updated 8/19/2009 4:45:01 PM ET 2009-08-19T20:45:01

A dozen New Jersey hospitals are paying doctors as an incentive to save the hospitals money.

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The principle is known as gainsharing, and it's generally prohibited under federal law. But the Centers for Medicare and Medicaid Services are allowing tests of the practice, which doctors' groups and hospitals alike say could help their finances and improve patient care.

The program is intended to address a conflict in the Medicare payment system that also exists in some private insurance plans: Hospitals are paid a lump sum based on each patient's diagnosis while doctors are paid for each service they provide.

As a result, an extra day's stay for the patient might mean more money for the doctor while it costs the hospital significantly. At Our Lady of Lourdes Medical Center in Camden, N.J., for instance, an average day's stay costs about $2,500.

Sean Hopkins, a senior vice president of the New Jersey Hospitals Association, says half of the state's hospitals are losing money each year. And Medicare, the government's insurance program for senior citizens and the disabled, reimburses hospitals in the state only 89 percent of the costs to care for them, he said.

The incentives to doctors for saving the hospital money could be as much as $300 for a surgery patient and $100 for other admitted patients. Statewide, more than 500 doctors have enrolled in the voluntary program.

Dr. Alan Pope, a vice president at Camden's Lourdes, said the incentives won't increase doctors' pay significantly. But he said they might be enough to get more doctors involved in the hospitals' efforts to improve care and reduce costs by cutting down on complications that can keep patients in the hospital longer.

He said that the hospital has been putting into place practices designed to reduce those problems. For instance, it has updated procedures for dealing with patients on ventilators or respirators to prevent pneumonia from developing.

"This gainsharing program will incentivize the physicians to be part of the teams and lead the teams," he said.

The study, which is to last three years, will monitor how many patients are readmitted to the hospitals 30 and 90 days after they're discharged.

John Pilotte, director of payment policy demonstrations at the Centers for Medicare and Medicaid Services, said the readmission numbers should be down.

He said the New Jersey test is the biggest for the concept so far, though similar programs began last year at Beth Israel Medical Center in New York City and Charleston Area Medical Center in West Virginia.

The American Medical Association supports experimenting with gainsharing and other new methods to pay doctors.

The Hospitals Association's Hopkins said that if the experiment works, it could eventually be a method to check health care costs across the board, not just for Medicare patients.

"This is one of our efforts to try to be part of the solution," Hopkins said. "We understand that health care costs are growing."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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