Published 6/1/2015
Frank B. Kelly, MD; Mary Ann Porucznik

Meet Your New Partner—Uncle Sam

Government initiatives are having an impact on orthopaedic practices

During the 2015 AAOS Now Forum on “Orthopaedic Economics in 2020,” John Cherf, MD, MPH, MBA, chair of the AAOS Practice Management Committee, outlined the impact of government initiatives on orthopaedic practices, both now and in the future. Calling passage of the 1965 Social Security Act, which incorporated both Medicare and Medicaid, “the most significant health reform of the twentieth century,” Dr. Cherf also noted the passage of the Patient Protection and Affordable Care Act (ACA) in 2010, as “landmark legislation” in the twenty-first century.

In recent years, government legislation and regulations have placed significant burdens on physicians, including the following:

  • transitioning to the International Classification of Diseases, 10th edition (ICD-10)
  • participating in an electronic prescribing incentive program (eRx)
  • enrolling in the Physician Quality Reporting System (PQRS)
  • meeting the requirements of the electronic health record (EHR) incentive program
  • shifting to a value-based modifier
  • conforming to the requirements of the Health Insurance Portability and Affordability Act (HIPAA)

Although the focus of the ACA is largely on expansion of coverage and insurance regulation, the legislation includes pilot and demonstration programs designed to control cost and reform care delivery (new payment models), thus laying the foundation for more regulation and oversight. The expansion of Medicaid in many states has provided more people with healthcare coverage while placing a future financial burden on states as well as the federal government.

“Healthcare coverage since the implementation of the ACA has basically been a two-tiered system through either the exchanges or Medicaid,” said Dr. Cherf. “This is changing the market in fundamental ways.”

Whose money is it?
Under one model, noted Dr. Cherf, providers sell their services to the government, insurers, and employers, who, in turn, make decisions on behalf of individuals and their families. He compared this to a “business-to-business” or “B2B” approach, and contrasted it with the “business-to-consumer” (B2C) approach in which providers sell their services directly to consumers, who make their own decisions on benefits, providers, and course of care.

“In a B2B system, an individual’s healthcare costs are paid for by other people’s money,” he said, “while with B2C, those costs are the individual’s. It’s their money.” Higher income individuals manage their healthcare dollars differently than those who have “no skin in the game,” he noted. This creates two very different markets: a “wholesale” and a “retail” market.

Dr. Cherf noted that many individuals will be paying a penalty this year for not having healthcare coverage in 2014. Those penalties will be assessed as part of their income tax filings and may have the greatest impact on the young and healthy.

In the years ahead, providers will see a difference as payments shift from reimbursements to “purchasing based on value,” noted Dr. Cherf. He explained that under a fee-for-service model, providers assume little to no risk. Newer models, including bundled payments and risk-sharing accountable care organizations (ACOs), increase the risk to providers, but also hold the potential for value payments.

Bundled payments, in particular, appear to have the greatest impact on national healthcare spending, resulting in a 5 percent reduction—more than the combined impact of health information technology, disease management, and medical home strategies. For specialists such as orthopaedic surgeons, said Dr. Cherf, bundled payments present a very good opportunity.

“Bundled payments are designed for specialists,” he said. “They create a good platform for specialists to benefit from cost and care improvements and they represent a potential new revenue opportunity. Plus, they are less risky than ACOs.”

Physician-run ACOs
In 2013, noted Dr. Cherf, the number of ACOs run by physician groups exceeded those operated by hospital systems (202 to 198), while ACOs operated by insurers and community organizations began to gain a foothold in the market. One reason for the success of physician-run ACOs is that they outperform hospital operations on most fronts.

“Utilization metrics for outpatient emergency departments and advanced imaging are close, but when you look at admissions, length of stay, outpatient surgeries, and pharmacy prescriptions, they’re all 3 percent to 5 percent lower in physician-run ACOs,” said Dr. Cherf.

This presents orthopaedic surgeons with the opportunity to take on new and different responsibilities. “We can move from managing our patients’ orthopaedic surgical interests to managing their musculoskeletal care and healthcare financial interests,” he said. “And private practices have the initial advantage in providing value.”

Among AAOS members, approximately 90 percent fall into one of five practice categories—solo private practice, single-specialty group private practice, multispecialty group private practice, salaried academics, and hospital employees. Over the past decade, however, the number serving in solo and orthopaedic group practices has fallen, while the numbers of salaried academics and hospital employed orthopaedic surgeons has increased.

“The impact of government initiatives has been a disruptive change in the healthcare market,” concluded Dr. Cherf. “New players have entered the market, although most will fail. An increase in merger and acquisition activity will lead to consolidation in many markets.

“As performance differences widen, we will see both big winners and big losers, as well as a shift in profit pools. Profitable segments in the past may become less attractive, and vice versa. New customer segments are emerging, and they will follow the new value propositions. The battles are occurring on two fronts—regulatory and competitive—and the real changes will occur when market forces overshadow regulatory rules.”

Frank B. Kelly, MD, moderated the AAOS Now Forum on “Orthopaedic Economics in 2020,” which was held on March 23, 2015. Mary Ann Porucznik is the managing editor of AAOS Now. She can be reached at porucznik@aaos.org