Some hospitals appear to be warming to the idea of sharing the financial rewards of cost-cutting with physicians, but a regulatory quagmire stands in the way.
The practice, known as gain sharing, can take many forms but generally involves compensating physicians based on some percentage of cost savings in a particular clinical area. For example, gain sharing could motivate physicians to develop and follow drug formularies, standardize the use of supplies or reduce lengths of stay.
Earlier discharges, however, cut into a physician's billable hospital time and require practices to increase support services for patients who are sent home.
"Physicians control hospital costs, but it actually costs them money, time and effort to save the hospitals money," says Joane Goodroe, an Atlanta-based consultant who worked with providers to develop package-pricing programs for a Medicare cardiac demonstration in the early 1990s.
That HCFA project showed that financial partnerships between hospitals and physicians resulted in significant savings, along with high patient satisfaction and quality outcomes. After HCFA released a report on the project in 1995, it expanded the program into other specialties.
Physician-hospital organizations and hospital-owned physician practices often haven't worked, because they failed to align the incentives of physicians and hospitals. Gain sharing is meant to provide that alignment. At the same time, specialists are looking for new sources of revenue as declining reimbursements threaten their incomes.
In general, gain sharing is being attempted at large tertiary hospitals that do a high volume of procedures in expensive specialties such as cardiovascular surgery, orthopedics, neurology and oncology, say consultants in the field.
There has been a flurry of articles and speeches on gain sharing this year. The strategy is being promoted by consulting firms including Arthur Andersen and Ernst & Young. The Washington-based Advisory Board Co. recently published the report "A Common Enterprise: Enfranchising Physicians in Clinical Reform."
But it's unclear how extensively gain sharing is being practiced if at all. Calls to several consultants produced no names of providers willing to discuss their gain-sharing strategies.
One reason might be potential legal pitfalls. Hospitals and physicians that use gain sharing may be violating Internal Revenue Service rules against private inurement by tax-exempt organizations, the Stark self-referral prohibition, the federal anti-kickback statute, and physician incentive plan laws and regulations.
Sources say some providers are awaiting a HCFA advisory opinion to resolve doubts about one proposed program's compliance with the Stark provisions.
Robert Homchick, a partner in the Seattle office of law firm Davis Wright Tremaine, recommends that hospitals document how an arrangement will enhance quality and increase efficiency, including benchmarks to measure quality improvements; cap the amount of compensation that may be paid under the incentive program; exclude Medicare and Medicaid enrollees from the arrangement; and even consider involving a payer or licensed insurer.
"The issue comes down to program design. There may be some trade-offs in efficacy and the level of regulatory risk you're willing to accept," Homchick says.