How a N.J. 'gainsharing' program pioneered bundled pay

State program cut Medicare costs by up to 10% at participating hospitals

A dozen New Jersey hospitals reduced operating costs by up to 10% in the first three years of a "gainsharing" pilot—and the success has prompted federal officials to expand the pilot through CMS's bundled payment initiatives.

In 2009, 12 New Jersey hospitals joined a New Jersey Hospital Association (NJHA) pilot that paid physicians bonuses for saving the hospitals money on Medicare patients. According to the Associated Press, the program was made possible by 2007 Medicare rules.

From 2007 to 2012, the participating hospitals lowered their costs between 8% and 10% , says NJHA's Sean Hopkins. Although he acknowledges that it is impossible to know how much of those savings can be attributed to the gainsharing program, Hopkins says it has been a major factor in the lower costs.

At Hunterdon Medical Center, the average cost of treating a Medicare patient was $9,381 in 2012. In comparison, it would have cost about $12,138 to treat a Medicare patient in 2007, assuming the hospital had the same patient mix as it did in 2012.

Hunterdon CMO Robert Coates also says the model reduced length of stay (LOS) from 5.9 days to 5.2 days.

Anthony Granato, a pulmonary critical care physician at Hunterdon, adds that the program changed the way he thought about critical care. For example, Granato says he avoids unnecessary patient monitoring that he might have routinely ordered in the past. "We never before looked at what our costs were in the hospitals," Granato says. "Some things we always do because we always just do them."

Coates adds that the gainsharing program has helped cut seven-day and 30-day readmission rates. Moreover, gainsharing generates as much as $200,000 in biannual physician bonuses.

In its broader bundled payments announcement earlier this month, CMS expanded the gainsharing program to an additional 17 hospitals in New Jersey. Altogether, the 29 New Jersey hospitals—and three other health care providers—will be participating in Model 1 of the agency's bundled payment effort.

"CMS also announced that it will offer a second round of applications for Model 1 in the coming months," according to Rob Lazerow, the Advisory Board's bundled payment expert. "Hospital leaders intrigued by the success of these New Jersey hospitals may be able to develop Medicare gainsharing programs at their organizations too" (Mulvihill, AP/San Francisco Chronicle, 2/18; NJHA release, 2/1).

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