Are Anesthesia Group-Hospital Gainsharing Agreements Legal?

"Properly structured, arrangements that compensate physicians for achieving hospital cost savings can serve legitimate business and medical purposes. Specifically, properly structured arrangements may increase efficiency and reduce waste, thereby potentially increasing a hospital’s profitability."  (Office of the Inspector General, Advisory Opinion No. 07-22, December 28, 2007.)

As hospitals come to expect more and more from their anesthesia providers, many groups are uncovering ways in which to add value to their hospital relationships while maintaining their own margins.  One common approach is to explore gainsharing arrangements, a form of pay-for-performance in which anesthesia groups work to enhance quality or to reduce hospital costs and are compensated with a portion of the affected revenues.

Since gainsharing arrangements began surfacing in the hospital context, there have been questions about their legality.  The federal anti-kickback statute, Stark law and Civil Monetary Penalties (CMP) statute could all be implicated.  As the OIG warned, “like any payment arrangement between a hospital and physicians who refer business to the hospital, payments purportedly intended to encourage quality improvements and cost savings might be misused by unscrupulous parties to induce limitations or reductions in care or to disguise kickbacks for federal healthcare program referrals.”  The key is whether the payments are in fact intended to incentivize enhanced quality and savings, and as the OIG has indicated, they can be structured so as to be perfectly legal.  To understand which gainsharing arrangements pass muster, it is worth recalling the history of the OIG’s approach.

OIG’s Evolving View of Gainsharing Arrangements

In 1999, the OIG published a Special Advisory Bulletin entitled “Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries” in which it took the categorical position that gainsharing violated the CMP provision that prohibits a hospital from paying physicians to reduce or limit patient care services to Medicare or Medicaid beneficiaries under the physician’s care.  Two years later, however, the OIG approved the first of a number of gainsharing arrangements under the advisory opinion process.  Stating that gainsharing violates the CMP, the OIG announced that it would exercise its discretion not to seek sanctions against the hospital and cardiac surgery group that had requested the advisory opinion.  The OIG noted, furthermore, that the arrangement contained sufficient safeguards to present a low risk of fraud and abuse under the anti-kickback statute.

In 2005, the OIG issued six more advisory opinions on gainsharing arrangements involving cost-saving through such measures as product substitution, elimination or standardization.  In each instance the arrangement violated the CMP provision, since it could induce physicians to limit services, and potentially violated the anti-kickback law as well.  Nevertheless, the OIG continued to exercise its discretion not to seek penalties based on the safeguards incorporated into each arrangement.  Three types of safeguards were identified: 

• Measures that promote accountability and transparency,
• Quality controls, and
• Controls on payments related to referrals.

In Advisory Opinion No. 07-22, the OIG approved a gainsharing program between a hospital and its exclusive-provider anesthesiology group.  The program was administered by an employee of the hospital, and it implemented the recommendations of a study that identified five cost-saving opportunities that the opinion grouped into the following three categories:

• “Use as Needed” Items.  The anesthesiology group was to eliminate the routine use in the specific cardiac procedures covered by the Arrangement of (i) a specific drug and (ii) a device used to monitor patients’ brain function.  The individual anesthesiologists made patient-by-patient determinations as to whether the items were clinically indicated in particular procedures and the items remained readily available to the anesthesiologists.
• Product Substitution.  The anesthesiology group was to substitute, in whole or in part, less costly items for items currently being used by the anesthesiologists during the covered cardiac procedures.  Specifically, one recommendation involved the use of a particular catheter, and the other involved a nasogastric tube made with a less expensive material.
• Product Standardization.  The anesthesiology group was to standardize the use of certain fluid warming hot lines where medically appropriate.  For this category, the group was required to work with the hospital to evaluate and clinically review vendors and products.  The anesthesiology group agreed to use the selected product where medically appropriate, which might have required additional training or changes in clinical practice.

Although these cost-saving strategies violated both the CMP and the anti-kickback rules, the OIG again exercised its discretion in favor of the gainsharing program.  Also key to the decision were these safeguards:

1. The specific cost-saving actions and resulting savings were clearly and separately identified.  The transparency of the arrangement allowed for public scrutiny and individual physician accountability for any adverse effects of the arrangement, including any difference in treatment among patients based on nonclinical indicators.
2. The arrangement was periodically reviewed by the hospital and anesthesiologists to make sure that it was not having an adverse impact on clinical care.
3. The amount to be paid under the arrangement was based on all surgeries regardless of the patients’ insurance coverage.  Moreover, the surgical procedures to which the arrangement applied were not disproportionately performed on Medicare or Medicaid patients.
4. The arrangement protected against inappropriate reductions in services by utilizing objective historical and clinical measures to establish baseline thresholds beyond which no savings accrued to the anesthesiology group.  The indicators used were action-specific and not simply based on isolated patient outcome data unrelated to specific changes in operating room practices.
5. The product standardization recommendation protected against inappropriate reductions in services by ensuring that individual anesthesiologists still had available the same selection of fluid warming hot lines after implementation of the arrangement as before.
6. The hospital and the anesthesiology group provided written disclosures of their involvement in the arrangement to affected patients, who were able to review the cost savings recommendations prior to surgery. 
7. In a footnote, the OIG added “ordinarily, we would expect patient disclosures to be coupled with patient satisfaction surveys that closely monitor patient perceptions of their care.  However, in the context of the Arrangement, which focuses on items used in operating rooms, we believe that patient satisfaction surveys would not be effective.”
8. The financial incentives under the Arrangement were reasonably limited in duration and amount.
9. The group distributed profits to its members on a per capita basis, so there was little incentive for an individual anesthesiologist to generate disproportionate cost savings.

