" generally refers to arrangements intended to motivate physicians to make more efficient use of hospital resources by sharing a portion of the cost savings so achieved with the physicians whose efforts lead to the cost savings.

After the OIG's issuance of an advisory bulletin in July 1999 to the effect that gainsharing violated rules against inducing physicians to limit or reduce care to Medicare and Medicaid beneficiaries, many believed gainsharing, which offered the prospect of aligning the economic interests of hospitals and physicians and thereby reducing the cost of care, was not possible. However, a favorable OIG advisory opinion in January 2001 indicated that the door had not been totally closed. This opinion remained the sole favorable gainsharing opinion for over four years. Then, on February 3 of this year, the OIG issued another favorable opinion, followed by three on February 17, and two more on February 25.

The sheer number of the February opinions relative to the paucity of pronouncements that preceded them, suggests that the OIG has reached a new level of comfort. Nonetheless, even a casual reading of the recent pronouncements cautions that this area remains one in which care is warranted. In fact, with some minor exceptions noted below, the OIG concluded that all of the gainsharing arrangements in the recent rulings violated both the rules against inducing physicians to limit or reduce care to federal health program beneficiaries as well as the anti-kickback statute (assuming presence of the requisite wrongful intent). Nonetheless, due to safeguards built into each of the programs, the OIG concluded that it would not take enforcement action against the respective parties. Unfortunately, these opinions do not address the "Stark" law, which prohibits physician self-referrals, because Stark law enforcement is under the jurisdiction of CMS, not the OIG.

In reaching its favorable conclusions, the OIG drew on a number of fine distinctions and repeatedly warned that its analysis was highly fact dependent and should not be seen as a general embrace of gainsharing. Accordingly, a careful review of the specific facts in each opinion is required.

The recent opinions all follow a similar format and the gainsharing arrangements, all of which were developed by the same consultant, are strikingly similar. Three concerned cardiac catheterization programs, and two concerned cardiac surgery programs. Each arrangement had been preceded by a study, conducted by a "Program Administrator," of historic practices in a particular hospital department or program, which identified a number of specific cost saving opportunities. Based on the study, each hospital and the medical group(s) practicing in the hospital department or program, outlined and agreed upon specific procedures for curbing inappropriate use or waste of hospital supplies. To the extent that actual costs incurred, following implementation of gainsharing arrangements were less than historical costs for the same procedure( s), the hospital will pay 50% of the resulting savings to the medical group(s). Each medical group was obligated to distribute any such payment to its physician employees per capita. Each gainsharing arrangements had a term of one and only one year. Savings were calculated separately for each medical group and for each of the cost savings recommendations.

Cost savings recommendations fell into the following areas. For cardiac catheterization:

• Product standardization: So long as medically appropriate, each medical group agreed to standardize the types of devices it used, including stents, balloons, guidewires, catheters, pacemakers and defibrillators.

• Use only as needed: Each medical group agreed to use certain vascular closure devices only when needed. Such devices would be kept unopened, but readily available for use if required.

• Product substitution: Each medical group agreed to use less costly substitutes to the extent patient care would not be compromised.

For cardiac surgery:

• Product standardization: Each medical group agreed to use the same type of heart valves and other devices and supplies to the extent medically appropriate.

• Use only as needed: Each medical group agreed to use certain surgical supplies only when clinically indicated, such as gelfoam, surgical and vancomycin paste.

• Open only as needed: Each medical group agreed to open packaged surgical items, including surgical trays and similar items and the disposable components of "cell saver" units, only as needed.

• Product substitution: Each medical group agreed to use less costly substitutes for specified items where the substitutions had no appreciable clinical significance.

• Blood cross matching only as needed: Each medical group agreed to have cross-matching testing performed only when, and if a transfusion is required.

With two exceptions, the OIG found that each of the above cost savings measures constituted illegal inducements to limit or reduce care. The two exceptions were the open only as needed surgical tray recommendation (but not the open only as needed disposable cell saver recommendation) and the product substitution measure in cardiac surgery cases. As to the former, the OIG concluded that the small delay involved in opening surgical trays would lead to no perceptible reduction or limitation. As to the latter, because all recommended product substitutions were clinically insignificant, the OIG similarly found that they would lead to no perceptible reduction or limitation in the provision of services or products.

