Published 12/31/2023
Tanmaya D. Sambare, MD; John Andrawis, MD, MBA; Nicholas J. Giori, MD, PhD, FAAOS; Karl M. Koenig, MD, MS, FAAOS

Are Procedure-Based Bundled Payments Leading to the Commoditization of Elective Orthopaedic Care?

With the increasing economic burden of the healthcare system, healthcare payment reform has been a primary topic of academic and political discus-sion for the past decade, and newer models of reimbursement are steadily being implemented. As new procedure-based bundled payment takes hold in elective orthopaedics—especially in total joint arthroplasty (TJA)—certain surgeries are increasingly viewed as generic, interchangeable services, like installing new brakes for a car. This idea is colloquially referred to as “commoditization.”

Some view the commoditization of healthcare as a needed change, as it may standardize quality and treatment options and create price transparency. We argue, however, that though procedure-based payments can allow health systems more freedom over resource utilization to directly improve patient outcomes, they also can exacerbate inequities and disincentivize patient-centered care. The purpose of this discussion is to highlight these externalities so all involved parties can work together to mitigate these negative, unintended consequences as we evolve our reimbursement and delivery models.

Tanmaya D. Sambare, MD
John Andrawis, MD, MBA
Nicholas J. Giori, MD, PhD, FAAOS
Karl M. Koenig, MD, MS, FAAOS

Procedure-based bundled payments are only as effective as the accounting on which they are built. Consequently, the calculations behind risk adjustment, namely what constitutes risk and how much to correspondingly adjust reimbursement, come under scrutiny. Historically, risk adjustment from the Centers for Medicare & Medicaid Services (CMS) was a rather coarse instrument, with the only adjustment in TJA being a change in the diagnosis-related group lump sum reimbursement rate depending on a patient’s comorbidities. CMS has only recently taken a more nuanced approach to risk adjustment, incorporating age and the number of select comorbidities into reimbursement rates for TJA. Some argue that this adjustment is not exacting enough to account for the compounding effects of multiple comorbidities.

Furthermore, there is no accounting for social needs in existing models. Evidence from the Comprehensive Care for Joint Replacement model implementation shows that traditional risk-adjustment models do not fully account for social determinants of health (SDOH); thus, care providers are disincentivized from delivering care to patients with poor social support or unfavorable SDOH. As health systems and physician groups start to take on more accountability for the costs of a procedure-based bundle, they may make efforts to influence patient behavior or address SDOH outside of the clinic or hospital. This effort may lead to political and ethical quandaries regarding the roles of the healthcare system and payers within people’s lives.

Additionally, current procedure-based payment models do not properly account for surgical technical complexity. Performing total knee arthroplasty on a patient with a 30-degree valgus deformity or total hip arthroplasty on a patient with chronic hip pain and congenital hip dislocation is far different than arthroplasty for osteoarthritis. Although a surgeon can add complexity modifier codes to a particular case, the corresponding reimbursement rate is not predictable and is largely at the payer’s discretion. A lack of commensurate adjustment for increased procedural difficulty creates a relative disincentive to perform complex orthopaedic procedures.

Procedure-based bundled payments without appropriate risk adjustment can render age, comorbidities, social needs, or surgical difficulty as costs or liabilities, indirectly making procedures such as TJA relatively inaccessible to certain populations. It is reasonable to question whether the perverse incentives accompanying these models perpetuate systemic disparities when there is inadequate risk adjustment. Broader policy changes involving procedure-based reimbursement should carefully consider these nuances given their profound impact on access to care.

Depersonalization of outcomes and costs
Another facet of commoditization in elective orthopaedics is the perpetuation of a standardized set of outcome measures, which do not necessarily reflect outcomes that are important to a particular patient. Implementing episode-based care necessarily involves a standardized set of outcomes and costs. Having a defined set of parameters to dictate whether the procedure was a success (i.e., length of stay, 90-day complications, episode cost) can help us deliver consistent outcomes and standardize discussions around surgical candidacy; however, it can also minimize the patient-centered components of surgical decision making. A hospital reducing readmission rates from 1.5 percent to 1 percent would be considered a significant success in improving efficiency and lowering complications, but it has little bearing on a patient’s experience and individualized outcomes.

Furthermore, as reimbursement and care-delivery models for TJA become increasingly standardized, we risk fomenting a strong disincentive to providing TJA for indications outside of osteoarthritis that has failed nonoperative management. One such example arises with patients with high BMI and severe hip/knee deformity. Although TJA may be higher risk for these patients, they may see additional benefits to the typical pain reduction and functional improvement, such as metabolic disease improvement or psychosocial benefit. Using standardized episode bundles may not properly account for patient-specific goals that fall outside the traditional set of outcomes, diminishing the role of shared decision making.

Devaluing the patient-physician relationship
Time and discussion are required for surgeons and patients to review treatment options and engage in shared decision making. There are countless points throughout a care episode when the surgeon and care team provide value to the patient, from information on treatment options to reassurance about concerns. Under existing procedure-based bundled payment models, additional time or interactions that may improve patient trust and physician compassion are disincentivized. Although a fee-for-service model is far from the answer, and providing the time to establish a strong patient-physician relationship is a challenge in any setting, procedure-based bundled payments in their current form do not fully incentivize strong patient-physician relationships.

Where do we go from here?
Episode-based reimbursement in elective orthopaedics—especially TJA—can be a powerful means of incentivizing favorable outcomes while reducing unnecessary costs. However, traditional procedure-based bundle reimbursement is a relatively blunt instrument that can propagate commoditization, along with the unintended consequences discussed above.

Several potential solutions come to mind. The first is akin to brute force: With enough data and consistent energy toward refining risk-adjustment algorithms, we can appropriately account for the elements that constitute risk to minimize incentives to care for a particular patient over another. As one might imagine, this approach is still fraught with the technical and ethical challenges alluded to earlier.

Another potential solution is to reconsider our definition of the “episode.” Traditionally, the episode has been based on the procedure, which some argue is not sufficiently patient centered. Thought leaders in health economics and orthopaedics have suggested basing episodes on patient conditions (such as osteoarthritis) as an alternative, and several institutions have designed their care-delivery operations accordingly. Reimbursing for condition-based episodes theoretically incentivizes care teams to address social needs and build relationships in a more patient-centric design.

As we learn more from early efforts at piloting condition-based episodes at the institutional and policy levels, we can gain insights into the questions related to actuarial science and scalability with such models. Although our transition to value-based payment represents progress in our thinking about orthopaedic care delivery, episode-based payment is not without significant challenges. Moving forward, careful attention should be given to designing reimbursement models to incentivize high-value care that is just and appropriately sensitive to patient needs.

Tanmaya D. Sambare, MD, is an orthopaedic surgery resident at Harbor–UCLA Medical Center in Torrance, California.

John Andrawis, MD, MBA, is an arthroplasty surgeon and the director of value-based healthcare for the Department of Orthopaedics at Harbor–UCLA Medical Center.

Nicholas J. Giori, MD, PhD, FAAOS, is a professor of orthopaedic surgery at Stanford University and chief of orthopaedic surgery at the Veterans Affairs Palo Alto Health Care System in California.

Karl M. Koenig, MD, MS, FAAOS, is an associate professor of surgery and perioperative care, division chief of orthopaedic surgery, and executive director of the Musculoskeletal Institute at Dell Medical School at the University of Texas at Austin. Dr. Koenig is also chair of the AAOS Health Care Systems Committee.


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