It is no secret that there have been concerns from many about the growth in healthcare expenditures in recent years, especially in the USA. However, one cannot simply focus on the ‘price’ of the technology. The benefit derived from the innovative, and sometimes more costly, technologies must be quantified to determine the actual ‘cost’ within the healthcare system.

For example, if you use a device that costs $1000 more than a similar product, but the more expensive device provides a better outcome, reduces the hospital stay by a few days or allows the patient to go back to work sooner, the $1000 is more than recouped by the healthcare system. It is also important to note that when ailments are diagnosed in the later stages, the costs of care are much greater than if diagnosed and treated earlier.

Unfortunately, the wider perspective regarding the overall cost to the system is not appreciated by all. This has become more evident with recent proposals generating interest in Washington related to gainsharing. Senators Max Baucus and Charles Grassley have introduced legislation that would instruct the Department of Health and Human Services Office of the Inspector General (OIG) to investigate the establishment of uniform regulations to guide gainsharing arrangements.

While this small section of S.1002, the Grassley-Baucus Hospitals Fair Competition Act of 2005, would not alter any of the statutes that currently prohibit gainsharing; it would allow the OIG to establish a general guidance for how hospitals could proceed in establishing gainsharing agreements without having to wait for a specific advisory opinion.

While the attempts by Congress and others within government to try to achieve cost savings via gainsharing are well intended, the unintended consequences of these types of programmes must not be overlooked.

Gainsharing is an attempt to lower healthcare industry costs by offering doctors financial incentives to reduce clinical expenditures. Under gainsharing, doctors pocket a percentage of the costs they cut by reducing clinical care, using cheaper medical devices, and standardising clinical preference products. While gainsharing’s supporters argue that it will cut healthcare costs, any arrangement which provides doctors with a financial incentive to change patient treatment presents grave concerns regarding quality of care and innovation.

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It is often the case that well-intended programmes have repercussions that were not envisioned at the time of enactment. For example, the GPO safe harbour from the Medicare anti-kickback statute was created to assist hospitals in the procurement of medical technologies. However, in recent years various federal and state investigations of the GPO industry have uncovered conflicts of interest impacting patient care, competition and innovation.

“Critics argue that gainsharing, at its core, offers doctors money to lower the amount of care they offer to their patients.”

Similarly, some industry analysts have raised concerns that allowing gainsharing will have the unintended consequences of lowering patient outcomes and damaging medical device innovation. While reducing healthcare costs is an important goal, it is essential to ensure that cost-cutting proposals provide a sustainable model for cost savings without compromising patient care and unfairly restricting medical innovation.

Some in the medical community have raised concerns that patient care would suffer under gainsharing. These critics argue that gainsharing, at its core, offers doctors money to lower the amount of care they offer to their patients. Doctors will be rewarded under gainsharing if they use fewer medical devices, perform fewer procedures, and reduce the amount of time they spend with each patient.

Gainsharing also offers financial bonuses to doctors who ‘cherry-pick’ the least expensive patients and steer sicker patients to other hospitals. Proponents of gainsharing dispute this claim, arguing that doctors will not compromise patient safety for personal gain. According to some hospital executives and consulting groups, new technology and software will allow hospitals to monitor doctors in order to make sure that patient care is not compromised by gainsharing agreements.

Finally, gainsharing’s supporters point to the benefits of rewarding doctors to find simple changes to hospital protocol which do not alter patient care, such as changing the way that hospitals use their surgical tools.


Gainsharing may give doctors motivation to find creative ways to cut hospital expenditures, but it has the troubling potential to incentivise doctors to reduce patient care. The OIG recognised these concerns in its 2005 advisory opinions, writing that gainsharing: “can potentially influence physician judgment to the detriment of patient care. Our concerns include, but are not limited to, the following: (i) stinting on patient care: (ii) "cherry picking" healthy patients and steering sicker (and more costly) patients to hospitals that do not offer such arrangements…”

In addition, while doctors may use gainsharing as a mechanism to cut costs without compromising patient care, forcing doctors to make any kind of choice between patient care and personal reimbursement creates a conflict of interest which should never be permitted.

