Advisory Opinion 08-21 Continues OIG's Pattern of Acceptance in Cost-Savings Arrangements

On December 8, 2008, the Department of Health and Human Services’ Office of Inspector General (HHS OIG) posted Advisory Opinion No. 08-21 regarding a hospital’s cost savings arrangement with four cardiology groups and a radiology group. Under the arrangement, the hospital agreed to share its cost savings from specified cost reduction measures in cardiac catheterization procedures. After reviewing the facts and circumstances of the proposed arrangement, HHS OIG chose not to impose sanctions on the requestors of the Advisory Opinion.

Factual Background

The arrangement discussed in the Advisory Opinion is among an acute care hospital, four cardiology groups that employ exclusively cardiologists and have active medical staff privileges at the hospital, and one radiology group employing exclusively interventional radiologists with active medical staff privileges at the hospital. All of the physician groups in the arrangement refer patients to the hospital. Together, the physician groups perform almost all of the cardiac catheterization procedures at the hospital. Under the arrangement, the hospital agreed to pay each of the five physician groups 50 percent of the cost savings directly attributable to specific cost-savings measures in each group’s cardiac catheterization practices over a period of two years.

In developing the arrangement, the hospital’s program administrator identified 27 appropriate cost-savings measures for the hospital and physician groups. Broadly stated, the cost savings recommendations fit into three categories: suggestions for product standardization; “use of as-needed” devices for coronary interventional and diagnostic procedures; and product substitutions.

The arrangement included many safeguards meant to protect against inappropriate reductions in services. These safeguards were specifically listed by HHS OIG as the reason the arrangement was approved, and follow in line with previous Advisory Opinions approving of similar cost-saving programs.

At the end of each year of the two-year arrangement, cost savings were calculated separately for each group for each of the applicable recommendations adopted. The arrangement was then re-based at the end of the first year of the two-year arrangement, so that the groups would not receive duplicate payments for savings achieved in the first year.

HHS OIG’s Opinion

CMS reiterated its well-known position that cost savings programs in general implicate the Anti-Kickback Statute, the Stark Law, and the civil monetary penalty law for reductions or limitations of patient care services (CMP). HHS OIG analyzed the arrangement under the CMP and the Anti-Kickback Statute.

CMP Analysis

Civil monetary penalties may be assessed against any hospital that knowingly makes a payment directly or indirectly to a physician as an inducement to reduce or limit items or services to Medicare or Medicaid beneficiaries under that physician’s care. The threshold inquiry under the CMP is whether the arrangement induces physicians to reduce or limit items or services. HHS OIG explained that the arrangement was markedly different from what it considers “gainsharing” plans, which purport to pay physicians a percentage of generalized cost savings not tied to specific, identifiable cost lowering activities.

CMS concluded that although each of the cost saving recommendations implicate the CMP, the safeguards set forth in the arrangement are sufficient to protect against abuse. Thus, HHS OIG chose not to seek sanctions under the CMP. HHS OIG specified the following features in the arrangement, which it found sufficient to avoid sanctioning the requestors:

1. Specific cost savings actions and the resulting savings were clearly and separately identified, and were sufficiently transparent to allow public scrutiny and individual physician accountability.
2. There was credible medical support for the position that the implementation of the cost savings measures would not adversely affect patient care.
3. The amounts paid under the arrangement were calculated based on all procedures performed, regardless of patient’s insurance coverage, subject to the cap on payment for federal healthcare program procedures. The procedures were not disproportionately performed on federal healthcare program beneficiaries.
4. The arrangement utilized objective historical and clinical measures to establish baselines that protected against inappropriate reductions in services.
5. The product standardization portion of the arrangement protected against inappropriate reductions by ensuring that individual physicians had available the same selection of devices and supplies after implementation of the arrangement as before.
6. The hospital and the physician groups provided written disclosures of the arrangement to patients whose care may have been affected by the arrangement.
7. Financial incentives were reasonably limited in duration and amount.
8. Incentives for individual physicians to generate disproportionate cost savings were mitigated by the fact that each group distributed profits to its members on a per capita basis.

Anti-Kickback Statute Analysis

HHS OIG also discussed its concern over the arrangement as it applies to the Anti-Kickback Statute. HHS OIG concluded that the arrangement could not fit within the personal services and management contracts’ Safe Harbor because the payment owed to the groups was calculated on a percentage basis, thereby precluding the required “set in advance” aggregate compensation. Discussing the arrangement on a case-by-case basis, HHS OIG found that while the arrangement could result in illegal remuneration if the requisite intent were present, it would not impose sanctions on this arrangement because of the following safeguards:

1. The likelihood of attracting referring physicians to the hospital was eliminated because participation in the arrangement was limited to physicians already on the medical staff. Further, the overall amount of applicable cost savings payments over the entire two-year term of the contract was capped, further reducing the incentive to switch facilities by the physicians.
2. The structure of the arrangement removed the risk that the arrangement was meant to reward surgeons or other physicians who refer patients to the group or their physicians. The groups alone were the sole participants in the arrangement and consisted only of cardiologists and interventional radiologists who performed the cardiac catheterization procedures.
3. The arrangement specifically set forth particular actions on which the cost savings payments were to bebased. The program administrator’s recommendations were based on historical data and included medical certification that the cost savings measures would not adversely affect patient care.

Based on all of these safeguards and the structure of the arrangement itself, HHS OIG concluded that the arrangement posed a low risk of fraud and abuse under the Anti-Kickback Statute.

While this and other advisory opinions provide general guidance to hospitals and physicians, an advisory opinion may be relied upon only by the party to whom it was issued.  Moreover, in Advisory Opinion 08-21, or in any of the other advisory opinions issued relating to gain sharing-type arrangements, the HHS OIG did not comment on whether the proposed arrangement complies with the physician self referral law known as “Stark.” The arrangement described in Advisory Opinion 08-21 likely implicates the Stark law. The Stark law and regulations set forth a number of exceptions. However, it is not clear whether the arrangement is structured to satisfy the requirements of any of the Stark exceptions.

Conclusion

Advisory Opinion 08-21 continues HHS OIG’s recent interest in, and allowance for, cost savings measures between physician groups and hospitals which have the potential to lower overall payments made by federal healthcare programs, so long as appropriate safeguards exist. Most importantly, the arrangement in this Advisory Opinion and all others recently approved set forth the specific measures taken and tie the remuneration paid to actual, verifiable cost savings attributable to those specific actions. Common themes in all of the arrangements so far approved also include safeguards such as allowing for public disclosure and scrutiny on the affects of the arrangement, providing historical medical support that the cost savings measures do not adversely affect patient care, establishing baseline thresholds beyond which no savings will accrue, and limitations in the duration and amount of cost savings payments provided to the groups.