You Make the Call: Do Cost-Savings Payments to Referring Physician Violate Kickback Laws?


XYZ Consultants recommends that a hospital client cut costs by making 34 changes to its OR spinal fusion surgeries procedures. The recommendations fall into two broad categories, including getting neurosurgeons to agree to:

  • Use Bone Morphogenetic Protein only on an as-needed basis for surgeries on three specific regions of the spine; and
  • Use standardized devices and supplies for spinal fusion surgeries.

To implement the recommendations, XYZ proposes a three-year arrangement among itself as administrator, the hospital and the medical group of the neurosurgeons that perform the procedures under which the hospital will pay the neurosurgeons a share of the cost savings achieved as a result of the changes they make in selecting and using products during spinal fusion surgeries.


Is the proposed arrangement legal?


Yes, according to recently issued OIG Advisory Opinion (No. 17-09), as long as the safeguards described in the proposal are actually implemented.


The OIG analysis addresses two specific legal issues raised by the proposed arrangement and concludes that the safeguards would be adequate to address each concern.

1. Gainsharing Risks

Concern: The cost-reduction payments to the neurosurgeons could violate Section 1128A(b)(1) of the Social Security Act, which bans hospitals from paying physicians, directly or indirectly, to induce them to reduce or limit medically necessary services to Medicare or Medicaid patients.

Safeguards: The proposed safeguards would adequately control risk of improper service reductions, including:

  • Monitoring via oversight by a specially designated Program Committee;
  • Strict documentation requirements;
  • Making neurosurgeons disclose the arrangement to patients before getting their consent to the surgery.

2. Kickback Risks

Concern: Cost-reduction payments to neurosurgeons could be deemed kickbacks for referrals to the hospital.

Safeguards: The safeguards in place eased the OIG’s Anti-Kickback Statute concerns:  

  • Distributing payments to neurosurgeons on a per capita basis reduced the risk of incentivizing any individual neurosurgeon to generate disproportionate costs savings; 
  • Capping potential savings based on the number of spinal fusion surgeries performed by the neurosurgeons on Medicare/Medicaid patients in a designated base year;
  • Certification that aggregate payments to the group would not exceed 50% of the projected cost savings at the start of the arrangement; and
  • Program Committee review to verify historically consistent selection of patients for the surgeries covered by the arrangement in terms of age, severity and payor.

Takeaway: Although the arrangement in this case involved spinal surgery, the principles also apply to arrangements involving physicians and labs—both hospital-based and freestanding. The bottom line: Cost-reduction arrangements in which providers pay referring physicians a portion of savings yielded as a result of accepting changes to medical procedures do raise significant liability concerns under kickback and gainsharing laws and should not be undertaken unless strict and effective safeguards are in place to monitor and prevent abuses.


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