Assessing a practice’s risk capability depends on factors that include business intelligence (data analytics), clinical maturity (relationships with care continuum network) and revenue (gainsharing management; participation in mandatory, value-driven programs).


Published 7/1/2015
Peggy L. Naas MD, MBA; Brian McCardel, MD

Finding Value in Value-Based Payment Models

An update on bundled payment models for orthopaedics

A focus on value has changed both commercial and government payment models for orthopaedic surgical services. One of the alternative payment models with highest participation by orthopaedic surgeons is bundled payment. The AAOS webinar, “Finding Value in Value-Based Payment Models” provided an update on how some orthopaedic practices are implementing bundled payments

BPCI at OrthoCarolina
According to Daniel B. Murrey, MD, CEO of OrthoCarolina, risk-bearing contracts allow physicians to benefit from the value created by their work if, in fact, they deliver higher quality at lower cost.

OrthoCarolina participates in the federal Bundled Payment for Care Improvement (BPCI) program as well as several commercial payment programs, which Dr. Murrey reviewed.

The BPCI program applies to fee-for-service Medicare patients. It includes retrospective payment reconciliation for all Medicare patients who meet the criteria and covers all surgeons who use the group’s common practice tax identification number. OrthoCarolina has enrolled in 15 episode groups, totaling about 50 different diagnosis-related groups (DRGs); among the episode groups were joint replacements (upper and lower extremities), hip fracture, and spinal fusions.

The group enrolled in a broad variety of episode groups to position itself ahead of hospitals in both risk and reward for recognition for value created through the program. Their participation period started on Jan. 1, 2015.

Dr. Murrey noted that, for the Medicare population, OrthoCarolina has focused on care redesign in the post-acute care period. It has hired case managers to arrange preoperative physical therapy, care planning and management, and patient-specific goal setting. Case managers also call patients regularly during the first year after surgery and may recommend highly rated skilled nursing facilities (SNFs) or home care services postoperatively as needed, based on objective criteria.

OrthoCarolina has been collecting data benchmarking in the following four dimensions:

  • quality of life
  • pain and functional improvements
  • patient satisfaction
  • harm measures such as complications and readmissions

Even though OrthoCarolina has been in the BPCI program only since Jan. 1, 2015, it has already documented a number of improvements, including the following:

  • 77 percent reduction in readmission rate
  • 31 percent reduction in postoperative SNF placement
  • 18 percent reduction in SNF average length of stay
  • 33 percent reduction in home health utilization

Dr. Murrey also discussed Ortho- Carolina’s experience with commercial bundles. They began offering bundled payments to individual patients and payers, then expanded offerings to local and national employers. They will soon be part of an alliance of providers that will contract directly with employers. Even though this population had already seen good results, multiple metrics have improved.

Rules of precedence
Melinda Hancock, FHFMA, CPA, a partner in Dixon, Hughes, Goodman (DHG) Healthcare, explained the BPCI rules of precedence. In general, precedence is based on when the organization signed up to participate (participants who agreed to take part when the initiative was first announced have precedence over those who joined during the second enrollment [January, April, or July 2015]).

Precedence also considers the model for the bundled payment episode. Model 2 (inpatient care plus 90 days of postoperative care) ranks higher than Model 3 (postoperative care only). Organizations run by physicians have precedence over those operated by healthcare facilities. Primary care physicians who are enrolled in the model have precedence over surgeons. Having precedence in a particular market is a significant strategic consideration for many organizations deciding whether to join the BPCI program in Cohort 2.

Ms. Hancock noted that the number and type of BPCI participants and applicants has grown and shifted. Cohort 1 had 116 participants (114 hospitals and 2 physician groups) using Model 2. Cohort 2, however, has about 6,700 applicants, including many more physician groups. Model 3 has about 3,700 applicants currently, with hospitals in the minority.

CJRI’s bundled payments program
The Connecticut Joint Replacement Institute (CJRI) first began working on bundled payments in 2006, according to medical director Steven F. Schutzer, MD, who also serves as president of the Connecticut Joint Replacement Surgeons, LLC. This year, CJRI has signed agreements or is working on details with third-party administrators, commercial payers, and a large employer.

