August 21, 2018

Orthopedic bundled payment models on the fast track–Part 1

By: Cynthia Saver, MS, RN

The Centers for Medicare & Medicaid Services (CMS) is poised to launch Bundled Payments for Care Improvement (BPCI) Advanced on October 1, 2018, and is continuing its Comprehensive Care for Joint Replacement (CJR) bundled payment model for total hip and knee arthroplasty (THA, TKA).

Jeffry Peters

“Orthopedics is the most important service line for most hospitals, and joints are where they make the most money,” says Jeffry Peters, chief executive officer (CEO) of Surgical Directions, a consulting company based in Chicago. THA and TKA are the most common inpatient surgical procedures for Medicare patients, and Peters says every hospital his company is working with is focusing on improving value related to joint replacement surgery.

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A total of 54% of hospital respondents to the 2018 OR Manager Salary/Career Survey chose “more bundled payments for orthopedic” as one of their top three reimbursement trends over the past year. Bundled payments are finding their way into ambulatory surgery centers (ASCs), too, as reflected in the 30% of ASC survey respondents who chose it as one of the top three reimbursement trends. Two major orthopedic groups with ASCs recently announced bundled payment partnerships with third party insurers.

Steven Schutzer, MD

If your organization isn’t looking at bundled payments, it needs to, says Steven Schutzer, MD, an orthopedic surgeon who is cofounder and medical director of the Connecticut Joint Replacement Institute at Saint Francis Hospital and Medical Center in Hartford. “2018 is going to be viewed as the watershed year in the movement to value-based healthcare, and that includes bundled payments,” adds Dr Schutzer, who calls himself a bundled payment “zealot” and has been involved with orthopedic bundled payments since 2010.

These trends suggest it’s an ideal time to revisit orthopedic bundled payments. Part 1 of this two-part series provides an overview of bundles, including benefits, challenges, and the current state. Part 2 will explore the ways in which OR directors can help develop and implement successful bundled payment models in their organizations.


Rise of bundled payments

In a bundled payment model (also referred to as an episode of care model), providers and/or healthcare facilities receive a single payment for all of the services delivered during an episode of care (care delivered for a type of surgery or condition over a specified amount of time). “It’s a concept of packaging goods and services, with a warranty for the purchaser of healthcare,” Dr Schutzer says.

For federal bundled payment programs, typically there is an entity that facilitates coordination among those providing care and apportions the financial risk; in some of its bundles, CMS calls this the “convener.” Conveners, which may be physician groups, hospitals, or commercial entities, have contracts with their partners.

Many of today’s bundled payment models are “retrospective,” with payment calculated ahead of time (the target price) and then reconciled against the actual costs after the episode of care. However, bundles can also be “prospective,” in which a budget for the episode is created, a fee is paid to the convener, and payment is then distributed to the care providers. Participation in bundled payment programs may be mandatory or voluntary, and as of yet there is no definitive answer about which model is better.

Bundled payments date back to 1984, but they came of age with the 2010 Patient Protection and Affordable Care Act (ACA), which created the Center for Medicare & Medicaid Innovation (CMMI). The center launched the original BPCI model in 2013 and added CJR, which is mandatory for hospitals in specified metropolitan statistical areas, in 2016.

In November 2017, CMS reduced the number of CJR locations from 67 to 34 and canceled the hip fracture bundle. As of February 2018, 452 hospitals were participating in CJR, which means about half dropped out when they could. Of that total, 86 are participating voluntarily.

In early 2018, CMS announced BPCI Advanced, a voluntary program that for the first time includes outpatient surgeries, as the next iteration of BPCI. Deirdre Baggot, PhD, MBA, RN, a national expert on bundled care, says that 1.5 million Medicare patients have participated in BPCI to date. Commercial payers are following the government’s migration into bundled payments, which means that the model is here to stay and will have a major impact on market share for hospitals.

“It’s a key driver of the value-based movement, which emphasizes price, quality, and transparency,” Dr Schutzer says. A 2016 McKesson report on value-based reimbursement projected that over the next 5 years, bundled payment would grow the fastest of the various payment models.


Benefits of bundled payments

Deirdre Baggot, PhD, MBA, RN

The major benefit of bundled payments is lower cost. For example, a 2017 study reported that the Baptist Health System, which participated in Medicare bundled payment programs, had a cost decline of 20.8% for lower joint replacement surgery without complications. New York University Langone Medical Center, which joined BPCI in 2013, reduced costs for each episode of lower extremity joint arthroplasty by $3,017.

Most savings come from shifting postdischarge care to the home and from standardizing implant and supply choices. Reducing physician variance achieves gains, but it isn’t an “absolute requirement for success under bundled payment,” a study finds. Baggot notes that bundles also reduce overtesting and overtreating.

