Orthopedic Article Series: The Benefits of Bundled Payments


Everyone profits when the financial interests of surgeons, facilities and commercial payers align.

Bundled payments lead to cost-effective orthopedic care by allowing providers to make decisions based on what's best for their patients and the bottom line. How does it work? Surgeon practices negotiate a fixed price with third-party insurers to manage entire episodes of care — from the time of the procedures to 90 days post-op — for patients undergoing joint replacements. The practices get to keep whatever money they don't spend, but are on the hook for covering cost overruns, including the expense of treating post-op complications. This incentivizes practices to provide efficient, value-based, high-quality care. The payers profit over time; surgery centers make money; and surgeons are paid more per procedure than they would have earned under the fee-for-service reimbursement model.

Let's say an insurer spends $40,000 for total knee procedures performed at a local hospital. A practice that offers to manage the entire episode of care for $30,000 (a 25% discount) will save the insurer $10,000 and take on most, if not all, of the financial risk for adverse outcomes. The practice has $30,000 to cover the cost of the entire episode of care and needs to make sure they're not spending more than that amount. The less they spend, the more they earn.

"Surgeon practices that manage episodes of care under the bundled payment model adopt the mantra, 'It's a program, not a procedure,'" says Steve Lucey, MD, founder of Sports Medicine and Joint Replacement, an orthopedic surgery practice, and Valere Bundled Solutions, a consulting company, in Greensboro, N.C.

To achieve the best possible outcomes before, during and after surgery, practices invest in robust patient education and case management platforms. They hire clinicians who manage patient care preoperatively and follow the progress of rehabs and recoveries. They provide concierge-level service and deliver safer care that results in positive outcomes at a lower cost.

"A well-functioning program exceeds patient expectations and provides a greater surgical experience," says John Crawford, MD, an orthopedic surgeon specializing in pediatric and adolescent injuries at OrthoTennessee in Knoxville. "This involves sound policies and procedures, recruitment and retention of talented staff, comprehensive training programs, scripting of patient interactions, and patient surveys that identify problems and result in improved processes."

Here are the pillars of a successful bundled payment program:

  • Setting the amount. Bundled payments are based on the expected cost of an episode of care. When negotiating with insurers, it makes sense to start at the top. The facility fee is typically the biggest line item in the bundle, so it's important to determine an amount that's fair to the surgeons, the facility and the insurer. Implants are the second most expensive component, so surgeons should capitalize on good working relationships with vendors who understand their financial and clinical goals to negotiate good pricing. Fees for the surgeons and their assistants are next, followed by the cost for anesthesia services and physical therapy providers. Practices must also factor in the cost of surgical supplies, durable medical equipment and overhead expenses, which include staffing fees and possibly a case management platform and informatics software.
  • Cost containment. Efforts to limit risks of costly post-op complications begin with patient selection. Common sense dictates that healthy patients can have their joints replaced at ASCs and patients with significant comorbidities should have the procedures done at hospitals. However, multidisciplinary care teams must identify candidates for outpatient surgery among the majority of patients who fall between the two extremes on the physical status scale.

Patient selection is made on a case-by-case and facility-by-facility basis, but Dr. Lucey suggests it should be based on a few basic parameters: hemoglobin A1C levels of patients with diabetes should be less than 7.8, and BMIs of patients should be less than 40.

"Bundled contracts provide surgeons with the incentive to work together to create standardized service-line pathways that extend throughout the entire episode of care," says Dr. Crawford. "Reduced variance between surgeons creates confident staff actions and problem solving, reduced complications and less need for post-op hospital transfers, lower implant and equipment costs, and allows for greater focus on the patient experience." 

A well-functioning program exceeds patient expectations and provides a greater surgical experience.
— John Crawford, MD

The best course of action for practices to limit their financial risk might be to purchase a separate insurance policy in the event complications require extensive follow-up care, says Dr. Lucey. Alternatively, they could negotiate their risk out of the bundled payment by accepting a lower amount in exchange for the insurer covering at least part of unexpected costs.

  • Aligning incentives. Surgeon champions are essential to the establishment of a bundled payment program. "Think of the program's objective as a 'triangle of alignment,'" says Dr. Lucey. "You need a  payer, an ASC and a group of surgeons. Payers want to save money, and surgery centers and surgeons want to make money. The bundle is an opportunity to align those interests."

If done correctly, says Dr. Lucey, the payer gets a fair savings, the facility gets a new income stream, and the surgeon gets a transparent, metric-based, quality-driven incentive to make money while offering excellent patient care.

When the system works, surgeons profit and it's critical to vet the mechanism used to make the distributions. "The system should reward high performance in each of the critical areas of care, but avoid counterproductive internal competition and friction," says Dr. Crawford. 

Even business managers or attorneys who are expert negotiators might not be best suited to handle discussions with insurers. Involving surgeons who actually perform the procedures in the negotiations is a powerful influence, according to Dr. Lucey. "They can speak to the safety of performing joint replacements in outpatient ORs," he says. "They can also help find the point of alignment among the interested parties based on their clinical knowledge, which helps to optimize the episode of care and set the right price for the bundle."

Getting commercial payers to agree to bundled payments can be difficult. "Still," says Dr. Lucey, "with determined negotiations and hard work, surgeon practices and surgery centers can form partnerships with insurers that improve patient care and benefit each party in the long run." OSM

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