The SGR fixed more than we thought: gainsharing

In addition to the well-publicized aspects of the SGR fix, the legislation also addressed a long standing problem in the fraud and abuse laws that limited hospital “gainsharing” programs.

Gainsharing is similar to the ACO “shared savings” bonuses paid by Medicare if the health system achieves cost and quality targets, but classic gainsharing agreements are entirely private (i.e., between health systems and physicians who practice there).  For example, a hospital and a group of surgeons might sign a gainsharing agreement that shared savings in the OR from more economical ordering and use of medical supplies and devices.

The catch was Section 1128A(b)(1) of the Social Security Act, which prohibited any payments by a hospital to a physician as an inducement to reduce or limit services provided to Medicare or Medicaid beneficiaries who are under the direct care of the physician. Hospital counsel worried — with good reason — that a gainsharing program would be considered a payment to induce a reduction in services, resulting in very substantial civil monetary penalties.

Even if the services were wasteful, unnecessary or dangerous, federal law prohibited these gainsharing payments. I co-authored a paper for the American Health Lawyers Association describing the problem in detail – in 1999.

Fast forward 16 years and Congress has finally acted, by adding the words “medically necessary” to the statute.  Gainsharing is now permitted, so long as medically necessary services are not reduced or limited.  Alternative payment models now need not fear the CMP as much (see my 2014 TIE post on alternative payment model language in the SGR fix bill).

For more on this gainsharing development, see a briefing by my former firm, MWE.


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