Letter to the Editor: 'Gainsharing' Cuts Hospital Costs but Limits Patient Care

May 05, 2006 - Financial Times


There has been much discussion about gainsharing in hospitals recently. Gainsharing is an incentive-based, cost savings concept that typically offers workers a monetary share of savings they create through increased efficiencies and cost reductions. When applied to health care, however, gainsharing becomes a troubling scenario – it assuredly will stifle innovation of medical technology, create conflict of interests for physicians and eventually will deny patients access to critical, lifesaving technologies.

Under health care gainsharing, which was illegal until Congress recently agreed to test it in a hospital demonstration project, hospitals and physicians share money generated not from efficiencies that enhance patient care but rather from limitations on a physician’s choice of medical technologies. Essentially, doctors are paid to use only the cheapest equipment or devices, or those that are part of a supply contract for which the hospital has negotiated a volume purchase.

As a venture capitalist, I know that most promising new technologies are often developed by smaller companies sufficiently nimble and flexible to quickly take innovations to market. These companies typically do not command sufficient market share or product line variety to compete for hospital supply contracts with large, established companies. I am concerned that over time, gainsharing could potentially shut innovative companies out of the hospital market and make it difficult for them to raise the capital needed for future advancements.

Innovative medical technologies and treatments can initially be more costly than existing treatments, but accepted advancements such as coronary bypass, angioplasty and stents, artificial hips and knees, all at one time or another have been thought to be expensive. Now we know that the clinical benefits derived from these technologies result in faster recovery times, shorter hospital stays and less invasive procedures.

It would be unfortunate, indeed, if in its efforts to save health care dollars, the government critically wounds an industry that has been such a bright light in our economy and a lifesaver for millions of patients. We should be looking for ways to encourage innovation in medical technology to help solve the problem of health care costs.

Guy P. Nohra,
Co-founder and Director,
Alta Partners
San Francisco, CA 94111, US