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Gainsharing provides a mechanism for aligning hospitals’ economic incentives with physicians’ interests and is a well-documented, viable method of facilitating this cooperation, to the benefit not only of hospitals but also of patients and payers. Gainsharing is a term that is used to describe arrangements between hospitals and physicians whereby the hospital agrees to share with the physicians any reduction in the hospital’s costs for patient care attributable in part to the efforts of the physician. Typically, these payments are structured in a variety of ways, including hourly payments for services performed by the physician or as a percentage of the cost savings realized under the arrangement. While gainsharing has gained increasing acceptance in the past years, the road traveled has not been an easy one.


Historically, the Department of Health and Human Services (HHS), Office of the Inspector General (OIG) has been suspicious of gainsharing programs. In 1999, the OIG issued a Special Advisory Bulletin outlining its concerns with generalized gainsharing (payments tied to overall cost savings rather than payments tied to specific, identifiable cost savings) and took the position that gainsharing arrangements between hospitals and physicians violate current federal law. Specifically, the OIG said that gainsharing violates the civil monetary penalty (CMP) provision that prohibits a hospital from paying a physician to induce reductions or limitations of patient care services to Medicare or Medicaid beneficiaries under the physician’s direct care. Additionally, the OIG noted that gainsharing arrangements may also raise concerns under the federal anti-kickback statute. 

Agency Guidance

The 1999 OIG issuance was viewed by many as signaling the end to gainsharing. Nevertheless, in 2001, gainsharing was given new life when the OIG approved the first of many gainsharing programs under the OIG advisory opinion process. In the advisory opinion, the OIG, consistent with its historical position on gainsharing, stated that while gainsharing violates the CMP, the OIG would exercise its discretion not to seek administrative sanctions against the requestors of the opinion. In addition, the OIG stated that the arrangement contained sufficient safeguards to pose a low risk of fraud or abuse under the anti-kickback statute. Since the issuance of the 2001 opinion, the OIG has approved twelve additional gainsharing programs and one Pay for Performance (P4P) program, bringing the total number of OIG-approved gainsharing programs to fourteen.

Of these fourteen approved gainsharing arrangements, six involve cardiac surgery, five involve cardiology, one involves anesthesiology services, one involves orthopedic surgery, and one involves the sharing with physicians of incentives earned from an insurer for quality improvement efforts –P4P. Importantly, the OIG has recently approved for the first time multi-year gainsharing programs. Generally speaking, the cost saving measures approved through the advisory opinion process fall into the following categories: (1) substitution of less costly products for products previously in use; (2) product standardization; (3) opening items and supplies only when needed; and (4) eliminating the use of or limiting the use of certain items and supplies. In each opinion, the OIG found that the arrangement implicated the CMP provision, since it could induce physicians to reduce current medical practices at the hospital, and also implicated the anti-kickback statute, since it could be used to disguise illegal remuneration by encouraging physicians to admit more Federal program beneficiaries to the hospital. However, in each instance the OIG declined to impose administrative sanctions based on the safeguards incorporated into each arrangement. Specifically, the OIG identified three types of safeguards: (1) measures that promote accountability and transparency; (2) adequate quality controls; and (3) controls on payments related to referrals.

Future Direction

While the OIG’s continued willingness to approve gainsharing arrangements and expand into new specialties and extend the duration of the programs is promising, it does not provide a green light for gainsharing. The OIG’s analysis of each approved program is highly fact-specific and should not be viewed as an overarching approval of gainsharing. Further, while the OIG is exercising its discretion with respect to the CMP law, modification of the CMP law to permit gainsharing would require an act of Congress. In addition, the OIG opinions do not analyze the gainsharing arrangements for compliance with the Stark Law, which falls under the purview of CMS.


While the OIG guidance has been useful to the industry and provided some parameters for appropriately structuring gainsharing arrangements, the questions of whether and if gainsharing complies with the Stark Law has remained unanswered.

Excerpt from Catherine Martin, The New “Gainsharing”: Where We Have Been and Where We Are Heading, Physicians & Physician Organizations Law Institute (American Health Lawyers Assoc., Feb. 2009).