Thomas C. Barber, MD, (left) and Peggy L. Naas, MD, enjoy the audience response to the question of whose presentation was more helpful in providing an understanding of the issues surrounding future payments.


Published 11/1/2014
Elizabeth Fassbender; Mary Ann Porucznik

What’s Ahead for Orthopaedic Payments?

Quality programs will affect physicians’ incomes

How are orthopaedic surgeons going to be paid in the future? What programs will affect the individual orthopaedic surgeon’s income? Will payments become a “zero-sum game” in which some orthopaedic surgeons are winners and others are losers? These and other questions were addressed during the AAOS Board of Councilors (BOC)/Board of Specialty Societies (BOS) Fall Meeting symposium on “The Changing Landscape of Payment Strategies.”

Among current federal quality programs are “meaningful use,” the Physician Quality Reporting System (PQRS), and the value-based modifier. According to AAOS Council on Advocacy Chair Thomas C. Barber, MD, all of these quality metrics affect physician income and may soon be merged into a single program.

For example, the goal of the meaningful use program sponsored by the Centers for Medicare & Medicaid Services (CMS) is to increase use of electronic medical records (EMRs) in physician offices. Providers must attest to demonstrating meaningful use of systems to serve patients and improve care every year to receive an incentive bonus and to avoid a negative Medicare payment adjustment. Under each of the three stages of meaningful use, requirements for using EMRs increase. (See “Bar Raised for Stage 2 Meaningful Use.”)

Dr. Barber noted that an AAOS member survey found that 55 percent of practitioners have an EMR system, but just 27 percent have qualified for incentive payments under meaningful use. “While we are getting electronic records, we are not qualifying for the payments. That’s a big deal, because as of this year, penalties kick in and we could start losing 2 percent of those Medicare payments,” he said.

He reviewed the requirements for quality metric reporting and noted that although only two of current quality metrics apply to orthopaedics, others are being developed. More quality metrics apply to orthopaedics under the PQRS program, but many orthopaedists are not participating in that program.

Dr. Barber explained that Congress is considering incorporating a broad-based quality program (one that includes all current programs) in any efforts to repeal or replace the Sustainable Growth Rate (SGR) formula. Although increases in Medicare expenditures have been decreasing, making repeal of the SGR more “affordable,” the most recent legislative proposal estimated the cost of repealing the formula at $130 billion over the next 10 years, and Congress was unable to agree on a way to pay for it.

“The recent actions of the House and Senate addressing the SGR were incredibly disappointing,” stated Dr. Barber. “Despite bipartisan support in both the House and Senate to permanently repeal and replace the SGR, an agreement on how to pay for it could not be reached. We are hopeful, however, that this momentum will continue and a permanent solution can be reached.” Under current law, a 24 percent cut in Medicare reimbursements to physicians will go into effect in April 2015.

A single quality program
A key provision of the proposed legislation to repeal the SGR is to consolidate the three Medicare quality programs (meaningful use, PQRS, and value-based modifier) into a single Merit-based Incentive Payment System (MIPS), beginning in 2018, with a penalty of up to 4 percent and a potential bonus of up to three times that (12 percent) for “exceptional performance.” The program would also likely include a new clinical practice improvement activities component.

Because incentives must be budget-neutral, Dr. Barber noted, the more achievers there are, the lower the incentive payment will be. “Having well-balanced quality metrics will be important,” he said.

Dr. Barber also noted that incentives for adoption of alternative payment models (such as patient-centered medical homes or bundled payments) will certainly be included in any legislation going forward, along with Appropriate Use Criteria (AUC) for advanced diagnostic imaging.

Physicians can also expect to see more data about themselves published on the Physician Compare website beginning in July 2015, continued quality measure development, and a tighter review of how services are valued in the fee schedule. He added that Obamacare will continue to be a “punching bag” until at least the next election, and, although in-office ancillary services are safe for now, indirect graduate medical education expenditures are a potential target.

The impact of exchanges
According to Peggy L. Naas, MD, MBA, vice chair of the AAOS Health Care System Committee, orthopaedic surgeons have adopted a number of survival strategies to deal with nominal and real dollar reductions in payments. These include seeing more patients, spending more hours in patient care, establishing swing rooms, employing midlevel “physician extenders,” limiting the insurers accepted by the practice, changing their case mix, reducing staff, and accepting hospital employment.

She then focused on the role of private payers and employers in the changing landscape of payment strategies. Employers, she noted, point out that they have been the payers and are taking steps to ensure that their employees have “skin in the game” in terms of higher deductibles and copayments. Employers are also looking to reduce costs and absenteeism and to achieve short-term economic and efficiency benefits.

Large employers, such as Walmart and Disney, are already taking steps to control costs using narrow networks, reference pricing, and domestic medical tourism. Narrow networks may involve accountable care organizations and are characterized by clinical integration strategies involving both physicians and hospitals.

The effectiveness of reference pricing—in which an employer agrees to pay up to a certain amount for a procedure, with the employee responsible for any additional costs—has already been exemplified by the California Public Employees’ Retirement System (CalPERS) experience. When it was discovered that joint replacement costs could range from $15,000 to $100,000, CalPERS instituted a reference pricing cap of $30,000. The average price of joint replacement surgery dropped by 26.3 percent. Prices at high-cost facilities dropped more than 34 percent, as did surgeon volume at those facilities. Moreover, surgeon volume at low-cost facilities increased more than 20 percent.

Under a new program launched by the Pacific Business Group on Health, certain hospitals are part of an Employers Centers of Excellence Network, enabling employees to travel across the country for certain surgeries. According to Dr. Naas, domestic medical tourism can be seen as either a classic threat or an opportunity, “depending on your place on the playing field and your perspective.”

Private healthcare exchanges, such as those operated by Walgreens and Sears, are also increasing in importance. According to one survey, one-third of U.S. employers plan to move their workers’ healthcare coverage to a private exchange in the next few years.

Bundled payments
Finally, in addition to Medicare’s bundled payment initiatives, several commercial insurers have introduced bundled payment programs to address the fragmentation, duplication, and misalignment of incentives found in the current fee-for-service payment model. The bundle definition should include services that can be clearly related to the trigger event and should create an incentive to improve the quality and efficiency of patient care delivery.

Payment strategies such as bundled payments and gainsharing—both of which include the potential for risk as well as reward—present several opportunities for surgeons. In addition to increasing the quality of patient care and coordinating patient care with hospitals, other physicians, and postacute care providers, they may also increase selected per case revenues, increase case volume and drive market share.

Before entering a bundled payment agreement, advised Dr. Naas, orthopaedic surgeons should understand the risks and opportunities as well as the benefits and costs of framing the bundle in different ways. Key to the success of any agreement is knowing which variables are influenced by patient characteristics and which are affected by provider decision and treatment variables. Factors that generate significant cost without increasing quality outcomes must be identified and feedback provided to reduce variation that does not add value.

Survival strategies outlined by Dr. Naas include self- and group assessment of existing talents and strategies in the new marketplace, data access and analysis, negotiation skills, marketplace analysis, and creative efforts with new partners. In closing, she quoted management consultant W. Edwards Deming, PhD, who famously said, “It is not necessary to change. Survival is not mandatory.”

Elizabeth Fassbender is the communications specialist in the AAOS office of government relations; she can be reached at

Mary Ann Porucznik is managing editor of AAOS Now. She can be reached at

Additional Information:
AAOS 2014 Fall Meeting Information