A key factor in establishing a value-based program is physician leadership and physician engagement, said Dr. Schuster. The value equation can be documented through the establishment of metrics; the monitoring of quality, cost, and patient experience; and the measurement of value. To build the program, CJRI used a comanagement agreement with the hospital, a joint registry, time-driven, activity-based costing (TDABC), patient- and family-centered care strategies and an ISO 9001 quality management system.

Total annual spending for the joint registry is $610,000, $100,000 of which is paid by the surgeons for the medical director of the Center for Outcomes Research at CJRI. The following quality metrics are collected:

  • 30, 60, 90 day major complication profile and readmission rates
  • falls and other safety metrics
  • discharge disposition profiles
  • patient satisfaction scores (Hospital Consumer Assessment of Healthcare Providers and Systems)
  • Surgical Care Improvement Project measures

Financial metrics include hospital direct costs per case, contribution margin per case, surgeons’ and anesthesia cost for service, direct cost of complications per case, and direct costs of readmissions. Patient-reported outcomes are also collected.

Hospitals and physicians collaborate on care redesign and efficiencies, using shared financial motivation within the bundled payment model. The program has engaged both surgeons and anesthesiologists. Excess costs due to noncompliance with protocols are not shared; these costs become the personal responsibility of the physician who incurred them. The physician’s fees are included in the bundle, and compliance is necessary to receive the fee. The program’s cash reserves and stop-loss insurance coverage are used to address shared cost overages.

Process maps and the TDABC analyses were used to identify care redesign opportunities for preoperative private office visits and the hospital care protocols. The ISO 9001 quality management system ensured that no process was missed. As a result of these process improvements, CJRI has been able to achieve the following results:

  • Length of stay decreased 18 percent.
  • Readmission rates decreased from 7 percent to 2.5 percent.
  • Average implant costs decreased 15 percent.
  • Direct costs per case decreased 8 percent.
  • HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) scores increased to the 98th–99th percentile.
  • Contribution margin per case increased by 45 percent.

Both CJRI and OrthoCarolina use multiple outcome measures, including the Hip disability and Osteoarthritis Outcome Score (HOOS), the Knee injury and Osteoarthritis Outcomes Score (KOOS), the Oswestry Disability Index (ODI), Neck Disability Index, and the Veterans Rand 12 Health Item Survey (VR12).

Are there alternatives?
Bundled payments are not the only alternate payment model, and new models of care delivery need to be explored by orthopaedic surgeons and their colleagues. Different health systems and communities have taken various approaches to developing new models of care delivery and healthcare financing. Some have successfully initiated BPCI programs, as well as commercial bundles, while others have not pursued bundled payments or seen efforts stall. Surgeons and hospitals have raised several concerns during conversations about pursuing bundled payments.

First, the amount of work is considerable and requires that specific individuals be tasked with the effort. Postdischarge costs may not easily be visualized or managed. And the cultural shift required to implement a bundled payment structure may compete with other initiatives and realities such as implementing a new electronic medical record system and adopting ICD-10 coding.

In addition, developing the payment split of the bundle and determining compensation for those surgeons most involved in the planning and “operationalization” of the effort, while rewarding all participating and complying surgeons, are challenging undertakings.

Other care delivery models, such as a clinically integrated network (CIN), may better fit the needs of multiple physician specialties, hospitals, and their communities. These models also support care redesign that improves efficiencies and quality outcomes.

The authors thank the faculty of the Finding Value in Value-based Payment Models webinar, including course director Thomas F. Murray Jr, MD.

Peggy L. Naas, MD, MBA, chief medical officer for Healthcare Performance Improvement, LLC, is a member of the AAOS Committee on Evidence-based Quality and Value. Brian McCardel, MD, is a member of the AAOS Health Care Systems Committee. One or more of the presenters and authors reported conflicts of interest; for complete disclosure information, visit