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Gainsharing and Shared Savings Continue to Spark Interest

 |  By kminich-pourshadi@healthleadersmedia.com  
   June 11, 2012

Though the Patient Protection and Affordable Care Act may stay or go this month, proven cost reduction strategies never die. Two examples are gainsharing and shared savings, which predate the latest attempt at healthcare reform and in fact have had new life breathed into them.

Gainsharing allows hospitals and physicians to collaborate and share cost savings as a reward for quality and efficiency improvements. The definition of shared savings is essentially the same. The difference is that gainsharing targets device and supply usage within a specific service line (e.g., orthopedics or cardiology) whereas shared savings targets specific patient populations (e.g., diabetics or asthmatics).

Gainsharing has gotten a bad rap, however. "Gainsharing is difficult and technically it is not legal, though the OIG [Office of Inspector General at the U.S. Department of Health and Human Services] has granted waivers. … I think people are still uncomfortable with the waivers, which is why gainsharing has struggled," says Robert Glenning, executive vice president and CFO at the 775-bed Hackensack (NJ) University Medical Center.

The problem for gainsharing is that OIG ruled that such arrangements violate the Stark Law and the Anti-Kickback Statute. Nevertheless, gainsharing programs have demonstrated cost savings and quality results, so in 2005 OIG began granting waivers to allow these arrangements.

The parameters for a gainsharing waiver are clearly defined. OIG reasoned that the potential for fraud could be reduced if safeguards were put in place, and it agreed not to prosecute organizations that apply three criteria: (1) measures that promote accountability and transparency, (2) adequate quality controls, and (3) controls on payment related to referrals, explains healthcare attorney Cynthia Marcotte Stamer.

The Centers for Medicare & Medicaid Services is also interested in how gainsharing can bend the cost curve, which is why it extended a demonstration authorization on a gainsharing program for Medicare fee-for-service populations for two years (that extension ended in 2011 and data on the program is due in 2013). In 2010, the Journal of Hospital Medicine reported that one of the gainsharing demonstration pioneers, Beth Israel Medical Center in New York City, was seeing quality improvements and saving $1,835 per admission.

Healthcare CFOs shouldn't assume that shared savings programs have any less potential for similar legal challenges, says Marcotte Stamer. The only legal difference between these two arrangements is that when PPACA was enacted, the government addressed shared savings preemptively as part of the Medicare Shared Savings Program.

Congress included a provision in PPACA authorizing the Secretary of Health and Human Services to waive shared savings laws "as may be necessary" to implement the program. Otherwise, accountable care organizations could be considered to violate federal anti-kickback laws.

When PPACA passed—and accountable care organizations, shared savings, and bundled payment models with it—financial leaders definitely were interested. Hackensack University Medical Center, for instance, launched a shared savings program in its oncology service line three months ago.

Even so, the legal ground for shared savings is tricky, says Marcotte Stamer. "There is still tremendous cost involved and liability risk [with shared savings models]. You're building a very complex organization and asking providers to sign on and consent to rules that could change."

However, hospitals and health systems that have taken the risk to launch a shared savings programs are finding cost reduction results. For instance, in April 2012, Advocate Health Care System, based in the Chicago area, released its Value Report. containing data from its first full year of running an accountable care organization and a shared savings program. The results show major savings: Advocate set a generic prescribing target rate of 73% or better for its physicians and reached 74%, resulting in savings of $12.4 million. Its asthma outcomes initiative resulted in a control rate of 17% above the national average for its patients, saving $8.9 million annually in both direct and indirect medical costs. The report also shows other savings.

For Advocate, pursuing shared savings was a more logical next step than gainsharing, says Mark Shields, MD, MBA, senior medical director for Advocate Physician Partners and vice president of medical management for Advocate Health Care.

"We decided organizationally that we were committed to being a population health company, and shared savings was going to be a part of that approach," he says. "Down the road, though, there may come a time when the shared savings model isn't generating the returns it is now, and then we'll need to look at our next steps."

Regardless of whether an organization opts for a gainsharing or shared savings approach, it still needs to demonstrate to the government not only cost savings but also improved (or at least steady) patient outcomes. So when deciding which path to take, Shields says one question is how much data an organization is interested and capable of tracking. In this light, gainsharing can be a transition step to shared savings, he says.

Lani Berman, vice president of performance services at Goodroe Healthcare Solutions, a consulting firm devoted to gainsharing, says that in the last two years she's seen a rise in interest in shared savings and gainsharing. "There are people that are setting up pay-for-performance models and shared saving models and blending in a gainsharing model," she notes. Goodroe is a subsidiary of VHA, a national network of nonprofit hospitals seeking supply chain savings.

Berman says gainsharing is a good place for healthcare organizations to begin. "Gainsharing is shared savings, but there are certain regions where the legal community is very nervous about gainsharing. But gainsharing can be simpler to get off the ground with a group [of physicians] and help spark collaboration. It can be a good starting point to move physicians toward the organization's big picture," she says.

When it comes to cost reduction efforts, gainsharing and shared savings models both can work well. For hospitals or health systems still striving to develop better physician collaboration, gainsharing can be a way to dip the organization's metaphoric toe into the waters to see how much work might be required before establishing an accountable care organization and shared savings model. Regardless of what the Supreme Court rules on PPACA, financial leaders will continue to need cost reduction approaches.

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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