As part of the Bundled Payments for Care Improvement Initiative (the “Initiative”) introduced by the Department of Health and Human Services (the “DHHS”) on August 23, 2011, hospitals and other providers are permitted to enter into certain gainsharing arrangements with physicians and other practitioners. The Initiative is part of a growing realization by the Centers for Medicare and Medicaid Services (“CMS”) that the current fee-for-service system is discouraging the kind of collaboration that it will take to materially improve the health care system in the United States. The gainsharing concept embodies this core tenet of the Initiative: to encourage providers to work together in order to reach the goals of better health, better care and reduced costs.  

Gainsharing 101

A gainsharing arrangement essentially works like this:

  1. A hospital or other provider enters into an arrangement with physicians and other practitioners to set and achieve certain goals for reducing the cost of health care to the provider’s patients while maintaining or improving the quality of care.
  2. The hospital or other provider then shares the cost savings achieved with the physicians and other practitioners through direct payments.  

Gainsharing arrangements have previously been declared to be violations of the Civil Monetary Penalties Act (and possibly the Anti-Kickback Statute), subject to certain demonstration projects permitted by the 2005 Deficit Reduction Act. However, the Affordable Care Act specifically permits gainsharing agreements to be part of proposals for the Initiative.  

Specific Criteria for Gainsharing Arrangements

Not just any gainsharing agreement will be approved. In general, gainsharing plans will be permitted only to the extent that the quality of care is not diminished, the level of care is not reduced improperly, changes in utilization and referral patterns are appropriate, and there are mechanisms in place to guard against fraud, waste and abuse. In the Request for Application for the Initiative, the Center for Medicare and Medicaid Innovation (the “CMMI”) sets forth detailed requirements for these arrangements, including the following:

  1. Medically necessary services may not be limited.
  2. Arrangements must be both transparent and auditable by the DHHS.
  3. Physician participation in gainsharing must be voluntary. That is, physicians may not be subject to any negative consequences for not participating in the gainsharing portion of the bundled payment model.
  4. Quality of care for beneficiaries treated by the providers participating in the gainsharing arrangement must meet minimum standards and then stay the same or improve as long as the gainsharing arrangement is in place.
  5. Individual physicians and other practitioners must meet minimum quality thresholds approved by CMS and be subject to quality improvement metrics (and monitoring) for the duration of the arrangement.
  6. Payments pursuant to the gainsharing agreement must not be based on the volume or value of referrals.
  7. Payments to physicians and other practitioners must not exceed 50% of the amount normally paid to such practitioner for the cases handled by the practitioner under the gainsharing arrangement.  

While government and providers alike understand that the rising cost of health care is a serious problem, the requirements set forth in the Request for Application clearly indicates that the CMMI will not sacrifice quality of care for savings. Providers as well as the physicians and other practitioners participating in gainsharing can expect greater scrutiny of the quality of their patient care in exchange for the opportunity to share the savings they create through collaboration.