Medical Device Link.

Originally Published MX January/February 2006

BUSINESS NEWS

Aware of the brewing controversy over gainsharing, the U.S. Department of Health and Human Services Office of Inspector General (OIG) continues to emphasize the need for limited implementation of the practice. Testifying at an October hearing on gainsharing, OIG's chief counsel, Lewis Morris, said that the office has been "historically wary" of gainsharing arrangements due to their potential to violate federal antikickback statutes.

Gainsharing arrangements typically provide financial incentives to doctors who agree to use preapproved medical devices, equipment, and supplies that have been standardized by hospitals to control costs through volume buying.

Gainsharing arrangements were ruled illegal in 1999. The OIG approved the first gainsharing arrangement in 2001 and has issued seven favorable advisories on the practice to date. According to Morris, one of the primary objectives of gainsharing is to "align physician incentives with those of the hospital and thereby promote hospital cost reductions." Yet his testimony noted that each gainsharing arrangement was "fact specific."

Morris said each gainsharing arrangement had to be vigorously scrutinized to avoid violating the provisions of the civil monetary penalties (CMP) law, "which prohibits a hospital from knowingly making a payment directly or indirectly to a physician as an inducement to reduce or limit items or services." In fact, Morris said that gainsharing arrangements remain "a technical violation of CMP law . . . and absent a change, it is not currently possible for gainsharing arrangements to be structured without implicating the fraud and abuse laws."

Similarly, Morris cited the potential for violation of federal antikickback statutes, particularly if such cost-saving arrangements attempt to influence referrals or to "cherry-pick healthier patients for hospitals offering gainsharing while sending the sicker, more costly patients to other hospitals not offering gainsharing."

Kathleen McDermott, a partner with Blank Rome LLP (Washington, DC) and a specialist in healthcare law, describes OIG's advisory guidance on gainsharing arrangements as "very limited" in scope. "They've given hospitals a yellow light—urging caution—while emphasizing the need for patient access to quality care," she says. McDermott sees properly structured gainsharing arrangements with short-term limits and other safeguards as having a place on hospitals' cost-containment menus, but she acknowledges that the potential for fraud and abuse is "always there."

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