While much emphasis has been put on the potential effects of incentivising doctors to change the care they offer their patients, gainsharing will also drive major changes in hospital administration and purchasing practices. GPOs and other gainsharing proponents
argue that hospitals can save money on supply contracts by standardising the medical devices their physicians use. Hospitals, by committing to use more of a certain brand of medical device, can negotiate lower prices on contracts with device suppliers. Gainsharing would offer doctors personal incentives to ensure that everyone in the hospital used the same, least expensive medical device.

“The standardisation of products that gainsharing promotes possesses the disturbing potential to stifle device innovation.”

Standardisation also raises concerns about patient care. No single brand of medical device is best for all patients, as different brands offer different sizes and features. An artificial hip or pacemaker that is right for one person may pose a serious health risk to another patient. Hospitals that have attempted to drive standardisation have felt some backlash from their physicians.

In Iowa, doctors have been pressured to transfer patients to other hospitals in order to utilise the brand of medical device that they need. In Pennsylvania, a physician has sued his hospital for using a standardisation contract as a façade for receiving illegal kickbacks from a major manufacturer. Financial pressure to standardise medical devices can reduce a physician’s ability to offer effective medical care.


In addition to threatening patient care, any mass movement towards standardisation of medical devices may spurn innovation and patient access to new technology.

Standardisation of medical devices favours large manufacturers and unfairly excludes smaller market players. Small companies, which drive the overwhelming majority of new medical device innovation, rely on gradually obtaining market share and using revenues to fund new research and development. If doctors are encouraged to undertake dramatic standardisation, small device manufacturers will find that they are unable to obtain market access and the future of new life-saving technologies will stagnate.

Yet even if companies develop breakthrough technology with limited market access, the gainsharing model offers doctors incentives to avoid upgrading to new and more effective medical technologies. If doctors have to pay penalties to have access to the newest and most effective technology, patients and innovation are harmed.

Some manufacturers strongly believe that important and innovative devices, such as the drug-eluting stent, would have never been developed in the market had the OIG allowed gainsharing five to ten years ago because the bare metal stent would be the norm under a gainsharing arrangement and there would be no incentive to innovate. The standardisation of clinical preference products that gainsharing promotes possesses the disturbing potential to stifle device innovation and patient access to new technologies.


Beyond the issue raised above concerning the ‘price’ of the technology versus the overall cost to the healthcare system, the actual monetary benefits of healthcare gainsharing remain unclear. Gainsharing is too new in healthcare to have produced data, but early indicators cast some doubt on bullish predictions of the cost-saving potential of gainsharing.

While no data is currently available on the cost-cutting success of hospitals currently utilising gainsharing arrangements, the similarity between gainsharing arrangements and physician-owned hospitals allows for some speculation. Physician-owned hospitals, like hospitals with gainsharing arrangements, directly reward doctors for cutting costs. But despite these incentives, MedPAC has indicated that physician-owned hospitals have not succeeded in lowering per-procedure costs, and in many cases are actually more expensive than hospitals which offer no incentives to their physicians. Therefore, while data on the cost-saving potential of gainsharing arrangements is yet to be seen, the projected cost savings of comparable physician-owned hospitals are yet to be realised.

The long-term cost-effectiveness of gainsharing agreements is also mitigated by the possibility that cheaper medical devices and fewer medical procedures will result in higher rates of medical complications, malpractice liability, and hospital re-admittance.

While utilising a cheaper alternative may result in reductions in immediate healthcare costs, the decreased durability of lower-cost medical devices may cause a higher rate of medical complications and follow-up surgeries. Cheaper devices and cheaper medical procedures may cut short-term costs, but the likelihood of hospital re-admittance may make gainsharing an unstable mechanism for producing long-term healthcare price reductions.

Curbing the dramatic rise in the USA’s healthcare costs should be a vital goal of the medical industry and the US Government. However, it is important to ensure that the desire to reduce costs does not harm patient care or prevent the innovation of new and life-saving technologies. Gainsharing, while perhaps attractive as a catchphrase, threatens to reduce patient outcomes and stifle medical device innovation while offering limited and uncertain cost savings opportunities.