January 31, 2020 Public Contract Law Journal

Grasping Gainsharing: A Business Approach to American Health Care

by Nicolette Cregan

Nicolette Cregan is a 2019 J.D. graduate from Case Western Reserve University School of Law and was a member of the Health Matrix: Journal of Law-Medicine. She would like to thank Professor Sharona Hoffman of Case Western Reserve University School of Law for her constant encouragement and constructive feedback. She would also like to thank Jack Diamond of Brenna Manna & Diamond for his suggestion for a paper topic.

Even as someone who knows health care quite well, I felt like an uneducated fool in this instance. What I found out as soon as my mother got back to her room the evening of the surgery is that with joint replacements now, you are on a quick-moving assembly line. That line whips you out of the hospital and into a rehab facility as fast as is humanly possible, and then out of the rehab facility and either home or to a nursing home almost as quickly.

Timothy Hoff 1

We’re pretending [health care] is not really a business, but it’s acting like a business . . . [and] [h]ealthcare businesses are getting away with [things] that we wouldn’t let any other businesses get away with.

Jonathan Bush2

I.  Introduction

When people hear the term “hospital,” they often envision doctors and nurses caring for their patients, they see waiting rooms and hospital beds, and they imagine emergency rooms and operating tables. They may even hear the beeping of a heart monitor or feel the prick of a needle from a shot. When people hear the term “business,” they envision an entirely different setting. They likely picture men and women in suits or see conference rooms and offices with desks and laptops. They can probably hear the clicking of high heels or typing on a computer. When people hear the term “business,” they do not envision a hospital. Yet, the U.S. healthcare system has taken on a business identity.3

This “business approach” adopted by U.S. hospitals adapts to the evergrowing financial challenges the U.S. health care system faces. The system wastes approximately $750 billion dollars a year, with the largest deficit stemming from unnecessary services, inefficient care, and excess administrative costs.4 Each year, per capita spending within the U.S. health care system continues to grow faster than the rest of the economy.5 This creates a strain on private and public health care budgets.6 To combat wasteful services and unnecessary procedures,7 many hospitals have adopted a business approach by implementing shared savings programs to improve productivity and quality and to reduce costs.8 Gainsharing models have emerged as a key business approach to address the ongoing health care financial challenges.9 Gainsharing is “an incentive plan in which employees or customers receive benefits directly as a result of cost-saving measures that they initiate or participate in.”10 Hospital gainsharing is rooted in the belief that “physicians are uniquely qualified to improve [both] quality and efficiency,” and it is designed to target many different areas of “small inefficiencies” in the field, thereby resulting in “substantial savings.”11 Gainsharing is a business strategy that encompasses group dynamics and the “fundamental human need for fairness.”12 But does a business strategy belong in a hospital when the hospital’s primary focus should be providing the best patient care?

This article engages with that question. Following this introduction in Part I, Part II of this article discusses what hospital gainsharing means, where it originated, and how it operates in a hospital setting. It recognizes that gainsharing programs are a newly implemented model and discusses the fact that it was not until 1988, and again in 1996, that the Health Care Financing Administration (HCFA), now known as the Centers for Medicare and Medicaid Services (CMS), started pilot programs “solicit[ing] bids from hospitals and their physicians to participate” in a type of gainsharing program.13 Next, Part II summarizes the law and agency opinions controlling hospital gainsharing and then discusses the obstacles gainsharing has overcome and the difficulties that remain today. It also explains the lack of protection and disorganization that make it so difficult to give gainsharing programs any structure, which ultimately restrains these programs from having a prevalent and positive impact on savings within our health care system.

Part III explores the path of today’s gainsharing programs and the positive results of models and programs that have been tested thus far. It details the progression of the New Jersey pilot program, Bundled Payments for Care Improvement program, and the Comprehensive Care for Joint Replacement model. Then, Part IV concentrates on the limitations of gainsharing and the negative effects this business model has had on hospitals, patients, and physicians. The specific concerns about gainsharing vary from role to role, but ultimately the consensus is that each participant must feel confident in the program for it to be successful. Part V proposes new legislation specifying mandatory safeguards that each and every gainsharing program must follow. It critiques and amends safeguards commonly approved by the U.S. Department of Health and Human Services (HHS), Office of Inspector General (OIG) in advisory opinions, recommends additional safeguards, and highlights the problems that will still need to be resolved and monitored even with mandatory safeguards in place.

Many models of gainsharing have been introduced in to the U.S. health care system.14 Despite its growing popularity, gainsharing is controversial because of the risk that hospitals and physicians will put the value of money before their patients’ needs and the quality of care.15 With gainsharing’s rapid growth, mandatory safeguards must be in place to (1) protect the patients, hospitals, and physicians; and (2) create a structure that can be measured and can set a basis to improve upon in order to achieve optimal results.

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