Gainsharing is Becoming More Respectable

Last Updated Jul 28, 2009 8:00 AM EDT

Last month, I wrote about the latest opinion on gainsharing--the sharing of operational savings by hospitals with physicians--from HHS' Office of the Inspector General (OIG). Although OIG had declared gainsharing illegal in July 1999, it told the hospital that had requested the advisory opinion that it could proceed with its gainsharing plan without fear of prosecution.

Well, it turns out that this is the 14th nearly identical opinion that OIG has issued on the subject since 2001. According to Joane Goodroe, president of Goodroe Healthcare Solutions, a subsidiary of VHA Inc., all 14 of the hospitals that sought and received OIG approval are using the gainsharing model developed by her firm. So are 46 other hospitals that didn't seek an OIG dispensation.

To summarize the model briefly, it uses a program administrator (in this case, GHS) to maintain an arms' length relationship between the hospital and the physicians. Under the gainsharing arrangements on the selection and use of medical devices, physicians and hospitals consider the cost of those devices only after ascertaining that they are safe, effective and appropriate. The administrator also checks the quality of the selected devices against benchmarks established by specialty societies. Steps are taken to make sure that additional business is not steered to low-utilizing physicians and that doctors do not avoid sicker patients. Savings are distributed to each group involved, which shares them equally among physicians.

The OIG declared gainsharing illegal mainly because of the Civil Money Penalties (CMP) Act, a law passed in the '80s that prohibits hospitals and physicians from collaborating to reduce the costs of treating Medicare patients. (There are also two other obstacles--the Stark self-referral law and the Anti-Kickback Act--but Goodroe says that her firm's model sidesteps those barriers.) Congress considered changing the CMP law a few years ago; but after receiving complaints from device manufacturers, it decided to have CMS do a demonstration project instead. That project is slated to conclude this December, but might be extended.

Gainsharing is not necessarily limited to reducing the cost of medical devices, which vary substantially from hospital to hospital. There are also major opportunities for savings in labor, medical/surgical supplies, and contrast media, according to Goodroe. But the cost reductions in the device area easier to quantify.

Jonathan Ketchum and Michael F. Furukawa, in a research paper based on GHS data, showed that gainsharing enabled 13 hospitals to cut spending on coronary stent procedures by 7.4 percent, compared with other hospitals, over a 5-year period. Ninety-one percent of the savings came from lower prices, and the rest from lower utilization. After other studies showed complications from drug-eluted stents, many of the participating physicians switched to lower-cost bare metal stents, which accounted for much of the savings. Quality of care was arguably higher in the gainsharing hospitals: not only did the physicians use thrombolytic medications more appropriately, but they had lower complication rates in some categories.

With the Medicare Payment Advisory Commission (MedPAC) pushing gainsharing and bundled payments, reform legislation that gives MedPAC more authority over Medicare reimbursement methods could open the door wide to gainsharing, notes Goodroe. Meanwhile, device manufacturers can be expected to fight any change in the Civil Money Penalties Act.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.