On January 5, 2018, the Health and Human Services Office of Inspector General (OIG) posted a favorable Advisory Opinion, permitting an arrangement involving payment by a Medical Center to a multi-specialty physician Group for cost-reduction measures achieved through the efforts of certain Neurosurgeons, relating to the selection and use of products during spinal fusion surgeries (Program).  Payment under the Program was calculated as a percentage of cost savings realized by the Medical Center over a three-year period.  Though not yet paid at the time of the OIG advisory opinion, the amounts were to be paid to the Group through a Medical Center Subsidiary tasked with administering the Program, utilizing a Program Administrator. A portion of the payment made to the Group would be distributed to participating Neurosurgeons based on pre-existing contractual provisions with the Group that provided payment for personally-performed services. The Program Administrator was being paid a fixed monthly fee for services rendered, an amount not tied to cost savings or compensation paid to the Group.

The Program Administrator used a software product it had created to collect, measure and analyze data and to derive cost-savings recommendations that were documented in an Executive Summary.  The Executive Summary was reviewed and approved as medically appropriate by the Medical Center, the Subsidiary and the Group.  Recommendations for savings included:

  • recommendations that the Neurosurgeons reduce the use of bone morphogenetic protein (BMP) by using it only on an as-needed basis for surgeries on three specific areas of the spine;
  • recommendations for the Neurosurgeons to standardize certain devices and supplies used in spinal fusion surgeries using a 3-step process: the Neurosurgeons would first determined that the products were safe and effective, then assess whether the proposed product standardization measures were appropriate based on clinical criteria, and finally would select the products based on pricing available to the Medical Center; and
  • the Neurosurgeons would use the preferred products where medically appropriate, even though this could require additional training or changes to their clinical practices.

To alleviate concerns that the Program could result in a reduction or limitation of medically necessary services, an oversight committee was formed to work with the Program Administrator and monitor the Program.  The Program also prohibited the Neurosurgeons from cherry-picking patients to reduce costs.  To monitor this, the oversight committee was tasked with confirming each Neurosurgeon was admitting a historically consistent selection of patients.

To increase the Program’s transparency, patients were provided a written notice of the Program, including a statement that compensation was being made based on a percentage of cost savings to the Medical Center. The notice was provided prior to admission or, if that was not practical, then prior to consenting to surgery. In addition, the Medical Center, Subsidiary and Group retained documentation to certify the nature and costs of services furnished under the Program.

The OIG determined that it would not impose administrative sanctions although the Program could potentially implicate the Gainsharing CMP at Section 1128A(b)(1) of the Social Security Act (Act), which prohibits inducements to reduce or limit medically necessary services, and even though the Program could potentially generate prohibited remuneration under the anti-kickback statute (AKS) at Section 1128B(b) of the Act, if the requisite intent were present.

Gainsharing CMP

The requestors had certified that none of the recommendations in the Executive Summary would reduce or limit medically necessary services, and also that the Program Administrator monitored the Program and reported quarterly to the oversight committee concerning any changes in cost, resource utilization, or quality of patient care.  The OIG found these certifications, along with consideration of the methodology used to develop the cost-saving recommendations, the monitoring and documentation safeguards, and the methodology used to calculate savings, reduced the risk that Program payments would induce the Neurosurgeons to reduce or limit medically necessary services.

Anti-kickback Statute

The OIG cited to one of its typical concerns for gainsharing arrangements — that payments are actually being made in order to induce physicians to make referrals or to attract referring physicians.  Here, the OIG concluded that the Program presented a sufficiently low risk of fraud and abuse under the AKS.

In support of this conclusion, the OIG first recognized that the Program included safeguards that, taken together, would substantially reduce any incentive the Neurosurgeons would have to increase referrals to the Medical Center, including:

  • the incentive payments would be distributed to the Neurosurgeons on a per capita basis, which reduced the risk of an incentive for any particular Neurosurgeon to generate disproportionate cost savings;
  • the potential savings would be capped based on the number of spinal fusion surgeries performed by the Neurosurgeons on Federal health care program beneficiaries in the relevant base year;
  • the aggregate payment to the Group, when made, would not exceed 50 percent of the projected cost savings estimated by the Program Administrator at the beginning of the term of the Program (after deducting the Program Administrator’s administration fee); and
  • the Program’s oversight committee would collect and review data on patient severity, age, and payor for the spinal surgeries covered by the Program, to confirm a historically consistent selection of patients.

Second, the OIG determined that the Program’s structure minimized the risk that retention of a portion of the payment would be used to induce or reward referrals by non-participating Group physicians, reasoning that:

  • the Group, rather than individual physicians, would retain a percentage of the savings;
  • the amount retained would be used exclusively for the Group’s administrative and recruitment expenses, which lowered the risk that it would be used to reward particular physicians; and
  • the percent retained by the Group was based on a longstanding formula in its operating agreement applicable to each physician.

The OIG cautioned that it might have reached a different conclusion if these amounts had been used for anything other than administrative expenses, or if the formula were not a pre-existing feature of the Group’s compensation structure.

Third, the OIG pointed out that while multi-year gainsharing arrangements can inappropriately carry over savings from prior years, potentially resulting in unearned duplicate payments that comprise kickbacks, the Program payment methodology reduced this concern because the savings were calculated only as compared with the most recent base year.

Fourth, the OIG found that it was not unreasonable for the Medical Center to compensate the Neurosurgeons for their activities during the limited period of time covered by the Program, which included services provided in determining that the products were safe and effective and assessing whether the proposed product standardization measures were appropriate based on clinical criteria, and also that additional training or changes in clinical practices could have been required for them to use the preferred products.

Fifth, OIG concluded that there was reduced risk that the Medical Center accounts would be manipulated to generate phantom savings or income for the Neurosurgeons because the cost-saving recommendations and estimated cost savings were specified in the Executive Summary and the Program tied the Neurosurgeons’ incentives to actual, verifiable cost savings attributable to each recommendation implemented during spinal fusion surgeries.

Sixth, the structure of the Program allowed the Neurosurgeons to share in savings when they chose less expensive but equally cost-effective products and also preserved the Neurosurgeons’ ability to use the most clinically appropriate devices for their patients.

Finally, the OIG found the likelihood was low that the Program would be used to attract Neurosurgeons from competitor hospitals to perform surgeries at the Medical Center because no Neurosurgeons from other physician groups were allowed to participate in the Program.


As the OIG has emphasized, Advisory Opinions are issued only to the requestors of the opinion, and have no application to, and cannot be relied upon by, any individual or entity, nor may they be introduced into evidence by anyone other than the requestors to prove the individual or entity did not violate the anti-kickback statute, or any other law.