Orthopedics in the Age of Accountable Care Organizations and Population Health: From Profit-Center to Cost-Center

While bundled payments like CJR shift some of the risk for high costs to the hospital and surgeon, a much more extreme example of this type of shift is capitation (ie, paying a healthcare institution a set amount per patient to care for whatever maladies arise). Insurers have experimented with various forms of capitation in the past, which led to the expansion of health management organizations (HMOs) during the 1990s. In theory, capitation should encourage providers to invest in disease prevention to minimize the need for costly interventions. However, more nefarious incentives developed, resulting in “cherry picking” healthy patients, which restricts access to care for sicker patients, and even withholds care from patients in need. The most infamous example was arguably “drive-through deliveries,” where newborns and their mothers were prematurely discharged following birth.⁵ As a result, the “HMO backlash” occurred, and capitation temporarily fell out of favor. The heart of the problem was a strong incentive to reduce the cost of care without a counterbalancing incentive to maintain quality. CJR and other modern programs attempt to avoid similar adverse incentives by requiring participants to meet certain quality criteria.⁶

Since the passage of the Affordable Care Act in 2010, capitation has reemerged under a new name: Accountable Care Organizations (ACOs). Numerous forms of ACO’s exist with differing payment schemes⁷, but the most comprehensive version, named Next Generation (Next Gen), allows providers to choose full capitation.⁸ While early ACOs focused on individual patients, Next Gen ACOs are also focused on “population health.” That is, they must demonstrate outcomes for individuals and the patient population as a whole, while simultaneously assuming all financial risk via capitation. Specifically, these ACO’s are paid an “all-inclusive population-based payment” for each patient based on how much that type of patient’s care is expected to cost for the year.⁹ The ACO then provides all necessary treatment and, if the ACO cannot provide a necessary intervention, it is responsible for funding that care at another institution. Appropriately, there has been an increased focus on quality to avoid unintentional incentives to withhold care. Specifically, CMS has introduced mandatory quality metrics in the domains of patient experience, care coordination, preventive care, and management of at-risk populations.¹⁰ At present, unfortunately, these metrics are not nearly comprehensive enough nor adequately validated to assess the quality of care,¹¹ especially for subspecialized fields like orthopedics where functional outcome scores are needed.

To date, very limited attention in the media or academic literature has been dedicated to subspecialty surgical care in the setting of ACOs even though implications for specialized surgeons could be immense. While ACOs bring numerous reporting requirements, the most essential first step for orthopedists in transition to this new reimbursement scheme will be a change in mindset. As explained above, orthopedics and other forms of specialized surgical care have traditionally been extremely profitable for healthcare institutions through relatively high revenue. However, within a capitated ACO all revenue has been paid upfront for each patient, and every orthopedic surgery performed represents a substantial cost to the institution rather than a large profit. For example, it has been reported that the average contribution margin earned by a hospital for an episode of care to provide a TKA (which includes postoperative care such as clinic visits, unplanned readmissions, and reoperations for complications) based on Medicare reimbursement is $11,726.¹² This figure consists of reimbursement (median, $24,149) less variable costs (median, $10,190). Additionally, the surgeon currently receives $1400 in physician fees.¹³ These earnings represent a significant financial benefit for both the facility and doctor in the current FFS environment. However, a capitated ACO caring for a TKA patient would already have received full payment for his care for the year. As a result, providing a TKA would not afford any further financial benefit and would, instead, mean a loss of $10,190 (the aforementioned variable cost for the episode of care) directly from the bottom line. The orthopedic department within that ACO, along with other departments, can be expected to share that loss. This implies that upon becoming an ACO, an institution’s orthopedics department will change from a major profit-center to a major cost-center.

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