So far, 2005 has been a banner year for gainsharing arrangements. During the month of February, the OIG issued six advisory opinions approving gainsharing arrangements. OIG Advisory Opinions 05-01, 05-02, 05-03, 05-04, 05-05, and 05-06. In March, the Medicare Payment Advisory Commission (MedPAC) recommended that Congress authorize gainsharing arrangements.

Background
To the uninitiated, gainsharing arrangements include a variety of financial arrangements between hospitals and physicians intended to encourage physicians to use more cost-effective methods in delivering quality care in hospitals. Typically, gainsharing arrangements would involve payments from hospitals to physicians for designing and implementing programs to control costs and improve the quality of medical services provided to hospital patients. The payments can be structured in a number of ways, from hourly rates for services performed by physicians to a percentage of cost savings.

Traditionally, physicians are responsible for making decisions about the care provided to hospital patients, and hospitals are required to provide the care. With Medicare prospective payment systems, hospitals receive a fixed amount for inpatient and out-patient services without regard to the hospitals' actual costs. In contrast, physicians are reimbursed separately based on fee schedules and have no incentive to minimize hospital costs. Interest in gainsharing arrangements has been piqued over the years as hospitals try to reduce costs by aligning their economic incentives with physicians by sharing cost savings with physicians.

In July 1999, the OIG threw cold water over gainsharing arrangements when it issued a Special Advisory Bulletin in which it took the position that gainsharing arrangements between hospitals and physicians are impermissible under current federal law. Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries (July 1999) reprinted in 64 Fed. Reg. 37,985 (July 14, 1999). Specifically, the OIG said that sharing cost savings with physicians constitutes a violation of the civil monetary penalty prohibition on hospital payments to a physician to induce reductions or limitations of patient care services to Medicare or Medicaid beneficiaries under the physician's direct care. 42 U.S.C. § 1320a-7a(b)(1) & (2) (the "CMP"). The OIG also noted that gainsharing arrangements may raise concerns under the antikickback law. 42 U.S.C. § 1320a-7b(b).

The Special Advisory Bulletin was viewed as closing the door to most gainsharing arrangements, absent a change in the law. In January 2001, however, the OIG opened the door to gainsharing a crack when it issued an advisory opinion approving a narrow gainsharing arrangement. OIG Advisory Opinion 01-01.

The OIG had very little to say about gainsharing arrangements until February of this year, when it issued six favorable advisory opinions. While the issuance of six favorable advisory opinions may suggest a renaissance in gainsharing, caution is still warranted. The OIG found that virtually all of the elements of these six gainsharing arrangements implicated the CMP and the antikickback law. Nevertheless, in each advisory opinion, the OIG decided not to impose administrative sanctions based on the protections incorporated into the respective gainsharing arrangements.

2005 Advisory Opinions
The analysis used by the OIG in examining these six gainsharing advisory opinions is identical to the analysis in the only prior gainsharing advisory opinion - OIG Advisory Opinion 01-01. However, the facts of the various gainsharing arrangements have some minor variations and the application of the OIG's analysis to the specific facts is instructive.

OIG Advisory Opinion 05-01 involved an agreement between a group of cardiac surgeons and a hospital, whereby the group would share a maximum of 50 percent of the hospital's savings arising from the surgeons' implementation of 24 cost savings recommendations in certain cardiac surgery procedures. The recommendations were grouped into four categories: (1) opening certain packaged items, including disposable components of a cell saver unit, only as needed; (2) performing blood cross-matching only as needed; (3) substituting less costly items for items currently being used; and (4) product standardization of cardiac devices. Interestingly, the OIG concluded that the recommendation regarding opening packaged items (except the items used with the cell saver) did not implicate the CMP given that the only delay will be the insubstantial time to open a package that is readily available in the operating room. With regard to the product standardization, the OIG emphasized that individual surgeons would continue to make patient-by-patient determinations of the appropriate device and have the same selection of devices as before the gainsharing arrangements were implemented.

