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In late December, House-Senate conferees wrapped up the Deficit Reduction Omnibus Reconciliation Act of 2005. Afterward, many legislators and healthcare industry watchdogs were surprised to learn that the final bill included funding for a gainsharing demonstration project. Under the provisions of the budget reconciliation package, CMS will establish six gainsharing pilot programs, which are to begin by January 1, 2007.

Gainsharing initiatives typically provide financial incentives to doctors who agree to use preapproved medical devices, equipment, and supplies. Those products have been standardized by hospitals to control costs through volume buying.

Rep. Nancy Johnson (R–CT) led the charge to include the gainsharing demonstration in the final bill. Johnson is chair of the health subcommittee of the House Ways and Means Committee. The projects were largely modeled on Johnson's draft legislation, known as The Hospital Quality and Performance Demonstration Act of 2005.

According to the language of the bill, the gainsharing demonstration projects are intended to “test and evaluate methodologies and arrangements between hospitals and physicians designed to govern the utilization of inpatient hospital resources and physician work to improve quality and efficiency of care provided to Medicare beneficiaries.”

Under its provisions, CMS must begin soliciting hospital projects for the six gainsharing demonstrations within 90 days of the enactment of the legislation. Two of the projects must be in rural settings. The bill also requires that a final report on the outcome of the projects be submitted to Congress by May 1, 2010.

Medtech manufacturers are generally opposed to gainsharing because, they say, it will limit access to the latest innovations and advances in medical technology. Some medtech companies were pleased to learn that the omnibus bill contains a provision allowing physicians to use nonpreferred devices when they are deemed clinically more appropriate. For many, however, some question remains about how difficult it will be to depart from the preferred-device list when a physician believes that a better clinical outcome for a particular patient can be realized by using a nonstandard device.

Addressing medtech industry concerns, CMS commissioner Mark McClellan, MD, PhD, assured Sen. Orrin Hatch (R–UT) that the gainsharing demonstration projects called for in the bill must proceed in accordance with the cautionary framework of the Office of Inspector General (OIG). “To the extent that limitations on the use of medical devices by a hospital would compromise quality or efficiency of care, I do not believe that such a demonstration project could be approved,” McClellan said.

Some medtech manufacturers have been quick to note that Lewis Morris, chief counsel for OIG, has testified that gainsharing initiatives raise concerns about possible violation of federal anti-kickback statutes and remain technically illegal.

In spite of McClellan's assurances, the two leading industry associations continue to express concerns about the broader implications of gainsharing on patient care and on the continued advances in medical technology.

Mark Leahey, executive director of Medical Device Manufacturers Association (MDMA), says he sees “no patient healthcare benefit” in gainsharing.

“MDMA lobbied hard to keep the gainsharing provision out of the final package, but it managed to survive in spite of very little visible support,” he says. “MDMA plans on working with CMS to ensure that incentives are not based on limiting physician choice or limiting care. We are reaching out to CMS to be actively involved in the crafting of the demo.”

Stephen J. Ubl, president and CEO of AdvaMed (Washington, DC), said he was “disappointed that a highly controversial provision establishing a gainsharing demonstration project was slipped into the budget reconciliation package at the last minute without consultation with either the industry or many members of Congress.”

This article originally appeared in MX: Issues Update, a monthly e-supplement to MX, a sister publication of MD&DI.

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