AAOS Bulletin - February, 2006

Gainsharing can add short-term savings, value

A recent informal survey of orthopaedic leaders found that nearly three out of four were unaware of any gainsharing arrangements in an orthopaedic setting. Four out of five, however, felt that gainsharing would be a workable incentive in orthopaedics, and nearly nine out of ten would participate in such a program if it were available in their practice setting.

My personal experience with gainsharing supports this optimism.

William J. Robb III,MD


At Evanston-Northwestern Healthcare (ENH) in Illinois, we have had two programs in the past 5 years that could be defined as gainsharing. Both have resulted in cost savings for the hospital as well as benefits to the orthopaedic department and to patients

Although many physicians have valid legal and ethical concerns about gainsharing, a properly structured program—developed in concert with physicians and addressing patient care concerns—can provide some savings for hospitals without undermining (and possibly even adding to) quality of orthopaedic care. In addition, these arrangements can add value to vendor relationships, resulting in “strategic partnerships” geared toward improved patient care.

As hospital revenues declined in the 1990s, some hospitals adopted cost-saving strategies designed to better align the interests of hospitals and physicians within the limitations of federal Medicare “anti-kickback” regulations. They looked at orthopaedic procedures such as total joint replacement (TJR) and spine surgery as areas where they could add or maintain profitability through new savings obtained from competitive contracts with device makers.

Under federal anti-kickback laws, there can be no direct or indirect payment to physicians from Medicare Part A that could be considered a “kickback” to physicians for hospital-based care/referrals. Although gainsharing programs to date have not been challenged under these laws, new legislation will be needed to protect individual physicians who might receive direct payments or rebates from any cost savings generated from hospital-based programs.

The ENH experience

In 2001, ENH instituted the Orthopaedic Value Improvement Initiative. As part of the program, new vendor contracts were negotiated. Under the contract for TJR devices, orthopaedic surgeons were limited to two vendors for primary TJR components. ENH agreed to share 10 percent of the realized savings under the contract with the orthopaedic department.

We (orthopaedic surgeons) agreed to participate in the initiative, including the limited vendor/implant choice, in part because we knew that the savings would be reinvested in the orthopaedic department to support research or invest in new technology. Over the next two years (2001-2003), the implant savings totaled just under $100,000—money that was invested in a new computer-assisted surgery navigation system and a new motor skills lab.

In 2003, ENH negotiated a new “preferred purchasing” contract with a single vendor for renovation of the operating rooms (ORs). Savings to the hospital resulted from the “preferred purchasing” contract and a percentage of the total services/products purchased would be allocated to the orthopaedic department. In the past two years, “preferred purchase” rebates totaled approximately $150,000 and are earmarked for new OR power equipment and a new OR fracture table.

In neither case did the “gainsharing” contracts substantially alter patient care at ENH. In fact, it could be argued and demonstrated that orthopaedic care at ENH improved during this period because the department was able to invest nearly $250,000 in new technology that benefited orthopaedic surgeons, the hospital and patients.

The program worked, in part, because individual orthopaedic surgeons were willing to “buy-into” the cost-savings process. No surgeon received any direct added income from the program. Because pricing and technology will continue to increase, these contracts are valuable for relatively short periods of time; the greatest savings occurred during the first 12 to 18 months.

Three perspectives

Gainsharing arrangements can be viewed from several different perspectives. From the hospital’s point of view, carefully constructed gainsharing arrangements can yield savings without changing the quality of orthopaedic care. Additionally, gainsharing can help to create a strategic alignment of hospital and physician interests.

From the orthopaedic surgeon’s perspective, participation in the development and implementation of these hospital-based cost-savings programs is essential to insure that gains (savings) do not undermine the quality of care and are properly reinvested in orthopaedic programs. Physicians also bring an ethical perspective to the table. In the survey referenced at the beginning of this article, orthopaedic surgeons raised concerns about disclosure: Should patients be made aware that hospitals and surgeons are contracting for goods or services under an agreement that provides for the sharing of realized savings?

Industry has a completely different perspective. In general, industry is opposed to “gainsharing” focused on cost savings but supports strategic alliances that may realize some savings while adding value based on the “preferred” relationships. As industry profits tighten, the potential for savings may shrink. Currently, industry tolerates gainsharing arrangements between hospitals and physicians because their contracts for implants and services remain profitable.

Personal reflections

As we move forward, I believe it will become more difficult to maintain the ethical alignment between physician and hospital interests. Decreasing reimbursements and increasingly expensive devices are making it difficult for hospitals to maintain the same level of profits from traditionally profitable programs such as orthopaedic surgery.

As a result, more hospital cost-savings programs will involve “gainsharing,” “value improvement” and “preferred purchasing” arrangements, with incentives designed to align hospital and physician interests and build “cooperative alliances.” In the short term, such programs may be able to generate some savings for hospitals without undermining the quality of orthopaedic care. Depending on the use of the money saved, such programs may even enhance the quality of care.

