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Small Gains Made by Gainsharing


While pay-for-performance has become one of the hottest trends in healthcare, another program that would tie payment to performance is starting to get some notice. Gainsharing is on the horizon for hospitals and the physicians who work for them, but the advances made in this savings-sharing model are questionable.

Gainsharing Defined

What is gainsharing? It has to do with the sharing of gains—or of costs saved, to be more precise. Under a gainsharing model, a hospital will select specific best practices, including standard policies, procedures, and/or protocols that will improve quality of care and reduce financial costs. Any reduction in costs that results from physicians following these best practices is documented by the hospital over a specified period. After monitoring and noting that physicians met the predetermined benchmarks for quality of care, the hospital then pays a cash bonus to those who contributed to the cost reduction.

Gainsharing can take various forms, but generally the practice applies to services provided within a single clinical specialty such as oncology or cardiac surgery. “Gainsharing could affect anyone who cares for patients in a hospital if it became legal,” says Ron Greeno, MD, FCCP, chief medical officer, Cogent Healthcare, Irvine, Calif., “but hospitalists are the perfect group of doctors to take on projects like this.”

The most recent gainsharing programs have focused on the use of pre-approved medical devices, equipment, and supplies. For example, a hospital might recommend that physicians use less costly items with the same level of effectiveness, such as a knee-high sequential compression device rather than a thigh-high device.

How much money is involved in gainsharing? Of course, it depends on the program. “Gainsharing deals could include significant money depending on how they are structured,” explains Dr. Greeno, “if you did something that results in enough quality benefit.”

Example: A hospital asked a physician group to give an appropriate antibiotic to patients as soon as possible upon admission and was consequently able to show that they avoided a prolonged stay for five of those patients and that this saved the hospital $1 million in costs. “If the hospital gave 50% of that savings to 20 physicians who helped meet that goal, why would anyone want to regulate against that?” asks Dr. Greeno.

Minnesota Takes Aim at Quality of Care Targets

Minnesota Governor Tim Pawlenty has announced a new program that would set optimal care standards in four major healthcare areas and reward doctors who reach the quality targets. The program, called QCare, will affect all individuals covered by a state health program, including state employees and those in the state medical assistance program. The plan will set a quality standard for care in four areas: diabetes, hospital care, preventive care, and cardiac care.

A Brief History of Gainsharing

There is a good reason you may not have heard much about gainsharing; the practice was banned in 1999 by the federal Office of Inspector General (OIG). The OIG was concerned that gainsharing could limit patient care and might lead to physicians “cherry picking” patients who are healthier, while sending seriously ill patients to a different hospital.

Only in September 2005 did the OIG carry out a half-hearted reversal, providing advisory opinions that allow pre-approved arrangements between individual hospitals and physician groups—as long as appropriate safeguards are adopted to protect against abuse.

“This was a very small change,” says Dr. Greeno. “Their approval is highly limited. They have basically agreed to very specific, very short trials of gainsharing, which they will approve one at a time.”

Dr. Greeno is frustrated by the baby step taken by the federal government. “The OIG equates gainsharing with denial of care,” he says. “Their limits are preventing a tremendous opportunity for hospitals and physicians to partner to provide quality care; they’re saying we can’t provide the right incentive scheme.”

The point that Dr. Greeno finds most frustrating is the vast difference of opinion on gainsharing versus another payment trend. “The irony is that all gainsharing is pay-for-performance,” says Dr. Greeno. “The difference is that instead of Medicare paying, it’s the individual hospital paying for performance. Even people who really understand healthcare haven’t connected the dots. They’re pushing for pay-for-performance, but telling hospitals they can’t do essentially the same thing. The hospital industry is developing a strategy to point that out to Capitol Hill, and in my opinion, SHM should develop a more formal approach to do the same.”

Current State of Gainsharing

There have been a few gainsharing programs that were approved by the OIG. “There are a couple of [pilot programs] that private hospitals have done,” says Dr. Greeno. “All the projects so far have targeted medical devices. One New Jersey hospital focused on the use of defibrillators. They spent a lot of money setting up the project, which only lasted one year. As I said, these [approved projects] are very limited.”

Gainsharing programs that focus on medical devices are simple because cost savings are easy to track; however, gainsharing could be built around quality indicators that are found in pay-for-performance programs. “Cutting costs is not the only way to improve quality,” says Dr. Greeno. “That’s not how you get the biggest bang for your buck. That comes when someone will invest in capabilities and processes that target the 30% of costs spent on each patient in the hospital that is waste.”

Voluntary Reporting Growing

In his testimony before the Energy and Commerce Health Subcommittee this summer, CMS Administrator Mark McClellan, MD, provided an update on the Physician Voluntary Reporting Program (PVRP), stating that approximately 6,400 physicians are participating in the PVRP. CMS anticipates an expanded set of PVRP measures this fall that physicians can report during the first quarter of 2007, he said. Read the entirety of McClellan's testimony at—JJ

Pilot Programs Planned

Following the OIG reversal, Congress passed the Deficit Reduction Omnibus Reconciliation Act of 2005, which included funding for a gainsharing demonstration project. The Centers for Medicare and Medicaid Services (CMS) will establish six gainsharing pilot programs, including two in rural settings, by January 1, 2007. The bill states that these demonstration programs are intended to “test and evaluate methodologies and arrangements between hospitals and physicians designed to govern the utilization of inpatient hospital resources and physician work to improve quality and efficiency of care provided to Medicare beneficiaries.”

You can review details on the gainsharing demonstration on the CMS Web site at

A second new CMS demonstration program will go beyond the traditional concept of gainsharing. Under the program, known as the Physician-Hospital Collaboration Demonstration (PHCD), hospitals would be allowed to pay physicians a portion of the savings they reap from specific quality improvement and efficiency initiatives. This project, in particular, could eventually have direct implications for hospital medicine.

The SHM Public Policy Committee is urging members to consider soliciting involvement with PHCD, and possibly partnering with other physician groups and affiliated hospitals to compete for inclusion. You can find more on the PHCD online at If you decide to submit a proposal to CMS for the PHCD, please let Joe Miller at SHM ( know.

The Future of Gainsharing

Will the CMS gainsharing pilot programs lead to widespread trials? “Who knows?” asks Dr. Greeno. “It will be a slow crawl toward some type of application, but it will likely be too limited when it does happen.”

In the meantime, Dr. Greeno is urging SHM and individual physicians to keep pushing for some real advances in gainsharing. “Our best chance is to work with the hospital community to connect the dots for our federal lawmakers,” he says. “We want to work to allow hospitals to reward doctors for quality performance.” TH

Jane Jerrard regularly writes “Public Policy.”

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