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Gainsharing, Shared Savings Examined

Karen Minich-Pourshadi, for HealthLeaders Media, August 28, 2012

This article appears in the August 2012 issue of HealthLeaders magazine.

Whereas gainsharing is still viewed with apprehension by many in healthcare, shared savings programs are being embraced by hospitals nationwide. The two models pursue the same goal—to reduce costs without negatively impacting the quality of care—but there are unique legal and structural challenges that come with each approach; however, for hospitals and health systems willing to overcome some hurdles, both gainsharing and shared savings can add millions in sustainable savings to the bottom line.

Gainsharing tends to target device and supply usage within a specific service line, such as cardiology or orthopedics, whereas shared savings programs take a broad-spectrum look at cost reduction by targeting specific patient populations, such as diabetics.

"We're all trying to partner effectively with our medical staff to find savings. We've done a lot of initiatives, joint ventures, employment agreements and service line management agreements," says Robert Glenning, executive vice president and CFO at the 775-licensed-bed Hackensack (N.J.) University Medical Center. "Gainsharing and shared savings have been missing in our approach until recently. We recently added shared savings to our oncology service line."

HUMC's decision in the first quarter to pursue shared savings was based on the organization's strategic goal to reduce overall costs; but why not choose gainsharing?

"Gainsharing has been difficult to implement because of the process of obtaining an opinion from  the Office of Inspector General, and it tends to work for a subset of physicians, like orthopedists or cardiac surgeons, but not all physicians. Though the OIG has granted waivers, it is complex to get those waivers; at least it was in the past. I think people are still uncomfortable with the waivers, which is
why gainsharing has struggled," explains Glenning.

The Centers for Medicare & Medi-caid Services has no fixed definition of gainsharing, but says the term generally refers to an arrangement in which "a hospital gives physicians a percentage share of any reduction in the hospital's costs for patient care attributable in part to the physicians' efforts." These agreements were initially found to violate the Civil Monetary Penalties Law, the Stark Law, and the anti-kickback statute, though they did demonstrate promise in cost saving when
structured correctly.

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