Hospital Buyer

Gainsharing - letting doctors reap savings that they build into recommended care - is to some a great cost cutting tool. To others it’s a built-in conflict of interest, an obstacle to innovation and proper care, or maybe even a violation of anti-kickback statutes. In this primer Hospital Buyer provides extensive background on the legal, ethical, cost and outcome-related sides of this issue and looks at how it might impact hospitals, physicians and patients.

In its section 5007, the Deficit Reduction Act of 2005 (pdf, see page 37) requires gainsharing demonstration projects to be up and running no later than January 1, 2007. The idea is to share hospital cost savings with physicians to the extent that they helped produce these savings. Patients will have to be notified that their treatment is falling into this type of system. Quality and efficiency of care will be monitored and an independent third party will review the elements of the demonstration. The administration will have to report to Congress through milestones at the end of 2007 and 2008, and submit its final report no later than May 1, 2010.

These provisions were pushed into the bill by Congressman Nancy L. Johnson (R- Conn. 5th District) and Chairman of the Subcommittee on Health of the Committee on Ways and Means. The congressman expressed her ideas during a hearing in October 2005, ideas which then made it into the final version of the bill despite strong lobbying against them. Organizations such as the National Health Council argued (pdf) that gainsharing could cut patient access to the best technology and adversely affect their health.

Legal and ethical questions are raised by cost-saving measures that might be construed as stepping between physicians and the patients most of them took an oath to treat best they can. The American Association of Orthopaedic Surgeons (AAOS) published its thoughts on the issue, asking for instance why the economic gain should be shared with physicians rather than patients and underlining that “evidence-based medicine is necessary to determine whether there are substantial differences between implants that are widely available commercially or those that are made available under certain gainsharing arrangements.”

From a legal standpoint, gainsharing agreements violate federal anti-kickback rules, the Stark law as well as some state laws. In July 1999 the Office of Inspector General (OIG) published a special advisory bulletin interpreting section 1128A(b)(1) of the Social Security Act as a broad prohibition of hospital payments to physicians to induce reduction or limitation of services. The OIG at the time recognized that hospitals had a legitimate interest in enlisting physicians in their efforts to eliminate unnecessary costs and listed the use of lower cost but equally effective medical supplies, items or devices as one way to achieve that goal, but it stated that the Act plainly prohibited linking physician compensation to these initiatives. However, first in 2001 and again last year, the OIG softened its stance to address specific cases with advisory opinions such as No 05-06 (pdf) which ambiguously stated that:

“the Proposed Arrangement would constitute an improper payment to induce reduction or limitation of services pursuant to sections 1128A(b)(1)-(2) of the Act, but that the [OIG] would not impose sanctions on the requestors of this advisory opinion […] the Proposed Arrangement would potentially generate prohibited remuneration under the anti-kickback statute, if the requisite intent to induce or reward referrals of Federal health care program business were present, but that the OIG would not impose administrative sanctions on the Requestors under sections 1128(b)(7) or 1128A(a)(7) of the Act (as those sections relate to the commission of acts described in section 1128B(b) of the Act) in connection with the Proposed Arrangement.”

The OIG added that these opinions may not be relied on by any persons other than their requestors so that does not change the legal status of the forthcoming gainsharing demonstrations. Mark McClellan, MD, PhD, and Administrator of the Centers for Medicare & Medicaid Services (CMS), told Senator Orrin Hatch (R-UT and Finance Subcommittee on Health Care Chair) that the gainsharing demonstration projects would have to fit within the OIG’s framework. He was quoted by MX as saying: “To the extent that limitations on the use of medical devices by a hospital would compromise quality or efficiency of care, I do not believe that such a demonstration project could be approved.”

The few gainsharing experiments that have been run so far lead to a mixed story but physicians who have actually participated in a gainsharing agreement seem to like them better than their colleagues who haven’t. Mark Prodger from Market Strategies Inc. a healthcare-focused market research and consulting firm, reports his firm’s findings in a study done to assess how physicians and hospitals perceive gainsharing deals. Hospital administrators tend to think that gainsharing is less about standardizing product use and more about setting patient care standards. Most gainsharing physicians surveyed had not felt pressured to make significant changes in their clinical practice. At heart is whether gainsharing can lead to selecting products of equal quality at a lower cost, rather than degrading outcomes and restricting care options in the name of cost cutting.

This debate has yet other ramifications. Most physicians in the US are not the employees of hospitals and feel quite independent, so they may object to what they feel are efforts to control their practice rather than consider them as business partners. Another question is, is competition within the marketplace fully functioning or are medical device manufacturers enjoying excess returns? One hospital administrator was quoted as saying:

“I believe medical device companies have room to reduce prices further. I think that our philosophy is not that we want them to not make a profit. We want both sides and the patients–all of us–to have the best possible scenario. We understand they (medical device companies) need to make a profit. I think the degree of profit is what’s in question.”

Some medical manufacturers fear that widespread gainsharing would lead not only to lower prices and margins on average, but also to higher market share for some of them at the expense of the smaller ones. According to them gainsharing would refrain new technology from penetrating and spreading into hospitals. Given all these variables and uncertainties, whether gainsharing will become accepted and prove effective as a pay-for-performance tool remains to be seen. But it has at the very least the merit of raising a fundamental issue: can we, and should we as a society think of healthcare in absolute terms regardless of costs and whether they are sustainable, or is a cost-benefit approach adapted to life and death situations? With the proper safeguards, gainsharing might help bringing that question at the point of relationship between doctors and patients, which would not be the worst place to start.

May 24, 2006 Related topics: Legal & legislative, Ethics & Scandals, Cost savings