Bundled payments may be the next ‘blockbuster’ in orthopedic surgery

Issue: April 2013

BySteven F. Schutzer, MD

ByMaureen Geary

ByKim Beekmann, RN, BSN

Would this be a controversial statement? “Only the most uninformed would argue that the environment in which we currently practice medicine is not disjointed, severely broken, and not sustainable.” Health care is a complex system that, for decades, has been shielded from market forces that would otherwise have shaped our industry far differently. Practice units are fragmented and communication is challenging and inefficient. For every health care dollar spent, 95% is directly related to inefficiency, waste, and duplication and 5% due to adverse outcomes.

Consider an automotive manufacturing company in which the production of steel and other raw materials is not measured or tested, but sold to build parts. This factory has no quality controls. The parts are sold to another business responsible for assembly, but without a clear vision of the final product, and without accountability for quality and without metrics from which consumers could make informed decisions regarding their purchases. Could this business succeed?

The United States is ranked 37th in overall health system performance. Health care costs continue to spiral out of control and account for an increasing percent of our gross domestic product. Per capita expenditure in the United States is twice that of any other industrialized nation. We spend 22% more on health care per capita than second-ranked Luxembourg, 49% more than third-ranked Switzerland and 2.4 times the average of the other Organization for Economic Co-operation and Development countries. We are unmistakably not delivering any additional value for this extraordinary expenditure.

Anthony M. DiGioia III,
Editor

Goals of transformation

The primary goal of a systematic transformation of our $2.3 trillion health care industry should be clear. A new paradigm of health care delivery is necessary that embraces the creation of a data-driven, value-based system that holds all stakeholders accountable. We must create sustainable value. Professors Michael E. Porter, PhD, and Robert S. Kaplan, PhD, from the Harvard Business School have defined health care value as the ratio between the quality outcomes that matter to a patient for their specific medical condition to the cost of delivering these outcomes over the complete cycle of care. With a focus on such value, innovative health care entities will need to uniformly accept the overarching goal that there must be a shift away from the traditional fee-for-service, volume-based payment methodology.

Bundled payments

One of the unintended consequences of the current health care system has been the evolution of anomalous stakeholder incentives. Given the fact that no additional dollars are being infused into health care, a “zero-sum” mindset has, insidiously, become deeply rooted in our current reimbursement scheme. Each participant in the system naturally seeks to optimize its reimbursement. In addition, perverse alignments between various stakeholders have occurred to gain clout and influence on financial distribution. Locked into this system, stakeholders see the battle as a “win-lose” scenario when, in the end, it is abundantly apparent that everyone loses and there are no winners. Many now believe that the most effective strategy to facilitate these transformational changes is by “bundling” related services. At the Connecticut Joint Replacement Institute (CJRI), we have defined a bundled payment as a single package price for a comprehensive and specific set of health care services delivered to a patient by multiple providers over a defined period of time. The hypothesis is that this model creates the necessary financial motivation for stakeholders to collaborate, integrate and re-align and to implement effective care redesign strategies. This will foster two essential re-alignments: first, between providers, payers, purchasers, and patients and the second, between units of reimbursement with units of health care value delivered to the patient. The bundled payment will have a profound effect on the quality of health care delivery by stimulating the redesign of this complex system and by engaging patients and families in the management of the patient’s condition.

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Implementation

There are a number of essential elements necessary to implement a bundled payment program. It is imperative that senior hospital administration and physician leaders share the vision of creating a value-based system. This relationship is cultivated upon absolute transparency. With the strength of this co-leadership and the acknowledgement that “we all win, no one loses,” the other prerequisites become far less challenging. A mature service line with adequate volume and subject matter experts are essential elements to design and implement a bundled payment. The multidisciplinary team should consist of administration, physicians, legal, finance, quality and operations personnel. CJRI created an eight-step process to execute a bundled payment program. The following are the steps for such a program:

build a multidisciplinary team with a common goal and vision;
define the episode in detail;
define the performance metrics;
develop the clinical care models;
identify opportunities to streamline, reduce waste, eliminate redundancies and decrease costs;
price the bundled product;
identify the optimal model for compensating participants (comanagement or targeted gain-sharing); and
develop a continuous process improvement plan.

There are several potential purchasers for the bundled payment program:

commercial payers;
large self-funded employer groups;
federal government and Center of Medicare and Medicaid Services;
primary care groups or accountable care organizations;
uninsured or underinsured patients; and
medical tourism.

We have learned that one “bundle” will not meet the needs of these various potential purchasers. As a result, we developed a menu of bundled products in which consumers could select and customize bundled payments to meet their specific needs. Since we initiated the development our bundled payment program in 2009, our outcomes and cost data demonstrate that we have generated significant health care value for our institution. Our length of stay decreased 17.5%, our Hospital Consumer Assessment of Healthcare Providers and Systems scores soared to 98th to 99th percentile and the readmission rate decreased from 7% to 2%. The average implant costs decreased 15%, and an average direct cost per case for primary total joint replacement decreased 7.5%. This has largely been the result of a “spillover effect” associated with executing this program since bundled payment contracts still account for a small percentage of our business.

These accomplishments are significant, but not without its challenges. If the assumption of financial risk is part of the bundled payment warranty, finding a stop loss policy to cover major overruns can be problematic. Despite the public rhetoric, there are certain state and federal regulatory obstacles that interfere with implementation of these programs. Finally, although the concept of “bundling” has created an industry buzz, the payer community has not been overly enthusiastic in embracing this methodology. This raises the question of whether the market is yet primed and ready to flip to such value-based contracting. Nonetheless, notwithstanding the challenges and risks, implementing a bundled payment program will result in a dramatic realignment of stakeholders’ interests and incentives, as well as a definite measure of enlightenment in regard to the outcomes and costs associated with care delivery for a specific condition and episode. Implementing a bundled payment program requires substantial collaboration, transparency, innovation, time, resources and financial commitment, but will certainly empower you to deliver the highest quality care at the lowest cost and compete in the evolving market based on value. We believe that the next “blockbuster” in orthopedics will not be a new implant, device or widget, but rather, the transformation of our health care delivery system focused on value. One key component of this movement will likely be bundled payments.

References:

Fry DE. J Am Coll Surg. 2011;doi:10.1016/j.jamcollsurg.2010.12.046.
Kaplan RS. Harv Bus Rev. 2011;89(9):46-52, 54, 56-61 passim.
Porter ME. N Engl J Med. 2010;doi:10.1056/NEJMp1011024.
www.oecd.org/health/health-systems/oecdhealthdata2012.htm.

For more information:

Steven F. Schutzer, MD, is medical director of the Connecticut Joint Replacement Institute.
Kim Beekmann, RN, BSN, is executive director of the Connecticut Joint Replacement Institute.
Maureen Geary is Program Manager at the Connecticut Joint Replacement Institute. All can be reached at 114 Woodland St., Hartford, CT 06105; 860-714-4000.
Disclosures: Beekmann and Geary have no relevant financial disclosures. Schutzer is an investor and unpaid consultant for Renovis, and is on the editorial staff of the Journal of Arthroplasty.