OIG Advisory Opinion 05-02 involved an agreement between five cardiology groups and a hospital, whereby the groups would share a maximum of 50 percent of the hospital's cost savings arising from the cardiologists' implementation of 18 cost reduction recommendations in certain cardiac catheterization laboratory procedures. The recommendations were grouped into two categories: (1) product standardization of cardiac catheterization devices (stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators) and (2) limiting the use of certain vascular closure devices. With regard to the product standardization, the OIG emphasized that individual cardiologists would continue to make patient-by-patient determinations of the appropriate device and have the same selection of devices as before the gainsharing arrangements were implemented.

OIG Advisory Opinion 05-03 involved an agreement between a group of cardiac surgeons and a hospital, whereby the group would share a maximum of 50 percent of the hospital's cost savings arising from the surgeons' implementation of 29 cost reduction recommendations in certain surgical procedures. The recommendations were grouped into four categories: (1) opening certain packaged items, including disposable components of a cell saver unit, only as needed; (2) performing blood cross-matching only as needed; (3) substituting less costly items (e.g., slush drape, wrist splints, armboards, aortic punches, or suture boots) for items currently being used; and (4) product standardization of certain cardiac heart valves. With regard to the product standardization, the OIG emphasized that individual surgeons would continue to make patient-by-patient determinations of the appropriate device and have the same selection of devices as before the gainsharing arrangements were implemented. Interestingly, the OIG concluded that the recommendations regarding opening packaged items (except the items used with the cell saver) and substituting less costly items would have no appreciable clinical significance and thus would not implicate the CMP. This conclusion suggests that hospitals may have greater latitude in implementing gainsharing arrangements that focus on such savings.

OIG Advisory Opinion 05-04 involved an agreement between eight cardiology groups and a hospital, whereby the group would share a maximum of 50 percent of the hospital's cost savings arising from the cardiologists' implementation of 17 cost reduction recommendations during certain cardiology procedures. The recommendations were grouped into three categories: (1) product standardization of certain cardiology devices (stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators); (2) limiting the use of certain vascular closure devices; and (3) substituting less costly items related to contrast agents. Again with regard to the product standardization, the OIG emphasized that individual cardiologists would continue to make patient-by-patient determinations of the appropriate device and have the same selection of devices as before the gainsharing arrangements were implemented.

OIG Advisory Opinion 05-05 involved an agreement between a group of cardiologists and a hospital, whereby the groups would share a maximum of 50 percent of the hospital's first year cost savings arising from the cardiologists' implementation of 12 cost reduction recommendations in designated cardiac catheterization laboratory procedures. The recommendations were grouped into two categories: (1) product standardization of cardiac catheterization devices (stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators) and (2) limiting the use of certain vascular closure devices. With regard to the product standardization, the OIG emphasized that individual cardiologists would continue to make patient-by-patient determinations of the appropriate device and have the same selection of devices as before the implementation of the gainsharing arrangement.

OIG Advisory Opinion 05-06 involved an agreement between a group of cardiac surgeons and a hospital, whereby the group would share a maximum of 50 percent of the hospital's first year cost savings arising from the surgeons' implementation of 27 cost reduction recommendations in certain cardiac surgery procedures. The recommendations were grouped into four categories: (1) opening certain packaged items only as needed; (2) limiting the use of certain surgical supplies (e.g., gelfoam, surgical, and vancomycin paste) to an as needed basis; (3) substituting less costly items (e.g., disposable head supports, disposable k-thermia blankets, and instrument pouches) for items currently being used; and (4) product standardization of certain cardiac devices and supplies. With regard to the product standardization, the OIG emphasized that individual surgeons would continue to make patient-by-patient determinations of the appropriate device and have the same selection of devices as before the implementation of the gainsharing arrangement. Interestingly, the OIG concluded that the recommendations regarding both opening packaged items and substituting less costly items would have no appreciable clinical significance and thus would not implicate the CMP. This conclusion suggests that hospitals may have greater latitude in implementing gainsharing arrangements that focus on such savings.

Interestingly, a footnote in Advisory Opinions 05-04, 05-05, and 05-06 indicated that there were originally additional cost savings recommendations that were eliminated because they posed an unacceptable risk of fraud and abuse. This supports the limited nature of the gainsharing arrangements approved in the advisory opinions.

