Gainsharing: Saving Costs or Stifling Competition?

In the lexicon of medical device manufacturing, gainsharing isn’t a term that has broad recognition. But medtech manufacturers may soon find themselves undertaking a crash course in the concept, now that the U.S. Department of Health and Human Services Office of Inspector General (OIG) has approved a number of gainsharing arrangements.

According to OIG, gainsharing is “an arrangement in which a hospital gives physicians a percentage share of certain reductions in the hospital’s costs for patient care attributable in part to the physicians’ efforts.”

In 1999, following an initial advisory that the practice of gainsharing violated federal law, OIG began to review several gainsharing models that showed potential for maintaining or enhancing healthcare quality while reducing costs and not violating any statutes. A favorable ruling was first obtained in January 2001.

In February of this year, Modern Healthcare reported that OIG had approved gainsharing arrangements between four hospitals and the physicians in their cardiology and cardiac surgery departments. The hospitals were cleared to standardize their use of various devices—including stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators—and share the cost savings with cardiologists.

The arrangements approved by OIG do not permit hospitals to limit the amount of supplies or number of vendors available to physicians. Nevertheless, many medtech manufacturers and industry analysts believe that paying doctors to save costs by standardizing on particular devices is likely to stifle competition, and could also potentially threaten healthcare quality. Moreover, say critics of the practice, it encourages business behaviors that are at the very least unsavory, if not downright unethical.

Gainsharing proponents, typically hospitals and healthcare insurance firms, assert that the arrangements are limited in scope, tightly controlled, and completely within the parameters of the law.

Ironically, OIG’s go-ahead for gainsharing arrangements is coming about at the same time that the U.S. Department of Justice is investigating the possible use of kickbacks and other improper incentive schemes by orthopedics manufacturers. And since orthopedists (like cardiologists) typically have great leverage in specifying and selecting a particular implant or device, orthopedics is likely to follow cardiology in the next wave of OIG-approved gainsharing arrangements.

Young: Gainsharing not for everyone.

Howard J. Young, a partner in the law firm of Sonnenschein Nath & Rosenthal LLP (Chicago) who specializes in healthcare law and policy strategies, does not foresee OIG issuing a rash of favorable advisory opinions to hospitals seeking to implement gainsharing initiatives. “These gainsharing arrangements can generate savings for hospitals, but they’re not likely to appeal to every physician or be appropriate for every hospital.” Young was formerly a counsel with the OIG, and is now based in Sonnenschein’s Washington, DC, office.

OIG itself is somewhat cautious about the benefits of gainsharing practices. The office notes that properly structured arrangements may increase efficiency, reduce waste, and potentially increase a hospital’s profitability. But OIG also admits that “such arrangements can potentially influence physician judgment to the detriment of patient care.” OIG cites four particular concerns regarding gainsharing:

• Stinting on patient care.
• Cherry-picking healthy patients and steering sicker (and more costly) patients to hospitals that do not offer such arrangements.
• Payments in exchange for patient referrals.
• Unfair competition (a “race to the bottom”) among hospitals offering cost-savings programs to foster physician loyalty and to attract more referrals.

Opposition to gainsharing arrangements by medtech manufacturers is likely to be seen as an attempt to preserve profit margins. But that’s something of a cheap shot. Manufacturers know it’s in their best interests to grow the overall market by working with all healthcare stakeholders in containing costs.

Nevertheless, gainsharing has now entered the public arena, and in some circles it is being promoted as a panacea for rising healthcare costs. Medtech manufacturers would be wise to get a handle on the concept and understand the implications for their products and their organizations.

© 2005 Canon Communications LLC

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