Because there would be a meaningful delay in the start up of a cell saver unit, the OIG reasoned that this measure, as well as all of the others could result in a meaningful reduction or limitation. Nonetheless, the OIG concluded that there were sufficient safeguards built into the respective arrangements that enforcement activity would not be warranted. Such safeguards included the following:

• All of the arrangements were specific, permitting scrutiny and individual physician accountability, both to the public and the medicallegal professional liability system. In effect, the physician participants could be held accountable for any adverse consequences resulting from any of the cost-savings measures.

• The hospitals and medical groups all had credible medical support that the arrangements would not compromise medical care. i The arrangements covered all patients, regardless of payor.

• The use only as needed arrangements that could potentially compromise patient care if done to excess had built-in floors. For example, the surgery group in one opinion had a historical practice of having a "cell saver" unit fully loaded and operational in 100% of their procedures. The study on which this gainsharing arrangement was based, however, found that the group had the occasion to use the cell saver in only 5% of its cases. In agreeing to use the cell saver only where clinically indicated, the hospital and the group also agreed, as a safeguard against overzealous cost cutting, to a 10% floor, such that if the incidence of cell saver use dropped below 10% of all cases, the surgery group would not share in the savings achieved below the 10% floor, thus removing any financial incentive to reduce cell saver use below a level historically considered clinically appropriate.

• The product standardization measures did not result in any reduction in the selections available to a physician. When a physician determined that patient care required use of a non-standard item, it remained readily available to the physician.

• In all cases, the medical groups undertook to provide full disclosure of their participation in the cost saving measures to their patients.

• The arrangements were limited in time to one year. The OIG noted that this one year time frame, coupled with the fact that program participation was limited to contracting medical groups, would pre altering their use of particular hospitals, and historic practice patterns, in order to gain eligibility to participate in the arrangements. The OIG noted that if arrangements were longer than one year, unspecified additional or other safeguards would be necessary.

• Each medical group's contractual obligation to distribute its share of any cost savings achieved to its members per capita mitigated any individual physician's incentives to generate a disproportionate amount of cost savings.

With respect to the anti-kickback statute, the OIG concluded that the financial incentives in all of the covered cost saving recommendations conceivably could have the effect of inducing referrals. However, the presence of various safeguards, similar to those noted above, minimized the risk that a gainsharing arrangement could be used as a vehicle to reward or induce patient referrals.

As previously mentioned, these OIG opinions do not discuss Stark. Although the arrangements appear to be capable of meeting several exceptions to Stark, CMS has not officially blessed gainsharing. In addition, a statement made in the preamble to the recent Stark regulations casts doubt over the viability of gainsharing under Stark. In the preamble, CMS states that if "a payment gives a physician an incentive to reduce the volume or value of designated health services, . . . it must be a qualified physician incentive plan payment under the personal services arrangements exception or fit in the prepaid plan or risk sharing arrangements exception." Accordingly, CMS seems to state that gainsharing is not permitted under Stark outside of the managed care context, although the Stark regulations themselves do not seem to support this position.

The specificity of the recent opinions provides a ready road map to hospitals, physicians and their counsel contemplating gainsharing arrangements. Even though all of the opinions related to cardiac catheterization and cardiac surgical procedures, other practice areas seemingly could lend themselves to the same types of gainsharing arrangements.

While the OIG's apparently increasing comfort with gainsharing arrangements should be welcome news to anyone concerned with reducing health care costs, certain of the safeguards that were apparently critical to the OIG's favorable response seem to strictly limit the utility of gainsharing. Most noticeable is the one year term limit. The OIG stated that this term limit was critical in that it effectively precluded a physician from switching hospital loyalties and/or referral patterns in order to gain access to a gainsharing arrangement. Clearly, however, with a one year term limit, a hospital has little leverage to obtain additional cost savings in future years or even maintain the savings achieved during the program's tenure.

It is arguable that limiting access to a gainsharing program to those medical groups that historically have used the hospital would similarly guard against switching hospital loyalties. In the absence of the OIG's position on the effectiveness of such a safeguard, there is no way of determining whether the OIG would find this an adequate substitute for a one year term, absent the issuance of a new guidance.

Hopefully, this recent increase in the number of gainsharing opinions indicates that additional guidance will be forthcoming from the OIG as well as CMS.

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