Public Policy

Proposed Bill Would Open Door to Gainsharing Arrangements for Hospitals, Physicians


If hospitalists are capable of reducing length of stay without detriment to the patient, they should not be legally prohibited from sharing any of the resulting cost savings.

There is little dispute in the potential for cost savings when gainsharing arrangements incentivize things like product standardization, substitution of lower-cost products, and, most notably for hospitalists, medically appropriate decreases in length of stay. However, well-meaning but overly inclusive federal law makes the legal risk of establishing these arrangements so great that providers recoil at the prospect.

This doesn’t mean that gainsharing isn’t occurring. Currently, Medicare accountable-care organizations (ACOs) have been granted official waivers to establish such arrangements; smaller-scale pilot projects implemented by Medicare also have been granted similar waivers in the past. As availability is limited to participants within officially sanctioned programs, most providers are not able to tap into these cost-saving efforts, though this has not been for lack of trying.

Hospitals and physicians are engaging in a number of clinical joint ventures that have spurred them to seek their own gainsharing waivers by approaching the Office of the Inspector General (OIG). The OIG is the arm of the U.S. Department of Health and Human Services charged with enforcing the applicable laws affecting gainsharing. The OIG responded by cautioning that gainsharing arrangements violate the Social Security Act’s “Civil Monetary Penalty” prohibition against limitation of services to publicly insured patients, in addition to violating the federal Anti-Kickback Law and possibly the “Stark” law. Nonetheless, the OIG concluded it would not impose sanctions for the violations. In short, the OIG declared the proposals illegal but gave the go-ahead. The caveat, of course, is that these opinions are nonbinding, so providers remain understandably timid.

As a result, gainsharing currently remains more or less out of reach for those not participating in a Medicare ACO. This makes little sense at a time when Medicare and the entire health-care system are focusing on how to deliver high-quality, cost-conscious care. For example, if hospitalists are capable of reducing length of stay without detriment to the patient, they should not be legally prohibited from sharing any of the resulting cost savings. Fortunately, U.S. Rep. Jim McDermott (D-Wash.) agrees with this sentiment and has introduced legislation to address the problem.

McDermott introduced the Improved Health Care at Lower Cost Act of 2013 (H.R. 1487) in April. It seeks to exempt monetary incentive payments made by hospitals to physicians from federal anti-kickback and other sanctions. Such exemptions, or safe harbors, would be automatically granted to gainsharing arrangements that meet a pre-determined set of requirements. This means no formal application process or participation in a specific federal program would be required.

Passage of the bill would be a major step in the right direction for providers lacking the resources to navigate legal minefields or establish a full-scale ACO. If well-implemented, it could also generate significant cost savings for Medicare.

It is for these reasons that SHM supports H.R. 1487 and looks forward to working with McDermott in securing its passage.

In the coming months, members of SHM’s Grassroots Network will be encouraging Congress to make this important change to facilitate practice arrangements that provide high-value coordinated care for patients. Stay informed and take action when SHM issues Legislative Action Alerts by signing up for the Grassroots Network at

Josh Boswell is SHM’s senior manager of government relations.

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