How Bundled Payments Pay Off in Joint-replacement
About 500,000 knee-replacement surgeries and more than 175,000 hip replacements are performed each year. Hip replacements are expected to increase 174% in the next 20 years, and knee-replacement surgeries are expected to increase 673%, according to a 2007 study by the American Academy of Orthopaedic Surgeons.
"We are absolutely seeing an increase in volume of patients who have advanced arthritic changes that require surgery," says James Caillouette, MD, an orthopedic surgeon and chief of staff at the 70-staffed-bed Hoag Orthopedic Institute, which is part of the 498-staffed-bed Hoag Memorial Hospital Presbyterian in Newport Beach, Calif. "We are very busy seeing not only baby boomers, but younger patients, as well. We are seeing patients who are high-functioning, but their lives are increasingly compromised by hip or knee issues."
As demand for joint-replacement surgery grows, hospitals are grappling with a large variation in pricing of devices, says Francois de Brantes, MS, MBA, executive director of the Health Care Incentives Improvement Institute, a nonprofit organization in Newtown, Conn., that studies payment models associated with quality care.
Bundling payments is seen as a valid method to reduce costs, and the Centers for Medicare & Medicaid Services is testing various models, de Brantes says. "A fair amount of bundled contracts are being written across the country. Most of them that are pilots are in the process of being converted to a more permanent status," he says.
Surgery complications are among the key reasons for variability in total knee-replacement costs, de Brantes says. Strategies such as bundling payment to an episode of care could help reduce that cost variation, he adds.
Bundling services has a "built-in mechanism to encourage the reduction of those complications," de Brantes says. For instance, if a provider negotiates a bundled payment for knee replacement that's equal to the average cost of the surgery, which is about $27,500, the provider would earn a $2,000 margin on each bundle if complications are eliminated.
Baptist Health System is one of five healthcare systems in the country participating in Medicare's Acute Care Episode demonstration project related to bundled payment pricing for cardiac and orthopedic procedures.
"Bundling is already part of the everyday lexicon," Zucker says. "Everybody is realizing that aligning the incentives with physicians is important. We don't have a lot of ability to change without involvement of physicians, as they can influence cost decisions."
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