Gainsharing Contracts for CMS’ Episode‐Based Payment Models

Abstract

The Centers for Medicare and Medicaid Services (CMS) has introduced several Episode‐based Payment Models. Episodes are combinations of pre‐acute, acute, and post‐acute services for particular medical conditions. During the year, CMS pays hospitals according to historical norms. At the end of the year, these payments are reconciled against a target price, resulting in either a gain or a loss for the hospital. The hospital may also realize gains or losses from its internal operations. It may incentivize physicians to select certain treatment levels that improve quality and reduce costs by offering to share gains and losses. CMS has placed restrictions on what gains or losses may be shared and implemented stop‐loss and stop‐gain (SLSG) provisions for the hospital and the physicians. In this study, we consider a class of affine gainsharing functions that calculate a physician’s per‐episode share based on both the aggregate performance across all physicians, and the cost and quality outcomes achieved by that physician. We show that when there are no sharing restrictions and no SLSG provisions, an optimal gainsharing function lies in the class of affine functions. In contrast, when there are SLSG constraints, the contract design problem is analytically challenging. Therefore, we perform a series of numerical experiments, which reveal that the hospital SLSG provisions, the maximum savings potential, and the hospital’s risk preferences determine the amount of gains and losses that the hospitals share and the resulting treatment levels. From the CMS perspective, we show that SLSG constraints matter more to hospitals with higher historical average billing and higher risk aversion.

Promoting Collaborative Care: Relative Performance-based Payment Models for Hospitals and Post-acute Care Providers

“…In contrast, our study focuses on the design of payment models for scenarios where care is delivered by multiple providers, rather than solely addressing the allocation of a single bundled payment among different providers. In addition, similar to other papers reviewed above, Gupta et al (2021) and Ghamat et al (2021) do not utilize relative performance-based payment models.…”

“…In an effort to further incentivize care coordination, the CJR program allows hospitals to establish "gainsharing agreements" with PAC providers to share rewards and penalties. However, designing effective gainsharing contracts can be challenging, especially when there are informational asymmetries between the two providers (Gupta et al 2021, Ghamat et al 2021. Additionally, complications arise due to the hospital's limited ability to mandate which PAC provider a patient should choose (McGarry and Grabowski 2017).…”

“…This limitation arises from the fact that only hospitals are held accountable for overall costs, while PAC providers are solely responsible for their own cost and quality. While gainsharing agreements have the potential to improve care coordination under CJR, designing effective agreements remains an ongoing challenge (Gupta et al 2021, Ghamat et al 2021. In contrast, our proposed payment model eliminates the reliance on such agreements, offering a promising and pragmatic alternative.…”

“…Additionally, there is a body of literature that examines the design of gainsharing contracts within the context of a CJR-type bundled payment model. Gupta et al (2021) investigate the design of gainsharing contracts between hospitals and physicians when the overall payment for care is based on a bundled payment model. Similarly, Ghamat et al (2021) explore the design of gainsharing contracts between hospitals and PAC providers under the CJR payment model.…”

“…Although exploring the intricacies of this interaction between hospitals and PAC providers is beyond the scope of this paper (see (Gupta et al 2021, Ghamat et al 2021)), we utilize a simplified model to capture its essence. In this model, we assume that PAC providers bear only a portion of the hospital treatment cost of readmitted patients, denoted by the parameter θ ∈ [0, 1], while the hospital assumes the remaining cost (1 − θ).…”