Shared savings and gainsharing are two ways to align providers' interests to decrease healthcare costs as the healthcare industry transition from volume to value. Gainsharing is the direct payment by hospitals to physicians, based on reducing hospital costs and meeting quality of care standards. Shared savings programs enable insurers to decrease spending by incenting providers to use the lowest cost service for their patients to achieve desired outcomes. Although they can work in tandem to align incentives, the initiatives and the basis of incentives are significantly different. Below are six essential differences between the two models.

1. Basis of incentive. Shared savings programs control costs by focusing on reducing payments. The underlying concept is payment reductions force physicians and hospitals to determine services that can be eliminated. Payers see savings as providers receive less payment because they deliver less services. In return, insurers share a portion of the savings with providers. Examples of shared savings programs are accountable care organizations, bundled payments that transcend one modality and patient-centered medical homes.

Gainsharing programs, on the other hand, aim directly at reducing costs on inpatient services by improving the efficiency of care delivered at the point of service and eliminating medically unnecessary services. By working cooperatively to decrease inpatient costs, hospitals share a portion of the cost reductions with physicians. The program bases incentives on current performance levels as well as improvement from prior periods, and on reaching best practices (i.e., a regional norm based on inpatient cost). The gainsharing program established under CMS’ Innovation models, particularly Bundled Payment for Care Initiative Model 1 (acute only) used by the New Jersey Hospital Association and commercial gainsharing programs such as Continuum Health Partners (now part of the Mount Sinai Health System[1]) and with the Greater New York Hospital Association, are examples of “large scale” gainsharing – i.e., all diagnosis-related groups and all inpatient costs. Similar programs are being considered in Maryland and Pennsylvania.

2. Impact on revenue stream. By design, shared savings programs decrease direct patient revenue to hospitals. Providers need to reduce costs to make up for the lower revenues from decreased payments, and negotiate a portion of revenue savings from insurers. Gainsharing programs do not impact revenues; instead they focus on lowering costs when patients are in the hospital.

3. Risk. Shared savings programs have not had an easy road to success. Ten of the original thirty-two Pioneer ACOs left the program saying that the risk was too great.[2] One in four ACOs earned bonus pay, and about two thirds of ACOs are unlikely to adopt a two-sided risk model in the next round, despite CMS requiring it.[3] Organizations have found the transition to a successful ACO is longer and more complex than what was anticipated.[4] With regard to bundled payments, developing pricing and allocating incentives among providers are essential infrastructure requirements.[5] [6] Bluhn argued that teaching hospitals should not participate in the program because of the costs and risk.[7]

In contrast, AHRQ recently reported that gainsharing effectively decreased inpatient costs by 8.5 percent across three years in the New Jersey Medicare Gainsharing Demonstration project.[8] Importantly, gainsharing did not require new physician and legal infrastructure, and works with employed, contracted and independent physicians. Hospitals only pay incentives for cost savings if cost savings occur. Gainsharing functions in already established provider infrastructure and implementation requires no changes to billing and payment practices. Data from standard billing data and cost reports is utilized to identify cost savings.

4. Quality and outcomes. While both shared savings and gainsharing have a strong commitment to quality, the programs track and reward quality and outcomes differently. Because shared savings programs are examining the overall health of the population, quality measures are usually derived based on advanced analytics that measure longitudinal records across multiple modalities, usually requiring the creation of a data exchange. Multiple providers can impact the outcomes; it is more difficult to assign responsibility.

For gainsharing, conditions are typically placed on incentive payment to ensure that reported quality goals are met and care redesign objectives achieved. Although gainsharing can accommodate advanced analytics, its strength is relying on outcomes data already captured at the physician level. The program contains safeguards to insure quality patient care.[9] For example, gainsharing does not penalize physicians for treating high cost outliers; incentives are provided only for lowering costs with no penalty applied for patients with complex conditions that result in higher cost.

5. Physician strategy. Shared savings programs typically focus on primary care. ACOs and PCMHs align primary care practices with the need to direct patients into low-cost, high-value services. The primary care physician is the foundation and strives to create continuity of care, access and to keep patients healthy.