At ENH, gainsharing funds represent less than 1 percent of the orthopaedic department’s budget. Although gainsharing may have some limited value in the short term, it is not a viable or sustainable long-term strategy to contain costs or promote quality.

William J. Robb III, MD, is chairman of the department of orthopaedic surgery at Evanston Northwestern Healthcare in Illinois. He can be reached at w-robb3md@comcast.net

Gainsharing raises more concerns than benefits


David Teuscher, MD

With declining reimbursements and rising expenses, hospitals naturally look for cost savings and surgeons seek alternative revenue sources. Although many types of gainsharing exist, the significant and complex legal and ethical issues may outweigh the benefits of these ventures. Orthopaedic implants and supplies are not equivalent in performance or surgeon familiarity.


The patient’s unique needs and the clinical judgment of the surgeon should drive implant selection, not the financial gain of the facility and surgeons

A flawed venture

Beginning in 1995, a hospital with which I was affiliated sought to control implant costs by establishing a ceiling on the price it would pay for primary and revision total hip and knee arthroplasty implants. Surgeons could select any implant as long as the vendor agreed to the ceiling price.

Not satisfied with that savings, the hospital later proposed a single vendor for implants with potential financial incentives if the surgeons agreed to the proposal. The physicians could not agree on a single vendor, and mindful of anti-kickback and self-referral laws, the deal was not consummated. Subsequently, the hospital did limit the number of implant suppliers to two despite the objections of some of the surgeons.

The law of unintended consequences proved this move unwise. One of the two suppliers was bought out by the other, so all surgeons ended up using a single vendor. Because every joint replacement surgeon had switched and was now comfortable with that single vendor, the hospital lost its control of the situation. Surgeons were unsuccessfully asked to pressure the vendor to lower costs, limit their use of the latest generation implants or change to other implant makers.

Subsequently, the increase in physician-controlled ambulatory surgical centers and a new specialty hospital helped make surgeons aware of the costs of supplies and implants. This has produced clinically valid opportunities to hold down costs without sacrificing patient safety and quality outcomes.

Concerns on gainsharing

As physicians we have a legal duty to our patients to inform and provide quality care, as well as an ethical duty to make the patient’s interest our primary focus. Our implant and supply decisions must consider these factors above costs. Physicians who are involved in gainsharing must disclose this to their patients. If an implant fails, the plaintiff’s lawyer is guaranteed to ask, “How much did they pay you to change to this failed implant?”

Physicians should be involved in effecting changes to control costs, because we alone can best ensure that there is no compromise in safety and outcomes. If we chose to be involved in this process only through gainsharing arrangements, we may give the impression that physicians are interested in quality, cost-effective care only if we get paid extra for the savings.

Recent media attention and federal investigations have focused on the relationships between orthopaedic surgeons and device makers. There is concern that any financial ties an orthopaedic surgeon has to device makers could overshadow the physician’s commitment to the patient’s well-being. While orthopaedists play an important role in developing new—and hopefully better—implants, they must not let this role affect their judgment in matching a patient with the most suitable implant for that patient’s situation. 

A similar concern exists with gainsharing arrangements. Implant selection must be based on the patient’s needs, not the potential for cost savings. The work being done by the AAOS and specialty societies to develop evidence-based measures and practice guidelines supports this position. As orthopaedists, we are seen as the experts on musculoskeletal care; let us not allow even the hint of undue influence on our medical decisions to jeopardize our position.

Funding for change

Gainsharing as a method of reducing costs diverts attention from fixing fundamental flaws through systemic reform of the current health care delivery system. Will savings under any gainsharing agreement be used to help the underfunded Medicare Part B? Probably not.

Gainsharing is being promoted as a way to make physicians and hospitals allies in reducing health care costs. Instead, Congressional testimony by the hospital industry clearly shows that hospitals intend gainsharing as a way to maintain control. Their support of restrictions on physician investment in health care facilities should leave little doubt that most are unwilling to consider surgeons as owners, investors or financial partners.

Physicians must become educated about the cost of the devices and supplies that we use, enabling us to make proper choices in the best interest of our patients. By educating both patients and the media, we can reduce costs and maintain or increase quality of care.

Final thoughts

Orthopaedic surgeons should continuously work to improve the quality and cost-efficiency of our patients’ outcomes, regardless of our personal financial benefit through gainsharing. We must continue our work on defining best practices through evidence-based analysis, providing us legal protections through a better defined standard of care.

Medical specialty societies such as the AAOS should continue our liaison with the Office of Inspector General in the U.S. Department of Health and Human Services to develop guidelines for accountability, quality controls and safeguards on payment for referrals.

Armed with cost information, physicians will better understand the relationship of costs and outcomes, and will appropriately and voluntarily modify our choices. We can combine this knowledge with evidence-based medicine, producing clinically appropriate, cost-efficient protocols that result in savings for our patients and fulfill our legal and ethical duties.

David Teuscher, MD, is chairman of the AAOS Professional Liability Committee. He can be reached at Teuscher@MD.AAOS.org


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