Originally Published MX May/June 2005
BUSINESS NEWS
Gainsharing: Saving Costs or Stifling Competition?In the lexicon of medical device manufacturing, gainsharing isn't a term that has broad recognition. But medtech manufacturers may soon find themselves undertaking a crash course in the concept, now that the U.S. Department of Health and Human Services Office of Inspector General (OIG) has approved a number of gainsharing arrangements.
According to OIG, gainsharing is "an arrangement in which a hospital gives physicians a percentage share of certain reductions in the hospital's costs for patient care attributable in part to the physicians' efforts."
In 1999, following an initial advisory that the practice of gainsharing violated federal law, OIG began to review several gainsharing models that showed potential for maintaining or enhancing healthcare quality while reducing costs and not violating any statutes. A favorable ruling was first obtained in January 2001.
In February of this year, Modern Healthcare reported that OIG had approved gainsharing arrangements between four hospitals and the physicians in their cardiology and cardiac surgery departments. The hospitals were cleared to standardize their use of various devices—including stents, balloons, interventional guidewires and catheters, vascular closure devices, diagnostic devices, pacemakers, and defibrillators—and share the cost savings with cardiologists.
The arrangements approved by OIG do not permit hospitals to limit the amount of supplies or number of vendors available to physicians. Nevertheless, many medtech manufacturers and industry analysts believe that paying doctors to save costs by standardizing on particular devices is likely to stifle competition, and could also potentially threaten healthcare quality. Moreover, say critics of the practice, it encourages business behaviors that are at the very least unsavory, if not downright unethical.
Gainsharing proponents, typically hospitals and healthcare insurance firms, assert that the arrangements are limited in scope, tightly controlled, and completely within the parameters of the law.
Howard J. Young, a partner in the law firm of Sonnenschein Nath & Rosenthal LLP (Chicago) who specializes in healthcare law and policy strategies, does not foresee OIG issuing a rash of favorable advisory opinions to hospitals seeking to implement gainsharing initiatives. "These gainsharing arrangements can generate savings for hospitals, but they're not likely to appeal to every physician or be appropriate for every hospital." Young was formerly a counsel with the OIG, and is now based in Sonnenschein's Washington, DC, office.
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