On November 25, 2008, the HHS Office of Inspector General (OIG) issued another advisory opinion addressing a cost savings sharing arrangement between a hospital and physicians, in this case four cardiology group practices and a radiology group practice. The 23 cost savings actions were grouped into three categories: product standardization (standardizing the supplies and devices used); product limitation (used or opened only as needed); and product substitution (use of less costly substitute products).

As has been the case historically, the OIG determined that the arrangement implicated the civil monetary penalty provisions of the Social Security Act, but nevertheless, declined to impose civil monetary penalties because the arrangement contained safeguards to discourage the physicians from improperly reducing or limiting the items or services furnished to Medicare and Medicaid patients.

Similarly, the OIG again determined that the arrangement implicated the federal anti-kickback law and failed to satisfy the safe harbor for personal services and management contracts. Consistent with past practice, the OIG did not impose sanctions, as the OIG found that the arrangement contained factors to reduce the risk that the arrangement might be used to induce referrals. While this advisory opinion closely tracks the Stark Law exception proposed by CMS in the proposed Medicare Physician Fee Schedule for CY 2009, the opinion specifically does not address the Stark Law. In the final Medicare Physician Fee Schedule rule issued November 19, 2008, CMS declined to finalize the proposed exception to the Stark Law for shared savings and incentive plans for CY 2009 because of concerns regarding whether the proposed protections were sufficient. The comment period on the exception was extended until February 17, 2009.

Advisory Opinion 08-21 continues the OIG's four-year pattern of approving cost savings measures, particularly for cardiac procedures and surgical procedures, between physician groups and hospitals which have the potential to reduce overall federal healthcare program payments, provided appropriate safeguards are included.

The gainsharing arrangements approved by the OIG include descriptions of the actions to be taken to generate the savings and explicitly require that the cost savings paid to the physicians are limited to the related cost savings that are actually realized. All of the gainsharing arrangements approved by the OIG thus far have also included beneficiary safeguards, including public disclosure, review of historic practice patterns, independent review of potential affects resulting from the proposed actions, and medical support to show that the cost savings measures will not adversely affect patient care. Finally, all of the arrangements were of limited duration, typically one to two years and contained limits on the amount of cost savings payments for which the groups were eligible.

Given that the OIG continually has found that the gainsharing arrangements potentially violate the anti-kickback law and the civil monetary penalty provisions of the Social Security Act, providers and physicians should continue obtaining advisory opinions before implementing similar programs until CMS enacts a responsive safe harbor.