Are ACOs and Bundled Payments the Future of Health Care?

Symposium addresses the pros and cons of risk-bearing arrangements

Jennie McKee

Healthcare providers in the United States currently function in silos, which leads to a tremendous amount of waste and inefficiency,” stated Kevin J. Bozic, MD, MBA. “How many times each week do [orthopaedists] order tests that were also recently ordered by another provider, just because it’s too difficult for us to access the information?”

Kevin J. Bozic, MD, MBA

During a symposium moderated by Dr. Bozic on Tuesday, he and other experts explored potential benefits and drawbacks of participating in accountable care organizations (ACOs) and bundled payments, both part of a new healthcare paradigm meant to shift the focus from “volume to value,” according to Dr. Bozic.

“The idea is to incentivize greater coordination of care, promote greater accountability for outcomes, and encourage development of the infrastructure that will be required for delivering higher value, patient-centric care,” he said. “But keep in mind that providers will bear more risk.”

Episode payments or bundled payments, he said, are tied to performance risks, noting that orthopaedists assume risk for factors presumably under their control to some degree, such as readmission, reoperations, and complications.

“An ACO-type payment is more of a global payment,” explained Dr. Bozic, “where one assumes some of the insurance risk for the population. So, the more people who get sick and need your services, the more risk you bear as a provider.”

Examining new payment models
John Cherf, MD, MPH, MBA, a member of a large orthopaedic independent practice association (IPA), noted that many orthopaedists have long functioned within the fee-for-service model.

“Most of us had very good financial performance under that method of payment,” said Dr. Cherf. However, in today’s healthcare climate, he noted, a fee-for-service model has been characterized as an incentive for overutilization.

He echoed Dr. Bozic’s statement that new payment models are shifting the assumption of risk from payers to providers.

“Our first taste of new payment models came with the Medicare Acute Care Episode (ACE) Demonstration, a 3-year demonstration that started in 2009,” he said. The ACE Demonstration focused on orthopaedic and cardiovascular procedures and was designed to evaluate the use of bundled payments for physician and hospital services for a particular group of inpatient episodes of care.

According to Dr. Cherf, the ACE Demonstration project showed that “the real savings came from gainsharing, largely with implantable devices and standardization of care.”

“When you look at this model,” he continued, “Medicare beneficiaries had an economic incentive to go to facilities that were part of the initiative, but many didn’t.” Providers who lowered their payments and accepted a bundled payment, with the hope of recouping their losses with higher patient volumes, found that those higher patient numbers did not materialize.

The ACE initiative also resulted in significant costs to providers; participants spent approximately $500,000 on back office infrastructure, according to Dr. Cherf.

Practical experience
Approximately 30 other physicians participate in the IPA with Dr. Cherf.

“In our first year, the return for collecting a little bit of extra data was about $30,000 per individual,” he said. “So if you take an average orthopaedic income of about $500,000, about 6 percent of your income could come in passive income.”

Although orthopaedic surgeons have historically considered themselves to be proceduralists, said Dr. Cherf, this concept may be changing.

“I think our opportunities extend beyond just performing procedures,” he said, noting that the future for orthopaedists may be as managers of musculoskeletal care.

Despite the benefits of participation in this ACO, Dr. Cherf has also found drawbacks.

“There are many things I don’t like about ACOs,” he said, pointing to the need for orthopaedists to “act as big brother”—managing patients who are not aware of the ACO and are therefore not as cost-conscious as the participating physicians.

Steven F. Schutzer, MD, medical director of the Connecticut Joint Replacement Institute (CJRI) and president of Connecticut Joint Replacement Surgeons, has a great deal of experience developing and implementing bundled payments. In Dr. Schutzer’s view, these risk-bearing arrangements can have significant benefits for orthopaedic practices.

“The bundled payment program at CJRI has clearly created value,” he said. “We have a contract with one hospital and are negotiating with two others.”

Bundling, he stated, “changes the culture of distrust.”

“It aligns incentives and goals: You can cut out the fat and waste,” he said. “Anytime we get into a dispute, we ask, ‘What’s best for the patient?’”

To successfully implement bundled payments, explained Dr. Schutzer, it is essential to build a dedicated team, clearly define the episode of care, and define performance metrics. He also advocated developing care models that include cost-reduction opportunities. Pricing the bundle should consider gainsharing incentives and other compensation formulas. Finally, he recommended developing a plan for continuous process improvement.

“Even if you never bundle, go through these steps, because the entire process drives operational efficiency,” stated Dr. Schutzer.

Despite the potential benefits, bundling can also present challenges. Dr. Schutzer cited the amount of work involved, as well as the financial commitment for legal fees.

“There is some financial risk, and there are innumerable legal and regulatory obstacles,” he said. “Many providers are concerned that a bundled payment might result in a lower level of care and give commercial payers an opportunity to shift the risk and the administrative burden to providers. This is an area that we will have to watch.”

Looking ahead
The future of these new payment models is unclear, according to Dr. Cherf. Although, on average, shared savings programs have not achieved sufficient savings to offset their initial development costs, he does not expect the federal government to curtail its involvement in new payment models anytime soon.

“My hope is that the private sector figures it out before the government because I think the private sector will be a much better manager and enable orthopaedic surgeons to have much more input,” Dr. Cherf said, adding that he predicts that greater payment model innovations will occur in the future.

“I would look at these early models as versions 1.0 or 2.0,” he said. “Versions 9.0 and 10.0 are going to be robust and much more sophisticated, with much tighter controls on utilization and reimbursement and more risk sharing.”

He also foresees increased competition and consumerism.

“With more data available to them, people will be shopping around, particularly if they have high deductible health plans,” he said.

Dr. Bozic emphasized that providers assume significant risks when they choose to participate in ACOs and bundled payments. Because these arrangements do come with risks, the compatibility of healthcare systems and new payment models will continue to be crucial.

“As payment systems evolve to support the delivery of higher value care, delivery systems need to evolve to provide more coordinated, integrated care. That will enable us, as providers, to capitalize on and benefit from those systems,” he concluded.

Symposium C, Accountable Care Organizations and Bundled Payments: Passing Trends or a New Paradigm?, is available as a downloadable webcast through Sunday, March 24. Visit www.aaos.org/annual

Disclosure information: Dr. Bozic—AAOS; American Association of Hip and Knee Surgeons; American Joint Replacement Registry; American Orthopaedic Association; California Joint Replacement Registry; California Orthopaedic Association; Harvard Business School; Orthopaedic Research and Education Foundation. Dr. Cherf—Innomed; Breg; Zimmer; Johnson & Johnson; Wolters Kluwer Health – Lippincott Williams & Wilkins; AAOS; National Orthopedic Education Society; Illinois Association of Orthopaedic Surgeons. Dr. Schutzer—Renovis Surgical Technologies; Journal of Arthroplasty.

2013 Annual Meeting News
Tuesday through Friday, February 19 – 23, 2013.
http://www.aaos.org/news/acadnews/2013/AAOS10_3_21.asp