A very similar set of safeguards led to a similar conclusion in a second advisory opinion issued the same day, December 28, 2007, regarding a cardiology group (No. 17-21), and also in the OIG’s several subsequent gainsharing opinions.  Among the most recent is Advisory Opinion No. 12-22, released on December 31, 2012, in which the OIG approved a co-management arrangement again between a hospital and a cardiology group.  Under the co-management agreement, the physicians receive bonuses for reducing costs associated with lab procedures (60 percent), quality improvement (30 percent), employee satisfaction (5 percent) and patient satisfaction (5 percent), using measures the OIG found to be in line with national care standards and not used for incentives for Medicare referrals.

A Note about the Anti-Kickback Statute

In all of these gainsharing arrangements, the OIG considered separately whether there was an anti-kickback issue and concluded that although there was a potential violation, no sanctions should be imposed.

The anesthesiology group advisory opinion is instructive—not least because the OIG decided that even though the group furnished only surgical anesthesia services and no pain medicine services, there could be referrals from the anesthesiologists to the hospital (which would make the compensation to the group problematic).  The OIG acknowledged that “that the typical anti-kickback concern about arrangements between hospitals and anesthesiologists is the risk of remuneration flowing from the anesthesiologists to the hospital in return for hospital business,” but also said that “some anesthesiologists perform procedures themselves (e.g., pain management procedures), order additional items or services for existing patients, or otherwise generate Federally payable business for hospitals.”  Because of the small but real risk of gainsharing-induced referrals, the OIG took care to identify the factors that would combine to immunize the arrangement:

• Participation was limited to anesthesiologists already on the medical staff, thus limiting the likelihood that the arrangement would have attracted other anesthesiologists to the hospital.
• The potential savings derived from procedures for Federal health care program beneficiaries were capped based on the prior year’s admissions of Federal health care program beneficiaries.
• The contract year for which payments were calculated was limited to one year, reducing any incentive for anesthesiologists to switch facilities to earn cost sharing payments, and patient admissions were monitored for changes in severity, age, or payer to ensure that the arrangement did not result in inappropriate changes in referral patterns.
• The group was composed entirely of anesthesiologists; no cardiologists, cardiac surgeons, or other physicians are members of the Group or shared in its profit distributions.
• Profits were distributed to group members on a per capita basis.
• The formal arrangement specified the particular actions that generated the cost savings on which the payments were based.
• The payments to the anesthesiologists represented a portion of one year’s worth of cost savings and were limited in amount by an aggregate cap, in duration, and in scope (i.e., the total savings that can be achieved from the implementation of any one recommendation were limited by appropriate utilization levels).

Under these circumstances, the OIG decided that “The payments under the Arrangement do not appear unreasonable, given, among other things, the nature of the actions required of the anesthesiologists to implement the five recommended actions, the specificity of the payment formula, and the cap on total remuneration to the Anesthesiology Group,” but warned that “payments of 50% of cost savings in other arrangements, including multi-year arrangements or arrangements with generalized cost savings formulae, could well lead to a different result."

There are clear common threads to all of the gainsharing and co-management advisory opinions, but it is critical to remember that each turns on its own very particular facts and is explicitly limited in its application to the parties who requested the opinion.  The OIG never misses an opportunity to express its abiding view that the arrangements technically violate the CMP and potentially the anti-kickback laws.  The concern is that gainsharing arrangements could induce physicians to limit or restrict patient care, increase referrals to a particular facility, steer sicker patients to other facilities that do not offer such arrangements, and encourage unfair competition between hospitals.  Thus any group contemplating a gainsharing arrangement should examine the types of safeguards as well as the cost-savings strategies that have been successful to date, incorporate as many of the safeguards into their plans as possible, and consider obtaining an advisory opinion from the OIG.

A Note about Stark

The Stark (physician self-referral) Law prohibits physicians from referring patients for designated health services (DHS) to entities in which they have a financial interest.  Since inpatient and outpatient hospital services are DHS, gainsharing arrangements would appear to violate Stark.

The Centers for Medicare and Medicaid Services (CMS) has sole jurisdiction over Stark, to the exclusion of the OIG.  CMS published a proposed gainsharing exception in 2008—containing no fewer than 16 conditions—but never finalized the proposal.  To our knowledge, there have been no published rulings on the applicability of Stark to any gainsharing arrangements, and the questions whether and how such arrangements might comply with Stark remain unanswered.

What we do know is that, structured with the appropriate quality and efficiency objectives and the safeguards discussed above, gainsharing arrangements tend to pass OIG muster.  We hope that this brief review has equipped our readers with enough information to proceed cautiously, and with the advice of their own counsel.