Commercial payers are also reporting cost benefits. UnitedHealthcare notes that its spine and joint bundled payment program reduced hospital readmissions for joint replacement surgeries by 22% and reduced complications by 17%, compared with facilities that didn’t participate in the program. And when Horizon Blue Cross Blue Shield of New Jersey (Horizon) compared 2014 claims data for those who received bundled payment care with those who didn’t, it found 37% fewer readmissions after THA and 22% fewer readmissions after TKA.

Dave Terry

Other benefits of bundled payments include their structure, specialist engagement, improved quality, and attainment of organizational goals.

Structure. “Bundles are much simpler than ACOs [accountable care organizations], where you are responsible for the whole population and have to manage their entire health, including wellness,” says Dave Terry, CEO and founder of Archway Health in Watertown, Massachusetts, which helps physician practices manage bundled payments.

“It’s easier to implement and manage episodes [bundles] than ACOs because they require much less infrastructure than other total cost of care models,” says Lili Brillstein, MPH, director of episodes of care for the market innovations team of Horizon. “They’re bite-sized chunks of value-based care, and what we learn can be extrapolated to larger entities such as ACOs.”

Engagement. Bundles also do a better job of engaging specialists, who, Terry says, control 70% of healthcare spending. “ACOs focus on primary care physicians, and bundles focus on specialists,” he says. “The bundled payment model creates opportunity for specialists to move away from fee for service, collaborate along the care continuum, innovate around new ways to care for their patients, and get rewarded for doing so.”

Quality. A 2012 report from the American Hospital Association noted that the bundled payment model can spur quality improvement. But Cynthia Emory, MD, MBA, associate professor and vice chair, department of orthopedic surgery at Wake Forest School of Medicine in Winston Salem, North Carolina, says the literature on bundled payments is mixed. She attributes some of the inconsistency to patient selection. For example, total joint patients placed in bundles are often category I or II in the American Society of Anesthesiologists Physical Status Classification System, which puts them at lower risk. “You have to be careful that you are comparing apples to apples when you’re looking at patient populations,” Dr Emory says. In addition, studies have focused on elective procedures.

“A review of the evidence would suggest that we have good data to support bundled payments for elective procedures,” Baggot says. She adds the literature shows a strong relationship between bundled payment and reductions in cost (primarily from reduced diagnostics, therapeutics, readmissions, and postacute care resource utilization).

Baggot doesn’t know of any study showing that bundles erode quality, so the focus on outcomes will benefit hospitals, providers, and patients.

Lana Smith, MSN, RN

Goal achievement. Bundles can also help achieve larger organizational goals, says Lana Smith, MSN, RN, corporate director of service lines at Adventist Health in Roseville, California. Adventist has 20 hospitals in Hawaii, California, and Oregon. “We wanted to drive toward a more system-oriented approach,” says Smith.

When three of Adventist Health’s hospitals were mandated to join the CJR program because of their geographic locations, it provided an opportunity to pull people together to redesign care. “We had the same focus and goals, so we could redesign care not only to improve outcomes and costs, but also to improve the patient experience,” Smith says. Before CJR, no hospital in the system had worked with bundles. “We now develop standards based on evidence that are used across the system, and we track outcomes more consistently.” Pathways developed to achieve CJR goals are used for non-Medicare patients as well.


Challenge of bundled payments

Cynthia Emory, MD, MBA

Although Dr Emory supports the bundled payment model, she acknowledges its potential downsides. Incentivizing providers to deliver comprehensive care to patients may also incentivize them to withhold care from those who require more resources than the bundle allows, such as those from a lower socioeconomic status.

“Whether it’s a spine or a joint replacement, the literature says that patients who are morbidly obese have a higher risk of infection, and their surgery is more difficult and takes more time,” Dr Emory says. “Surgeons may be less likely to offer surgery to that patient because of the increased risk of complications.”

The typical bundled payment model doesn’t take patient selection into consideration. “It generally is not designed to address whether the patient actually needed the surgery or not,” Brillstein says. “Their participation in the bundle is triggered when they are scheduled for surgery.” She says Horizon is reworking bundles to change that.

And although bundled payment models such as BPCI Advanced are starting to integrate patient morbidity, Dr Emory notes that the current DRG structure can make that challenging. “DRGs have comorbidity modifiers, but they are insufficient for truly capturing all the different comorbidities that patients have,” she says.

Despite the challenges, bundled payments are moving forward on several fronts.


Current state: Government

Baggot, who was an expert reviewer for BPCI, says that the uncertainty of what would occur under the Trump administration lessened with the April 2018 appointment of Adam Boehler as director of the CMMI, which is responsible for new payment models, and as deputy administrator of CMS. Boehler has extensive experience in industry and was most recently chief executive officer of Landmark Health.

