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AAOS Now

Published 2/1/2015
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Dave Terry; John Cherf, MD, MPH, MBA

Bundled Payment Models Facilitate Specialist Independence

The Medicare Bundled Payment for Care Improvement (BPCI) program creates unique opportunities for specialists to reduce both government and patient costs while potentially increasing surgeon revenue per inpatient Medicare case. As a result, the program has become increasingly popular, with hundreds of physicians and more than 6,000 provider organizations across the United States evaluating bundled payment claims and pricing data and deciding whether to move forward on the program’s April 1, 2015 start date.

Among the applicants are orthopaedic and cardiovascular surgeons, as well as cardiologists and hospitalists. The momentum created by BPCI has also increased the bundled payment activity in the commercial and worker’s compensation health insurance sectors.

When the BPCI program is structured correctly, the specialist is the point person for managing the patient’s care throughout the course of the episode, allocating the appropriate clinical and financial resources, and capturing the savings that are created. The economics of this structure for orthopaedics are compelling.

The average 90-day cost to Medicare for a major joint replacement or spine surgery is approximately $30,000 per case, with close to half the costs occurring in the post-discharge setting. By actively working to improve care coordination, manage post-discharge services, and reduce skilled nursing facility days and hospital readmissions, physicians can potentially double their revenue per case. Additionally, the baseline price for the BPCI program is locked in for 3 years.

Commercial plans
In the commercial market, several dozen bundled payment programs have emerged with health plans and large employers, such as Blue Cross & Blue Shield of New Jersey, WalMart, Boeing, the state of Arkansas, and others. Smaller self-insured employers are also starting to band together so they can effectively partner with provider organizations to design and implement bundled payment programs.

In many ways, commercial bundled payment programs are even more attractive than the Medicare program. While the Centers for Medicare & Medicaid Services has done a good job designing the BPCI program and paving the way for other initiatives, commercial programs have more flexibility in their design and implementation.

As with the Medicare program, better care coordination and lower utilization of services can create savings, but the big driver of opportunity is making value-oriented choices about the best place to receive care—inpatient or outpatient, hospital A or hospital B, hospital outpatient department or ambulatory surgery center. In many major metropolitan markets, cost disparities between high-priced and low-priced facilities may be substantial, but without discernable differences in quality and outcomes.

Fig. 1 highlights differences in inpatient prices for total knee replacement among a selection of hospitals in the greater Boston market. The highest-priced hospital is more than $10,000 dollars more expensive than the lowest-priced hospital, with no discernible difference in quality, as measured by a composite score based on performance (process) measures.

Similar opportunities exist when care can be shifted from the inpatient to the outpatient setting. In a physician-driven bundled payment program, doctors can create and capture significant value by making site-of-care decisions with an eye toward cost and quality.

Criteria and key steps
Whether evaluating the Medicare BPCI program or a commercial bundled payment initiative, specialists need to consider several key criteria when deciding which opportunities to pursue. It’s generally good to start by looking at high-volume procedures or patient types, with relatively high costs per case, and high variability in spending per case. This is why major joint replacement procedures are popular in the BPCI program: they are the highest volume procedure in Medicare, the average 90-day cost exceeds $30,000, and broad variation in spending patterns can be found across providers.

Once potential case types are identified, it is also important to be able to identify opportunities to make improvements in cost and quality, either through better care coordination, more efficient utilization of high-cost services, or more judicious site of service selections.

Several key steps are required to start a physician-driven bundled payment program. The first is to assess the group’s or hospital department’s interest in pursuing the opportunity, and to identify whether any procedures and case types meet the criteria described above.

Accessing some type of historical claims data for the group to identify major opportunities for improvement can be helpful. This is a very attractive aspect of the BPCI program, because Medicare provides a major slice of claims data to all of the participants in the program. Other potential ways to access claims data include the following:

  • partnering with a health plan or self-insured employer in the local market
  • applying for access to the state’s All-Payer Claim Database if one exists
  • tapping into internal claims data from existing risk-based or accountable care organization (ACO) contracts

These data are important to identify attractive bundle types, structures, and prices that can be crafted into a proposal to share with local healthcare risk managers. High-priority initial targets often include more innovative commercial health plans, worker’s compensation plans, large employers, or even risk-bearing ACOs that are looking for better ways to incentivize high-volume specialists to engage in proactive care management activities.

The Medicare BPCI program can also be a good place to start if the practice has applied to participate, because the data are available, the rules and timelines are generally defined, and the program’s pricing structure can make some bundles very attractive for certain physician groups.

Bundled payment models are still in their infancy, but they have the potential to create real value by putting the orthopaedic surgeon and other specialists “on point” for improving care and reducing costs. In this role, the specialist controls the dollars and how they are allocated to meet a patient’s needs throughout an episode of care.

When structured properly, bundled payment programs enable specialists to capture the bulk of the value they create and to control their own destiny in the changing healthcare landscape. Specialists, and specifically orthopaedic surgeons, have a unique opportunity to improve the value proposition they can offer patients and society with emerging bundled payment models.

Dave Terry is CEO of Archway Health Advisors, a Brookline, Mass.-based provider of healthcare analytics, risk financing, and care management. He can be reached at dterry@archwayha.com

John Cherf, MD, MPH, MBA, chairs the AAOS Practice Management Committee. He can be reached at jcherf@cioo.org

Bottom Line

  • The number of bundled payment programs, particularly in orthopaedics, is increasing both within Medicare and among commercial payers.
  • Orthopaedists need to consider several key criteria when deciding which bundled payment opportunities to pursue.
  • Among these criteria are the following: potential case types (preferably high-volume, high-cost procedures); opportunities for reducing cost and improving quality; availability of data to identify opportunities for improvement; the program’s pricing structure.
  • Physician-led bundled payment models can enable specialists to capture the bulk of the value payment and to exercise greater control over the healthcare landscape.