CMP Analysis
The OIG found that nearly all of the cost savings recommendations would induce physicians to reduce or limit the current medical practices at the hospital and thus implicated the CMP. The OIG recognized that current medical practices at the hospitals may exceed medical necessity, but the OIG found that whether the care that is reduced or limited exceeds medical necessity is irrelevant under the CMP. Nevertheless, the OIG concluded that the proposed gainsharing arrangements contained sufficient safeguards so that sanctions need not be imposed. The specific safeguards in each of the advisory opinions were as follows:

Specific cost-saving actions and resulting savings were clearly and separately identified, to allow public scrutiny and individual physician accountability.
Credible medical support existed for the position that the cost savings recommendations would not adversely affect patient care. In addition, periodic reviews of any impact on clinical care would be conducted.
Payments would be based on all surgeries regardless of payor and federal health care program procedures would be subject to a cap, which would limit any disproportionate impact on federal health care program beneficiaries. In addition, cost savings would be based on actual, out-of-pocket acquisition costs.
Baseline thresholds would be established through the use of objective historical and clinical measures to protect against inappropriate reductions in services.
Savings from product standardization would be obtained from "inherent clinical and fiscal value." Individual physicians would continue to have access to the same selection of devices.
The hospital and the physician groups would provide patients with written disclosures about the arrangements.
Financial incentives would be reasonably limited in duration and amount.
The physician groups distribute profits, and thus any payments under the gainsharing arrangements, on a per capita basis, thus limiting any incentive for individual physicians to generate disproportionate cost savings.

Antikickback Law Analysis
In analyzing the implications of the gainsharing arrangements under the antikickback law, the OIG began by noting that the arrangements would not satisfy the personal services and management contracts safe harbor because the payments to the physician groups were based on a percentage of the cost savings and thus the aggregate compensation would not be set in advance. The OIG cautioned that gainsharing arrangements could be used to disguise illegal remuneration from the hospitals by encouraging physicians to admit more federal health care program beneficiaries to the hospitals. Despite the potential risk of illegal remuneration, the OIG declined to impose administrative sanctions based on several factors that suggested that the risk of fraud or abuse in these gainsharing arrangements was low.

The circumstances and safeguards associated with the gainsharing arrangements reduced the likelihood that the arrangements would be used to attract referring physicians or to increase referrals from existing physicians: (1) the arrangements are limited to physicians on the medical staffs of the hospitals; (2) savings derived from procedures for federal health care program beneficiaries are capped based on the prior year's admissions; and (3) the arrangements are limited to one year.
The structure of the proposed arrangements eliminate the risk that they would be used to reward non-surgeons for referring patients to the surgeon groups. Profits within the groups are distributed on a per capita basis, which minimizes any incentive for an individual physician to inappropriately reduce services to achieve savings.
The arrangements describe the particular actions that would generate the cost savings on which the payments are based. The physicians may have some increased liability risk from making the cost-saving changes for which it is reasonable to compensate them. Payments are limited in amount, duration, and scope.

Conclusions
The OIG has drawn a distinction between generalized gainsharing arrangements tied to overall cost savings, which it views as prohibited, and limited gainsharing arrangements tied to specific, identifiable, and verifiable cost savings, which it may permit on a case-by-case basis. While the OIG has cautioned that the recent gainsharing advisory opinions should not be interpreted as throwing open the door to gainsharing arrangements, it seems likely that hospitals will look to replicate these arrangements.

Given the relatively narrow scope of the advisory opinions, however, hospitals will have to carefully consider whether and how to implement their own gainsharing arrangements. First, hospitals will need to consider whether they can implement gainsharing arrangements without first obtaining their own advisory opinions in light of the fact that only the requesting parties are protected by advisory opinions and the OIG's assertion that even the gainsharing arrangements that were approved violate the CMP. Second, the existing advisory opinions express no opinion as to how, or if, gainsharing arrangements might be permitted under the Stark physician self-referral law. This is not unexpected given that CMS, not the OIG, has the authority to interpret the Stark law. Therefore, hospitals must carefully analyze any gainsharing arrangements for compliance with the Stark law.

While the future of gainsharing arrangements has brightened, the door opened by the OIG advisory opinions is still just a crack. Without action by Congress to amend the CMP, hospitals will continue to lack the tools they need to align their economic interests with physicians and reduce hospital costs.