February 8, 2008Client Alert

New Gainsharing Advisory Opinions Issued

On January 14, 2008, the Department of Health and Human Services Office of Inspector General (the “OIG”) posted two advisory opinions in which it reiterated and further explained its position regarding gainsharing arrangements. In these opinions, the OIG described “gainsharing” as arrangements designed to align incentives between physicians and hospitals by offering physicians a portion of a hospital’s cost savings in exchange for implementing cost-savings strategies.

Specifically, in Advisory Opinion 07-22 the OIG was asked to consider an arrangement under which a hospital (the “Hospital”) agreed to share with a group of anesthesiologists (the “Anesthesiology Group”) a percentage of the Hospital’s cost savings arising from the Anesthesiology Group’s implementation of cost reduction measures. Advisory Opinion 07-21 involved a similar arrangement between a hospital (also referred to herein as the “Hospital”) and cardiac surgeons (the “Surgical Group”). While the OIG noted that these gainsharing arrangements may implicate the Anti-Kickback Statute and the civil monetary provision of Section 1128A(b)(1)-(2) of the Social Security Act (the “CMP”), the OIG indicated that it would not subject either arrangement to sanctions. It should be noted, however, that OIG advisory opinions are limited to the particular facts presented and do not have the force of law.

Anesthesiology Group Arrangement (No. 07-22)

According to facts provided by the requesting parties, the Anesthesiology Group is the only group administering cardiac anesthesia at the Hospital, and its practice is limited to the administration of anesthesia ancillary to procedures performed by other physicians. The Anesthesiology Group does not reassign the right to payment to the Hospital.

The Hospital agreed to pay the Anesthesiology Group a share of cost savings directly attributable to specific changes in the Anesthesiology Group’s practices. The Hospital engaged a program administrator to analyze and manage the arrangement for a fair market value fee. Based on the recommendations of the program administrator, the Hospital and the Anesthesiology Group adopted five specific cost-savings measures, which are grouped into three categories: (1) used as needed items; (2) product substitution; and (3) product standardization. While the arrangement had been implemented and the Anesthesiology Group had modified its practices prior to the request for the advisory opinion, the Hospital had not paid any amounts owed to the Anesthesiology Group under the arrangement, pending the outcome of the advisory opinion.

Surgical Group Arrangement (No. 07-21)

According to facts provided by the requesting parties, the Surgical Group refers patients to the Hospital for inpatient and outpatient procedures, and the Surgical Group is the only group of cardiac surgeons practicing at the Hospital.

As in the arrangement with the Anesthesiology Group, the Hospital agreed to share with the Surgical Group the cost savings directly attributable to its modified practices, and the Hospital hired a program administrator, at fair market value, to analyze and manage this arrangement. The program administrator identified 25 cost-savings opportunities, grouped into four categories: (1) disposable cell saver components; (2) use as needed supplies; (3) product substitutions; and (4) product standardization. Similarly to the arrangement with the Anesthesiology Group, the Hospital and Surgical Group had implemented these measures prior to the request for the advisory opinion, but the Hospital had not paid any amounts to the Surgical Group under the arrangement.

Safeguards Present in Both Arrangements

The arrangements contained several safeguards which the OIG indicated precluded it from seeking sanctions under the CMP, including:

  • Clearly and separately identifying the specific cost-saving actions and resulting savings;
  • Credible medical support for the position that implementation of the arrangements did not adversely affect patient care;
  • Calculating the amount to be paid under the arrangements based on all procedures regardless of insurance coverage, subject to a cap of payment for Federal health care program procedures;
  • Utilizing objective historical and clinical measures to establish baseline thresholds beyond which no savings accrued to the Anesthesiology Group or Surgical Group;
  • Ensuring that individual physicians still had available the same selection of devices and supplies after implementation of the arrangements as before;
  • Provision of written disclosure of the applicable arrangement to patients whose care may have been affected by such arrangement, and an opportunity to review the cost savings recommendations;
  • Reasonably limiting the financial incentives in duration and amount; and
  • Distributing profits to the Anesthesiology Group and Surgical Group members on a per capita basis.

Further, the OIG determined that it would not impose sanctions under the Anti-Kickback Statute, because:

  • The safeguards of the arrangements reduce the likelihood that the arrangements were used to attract referring physicians. Such safeguards include limiting participation to physicians already on the Hospital medical staff, capping the potential savings derived from procedures for Federal health care program beneficiaries, and limiting the contract year for which payments were calculate to one year.
  • The structure of the arrangements eliminated the risk that the arrangements would be used to reward physicians for referrals. For example, the profits are distributed on a per capita basis, mitigating any incentive for an individual physician to generate disproportionate cost savings.
  • The arrangement set out the actions generating the cost savings on which the payments were based.


While the OIG noted that gainsharing arrangements can increase efficiency and serve legitimate business purposes, it reiterated its concerns regarding gainsharing arrangements generally, noting that such arrangements may have a detrimental effect on patient care and implicate the CMP and Anti-Kickback Statute. Nonetheless, the OIG stated that based on the specific safeguards included in these arrangements, it would not subject either arrangement to sanctions.

For more information, please contact Jessica B. Applegate by phone at 414.223.2508, or by email at

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