Squandering the Gain: Gainsharing and the Continuing Dilemma of Physician Financial Incentives

Abstract:     
Under gainsharing arrangements, physicians collaborate with hospital management to generate and implement procedures for improving hospital productivity. The physicians typically receive a percentage-share of any institutional cost-savings the hospital may experience. Hospital-physician gainsharing is illegal under the U.S. Medicare/Medicaid statute, subject to limited exceptions, and few countries actively encourage it as a matter of health policy. The near-complete ban is based in part on concerns about quality of care as well as unacceptable conflicts of interest for the physicians involved. This Article, however, challenges the patient protection premise of the gainsharing ban. This Article details the experience of gainsharing in non-healthcare industries, which has generally been positive, both for cost control and quality improvement. Gainsharing's moderate success in other industries is often explained as resulting from its ability to increase worker participation in organizational decision-making and collapse barriers between management and labor. A logical question, therefore, is whether gainsharing could similarly overcome the current divide between hospital management and medical staff by more closely aligning their incentives. This alignment is important to not only productivity improvement but also to quality enhancement, medical error reduction, and other operational reforms in the hospital setting. Moreover, rather than protecting patients from substandard medical care, gainsharing restrictions seriously impede efforts by hospitals to develop therapeutically important disease management programs for patients with chronic conditions such as heart failure and diabetes. Finally, this Article explains how participation in gainsharing is not irrevocably incompatible with physicians' fiduciary and ethical obligations to their patients.

Keywords: gainsharing, physicians, hospitals, financial incentives, cost containment, fiduciary

Accepted Paper Series