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Orthopedic and Dental Industry News Complete Archive »

Gain-Sharing: The Lawyers View BY JOHN CHOPACK, APRIL 18, 2005

Background on Gain Sharing.
The Hospital Corporation of America ("HCA") has recently asked the Office of Inspector General ("OIG") of the Department of Health & Human Services ("HHS") to allow for "gain-sharing" arrangements. These gain-sharing arrangements would allow hospitals to share a percentage of the cost savings from using certain orthopedic devices, most likely discounted priced implants, with surgeons. Historically the OIG and other legislative forces ruled against such plans. In 1999, an OIG bulletin warned that gain-sharing could violate fraud and abuse laws and a 2004 federal court decision in New Jersey ruled that a CMS gain-sharing demonstration violated a rule barring physicians' incentives to reduce or limit care.

However, this year the OIG has changed its stance and is allowing such a gain-sharing proposal to proceed for a number of hospitals. To date, the gain-sharing proposals have only included "low-tech" cardiology catheterization products. However, proposals are in place for orthopedic devices. The OIG's formal stance is that the "gain-sharing arrangement(s) could constitute an improper payment under the federal anti-kickback laws. Nonetheless, the OIG will not impose sanctions because of certain safeguards, such as the transparency of the arrangements."

Interviews with Industry Lawyers.
We spoke to two different healthcare lawyers recently regarding the likely effects of gain sharing on the medical device industry and, more specifically, the orthopedic sector. They indicated that it was likely that the gain-sharing proposals recently approved within the cardiology sector will be expanded into other medical devices including orthopedics. She explained that during the last three years the "tide has changed" with respect to gain-sharing. This trend is likely to continue during the upcoming years.

They believe that the impact of gain-sharing within the healthcare sector will not be immediate. It is likely that these proposals will be implemented over a 2-3 year period. Additionally, they indicated that these programs will likely only involve "low-tech" commodity procedures/products. To date, the gain sharing proposals have been primarily targeting cardiology disposable products. The belief is that such programs will have a minimal effect on the overall orthopedic pricing environment in the near-term. However, over the long-term the feeling is that these programs could influence the pricing of orthopedic implants including hip and knee replacements.

When asked about the ramifications of "gain-sharing" on future malpractice suits, the belief was that these programs will have limited impact on future malpractice cases. Historically, the defense has had an easy time proving that the implant was appropriate for an individual patient. Therefore, as long as the surgeon uses his best judgment, it is likely to have a limited impact on malpractice litigation.

The task of the healthcare provider in the future will be to demonstrate cost efficiency, or simply put, hospital and insurance cost savings. If a manufacturer can show that a certain procedure or device shortens hospital stays or shortens rehabilitation it is likely to be approved via a gain sharing arrangement. This may help drive Minimally Invasive Surgery over the long term.

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