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

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The way we are paid as doctors is changing. In some cases, the delivery of orthopedic care could change from healthcare institutions’ most significant financial asset to one of their most detrimental liabilities. These changes provide a chance to improve both the quality and efficiency of the care we deliver, but we are unlikely to capitalize on this opportunity unless we understand this shifting paradigm. This change requires us to first appreciate the recent history of our reimbursement environment.

Traditionally, healthcare has been a relatively lucrative field, especially for those providing surgical care: doctors are paid “physician fees” by insurance companies (including Medicare), and institutions where procedures are performed are paid “facility fees.” Profits are measured as revenue (ie, reimbursement) minus costs of providing care, and while there has always been the potential to make more money by lowering costs, providers have historically had much more to gain by increasing their revenue. This fact has been exacerbated by the “fee-for-service” (FFS) payment model, which unintentionally encourages physicians to provide high volumes of care by “paying more for doing more.” For example, rather than being paid a fixed sum to care for a patient’s knee arthritis, each provider involved in the patient’s care is paid for each intervention. Clearly, this system encourages providers to maximize their interventions (ie, earning revenue) rather than search for ways to cut costs.

The Centers for Medicare and Medicaid Services (CMS) partially addressed this issue during the 1980s by introducing the Diagnosis Related Group (DRG).1,2 Under this classification scheme, hospitals would be paid a pre-specified amount for a particular type of admission, often based on a specific procedure. For example, there is a DRG with a set payment for total knee arthroplasty (TKA).3 When reimbursement for the condition is set at a fixed amount, facilities are motivated to decrease their expenses since this is the only way to maximize the financial return for a given patient. This change, theoretically, encourages providers to cut their costs for providing a TKA as much as possible, potentially even to the point of sacrificing quality of care. As usual, when CMS makes a sweeping change, private insurers followed suit, and as a result, both government and corporate insurance is now structured around DRGs.

However, this was not a complete departure from FFS payment. We were still not paid to manage a patient’s knee arthritis as cheaply as possible; we were paid for each steroid injection, preoperative clinic visit, TKA (with numerous coding modifiers for complexity or comorbidities) as well as post-discharge admissions to skilled nursing and acute rehabilitation facilities. However, it was a start: for example, hospitals were no longer incentivized to keep TKA patients in house with a growing bill for each administered drug or therapy session. Yet, it is noteworthy that hospitals and physicians were still paid separately. This is important because doctors have historically made almost all treatment decisions and thereby determined the cost of care, yet hospitals have borne most of those costs, such as expensive implants or unplanned admissions, without a commensurate increase in reimbursement. As long as physicians are guaranteed their “fee,” they have little motivation to reduce those costs. Unsurprisingly, and as we well know, the advent of DRGs did not successfully curb our growing healthcare budget.

Recently, TKA and total hip arthroplasty reimbursement changed more dramatically. After experimenting with several pilots, CMS rolled out the Comprehensive Care for Joint Replacement (CJR) bundled payment program in 2015.1,4 Participation in CJR is mandatory for most arthroplasty providers in approximately half of all “metropolitan” areas. In this scheme, hospital and physician pay is intertwined. Specifically, hospitals are held accountable for costs, so if the total Medicare bill for a patient’s TKA exceeds the “target price,” the hospital faces a penalty. Conversely, a charge below the target can earn a bonus payment.4 The hospital and surgeons must decide how they will share the bonus (or penalty), which creates an incentive to work together to lower costs.

Continue to: While bundled payments like CJR shift some...


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