A recent prominent healthcare publication grabbed the attention of the hospital industry with its cover story, "Cutting Into Device Costs."

The article discussed recent advisories from the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) to four hospitals, allowing them to proceed with implementation of physician-hospital gainsharing arrangements in their heart programs.

This development generated intense interest because it raises the possibility of rewarding physicians financially for their role in containing costs of specific procedures. This appears to represent a new perspective on gainsharing than that previously held by HHS.

Hot on the heels of the story, the large for-profit hospital chain HCA announced in March that it would investigate gainsharing as a means to involve physicians in controlling skyrocketing orthopedic implant costs.

Is gainsharing the wave of the future? To answer that question, let’s look at the past.

Gainsharing: The first 20 years
Just what is "gainsharing" and how did it evolve?

There is no universal definition for gainsharing to my knowledge. But in healthcare, the term is generally interpreted to mean a legal arrangement under which a hospital can financially reward a physician for helping to control costs, by sharing some of the cost savings with the physician.

Gainsharing arrangements outline the level of financial incentives allowed. In addition, they usually include quality safeguards to ensure that care is not adversely impacted in the effort to control costs. Finally, these arrangements protect against any violations of fraud and abuse regulations.

With the advent of the Medicare DRG (diagnosis related group) payment program in the 1980s, under which hospitals are paid a pre-determined reimbursement under Medicare Part A for hospital inpatient admissions, hospitals have been keen to control costs. In order to maintain a positive operating margin on Medicare cases and not lose money on each one, the hospital strives to manage its costs under this "prospective payment" system.

Physician payment comes from a different pool of funds – Medicare Part B. This payment system reimburses physicians for each encounter with the patient during the inpatient stay. While the hospital payment is "capped," the physician payment is not.

This creates a fundamental economic misalignment between the hospital and the physicians who admit Medicare patients.

Gainsharing attempts to align the goals of the hospital and physicians in managing patient care in a way that controls costs without adversely affecting quality. However, all of this has to take place within a very complex and sometimes ambiguous regulatory landscape that includes the Anti-Kickback statute, physician referral prohibitions (Stark laws) and restrictions on tax-exempt organizations.

In the late 1990s, the OIG was receiving requests for opinions on proposed gainsharing arrangements from private groups including hospitals and physicians. Rather than reacting by issuing "one-off" rulings, in July 1999, the OIG released a Special Advisory Bulletin. The Bulletin in effect ruled that hospitals could not share a portion of savings with physicians who helped to reduce costs.

The OIG was sympathetic to the notion of gainsharing. The Bulletin acknowledged that cost management is a good shared goal for hospitals and physicians. However, legislative change would be needed before the OIG could approve any requests by hospitals or physicians to implement gainsharing programs. In effect, the OIG said, "Don’t call us. Talk to Congress to get the laws changed."

Gainsharing today
The 1999 OIG Advisory did not close the door on gainsharing. In fact, two allowable options for providing financial rewards to nonemployed physicians have been in effect from then to this day:

1. Personal services agreements, in which physicians are paid fair market value for their time spent in cost savings activities, and

2. Clinical program reinvestment, in which physicians are not personally remunerated but a portion of cost savings are allocated to benefit the clinical services (e.g., orthopedics, cardiac surgery) of the physicians who assist in achieving cost savings.

The OIG Advisory Opinions released this spring are the equivalent of customized, "private letter rulings" issued to specific hospital and physician applicants. The applications have been pending with the OIG for a period of 1-2 years each. Each arrangement is specific to the recipient of the ruling and does not constitute a blanket approval to implement gainsharing to hospitals not a party to the ruling.

A Gainsharing plan of attack
The buzz on gainsharing is a good news/bad news situation.

The good news is that the recent rulings may mean that HHS is opening the door a crack on a regulatory environment more open to gainsharing on a broad scale. The bad news is that physicians may misunderstand from recent headlines that gainsharing is now available to any hospital. It is most definitely not. Applying for gainsharing approval is a long, slow, multi- year process at this point.

The real danger is that physicians may decide to withhold their support of cost reduction efforts, believing that the hospital has the latitude to reward them.

To counteract that, hospitals should view the recent rulings as a "teachable moment" with physicians. Educate them about what the OIG has and has not allowed. Dispel any misunderstandings and help physicians understand that sharing cost savings directly with physicians is as much of a regulatory and legal challenge as it ever was – but that options for rewarding physician participation do exist. HPN