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How Bundled Payments Pay Off in Joint-replacement

Joe Cantlupe, for HealthLeaders Media, July 9, 2012

This article appears in the June 2012 issue of HealthLeaders magazine.

Before they met with vendors of joint surgery devices several years ago, top officials of the 1,674-licensed-bed Baptist Health System in San Antonio, Texas, didn't realize that millions of dollars were at stake that day.

The meeting included hospital officials, a team of orthopedic surgeons, and vendors. As Michael C. Zucker, FACHE, senior vice president and chief development officer of Baptist Health, recalls, hospital leadership had been talking with vendors for weeks seeking to lower costs for joint-replacement devices. But it wasn't working. 

So they changed tactics, convincing a group of orthopedic surgeons to be involved in the process and attend the meeting. "We were aligned about the costs," says Zucker.

United with physicians, the hospital was able to establish price guidelines and vendors accepted terms of the negotiations. The hospital walked away from the meeting with seven-figure savings in price concessions over one year. "Surgeons representing multiple orthopedic groups were in the room with us, and we held the line on spending with the vendors," says Zucker. "We had a major reduction of $2 million as a result of meetings with vendors and representatives from orthopedics and cardiology," he says, referring to the hospital savings in one year under the program.

That session reflects the possibilities of bundling payments, bringing together physicians and hospitals in orthopedic programs with shared savings designed to improve quality and reduce costs, especially for joint-replacement surgery.

 "The reason we had the surgeons with us with the vendors was the result of having connected them to us with the bundled program," says Wendy H. Solberg, FACHE, CPHQ, vice president of quality and patient safety at Baptist Health System. "The physicians now have some skin in the game for the hospital's cost of care. Prior to that, physicians only had to worry about their professional fee.

"With bundled payment, we got a lump sum from Medicare for both the hospital costs and physician costs," she says. "We made the physicians whole for their professional fee, but they received an incentive to help us with cost per case via their gainsharing methodology; that would not have been possible without a bundled payment arrangement."

Healthcare systems are getting involved in government-run demonstration projects that feature bundled payments, with some forecasting that good results portend important changes ahead for hospital and physician alignment, Zucker says. In the wake of healthcare reform and the move toward accountable care organizations, bundled payments are becoming an integral part of the healthcare landscape, he says.

Joint replacement is seen as an important niche for such programs.

As far as healthcare leaders are concerned, several major issues are at the heart of the need for improved financing schemes specifically for orthopedic programs, such as bundled payments, to counter increased costs in joint-replacement procedures. One is the expected continual demand for new cases, and another is the increased cost of medical devices. Overall, for orthopedics and other service lines, a major impetus toward financial reform is reflected in the move toward value-based payments determined by outcomes and penalties associated with readmissions.

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