The future of orthopedics: ACOs, bundled payments, gain-sharing & the advantage in change

Laura Dyrda -  

Healthcare provider payment models are shifting from fee-for-service to pay-for-performance and risk-sharing models. By next year 30 percent of Medicare payments are expected to be through alternative payment models.

By 2020 estimates show 100 percent of Medicare payments will be made through alternative payment models. Currently there are 68 million Medicare and Medicaid enrollees and many of them seek orthopedic care.


Accountable care organizations
Traditional reimbursement rates have declined 30 percent since 1992 and the pressure to lower costs continues to mount. The Centers for Medicare and Medicaid Services (CMS) initiated the accountable care organization's (ACO)program pay-for-performance, and 11 of the 23 pioneer ACOs earned financial bonuses during the program's second year, totaling $68 million


CMS claims savings of $817 million in spending and $445 million to physicians and hospitals in the ACO program. Third-party payers and insurers are also beginning to launch ACOs and other risk-sharing models with physicians and hospitals.


"In the last two years, there was a 30 percent increase in value-based payments by private payers," said Jack Bert, MD, adjunct clinical professor with the University of Minnesota School of Medicine. "Not only is the government onboard, but the private sector is right behind."


Surgeons can prepare for value-based payments, as the new frontier, by reconfiguring their practice for maximum efficiency, collaborating with hospitals and collecting outcomes data.


"It's very important for all of us to embrace change and consider what I would call disruptive innovation," said Dr. Bert. There are opportunities without compromising quality to eliminate waste and lower the cost of care — especially among orthopedic implants —.


Bundled payments
Orthopedic surgeons are increasingly participating in bundled payment programs for procedures like total knee and hip surgery. Bundled payments include the entire episode of care and put physicians at risk for complications and any additional care. Insurance companies negotiate a single global fee which includes preoperative care, surgery, anesthesia, facility fee, and postoperative care for a set period of time — and the bundle's owner distributes payment to each area.


"Right now there are a lot of specialist-directed bundled payments," said Dr. Bert. "When you look at the data for bundled payments at hospitals or physician-owned ASCs, the care is provided for about 35 percent to 47 percent less at ASCs than at hospitals for the same procedures. These bundles include 60 days to 90 days which defines the entire episode of care."


The key steps to setting up the bundled payment programs, according to Dr. Bert, are:


1. Providing an improved value proposition.
2. Define the market.
3. Build a dedicated team.
4. Define the episode of care, including post-discharge.
5. Collect outcomes data and set up performance metrics.
6. Develop pathways of standardization.
7. Evaluate cost reduction opportunities.


"There are problems with setting up bundled payments. You have to have physician leaders with the right capacity and skill sets," said Dr. Bert. "Is the surgeon a leader trusted by his colleagues? There must also be trust with the hospitals."


Data collection and analysis is critical to bundled payments because without understanding quality, efficiency and costs appropriately, providers could experience financial loss with bundled payments. Going forward, Dr. Bert said providers will need registries to collect data and put it in the providers' hands.


"There has to be a cultural shift to give more control to the surgeons," he said. "You also need to know the direct cost of providing services, measuring quality and measuring performance as well as functional outcomes. There are many data collection systems to choose from; it's very simple."


ASCs are the most cost-effective healthcare setting for non-office-based outpatient surgical procedures, but it takes time to transition patients. Dr. Bert recommends using postoperative recovery areas in the hospital outpatient departments or ASCs to begin so patients can stay up to 24 hours before discharging home. Pain control is also crucial for a smooth transition.


Payers are pushing the transition to bundled payment in some cases. For example, in Wisconsin the Blues plans and state workers compensation refers patients to an orthopedic group doing bundled payments and their business has been up 25 percent over the past two years. In Illinois and Missouri, there are payers offering patients $1,000 cash to see surgeons in a large group with bundled payments.


Gain-sharing and co-management
Gain-sharing is legal sharing of profits based on cost-effective treatment. The most common gain-sharing model is a 50/50 split between physicians and hospitals. "Hospitals and physicians are co-dependent for clinical and financial success, especially in CON states," said Dr. Bert.


Physicians can form a new entity — a management company — to manage the hospital's orthopedic service line. The governance is shared between the hospital and physicians; compensation for services includes:


• Base management fee
• Hourly fee
• Incentive compensation


The base fee and hourly rates are determined by fair market value. The incentive compensation is often based on quality, efficiency and patient satisfaction benchmarks the partners achieve over a five- to 10-year period.


"The surgeon gains control of patient care, so that the orthopedic service line becomes like a hospital within a hospital," said Dr. Bert. "Co-management agreements are legal and they give orthopedic surgeons control of their patients at the hospital."


Orthopedic device companies are looking for new ways to work with hospitals and physicians to support the multiple changes that are occurring in US Healthcare.


Syncera, powered by Smith & Nephew, is a pioneering suite of technologies that support clinically proven products which simplify orthopedic procedures, deliver attractive economics, and improve outcomes for healthcare systems.


"The idea is to offer a different service model that improves efficiency, quality, and reduces waste for total primary joint procedures," said Stuart Morris-Hipkins, Senior Vice President and General Manager, of Syncera. "We looked at how the implant was supplied, used and resupplied to the hospital, and brought in technologies and processes that drive value and provide attractive economics. Our team supports the hospital and surgeons through a change-management program and believe that 5 percent to 10 percent of the U.S. market is ready for a model like this."


Syncera offers clinically proven total hip and knee products as well as personalized training and support for operating room staff based on the surgeon's preferences. The company also works on efficiency improvement to make sure instruments are processed in a timely manner through central processing. Based on 700 total primary joint procedures, average savings are $4 million net cash over three years.


"It addresses a lot of the concerns the supply chain has for driving cost down in the right way while ensuring outcomes and patient satisfaction," said Mr. Morris-Hipkins. "It is our focus to improve performance and provide unparalleled value."


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