Master Total Joint Bundled Payments


How to succeed in today's episode-based, risk-reward model.

TOTAL TEAM EFFORT Standardized protocols and data-driven results are needed to achieve financial and clinical success.

Diagnosing patients in need of a joint replacement is a science and implanting prosthetic joints just so is a technical art, but health care is ultimately a business. Transforming diseased joints into perfectly functioning hips and knees won't keep the doors open and the lights on. But running a value-based total joints program will, and that begins with mastering a bundled payment strategy — a set fee negotiated with insurers for care delivered by multiple providers over an entire episode of a patient's treatment, which begins when surgery is scheduled and ends at 90 days post-op. It's the perfect risk-reward model — you measure outcomes, strive to reduce expenses and limit complications — that adds value and a renewed ability to manage your revenues and costs. Following these 5 steps will help you build your bundled payment program.

1 Know the costs
You can't price your bundle without first knowing exactly what you spend on every element of the total episode of care, which can be divided into 3 parts:

  • Base facility cost. Include the expense of having patients complete their histories and physicals and undergo pre-op lab tests (if both will be in your bundle). Add in the costs of all medical and surgical supplies (including implants and consumables), nursing staff, pharmaceuticals, durable medical equipment, pre- and post-op X-rays and scans, and physical therapy — all the elements needed to prepare patients for surgery, perform the procedure and help them recover.
  • Surgeon's fee. The surgeon's fee is based on reasonable fair market value for their cost of delivering their services — their time and resource utilization necessary to perform total joint procedures. First, calculate how many hours they spend with a typical patient from the initial clinic visit through to the 3-month post-op visit. Multiply the number of hours by their average practice cost per hour.
  • Anesthesia fee. Complete the same exercise for your anesthesia team. Determine how many hours they spend with patients to perform pre-op assessments and deliver anesthesia, then factor in their average practice costs per hour.

Finally, add a reasonable margin to the facility cost, the surgeon's fee and the anesthesia fee. The margin should be the same for all three.

2 Include downstream providers
Determine who's responsible for providing post-op services during the entire 90-day episode of care. If these providers are not employed by or tightly aligned with your facility, negotiate up-front fixed fees for their services, which account for a significant cost driver during the post-op care of joint replacement patients. Controlling these costs is therefore a major opportunity to create added value to the bundle.

DRILLING DOWN Determine the exact expense of delivering on every element of the episode of care to identify cost-saving possibilities.

Determine the amount you'll pay your physical therapy provider or homecare nurses, the outcomes you expect patients to reach during rehab and how many therapy sessions it should take to achieve the goals. For example, as measurable outcomes, you can stipulate that patients safely climb stairs on post-op day 1 and achieve 90 degrees of flexion by 4 weeks post-op.

Demanding specific outcomes for a set fee will encourage your physical therapy provider to streamline their care. If you experience pushback, respectfully inform them that all healthcare resources are being stretched and providers are being squeezed to deliver better outcomes at a lower cost and with fewer complications. If they want to participate in the joint replacement boom, they'll likely work with you and do what it takes to achieve your desired results and move to higher value services.

3 Define shared and non-shared costs Implementing a bundled payment puts you in position to control all aspects of a patient's care. By doing so you assume some financial risk for covering so-called preventable adverse outcomes. Fortunately, there are ways to allay some of that risk. For example, contract language can reflect that your group will not cover additional complication costs incurred by unapproved or deliberate deviation from the bundle's standardized clinical protocols.

Cost overruns due to complications or unforeseen developments, however, will occur. Most often they occur at the fault of no one involved in the episode of care. Again, there are ways to lessen the financial risk to your group. First, for small overruns — claims less than $5,000, for example — you can simply deduct the cost from the bundle. Second, your group can self-fund an internal claim reserve — a slush fund built up over time with a small percentage taken from each bundled fee — to cover additional costs that exceed $5,000 but are less than $10,000.

Finally, it's a good idea to seek a stop-loss insurance policy. Unexpected catastrophic costs of care that exceed $10,000 can be considered insured claims and submitted for payment to the carrier.

4 Negotiate with confidence
Drilling down to the cost of each element in the episode of care will inform you on how to set the bundle's numerous embedded fees. Then, when it's time to negotiate with commercial insurers, you can do so with confidence knowing that you totally understand your marginal opportunities. Offer the payers a reasonable discount — 10% to 15% less than the all-in reimbursement they currently pay for 90-day episodes of care for inpatient joint replacements performed in local hospitals. Insurers will likely be interested in the opportunity to pay a lower flat fee and offload some of the risk of care to your group. The key is to offer a competitive, but fair, price — and have the quality data to support the position that your group offers the highest value for total joint replacement patients in your region. If you understand your true costs of care, constantly manage your expenses and build in reasonable margins, there will be savings for insurers and profit for your group in the bundle.

You don't have to cover complication costs incurred by deviation from standardized clinical protocols.

5 Look for cost-saving opportunities
The place to cut costs is not in your data collection and management program. It's essential to have at your disposal clean, credible and actionable data in 3 categories: cost, quality and patient-reported outcomes. With this information at your disposal, you'll be able to identify money-saving opportunities. Review the data on a weekly basis to look for outliers and provide constant feedback to providers who stray from the standardized care they need to provide. Inevitably, more outliers and less standardization result in more expensive care. Conduct detailed annual reviews of your clinical protocols and outcomes to further eliminate waste and unnecessary services.

Proof positive

A year after we implemented our bundled payment program, our patient satisfaction scores jumped from the 84th to the 99th percentile, readmission rate dropped from 7% to 2% and implant costs decreased by 7.5% for total hips and by 19% for total knees. In addition, the average cost per case dropped by 9.9% for hips and by 5% for knees.

Bundled payments encourage entrepreneurship and create constructive competition. We've seen firsthand how the model has prepared our group to aggressively compete in the emerging healthcare marketplace that rewards and incentivizes efforts to improve outcomes while decreasing the cost of patient-centered care. OSM

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