Sharing the savings: Take it slowly

New regulatory guidance generates buzz about the potential of physician-hospital gainsharing programs. But even proponents say to be very careful about striking such deals.

By Katherine Vogt — Posted Aug. 22, 2005

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Gainsharing -- in which physicians and hospitals agree on ways to cut costs and share in savings -- appears to be thawing from a regulatory freeze that had effectively stopped it before it could catch on.

A spate of favorable opinions from regulators early this year has awakened a surge of interest in gainsharing, not only from physicians and hospitals, including the nation's largest for-profit hospital chain, HCA.

The prospect that gainsharing now could withstand regulatory scrutiny has delighted those who believe that such programs hold a key to helping solve some of the dilemmas in health care delivery today.

But in spite of the apparent change of heart among regulators, critics remain convinced that gainsharing could jeopardize patient care and limit physician choice by dictating what specific products or protocols must be used. And experts warn that the legal issues remain murky, with only a handful of programs approved to offer guidance.

The recent commotion began in February when the Office of the Inspector General of the Dept. of Health and Human Services issued six advisory opinions essentially green-lighting programs in which hospitals partnered with cardiologists and cardiac surgeons to cut costs.

Some of the programs called for participating physicians to use specific types of supplies during surgeries and others were designed to eliminate wasteful practices. Each of them outlined several initiatives that were projected to produce savings while maintaining quality of care. After one year, the savings were to be split equally between the physicians and the hospital.

The advisory opinions expressed concern that poorly designed or implemented gainsharing arrangements could be vehicles for disguising inducements to physicians and could adversely affect patient care. Yet the OIG said it would not impose sanctions on the programs, in part because they all included provisions aimed at safeguarding against those concerns.

This was a radical departure from the OIG's 1999 declaration that gainsharing amounted to a violation of law. That announcement had effectively killed what had been a swell of interest in gainsharing in the 1990s.

New interest

But the agency's apparent self-reversal now has resulted in a new wave of enthusiasm for gainsharing. "The interest is there. People are asking questions. They want to know how they work," said John Washlick, a health care attorney with Cozen O'Connor in Philadelphia.

HCA, the nation's largest for-profit hospital chain, began enlisting orthopedic surgeons in June for a gainsharing program at its hospitals nationwide, said spokesman Jeff Prescott. Participating doctors would share savings from using orthopedic implants made by three firms with whom HCA had specially negotiated contracts. The company is seeking an advisory opinion from the OIG for reassurance about the legality of the program.

Other hospitals and physician groups also have expressed interest in gainsharing, primarily focusing on programs involving cardiac services and orthopedics. That's because the potential for savings is greatest in high-cost procedures with high volume and routine practices.

The programs that were favorably reviewed by the OIG shared several provisions that legal experts say were key to giving regulators the assurances they needed. Each identified specific cost savings actions; they gave physicians discretion to make patient-by-patient choices for necessary care and included clinical quality standards; they called for patients to be informed of the program; and they typically lasted only one year in duration -- though some experts predict that the cost-cutting initiatives will remain in practice after the financial arrangements expire.

Each of the programs also used an independent third party to help assess data for establishing baselines and making calculations about distributing the savings. "It's clear that [regulators] want someone who is independent and not going to play around with the numbers," said John P. Ortiz, an Atlanta-based partner with the health-care consulting practice of Ernst & Young.

The programs also typically called for a 50-50 split of the projected savings between physicians and hospitals, while placing a ceiling on how much doctors could receive in realized savings.

The money at stake in gainsharing is significant. A typical program with a hospital and a medium-sized cardiovascular group could generate savings of $1 million to $2 million annually, said Bill Hannah, principal with KPMG's health care practice in Atlanta.

"For physicians, who are continually being squeezed on reimbursements, the opportunity for them to have additional rewards for more or heightened collaboration is extremely important," he said.

Still, Ortiz said the potential of splitting $1 million among a couple dozen people means "physicians are not going to become millionaires on this."

But gainsharing can offer other advantages to physicians, particularly those who are looking to strengthen their relationships with hospitals through working collaboratively.

"It's sort of like a nice olive branch. And at the end of the olive branch there's a potential for some financial opportunities for the physicians," Washlick said.

Also, gainsharing could help physicians have a more active role in some front-end supply decisions, since the programs are typically developed using input from both hospitals and physicians, said Bill Thompson, a health attorney and partner with Hall Render in Indianapolis.

Finally, proponents of gainsharing say it results in improved outcomes because of its emphasis on quality standards. "It's clear from those who have done it in the past, the outcomes improve," Ortiz said.

Best choices?

But critics question that assertion, arguing that the financial lure of gainsharing could force physicians to make choices that aren't in the best interests of their patients.

