Surviving the "New Normal" for Orthopedic Practice in 2015

From the vantage of an orthopedic surgeon, healthcare in the U.S. has seemingly been experiencing some volatile shifts over the past five to 10 years as it relates to three large areas: practice overhead (Meaningful Use, medical liability costs, Stark Law, etc.), physician reimbursement trends (30 percent drop from 1992 to 2010, or 68 percent when factoring the inflation differential), and most importantly the Patient Protection and Affordable Care Act.

In taking a deeper look at the PPACA, one can see it has four key components. First, it extends coverage to Americans without healthcare coverage with associated mandates and employer penalties if the coverage is not offered to employees. Second, exchanges are utilized in states to achieve expanded coverage. Third, the costs of this extended healthcare coverage are basically subsidized by increased taxes and decreased payments to providers. Fourth, financing these additional expenses occur secondary to the increased taxes and reduced provider payments as a result of the PPACA. Obama's 2016 budget results in a decrease of $400 billion to Medicare and Medicaid over the next 10 years with an increase in Medicare premiums beginning in 2019. As Sylvia Burwell, the Health and Human Services Secretary stated in late January, 30 percent of Medicare payments must be made thru alternative payment models by 2016 and 50 percent by 2018. Eventually, by 2020, 100 percent of all Medicare payments will be made thru either ACOs or bundled payments.

Currently, there are approximately 68,000,000 Medicare and Medicaid enrollees, which account for approximately 22 percent of the U.S. population. This dramatic shift in funding will drive the need for changes in behavior for orthopedic surgeon practices to remain successful. Clearly, patient-centered care, along with value-based contracting, will become the standard of patient care delivery over the next decade. Furthermore, insurers will, and are, defining quality as "outcomes divided by cost," so it will be critical for orthopedic surgeons to understand that they must begin collecting outcomes and reducing cost of care so the payers can determine "quality."

Winds of change

As Charles Darwin once said, "It's not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change." It's not easy for an orthopedic surgeon to embrace change — it's simply not in our nature to do so — but those who do become very successful, both clinically and financially.

"Disruptive innovation" is a change that creates a different market or value that disturbs an existing market or value. This "disruption" may eventually displace the previous market for a product or technology. Prior disruption included traditional ancillary services, such as ambulatory surgery centers, specialty hospitals prior to 2011, MRI ownership, physical therapy and durable medical equipment. More recent disruption includes participating in bundled payment initiatives with or without a hospital partner, developing gain-sharing agreements with the hospital, physician-hospital joint ventures and co-management agreements, and formation of umbrella mergers to foster accomplishment of all of the above.

Bundled payments and episode of care: A new view

Bundled payments are defined as a single payment to a provider organization without contingency payments, which include the hospital length of stay (facility fee plus readmissions), professional fee, post-discharge services and implant costs. Bundled payments date back to 1984 when a group of cardiologists offered a global fee for coronary artery bypass. Since then, the "Prometheus" project, the Acute-Care Episode project, the Bundled Payment Care Improvement Initiative and the Medicare Shared Savings Program have all illustrated methods of cost containment for a single episode of care without reducing quality.

In taking a deeper look at the BPCI, there are four distinct models:

  • Model 1 is a retrospective payment model for the acute inpatient hospital stay.
  • Model 2 is a retrospective bundled payment model for the inpatient stay plus 30 days following discharge, including those hospital services related to the episode anchor such as readmission services, long-term care services, physical therapy, DME and other applicable services. 
  • Model 3 is a retrospective bundled payment model for post-acute care without the acute inpatient hospital stay. The episode begins on the date post-acute services are initiated and the episode continues through at least 30 days. 
  • Model 4 is the prospectively administered bundled payment for hospitals and physicians for the acute inpatient hospital stay only. Thus, CMS makes a single bundled payment to the hospital covering all furnished services. Physicians and surgeons are paid by the hospital out of the prospective bundled payment.

Bundled payment programs: A brief "how to"

Specific elements are important to initiate a successful bundled payment program.

First, propose an improved value proposition, which is basically the successful delivery of a solution for a painful joint.

Second, define who the market is by attempting to standardize the process of care.

Third, build a dedicated team, which will include physician leadership.

Fourth, define the episode of care, noting the inpatient and post-discharge period.

