Position Statement

Alignment of Physician and Facility Payment and Incentives

This Position Statement was developed as an educational tool based on the opinion of the authors. It is not a product of a systematic review. Readers are encouraged to consider the information presented and reach their own conclusions.

The United States healthcare system currently faces numerous challenges. The cost of delivering medical care in the U.S. is growing at twice the rate of inflation and totaled 16 percent of the Gross Domestic Product (GDP) in 2006.¹ If left unchecked, healthcare is projected to rise to 20 percent of the GDP by 2016.² Current methods of physician reimbursement by government programs and private insurance offer little incentive to help control the cost of delivering care. Furthermore, variation in practice patterns and eroding public confidence in the quality of healthcare delivery in the U.S. has become recognized as major threats to our healthcare system. Faced with these daunting challenges, alignment of physician and facility payment incentives has caught the interest of federal policymakers and many other stakeholders, who are searching for ways to stimulate savings and improve operational and financial performance. “Episode of care” bundled payment initiatives and gainsharing arrangements with physicians are common examples of ways to align facility and provider incentives.

The American Association of Orthopaedic Surgeons (AAOS) supports efforts of all stakeholders to develop and evaluate payment methodologies that will incentivize coordination of care among providers (including physicians and hospitals) and help curb healthcare inflation. As the demand for musculoskeletal care increases with a more active society and an aging population, it is incumbent on orthopaedic surgeons to participate in the discussions and to take a lead role in the development and deployment of such programs.

Currently, hospitals are paid under a Diagnosis Related Groups (DRG)-based prospective payment system which adjusts for severity and resource use in the discharge diagnosis. Physicians have traditionally been separately paid under a fee-for-service schedule without incentives to control volume or cost. The Centers for Medicare and Medicaid Services (CMS), along with multiple other stakeholders, believe that there are savings to be realized if the hospital and the physicians are paid and incentivized by the same methodology. With a single payment issued for the entire episode of care, interested parties hope to align the incentives of the facility and all involved providers, resulting in more efficient delivery of care and better compliance with standards and reporting requirements.

As traditionally defined, an “episode of care” bundled payment is a single payment made to all providers – physicians, facilities, laboratories, and all other health care professionals – for the entire episode of care provided to the patient. Episode of care payment programs may include a physician incentive or gainsharing component. Gainsharing refers to an arrangement between a physician and a hospital to share in the cost savings that result from specific actions to improve the efficiency of care delivery. Gainsharing programs may also be established independent of bundled payment programs.

Episode of care, or bundled, payment methodologies and gainsharing arrangements may carry unintended consequences. One possible consequence is deliberate deselecting of complex or risky patients. The patient must be the focal point of any initiative and therefore the system must not create incentives to treat healthier patients and limit access to sicker patients. Additionally, because a bundled payment would include a specific time period defining the episode of care, a workable and reasonable re-admission policy would be an essential piece to such initiatives. The system should not create incentives for patient diversion when a discharged patient in need of re-admission is sent to a different facility or provider. Developing a coherent risk adjustment policy is the primary method for preventing the practice of deselecting patients and addressing the readmission issues with this method of payment.

The AAOS believes risk adjustment is an indispensable component of a successful episode of care or bundled payment initiative and policy. Risk adjustment is important because unpredictable and unavoidable outcomes can occur even in the presence of evidence-based practice. Episodes of care must be risk-adjusted for patient demographics, co-morbidities, and severity of illness and procedure-specific characteristics that account for the differences that contribute to outcome and costs of treatment.

Protecting Patient Access to Quality Care

The AAOS embraces change that improves quality and lowers cost, but the patient must be the primary focus of all initiatives. Orthopaedic surgeons need to be knowledgeable about how their medical decisions affect costs, while ensuring that they are able to make proper choices in the best interest of patients, consistent with the best available evidence. Orthopaedic surgeons should continuously work to improve the quality and cost-efficiency of patients’ outcomes, regardless of any financial benefit. A facility’s attempt to control costs and maintain clinical programs should also not interfere with the surgeon’s goal of providing the highest quality care and serving the patient’s best interest. As part of a collaborative effort, orthopaedic surgeons within a facility should participate in the development of cost-containment strategies as long as patient care is never compromised and the proper safeguards are in place.

Necessary Safeguards for Patient Focused Care:

• The patient must be the primary focus of all initiatives.
• The patient should be empowered to be a fully participating stakeholder in their healthcare process.
• The patient’s access to quality care must always be a priority over cost savings.
• The physician must be the patient’s primary advocate for their unique medical needs.
• All stakeholders must disclose potential conflicts of interest when providing patient care.
• All stakeholders must not be incentivized to limit care or provide unnecessary care.
• Patients must maintain access to a variety of necessary providers and facilities.

Protecting and Facilitating Provider Alignment

The AAOS believes safeguards must be in place to protect the practice of medicine and the financial interests of all parties. The AAOS believes patient access to quality care, dependent on the alignment of all providers in the treatment of the patient, requires trust and collaboration. The incentives and influence should facilitate an environment in which all stakeholders can efficiently improve quality.

Necessary Safeguards to Ensure Provider Equity:

• The burden to affect cost savings must be on all providers and stakeholders.
• The process must be transparent so that all financial incentives and any revisions are known by all stakeholders.
• The initiative must align providers to collaboratively work together.
• All stakeholders must be represented when developing initiatives to align payment and incentives.
• The payment must be agreed upon prior to delivering care.
• All stakeholders must be represented when creating a method of distribution for payment.
• The compensation for work must be fair and reasonable for all providers.
• Payment must be risk adjusted for patient and procedure specific characteristics.
• The implementation must be equitable for all patients and providers.
• One provider must not have control over another provider.
• Competition must be maintained in the health care system.
• A physician must have the autonomy to provide care that addresses each patient’s unique medical needs.

References:

National Health Expenditure Accounts (NHEA), by the Office of the Actuary, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services. See http://www.cms.hhs.gov/NationalHealthExpendData/.

2. National Coalition on Health Care, Health Insurance Costs, 2008. (http://www.nchc.org/facts/cost.shtml)

September 2006 (Gainsharing) American Association of Orthopaedic Surgeons. Revised February 2009.

This material may not be modified without the express written permission of the American Association of Orthopaedic Surgeons.

Position Statement 1171

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