Published 4/1/2019
Benjamin Kopp, MD, MBA; Kevin Bozic, MD, MBA; Karl Koenig, MD, MS

Pros and Cons of Emerging Payment Models

Editor’s note: This is part one in a series about payment models. Part two will appear in the May issue of AAOS Now and will focus on the application of condition-based payment models to the management of musculoskeletal disorders.

At the core of the surgeon patient relationship is a shared goal of relieving pain, restoring function, and improving health in the most appropriate, convenient, and efficient way possible for the patient’s condition. Both parties aim to proceed with treatment modalities, whether surgical or nonsurgical, that will deliver the most value (defined as the outcomes that matter to patients divided by cost).

However, when considered carefully, this basic and noble agreement is not reflected by the fee-for-service reimbursement model, which incentivizes greater volume and intensity of services regardless of appropriateness. In fact, physicians often are required to work against their own financial interests to provide truly patient-centered care. Although most orthopaedic surgeons behave altruistically on behalf of their patients, such behavior is not facilitated by the fee-for-service reimbursement system.

Alternative payment models (APMs), such as the Bundled Payment for Care Improvement (BPCI) and the Comprehensive Care for Joint Replacement (CJR) programs, represent early efforts to incentivize high-value care. The payment models aim to reward efficient, coordinated care delivery and minimize complications around the time of surgery. If surgeons, hospitals, and post-acute care providers align themselves with a more efficient system that reduces episode costs, there is an opportunity to share in the financial rewards.

Early outcomes from APMs have been promising. A 2016 study compared Medicare payments and outcomes for nearly 60,000 patients who had lower extremity joint replacement at 176 hospitals before and after the voluntary BPCI payment model. Although lower per-episode Medicare payments were recorded for both participating and nonparticipating hospitals, participants decreased payments by an additional $1,166, without notable differences in quality of care.

Similar findings are reflected in the mandatory CJR bundle. A 2019 analysis of the first 15 months after implementation observed a significantly larger decrease in spending among 280,161 procedures in CJR hospitals compared to 377,278 procedures in control facilities. The study also found no differences in complication rates.

Interestingly, there were no differences in the risk profiles of patients receiving surgery, regardless of whether hospitals were “in the bundle.” Although the CJR program is geographically delimited, the large group data do not support concerns that bundles would lead to “cherry picking” and “lemon dropping” of healthier or sicker patients. Both authors contend that most of the savings were realized through an increased focus on discharge disposition and the creation of evidence-based pathways to minimize complications and ensure safety upon discharge.

According to the data, procedure-based bundled payments seem to be improving the value of care in the perioperative timeframe, with no measurable detrimental impact on outcomes. However, the studies were unable to factor in perhaps the most important part of a healthcare intervention—the indication. The APMs still tie incentives to the number of procedures performed, and high surgical volumes will continue to drive surgeon reimbursement until the models are replaced by ones that incentivize appropriate use of costly interventions.

At the other end of the payment model spectrum is capitation. In that model, providers receive a specific sum to provide all of the care needed for a patient over a period of time. This includes all medical conditions across different specialties, creating an opportunity for providers to focus on improving overall health and utilizing preventive care. However, the model can put the primary focus on cost, with little regard for patient-centered outcomes. The incentive to “cherry pick” healthier patients and reduce utilization of elective services becomes paramount.

Capitation also encourages
providers and hospital systems to attempt to provide the full spectrum of specialty services within their own systems to avoid costly referrals to outside providers. Rather than encouraging the development of focused centers of excellence for treating specific conditions and promoting healthy competition, systems may attempt to become all things to all patients. This contradicts what we know from the surgical literature, which suggests that subspecialization and concentration of procedural volume lead to better outcomes and lower costs. Although fee-for-service payment models have been criticized for incentivizing over-treatment, capitated payment models may incentivize under-treatment.

What if there was an option that combined the best of both models? Efforts are being made to create new systems that try to balance the opposing forces of fee-for-service models, bundled payments, and capitated care. One possibility is condition-based bundles, which could be a blend of capitation and bundled fees created around specific medical problems, instead of just a “head count.”

In a condition-based bundle, a team of providers is paid a contracted rate to provide all care for a specified medical condition (or set of conditions) over the full cycle of care. The team is held accountable for outcome metrics relevant to the patient’s condition, thus incentivizing high-value care throughout the entire management of the condition, including the decision to proceed with surgical or nonsurgical interventions. Such a system offers multiple positive effects on the delivery of care for musculoskeletal conditions.

We will elaborate on this payment model in the second part of this series.

Benjamin Kopp, MD, MBA, is a resident in orthopaedics at the Dell Medical School at the University of Texas at Austin.

Kevin Bozic, MD, MBA, is chair of the Department of Surgery and Perioperative Care at the Dell Medical School at the University of Texas at Austin.

Karl Koenig, MD, MS, is medical director of the Musculoskeletal Institute at the Dell Medical School at the University of Texas at Austin.


  1. Dummit LA, Kahvecioglu D, Marrufo G, et al: Association between hospital participation in a Medicare Bundled Payment Initiative and payments and quality outcomes for lower extremity joint replacement episodes. JAMA 2016;316:1267-78.
  2. Barnett ML, Wilcock A, McWilliams JM, et al: Two-year evaluation of mandatory bundled payments for joint replacement. N Engl J Med 2019;380:252-62.