September 7, 2005
To reduce operational expenditures substantially in coming years, hospitals need to align physician financial incentives with those of the hospital in a manner that ensures quality of care while reducing expensive resource utilization. Gainsharing is a proven tool for accomplishing this objective.
A 1999 special advisory bulletin from the HHS Office of Inspector General (OIG) effectively banned gainsharing arrangements; however, in recent advisory opinions, the OIG has approved arrangements between hospitals and physician groups to share the savings reaped from reducing operating expenses as long as appropriate safeguards were adopted to protect against fraud and abuse. These opinions have prompted providers to take a fresh look at this gainsharing strategy.
What Is Gainsharing?
Gainsharing arrangements take numerous forms, but they most often relate to services furnished within a single clinical specialty, such as cardiac surgery or oncology, and are executed directly between a hospital and one of the following individuals or groups:
- One or more individual physicians providing service in the clinical specialty;
- One or more group practices composed exclusively of physicians furnishing care in the clinical specialty at the hospital; or
- A single entity representing all staff or employed physicians furnishing care in the clinical specialty at the hospital.
Under typical gainsharing arrangements, physicians are expected to comply with standard policies, procedures, and protocols that reflect best practices as determined by clinical consultants. These best practices are reviewed and revised as necessary by physicians practicing in the clinical specialty to ensure that they are consistent with quality care. Any reduction in operating costs resulting from adoption of the policies, procedures, and protocols is documented by the hospital over a specified period. The hospital then monitors whether the participating physicians meet mutually agreed-upon, objective benchmarks for quality of care and patient satisfaction. If such quality safeguards are met, the participating physicians are paid a fixed percentage of the reduction in operating costs associated with implementation of the best practices.
Early Gainsharing Projects Showed Promise
In the 1990s, such arrangements had proven effective at reducing operational expenditures within a hospital service line. Although several dozen hospitals experimented with gainsharing, CMS conducted the most detailed assessment of gainsharing effectiveness through a demonstration project conducted between 1991 and 1996. At the outset of the program, each of four selected hospitals agreed to accept a global rate covering Medicare Part A and Part B services, including physician services, for each Medicare beneficiary undergoing coronary artery bypass surgery. The hospitals and the physicians who treated the bypass patients were permitted to apportion the global fee as they saw fit. Two of the four hospitals used the global payment as an opportunity to align physician incentives with those of the hospital by adopting gainsharing arrangements.
The provider with the most traditional gainsharing arrangement enjoyed the largest reduction in operating costs per case, approximately 40 percent, as well as the greatest increase in variable margin per case, ranging from 80 percent to 110 percent. Substantial reductions were achieved in intensive care costs, laboratory costs, routine nursing expenses, and pharmacy costs, as well as in the duration of operating room procedures, ICU stays, and post-ICU stays. The two hospitals not employing gainsharing arrangements reduced operating expenses, but to a much lesser degree. In general, patient outcomes improved overall at all the participating hospitals. According to the September 1998 report on the Medicare demonstration project, participants in the project concluded that "aligning surgeon with hospital incentives to reduce costs was absolutely critical in changing practice patterns and improving department efficiency."
New Opportunities Arise as OIG Eases Stance
After CMS released the report, many hospitals began creating such arrangements. In July 1999, however, the OIG published the special advisory bulletin indicating that gainsharing arrangements in almost any form violated the federal healthcare program civil monetary penalties (CMP) law, although the agency conceded that properly structured gainsharing arrangements offer significant benefits.
On January 11, 2001, the OIG issued the first in a series of advisory opinions reversing this position. Although these opinions afford immunity only to the requesting parties in the specific agreements and state all similar agreements must be separately approved, the OIG advisory opinions provide clear guidance regarding the safeguards that will minimize the OIG's fraud-and-abuse concerns regarding gainsharing arrangements. In general, the opinions oppose agreements that may risk affecting patient care or that could be used as a method of disguising payments for physician referrals to a hospital.
With similar approval, other hospitals could take advantage of this opportunity to enter into their own gainsharing arrangements with physicians. Gainsharing isn't for the faint-hearted, though; entities that choose to use gainsharing to reduce operating costs must ensure that such arrangements comply with myriad federal laws that define and restrict such arrangements.
SOURCE:
Adapted from "Gainsharing: A Cost-Reduction Strategy That May Be Back," by Max Reynolds, January 2002 issue of hfm.
Additional Resources
- Gainsharing Arrangements: An HFMA Executive Briefing (September 28, 2005, Arlington, VA)
- Cost Control: Comrehensive List of HFMA Products and Services
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble.
HFMA Wants You to Know ISSN: 1540-0697. Volume IV, Issue 17. Copyright 2005, Healthcare Financial Management Association. All rights reserved.