July 9, 2009Client Alert

OIG Approves Hospital’s Plan to Share Cost Savings with Doctors

On June 30, 2009, the Department of Health and Human Services Office of Inspector General (“OIG”) posted Advisory Opinion 09-06. This advisory opinion reviewed an arrangement whereby a hospital (“Hospital”) agreed to share with a physicians’ cardiology group, a vascular surgical group, and an interventional radiology group (individually, a “Group”, collectively, “Groups”) a percentage of the hospital’s cost savings arising from the physicians’ implementation of cost-reduction measures in certain cardiac catheterization procedures (“Arrangement”). Because the cost savings are measured based on the physicians’ use of specific medical devices and supplies during designated procedures, the OIG reviewed the Arrangement to determine whether it violated: (1) the Social Security Act’s prohibition on hospital payments to physicians to induce reduction of services to Medicare or Medicaid beneficiaries, and (2) the Anti-Kickback Statute, which prohibits the payment of remunerations with the intent to induce referrals for items or services which are reimbursable by a federal health care program.


Under the Arrangement, the Hospital agreed to pay each Group a share of the cost savings directly attributable to changes in 21 specific areas related to product standardization of each particular Group’s cardiac catheterization procedures. The products eligible for payments under the Arrangement were selected by a program administrator after a review for safety, effectiveness, clinical criteria, and cost.

Legal Analysis

Analysis of the following eight factors led the OIG to determine that the Arrangement did not violate the Social Security Act: (1) the Arrangement provided for sufficient transparency, (2) there was no negative effect on patient care, (3) the formula used to calculate cost savings was based on all procedures performed regardless of the patient’s insurance coverage, (4) the Arrangement included monitoring various quality measurements, (5) there was a range of devices and supplies available to physicians consistent with the range available before the Arrangement, (6) written disclosure of the Arrangement was provided to patients, (7) the financial incentives were reasonably limited in duration and amount, and (8) a per capita pay scale was utilized which reduced the incentive for an individual physician to generate disproportionate cost savings.

With respect to the Anti-Kickback Statute, consideration of three factors led the OIG to find the Arrangement presented a low risk of fraud or abuse: (1) the circumstances of the Arrangement reduced the likelihood that the Arrangement would be used to attract or increase referrals (for instance, participation was limited to physicians already on staff, savings were capped, there was a per capita pay structure, and admissions were monitored for changes in severity, age, or pay), (2) the Arrangement was structured in such a way as to eliminate the risk that it would be used to reward referring physicians, and (3) the Arrangement set out with specificity 21 reasonable cost saving actions upon which payment would be based.


While the Arrangement could potentially violate the Social Security Act by reducing the scope and quality of services to patients and also violate the Anti-Kickback Statute by offering physicians payments for referrals, the OIG decided, based on an analysis of the safeguards in the Arrangement, that it would not subject the Hospital to sanctions under either Act because the safeguards provided adequate protection against reduction in quality and scope of care and fraud or abuse. Please note that the OIG has limited this Advisory Opinion to the particular facts and circumstances of the Arrangement and, therefore, this Advisory Opinion does not have the force of law.

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