Follow guidelines closely to avoid gainsharing trouble

(Editor's note: This is the second of a two-part series on the risks of gainsharing agreements and how to structure them safely. Last month's report discussed the potential danger, and this month's story explains how to make sure a gainsharing agreement is structured properly to reduce the risk.)

There has not yet been a major case illustrating the perils of poorly constructed gainsharing agreements, probably because everyone is so scared of the potential penalties that they go to great lengths to make sure everything is on the up and up, says Barron Bogatto, JD, a partner in the health care and business Transactions sections of Jackson Walker, a law firm in Houston. Bogatto says that's the right approach: Use extreme caution.

The penalties for violation of the statutes involved in gainsharing are substantial. In addition to exclusion from the governmental insurance programs, Bogatto notes that violations of the anti-kickback statute could include a felony with $25,000 fine or imprisonment up to five years, or both. Civil monetary penalties can include a $50,000 fine plus three times the amount of damages.

Stick to the guidelines, and make sure you dot every "I" and cross every "T" when entering into any gainsharing agreement. That's the advice from the experts who say straying off the well-marked path could result in serious liability for a health care provider.

Gainsharing agreements allow hospitals to have more say in what medical devices physicians use, which in turn yields savings by streamlining the purchasing process and focusing on items that are of the same quality but cost less. The financial benefits can be significant, but there is a risk of violating federal and state laws and regulations. For instance, the Federal Civil Monetary Penalty Statute imposes financial penalties upon hospitals that knowingly make payment directly or indirectly to a physician as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries.

The federal Anti-Kickback Statute also prohibits anyone from knowing and willingly paying or receiving any payment for referring patients for the provision of items or services for which payment may be made under a federal health care program. And, the federal Self-Referral Law, commonly known as the Stark Law, prohibits physicians from referring Medicare and Medicaid patients for the provision of certain "designated health services" to an entity with which a physician has made a financial relationship.

The federal government has made clear that gainsharing can be acceptable as long as you follow certain guidelines, Bogatto explains. While the guidelines from the Office of the Inspector General (OIG) stem from consideration of specific gainsharing agreements, Bogatto says they can be applied to any proposed gainsharing arrangement.

"The OIG has under certain factual scenarios deemed certain safeguards sufficient to alleviate the risks it normally associates with such gainsharing ventures," he says. "Health care providers now have reason to believe that they can design certain limited gainsharing programs utilizing product standardization, which would be acceptable to the OIG, to incentivize their physician staff to work with them in order to appropriately hold down costs of patient care."

The OIG guidelines make clear that the government doesn't mind a provider saving money through gainsharing as long as you can prove that the agreement does not negatively affect patient care and may even improve it, says David Winkler, JD, a partner with Zumpano Patricios in Miami, FL. This is an area in which risk managers can make a significant contribution by ensuring that evidence is in the agreement, he says.

"You want to be able to show in a written policy that the reason you want people using this particular heart stent is that it's the best thing out there, and it has a proven track record of fewer complications," he says. "So the risk manager can provide the backup for these decisions concerning modification of physician behavior. The cost savings may come from fewer complications, or it might be that the stent is just cheaper than others, but you want to be able to show that this is the best thing for your patients, bottom line."

Risk managers must keep in mind that it is very risky to focus on how much money you can save with the gainsharing agreement without putting just as much effort into justifying why a certain medical product is best for your patients, Winkler says. Let other departments get excited about the cost savings, he says. Risk managers should look at the agreement in the same way as an OIG official and demand evidence that the agreement is safe for patients.

The OIG guidelines also state that any gainsharing agreement must be limited in duration and that any savings must be split with physicians on a per-capita basis, not based on how much that physician contributed. That guideline helps avoid situations in which as single physician is encouraged to cut corners so that he gets a bigger payoff from the gainsharing agreement, Winkler says.

"You also should tell patients what's going on," he says. "Have a letter that says, 'Because of quality-of-care issues and the need to provide cost-effective care, we utilize the following items.' And you can say that there are other treatment options available if they object."

In addition to offering the guidelines for how to structure an arrangement, the OIG outlined some features that can be problematic and therefore should be avoided. Bogatto says these are some potential problems that risk managers should watch out for in any proposed gainsharing agreement:

  • There is no demonstrable direct connection between individual actions and any reduction in the hospital's out-of-pocket costs (and the corresponding "gainsharing" payment).
  • The individual actions that would give rise to the savings are not identified with specificity.
  • There are insufficient safeguards against the risk that other, unidentified actions, such as premature hospital discharges, might actually account for any "savings."
  • The quality of indicators is of questionable validity and statistical significance.
  • There is no independent verification of cost savings, quality-of-care indicators, or other essential aspects of the arrangement.


For more information on gainsharing agreements, contact:

  • Barron Bogatto, JD, Jackson Walker, 1401 McKinney St., Suite 1900, Houston, TX 77010. Telephone: (713) 752-4200.
  • David Winkler, JD, Zumpano, Patricios & Winker, 999 Ponce De Leon Blvd., Penthouse 1110, Miami, FL 33134. Telephone: (305) 444-5565.