"The right thing to do is determined by science, wisdom and experience. It's not necessarily the most gainful thing to do and in fact may be the opposite," said Skip Freedman, MD, an emergency physician in Portland, Ore., and medical director of the independent review organization AllMed Healthcare Management.

Dr. Freedman said there aren't enough safeguards that could be used to eliminate the potential conflicts of interest raised in gainsharing.

"I think they are compromised by nature. The deal that doctors make is between the doctor and the patient, and when you introduce a third party ... that's an invitation to distorting the relationship," he said.

Other critics have decried gainsharing for narrowing physician choice. Thompson said, "To the degree that standardization of supplies or devices is a component of a gainsharing program, by that very definition it tends to mean that choice will be limited."

But he said the concern that those limits would affect quality could be addressed with the quality protections that have been built into gainsharing programs.

Still, Thompson said the effect might cause physicians some legitimate concern about whether the program puts them at risk for being sued by patients who claim that medical decisions were based on the interests of the hospital and cost savings.

Michael Bakerman, MD, is medical director of the Greenville Hospital System Heart Institute in Greenville, S.C. He said the hospital system began exploring gainsharing proposals earlier this summer.

So far, doctors have been generally receptive to the idea, he said, though they have asked for assurances that any program would be medically driven and rooted in evidence-based medicine.

Dr. Bakerman, a cardiologist who sees patients on a part-time basis, said medicine had changed in a way that ensures quality can be maintained throughout a gainsharing program.

"We're in a much different day and age than we were. We have so many quality metrics that are standardized now that we look at. It would be very difficult to do a program that has a significant deleterious effect on patients," he said.

Legal experts are divided about whether an OIG opinion is needed for each gainsharing situation. Some argue that a program closely mimicking one of already-blessed scenarios likely would be OK, while others say there is still too much uncertainty without an express ruling, which can take several months to get.

The OIG's primary focus is whether gainsharing violates federal antikickback laws or a provision of the civil monetary penalties statute, which says that hospitals cannot reward physicians financially to reduce or limit services to Medicare patients, said Tobin Watt, an Atlanta-based health law attorney with Smith Moore, LLP. He said both of those concerns could be addressed by including protective provisions in the gainsharing deals.

But gainsharing still could face other legal or regulatory hurdles. The OIG does not have authority to decide whether such deals violate so-called Stark laws, which addresses the financial relationships between physicians and hospitals.

Washlick said there hadn't been an opinion from the Centers for Medicare & Medicaid Services about whether gainsharing is illegal under Stark. But some experts believe that if it were a clear violation, such deals would never have received the OIG's blessing.

"Would they really be taking people down this road if in fact there were these major Stark concerns?" asked David Florin, a health lawyer and partner with Crowell & Moring, LLP, in Washington, D.C.

Another legal concern is whether nonprofit hospitals could jeopardize their tax-exempt status by engaging in gainsharing. But Watt said the Internal Revenue Service has ruled favorably on such deals in the past.

Still, most experts agree that hospitals and physicians should have a thorough legal review of any proposed gainsharing program before executing it.

As Florin put it: "They'd better get a good lawyer, because this stuff isn't easy."

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Gaining momentum

A look at the six advisory opinions about gainsharing issued this year by the HHS Office of the Inspector General. The full opinions are available online, in pdf.

Advisory opinion No. 05-01: A proposed arrangement involving an acute care hospital and a group of cardiac surgeons. The program aimed to reduce waste with initiatives to ensure that certain packaged items were opened only as needed during surgery, and blood cross-matching was performed only as needed. Costs also would be reduced by standardizing supplies. (link)

Advisory opinion No. 05-02: A proposal involving a hospital and five cardiology groups. The program aimed to reduce costs in certain cardiac catheterization laboratory procedures. The bulk of the initiatives involved standardization of devices. (link)

Advisory Opinion No. 05-03: This deal involved a hospital and a group of cardiac surgeons. The program was designed to curb inappropriate use or waste of medical supplies. Several of the initiatives called for supplies to be opened "only as needed." (link)

Advisory Opinion No. 05-04: Through this program, a hospital and eight cardiology groups aimed to cut costs in certain cardiac catheterization procedures. The proposed initiatives called for using certain items on an "as-needed" basis; standardizing devices; and substituting certain supplies for less costly ones. (link)

Advisory Opinion No. 05-05: In this proposal, a hospital and a group of cardiologists would reduce costs in designated cardiac catheterization laboratory procedures. Twelve specific cost-savings opportunities were identified, mostly involving product standardization. (link)

Advisory Opinion No. 05-06: This arrangement involved a hospital and a group of cardiac surgeons. It outlined 27 recommendations for cutting costs in certain procedures. Among the initiatives was limiting the use of surgical supplies to an as-needed basis. (link)

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