Connections : Join the Conversation - The blog of Biomet CEO Jeffrey R. Binder

Gainsharing is the mechanism by which hospitals share supply savings with doctors. The idea is to align doctors and hospitals in reducing the cost of treatments that require high technology medical devices.

The U.S. Department of Health and Human Services Office of the Inspector General (OIG) has consistently ruled that gainsharing is in violation of federal statutes that prohibit reduction of care to Medicare/Medicaid beneficiaries and kickbacks to doctors in exchange for referrals.

Nonetheless, OIG has allowed 14 hospital organizations to engage in gainsharing for a limited period of time under tightly-defined restrictions.¹ CMS currently has three demonstration projects underway that involve gainsharing.¹ The demonstrations will attempt to determine the impact of gainsharing on quality and cost in total joint replacement and cardiac surgery. None of these demonstration projects have been completed. Yet the recently enacted Patient Protection and Affordable Care Act includes several provisions which will expand the practice of gainsharing.²

Unfortunately, gainsharing has greater potential to reduce the quality of care than to save money.

Gainsharing creates perverse incentives

Gainsharing would allow hospitals to incentivize surgeons to use less expensive implants by sharing the savings with them. Hospitals could reduce their implant costs, and surgeons could be paid for their participation in the program.

While this may appear reasonable, and even desirable, in practice it would intensify pressure on surgeons to change sound, established practices in the interest of saving money.

This approach has some theoretical appeal, but it is only appropriate in highly specific circumstances – that is, where (a) the device in question is a pure commodity of no differentiation in clinical performance in any patient populations versus alternative devices and (b) there is no learning curve associated with switching devices that has the potential to impact patient outcomes.

Fundamental to our healthcare system is the implicit assumption that doctors serve as patient advocates, committed to offering the best potential solution for a given clinical problem. Under gainsharing, patients would have every reason to worry that their physicians are incentivized to provide an inferior device due to its lower cost.

Imagine the orthopaedic surgeon faced with a decision on whether an active, 65 year old patient should receive a hip or knee with an advanced bearing surface. Does anyone think it is better for health outcomes if the decision is influenced by an economic incentive to utilize a less expensive bearing?

This scenario involves patients' quality of life and the risk of revision surgery. One shudders at the thought of gainsharing being applied to devices that prolong life.

Additionally, in any gainsharing program, after the initial reduction in implant costs, subsequent physician and hospital financial gains would depend entirely on continued, year-after-year reductions in implant costs. Thus, it's likely that hospitals would continually request bids for implants in order to reduce costs. In order for this tactic to work, surgeons must be willing to switch implant systems on a regular basis.

This is clearly the goal of gainsharing proponents, such as Joanne Goodroe, a consultant whose company designed the gainsharing programs that received OIG exemptions. Goodroe stated:

"Why would surgeons who are already achieving good patient outcomes be interested in changing their practice patterns without being incentivized to do so?"³

A far more important question: why should we incentivize surgeons to change practice patterns that achieve good outcomes?

There is a clear correlation between high volume and improved patient outcomes.^4-7 Researchers have also demonstrated the importance of surgeons ascending the "learning curve" in order to achieve good outcomes.^8-10 Incentives to restart the learning curve solely to reduce implant costs can only be detrimental to patient care. Indeed, the OIG, in its original opinion on gainsharing arrangements, referred to "the potential adverse impact on patient care from gainsharing arrangements."¹²

How will gainsharing affect innovation?

Technology has contributed significantly to reducing cost and expanding access. For example, the revision burden of total joint replacement has declined steadily since 1998, while the proportion of younger, high-demand patients has grown rapidly.⁹ It is inconceivable that these two trends could co-exist without advanced implants of improved durability.

However, the practice of paying surgeons to use less expensive implants would stifle innovation. Manufacturers are not going to invest in technologically advanced implants if there is no market for them. Resources devoted to research and development will be redirected to improving the efficiency of manufacturing and distribution. While this may reduce the cost of existing technology, promising (but expensive) innovations are less likely to be funded.

Gainsharing is inconsistent with other government policies

The government has created legal barriers to insulate clinical decisions from financial incentives to reduce care or steer referrals to particular facilities. These include the, Civil Monetary Penalties for reducing care to Medicare patients and the Anti-Kickback Statute, which prohibits physicians from accepting (or hospitals from offering) anything of value in exchange for referrals. According to OIG, gainsharing potentially violates both of these statutes.^12,13

Yet while the government has extensively investigated potential violations of these statutes, it appears willing to scrap those barriers in the interest of reducing cost.

Such a posture is inconsistent with other government proposals related to potential conflicts of interest. For example, the healthcare reform law contains prohibitions on new physician-owned hospitals,² which represent the ultimate in physician-hospital alignment. Physicians who own hospitals have strong incentives to improve efficiency, outcomes, and cost-effectiveness. It appears that government is all for hospital-physician collaboration, as long as the physician isn't in charge.

Additionally, it's clear that government views payments to physicians as a potential source of conflict. In addition to the statutes mentioned above, the healthcare law requires manufacturers to disclose transfers of value to physicians of $10 or more.² Payments to surgeons from cardiac gainsharing programs, meanwhile, averaged $17,000 per physician.¹⁴ If $10 is a problematic amount that needs to be disclosed because of its potential impact on clinical judgment, why isn't $17,000?

Conclusion: gainsharing creates new problems without addressing the old ones.

Our healthcare system is a jumble of skewed incentives, because most recipients of healthcare pay only a fraction of the cost. Not surprisingly, as third-party payers have assumed an increasing proportion of responsibility for reimbursing healthcare, the cost of health care has steadily increased faster than both GDP and inflation.

Instead of addressing the core problem of escalating healthcare costs, policymakers choose to experiment with inconsistent policies that threaten innovation and create potential conflicts that may impact long-term patient outcomes. By providing hospitals and physicians with incentives to cut costs on medical devices, both parties benefit from denying patients newer, potentially more effective technology. At the very least, Congress should complete the existing gainsharing demonstration projects and analyze the data before expanding the practice and its potentially detrimental effects on patient outcomes.