Proceed carefully with gain-sharing deals

Contract Language. By Steven M. Harris, AMNews contributor. April 4, 2005.

CONTRACT LANGUAGE

A column examining the ins and outs of contract issues

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A cardiology group recently contacted me regarding a proposed gain-sharing agreement with a hospital. The group has had a long relationship with the hospital and was interested in exploring cost-saving methods that would enhance patient care and ultimately benefit the hospital's bottom line. In return for complying with the proposed cost-saving measures, the hospital proposed to pay the group a percentage of the realized cost savings.

Gain-sharing agreements usually occur when hospitals provide financial incentives to physicians who cooperate to cut costs and improve efficiency. Under a gain-sharing agreement, physicians are paid on the basis of efficiencies that are introduced to a hospital department.

The big problem with gain-sharing agreements, though, is that the Office of Inspector General has generally cautioned against them. The OIG has warned that the arrangements can trigger the anti-kickback and Stark regulations and cause scrutiny of a tax-exempt hospital's status.

So why didn't I just tell the cardiology group to forget about a gain-sharing deal?

It's because the OIG recently issued advisory opinions approving two gain-sharing arrangements. While OIG opinions technically only apply to the individual case under review, they do give guidance as to what sort of contract language is permissible, and what is not.

The first OIG advisory opinion dealt with a proposed arrangement in which a hospital would share, with a group of cardiologists, the first-year cost savings expected to result from a strategy to reduce the wasteful use of medical supplies in the cardiac catheterization lab. The second opinion was a similar case, except that the physicians were cardiac surgeons, and the target for waste reduction was the operating room.