Baggot notes that Boehler has outlined three criteria for new payment models: simplicity, transparency, and accountability. “Given that bundles meet all three of Adam’s criteria, I believe we will continue to see new models being tested over the next several years,” she says. Baggot adds that the Trump administration appears to support new payment models and, because Boehler is from the private sector, she expects those models to be rolled out more quickly than in the past.

CJR, which is scheduled to run through the end of 2020, will likely continue. “CJR is one of the most successful models CMS has tested. It’s mandatory, it has downside risk, and it has saved money,” Baggot says.

“BPCI Advanced is the first major value-based initiative for the Trump administration and signals its commitment to value-based care,” Terry says. (For more on BPCI Advanced, visit the Toolbox at and click on “BPCI Advanced at a Glance.”)

Current state: Commercial payers

In the past, commercial payers did not focus much on alternative payment models, but according to Baggot, they are starting to invest in them. That’s because customers with a large number of employees are advocating for lower costs. Baggot lists Anthem, Aetna, United HealthCare, and Blue Cross/Blue Shield as the largest commercial payers who are players in this area.

Horizon has an in-depth program of more than 20 bundled payments, including ones related to THA, TKA, knee arthroscopy, shoulder replacement, and spine (sidebar above). Horizon works primarily with providers, but also with its ACO accounts and some hospitals.

Horizon uses what Brillstein calls a practice-level, case-mix adjusted budget to establish pricing. Using 2 years of historical data from the practice, the company runs a simulation to determine what the cost would have been as part of a bundle. The budget is established based on the results. “They’re competing against their own history,” Brillstein says. “It allows us to flex the model to help address the question of whether a member [patient] needed to be in that episode of care rather than only managing them when they’re in.”

Horizon also has tweaked bundles away from a specific procedure. For example, the low-back pain bundle differs from what could have been a bundle focused on laminectomy, which the evidence shows might be done even when less invasive treatments would yield similar results. Proxy measures such as emergency and hospital visits are used to rule out acute pain that requires different management, and then patients are followed for 1 year, the length of the episode.

Lili Brillstein, MPH

Once again, the rate of surgery, this time for laminectomy, is built into the budget model. “If the needle moves and the rate comes down, there’s less risk for the patient and there’s improved quality,” Brillstein says. “Patients get back to their lives sooner, and there is huge potential savings to the system.”

So why haven’t more commercial payers embraced bundled payments? Brillstein says one reason may be the technology required to shift from paying based on fee for service to paying based on a bundle.

Brillstein says Horizon plans to move next into prospective bundled-payment models, which are more complicated than retrospective ones. “The focus [in both models] is on patient outcomes and the patient experience, and with that, the quality and experience are improved and overall cost of care comes down,” she says.


Current state: Providers/hospitals

“We’ve seen bundles work best when the specialist is in charge or actively involved,” Terry says. “If the specialist is leading the process, everyone else pays attention.” Brillstein echoes that sentiment: “The physicians are the ones who make the decisions about where the care is rendered and what happens to the patient.” However, she says that increasingly, physicians and hospitals will need to align. “They will co-conduct the episodes [bundles],” she says. “The models rely on collaboration, not just with the payer but with the partners across the continuum in order to create success.”

A case in point is the Connecticut Joint Replacement Institute at Saint Francis, which has orthopedic bundles for several procedures based on a partnership between commercial payers and surgeons, anesthesiologists, and the hospital.

Standardizing care weeds out waste and efficiency and drives down costs. In the CJR model (non-gainsharing), those savings accrue to the hospital, but Dr. Schutzer says surgeons, for the value they create, can also do better with the distribution of the bundled payment revenue. The surgeons’ professional fee, which is embedded in the bundle, may be a bit higher than that under traditional fee-for-service reimbursements. “This is the carrot for implementing and complying with standardized protocols that I have held out to our surgeons since 2010, and we’ve been successful with it,” he says.

Baggot notes that many physicians say they aren’t ready to take on downside risk associated with bundled payments, but those who do may reap significant financial benefits.


Call to action

The move to the bundled payment model is picking up speed. “If you aren’t actively participating, your peers are outpacing you, and if there is a switch to mandatory programs, you’ll be behind,” Terry says. He advises organizations to analyze the data and look for opportunities. “You have to improve, and you have to share the value of that improvement with others,” Terry adds.

As bundled payment and other alternative payment models increase in prevalence, it’s worth remembering the overarching goals. “We, as a country, need to raise the bar in terms of healthcare,” Baggot says. “We’ve improved a lot of areas, but we still have major system work if we’re going to truly make healthcare more cost effective.” ✥


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