OIG puts death grip on gainsharing agreements

Physician-hospital pacts in trouble

In a surprising and controversial move, the Office of Inspector General (OIG) has issued a special advisory bulletin effectively prohibiting all but one kind of so-called "gainsharing" arrangement between a hospital and physicians.

Any physicians or group practices that currently have a gainsharing contract in place — or in negotiation — with a hospital can expect to see that deal either terminated or placed on hold, advise legal experts.

Gainsharing typically includes an arrangement in which a hospital gives physicians a percentage of any reduction in its costs for patient care attributable to the doctor’s personal efforts.

Unlawful arrangements?

The OIG’s July 8 bulletin acknowledges hospitals have a legitimate interest in enlisting physicians in their efforts to eliminate unnecessary costs and says many gainsharing arrangements provide a benefits to both patients and hospitals. But it also notes that such arrangements are prohibited by the Civil Monetary Penalties (CMP) statute.

Besides gainsharing, the OIG also alerted physicians involved in what’s often called "hospital-within-a-hospital" joint ventures that these projects may also violate anti-kickback laws and the CMP, says Stephen Bernstein, a health care attorney in the Boston law offices of McDermott, Will & Emery.

A hospital-within-a-hospital venture can range from a freestanding specialty hospital (e.g., heart, orthopedic, or maternity hospitals) to arrangements in which a service that generates high revenue (e.g., cardiology or cardiac surgery) of an existing hospital is restructured and legally incorporated as a separate hospital.

Also, many hospitals are being advised by legal eagles to review their Medicare and Medicaid managed care agreements with provi ders to ensure any efficiency-based payment incentives are in line with federal provider incentive payment (PIP) regulations.

"While we believe the OIG’s analysis is flawed, and its conclusions erroneous, this bulletin is a clear statement that the OIG will attempt to sanction those who continue to try to enter into gainsharing arrangements," says Bernstein.

According to the OIG, the one kind of gainsharing arrangement hospitals and physicians may still enter into is a personal services contract in which the hospital pays the physician a fixed-fee fair market value for services rendered, rather than a percentage of cost savings.

Attention now has turned to Capitol Hill to see if lawmakers can come up with new legislative language that would permit future gainsharing deals.

Look for the loophole

Despite what he calls a "shocking broadside against gainsharing," Edward Kornreich, an attorney with the New York City law firm of Proskauer Rose, says there is a loophole in the OIG’s position. According to Kornreich, the OIG "appears to leave open the possibility that hospital programs that reward physicians for reducing the cost of items and services provided to hospital patients would not be prohibited as long as the programs do not reward physicians for reducing the quantity and quality of those items and services."

Potentially acceptable programs not specifically mentioned by the OIG but which Kornreich feels might fit under this umbrella include:

• financial incentives targeted to the use of more economical hospital supplies, such as pharmaceuticals or medical devices;

• the adoption of more efficient practices, such as scheduling and the timely preparation of charts and reports.