Medicare Hospital Gainsharing Demonstration

This demonstration examined the effects of gainsharing aimed at improving the quality of care in a health delivery system. More specifically, the demonstration focused on determining if gainsharing is an effective means of aligning financial incentives to enhance quality and efficiency of care.


Section 5007 of the Deficit Reduction Act of 2005 (DRA) authorizes a gainsharing demonstration program to test and evaluate arrangements between hospitals and physicians designed improve the quality and efficiency of care provided to beneficiaries. The demonstration allowed hospitals to provide gainsharing payments to physicians that represent solely a share of the savings incurred as a result of collaborative efforts to improve overall quality and efficiency.

Initiative Details

This demonstration consisted of two sites, Beth Israel Medical Center, New York City and Charleston Area Medical Center, West Virginia.

Gainsharing must be based on net savings, that is, reductions in patient care costs attributable to the gainsharing activity offset by any corresponding increases in costs associated with the same patients. Participating hospitals had to guarantee budget neutrality or savings to Medicare over the entire episode of care for the period of the demonstration.

Additional Information

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