Hospital-Physician Gainsharing

Abstract

We study the introduction of a gainsharing program for cardiologists choosing stents. Legal restrictions on payments to non-employee physicians can limit hospitals’ ability to solve principal-agent problems. We study the introduction of a gainsharing program that allowed hospitals to share reductions in stent acquisition costs with cardiologists. Applying difference-in-difference methods applied to a rich dataset of cath lab patient and stent characteristics, we find that gainsharing led to reduced hospital spending without changing clinical outcomes. Our heterogeneity analysis suggests that the spending reduction was driven by reduced acquisition prices rather than a shift to lower-cost stents. Our ongoing work will develop an empirical model of upstream manufacturer bargaining with downstream gainsharing. The results highlight that in a vertical market, the design of incentives at one level can impact equilibrium outcomes at other levels.