Gainsharing is generally defined as an arrangement between physicians and hospitals to share cost reductions, which can be narrowly targeted projects such as standardization of hospital equipment and supplies or broadly targeted projects such as average cost per case. Gainsharing is an attempt to align financial incentives in an environment where the existing incentives are actually opposite, i.e. physicians are typically paid on a fee for service basis and hospitals generally have DRG or case rate restrictions.

The alignment strategies are complicated by the statutes prohibiting certain financial arrangements, as follows:

1.          The Stark Act prohibits referrals by physicians to financial entities with which those physicians have financial relationships, and a gainsharing arrangement can easily be a financial relationship triggering the application of the Act;

2.          The Civil Money Penalty Act, i.e. Sections 1128A(b)(1) and (b)(2) prohibit hospital payments to physicians to reduce care; and

3.          The pervasive Anti-Kickback Statute (AKS). i.e. Social Security Act Section 1128, prohibits any type of payments in exchange for referrals of covered services. 

Although the OIG has a history of being wary of gainsharing arrangements, there is also a stream of OIG advisory opinions allowing gainsharing arrangements that typically require safeguards in the following areas:

1.          Transparent arrangements providing accountability for the parties;

2.          Adequate quality control;

3.          Control and monitoring of any payments that can be received as a payments for  referrals.

MedPac recommended in a 2005 report that gainsharing be permitted. CMS has also established a number of demonstration projects regarding gainsharing arrangements.

CMS recognizes the potential effectiveness of gainsharing arrangements in the healthcare reimbursement environment and is soliciting comments on a proposal to establish guidelines for gainsharing arrangements. CMS stated in the recent proposed Inpatient Prospective Payment System Rules, issued on April 14, 2008, as follows:

"Notwithstanding our general concern with arrangements that involve the use of a percentage based compensation formula (other than payment to a physician for work personally performed by the physician), we recognize the value to the Medicare program and its beneficiaries where the alignment of hospital and physician incentives result in improvements in quality of care. Therefore, we are considering whether to issue an exception specific to gainsharing

arrangements. . . At this time, we decline to issue a specific proposal concerning an exception for gainsharing arrangements, but rather are soliciting comments as to whether we should establish an exception to gainsharing arrangements, and, if so, what safeguards should be included in the exceptions. Specifically, we are interested in receiving comments on:

(1)        What types of requirements and safeguards should be included in any exception for gainsharing arrangements; and

(2)        Whether certain services, clinical protocols, or other arrangements should not qualify for the exception."

The text of the regulations are posted in the Healthcare Links section of the Blog.