Bundled Pricing for Orthopaedic Services

Ross Taylor, MD, MBA

When a patient undergoes an episode of care, Medicare and most commercial payers reimburse the hospital, surgeon, and postdischarge providers using separate and unique payment systems. For example, when a surgeon performs a total hip replacement (THR), the hospital is reimbursed based on the medical severity adjusted diagnosis-related group (MS-DRG) code for major joint replacement. Separately, the surgeon submits charges based on the current procedural terminology (CPT) code for hip replacement. Providers and institutions caring for this patient after discharge through a home health agency, inpatient rehabilitation, or skilled nursing facility are reimbursed separately as well.

This fragmented system of charges and payments does little to promote quality, cost-efficient, coordinated, or patient-centered care. For instance, if sepsis were to develop and the THR patient required mechanical ventilation, the hospital payment could more than double. Physician payments increase as well due to consultations from a pulmonologist or infectious disease specialist. Although complications may be unavoidable in many cases, payers are increasingly unwilling to pay for care based on the volume of services provided per-episode.

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