Gainsharing centers on the acute inpatient setting. This encourages specialists, hospitalists and surgeons to work to get the patient out of higher cost modalities quickly and efficiently (i.e., reduce ICU days, reduce readmissions and potentially avoidable admissions), while coordinating with the primary care physicians to ensure that support is provided post-discharge. The incentives align specialists/hospitalists/surgeons with the goals of lowering cost and improving outcomes.

6. Time until first incentive payment. Hospitals and physicians need to align financial goals quickly. The longer it takes to create fair and equitable financial mechanisms, the more likely the program will see decreased effectiveness, lower morale and eventual collapse. Shared savings program can take 18 months to two years before incentives are computed and distributed. In contrast, the first payments from a gainsharing program typically begin within nine months of implementation and continue at six-month intervals.

Gainsharing’s ability to create short term wins allows it to be a stepping stone to a shared savings program. CMS has recognized that organizations can have both shared savings and gainsharing programs,[10] and that gainsharing can work among provider partners to meet institution goals.[11]

While not detailing every difference, Table 1 provides a quick summary of the 6 essential differences between shared savings programs and gainsharing. Overall, it is important to remember that gainsharing and shared savings programs can be complementary, and both position a provider organization as they transform to balance cost and quality while meeting the healthcare needs of patients and communities.

Table 1: Six Essential Differences between Shared Savings and Gainsharing Programs

Jo Surpin, MA, is the president of Applied Medical Software in Collingswood, N.J. AMS has developed a gainsharing program that aligns hospital and physician incentives approved by CMS for BPCI Model 1, as well programs for commercial gainsharing. Jo serves as the Chair of the Board of Salus University, a health sciences university, in Elkins Park, Penn. .

Anthony Stanowski, DHA, FACHE, is a vice president at AMS. He is a member of the AHA’s Committee on Governance, and also serves on the Board at Bon Secours Baltimore Health System.

[1] Continuum Health Partners was a multi-hospital system in New York that included Beth Israel Medical Center – Petrie, Beth Israel Medical Center – Kings Highway, St. Luke’s Hospital and Roosevelt Hospital. Effective October 2013, Continuum became part of the Mount Sinai Health System.

[2]Evans, M. (2014, September 1). Providers see little enthusiasm to join Pioneer ACOs. Modern Healthcare.

[3]The Advisory Board Company. (2014, April 29). A risky future? Two-thirds of ACOs want rules to change.

[4]White, P. (2014, June 19). Transition to ACO Model is "A Journey, and Hard Work," Yet Signs of Progress Already Being Seen. Becker's Hospital Review.

[5]Burns, J. (2013, April 1). Bundled payment. H&HN.

[6]Kornuszko-Story, M. (2014, August). Checklist: Assessing Your Commitment to Bundled Payment. Leadership E-newsletter.

[7]Bluhn, N. (2013, Fall). Medicare's Bundled Payment For Care Improvement Initiative: Is There A Business Justification For A Teaching Hospital To Participate? Virginia Law & Business Review, 7(3).

[8]Agency for Healthcare Research and Quality. (2014, July 16). Hospital Gain-Sharing Program Offers Incentives to Physicians Based on Their Efficiency, Producing Significant Cost Savings Without Decline in Quality. Innovations Exchange. Rockville, MD.

[9]Leitman, I. M., Levin, R., Lipp, M. J., Silvaprasad, L., Karalakulasingam, C. J., Bernard, D. S., . . . Shulkin, D. J. (2010, Nov-Dec). Quality and Financial Outcomes From Gainsharing for Inpatient Admissions: A Three-Year Experience. Journal of Hospital Medicine, 5(9), 501-7. doi:10.1002/jhm.788

[10]Government Printing Office. (2011, November 2). www.gpo.gov. Federal Register Rules and Regulations: Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations; Final Rule, 76(212), 67831.

[11]Centers for Medicare & Medicaid Services. (2014, January 30). www.cms.gov.