Fifth, since quality and value equal outcomes divided by cost, it is important to collect outcomes data as well as reduce costs. Therefore, develop and define the performance metrics, which must include outcomes as well as cost.

Sixth, develop the care pathways and models in attempts of achieving standardization. Use protocols that become templates as a guide for each patient's episode of care, which can be used to monitor compliance and compare to "best" practices.

Seventh, cost reduction opportunities include waste elimination and negotiating lowering implant costs to allow price establishment. It is important to make certain that these cost reduction opportunities do not affect the quality of the current products or episode of care.

Value shares: Gain sharing and co-management

One method for the surgeon group to benefit from achieving cost savings in these bundled payment programs is through "gain-sharing," which is specifically authorized under the BPCI programs. These payments must be related to "changes in behavior and/or an increase in quality." Care must not be reduced and quality must remain constant or improved under this arrangement during the course of the contract. Also, compliance with the overarching federal legislation (Anti-Kickback statute, Stark Law, federal civil monetary penalties law and the False Claims Act) must be followed. Gain-sharing can also be utilized by hospital-employed physicians in conjunction with the hospital.

Another method for surgeon group benefit through cost reducing programs is utilizing gain-sharing models between hospitals and physicians within a co-management agreement. In this framework, gain-sharing can be extended beyond the initial year of savings for up to three years and possibly even further.

Co-management agreements are legal between hospitals and physicians or physician groups, and they give the surgeon control over the care their patients inside the hospital. Compensation is structured based upon the work the physician actually performs on an hourly basis for managing the care process in areas such as but not exclusive to: the operating room, inpatient unit, physical therapy, case management, personnel, etc. Surgeon compensation also occurs for achieving certain quality metrics such as, but not exclusive to: on-time starts in the operating room, day of surgery ambulation, achieving programs for block scheduling, patient satisfaction scores, etc.

Governance in the management company is shared between the hospital and physicians. The surgeons are reimbursed for services provided by the management company. Physicians will be reimbursed in the future by earning a negotiated portion of bundled payments that are given to the hospital for the service delivered by the hospital and the surgeon. As previously noted, multiple groups can be involved in this type of relationship with the hospital.

Tools for success in a "bundled world"

To achieve gain-sharing within the co-management agreement and make it profitable for the surgeon group or hospital-employed physician, it is critical to engage in "case-costing." To date, the most significant portion of the expense of a total knee or total hip replacement, especially one performed in a same-day outpatient setting, is the cost of the implant.

Depending on geographic location and implant type, this can be as much as 70 percent of the entire procedure. This disparity of cost burden highlights a need for further disruptive innovation, which can enable superior outcomes while improving both cost and, more importantly, quality with new tools. Therefore, building a program around a technology enabled delivery model across a pre-operative, intra-operative and post-operative care continuum might yield the changes needed to succeed in these times of change. One such model is described below.

Operating room staff and surgeons can boost efficiencies of operative and turnover time while tracking and eliminating costly waste in the process with pre-operative staff competency training utilizing a personalized, digital learning management system. Intraoperative "error-checking" software assures the quality of selection and utilization with clinically proven implants that have shown strong survivorship (>95 percent) across a critical timeframe (12 to 15 years). Finally, an automated supply re-order at the point-of-care in the OR ensures timely delivery of the right resupply in the most cost-effective pathway during the post-operative phase.

Through such a model, the surgeon, hospital and patient can be more assured of both a predictable and long-term successful result. Moreover, this model could return an attractive revenue stream back to the surgeon participants, both legally and ethically, through its apparent beneficial impacts throughout the episode of care.

Summary and conclusions

A quantum shift in payment mechanisms for healthcare delivery is underway beginning with Medicare. With declining physician reimbursement and the requirement that bundled payments be enacted in 50 percent of Medicare cases by 2018 and 100 percent by 2020, it will be necessary for surgeons and hospital systems to prepare for this inevitable transition to value-based bundled payments and away from fee-for-service reimbursement while recognizing that private payers have traditionally followed Medicare's lead if they too can reduce costs through a different reimbursement model.

Therefore, a new path should be explored — collect outcomes using clinically proven devices at a reduced cost, streamline the supply chain management with automated tools, and prevent past quality issues around in-OR errors to improve quality. This will be paramount to maintain reasonable reimbursement for work performed by an orthopedic surgeon in the new normal of reimbursement for healthcare delivery.

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