Bundled payments: 28 things to know for spine, orthopedics & ASCs

Here are 28 things to know about bundled payments in orthopedics, spine and ambulatory surgery centers: pros and cons, and where they're headed.

1.Bundled payments, also known as episode-based payment or packaged pricing, are a single payment based on expected costs for clinically-defined episodes of care. The bundled payment typically covers the facility fee, physician's fee, anesthesiology, implants and instrumentation, pain management, rehabilitation and all other care costs for a specific period of time. Typically, bundled payments cover surgery through 60 to 90 days postoperatively. 

Stephen H. Hochschuler, MD, co-founder of the Texas Back Institute, says it's hard to say at this point if bundled payments are a good idea or not. "In five years we'll see what happens, but with time I think it will evolve into something very good."

2. Half of physicians, 78 percent of hospitals and 80 percent of payers find bundled payments appealing, according to research done by Strategy&.

3. Healthcare providers are at-risk for any additional care and payments exceeding the initial global payment. A report by Rand Health stated bundled payments provides additional advantages to providers and patients by removing inefficiency and redundancy from patient-care protocols, such as duplicate testing, delivering unnecessary care and failing to adequately provide postoperative care.

4. Bundled payments may encourage economies of scale, especially if providers agree to use a single product or type of medical supply, as hospitals or integrated health systems can often negotiate better prices if they purchase supplies in bulk, according to Physicians Practice.

Bundled payments at ASCs

5. ASCs across the country are considering bundled payments, and a few have implemented them. The Orthopedic Surgery Center of Orange County launched a bundled payment program in 2008 and now has two models: one for cash-pay patients and one for a third-party administrator coordinating medical tourism for employers. This is especially important as more orthopedic and spine procedures enter into the ASc.

"Things are going to migrate out of the hospital setting and into the ASC. More and more cases are going to be done in a surgery center," says Dr. Hochschuler.

6. Surgery Center of Oklahoma was among the first surgery centers to implement bundled pricing to attract cash-pay and medical tourism. Pricing ranges from $5,730 for Achilles repair, $8,260 for rotator cuff repair and pricing for otolaryngology, general surgery and gynecology procedures. Keith Smith, MD, is an anesthesiologist and administrator of the center.

7. Commercial payers have different methodology than Medicare for bundling payments than government payers. Commercial payers have prospective bundles where a single contracted rate is paid for each patient participating in the bundle. 

8. The ASC is often a less expensive option for care because charges are usually lower than in the hospital and a bulk of the costs are associated with postoperative care. Insurance companies may incentivize patients to use the lower-cost ASC option. However, if hospitals control the payments for the bundle, they are unlikely to refer patients out of their network. 

9.Bundled payments began as early as 1984 when The Texas Heart Institute under the direction of Denton Cooley began to charge flat fees for both hospital and physician services for cardiovascular surgeries. They have since spread to other specialties, especially those with predictable outcomes such as orthopedic procedures. There is lower motivation for payers to bundler lower-dollar procedures, including colonoscopy, according to Physicians Endoscopy CEO Barry Tanner. Both private and government payers are pursuing bundled payment agreements.

Spine bundles

10. There can be a huge variation in spine surgery costs, which will affect spine-focused bundled payments. A study published in Spine examined costs for 90 days postoperatively and found patient DRGs ranged from $11,180 to $107,642 for the 30-day bundles. Post-discharge care accounted for 4 percent to 8 percent of the overall costs in 90-day bundles. The study found an average 30-day bundle cost $33,522 and average 90-day bundle was $35,165.

11. Hospital payments are associated with a large portion of the spine surgery bundled payments, according to the 2014 study in Spine. Seventy-six percent of the bundle went toward hospital payments. 

12. Large companies are beginning to use bundled payments. In 2013, Wal-Mart launched bundled payments for six specialties including spine surgery. Lowe's and Jet Blue also has bundled payments covering their employees.

Dr. Hochschuler sees bundled payments developing across the country in the future. "My goal would be to get the physician back in charge," he says. "There's so many good opportunities if it's done properly and not just done in Washington."

13. The spine bundles cash pay rates for the Orthopedic Surgery Center of Orange County is:

  • Discectomy, laminectomy, laminotoy: $14,225
  • 2-level discectomy, laminectomy, laminotomy: $16,200
  • 1-level lumbar fusion and overnight stay: $30,000
  • 2-level lumbar fusion and overnight stay: $38,000
  • Facet joint injection, cervical/thoractic at one level: $2,100
  • Transforaminal epidural lumbar/sacral: $2,100
  • Radiofrequency ablation, cervical: $2,475

Orthopedic bundles

14. The Integrated Healthcare Association launched an orthopedic bundled payment program in California in 2010. Last year, the results came in showing six of the largest health plans in the state, eight hospitals and an independent practice physicians' association dropped out. Only two hospitals signed contracts with the health plans for bundled payments. But, two ASCs participating signed bundled payment contracts with a health plan and the ASCs recorded a higher volume of orthopedic surgeries in the program than the hospitals.

15. There are several orthopedic practices creating bundled payments, including OrthoCarolina in Charlotte, N.C., and Triangle Orthopaedic Associates in Durham, N.C. Both practices bundle payments with Blue Cross Blue Shield of North Carolina. Bundled rates run from $22,000 to $30,000 in the state, compared with $27,500 to $47,300 for unbundled procedures.

16. Examples of cash rates at the Orthopedic Surgery Center of Orange County include:

  • Minimally invasive hip replacement and 23-hour stay: $20,250
  • Hip arthroscopy: $11,800
  • Partial knee replacement and overnight stay: $20,250
  • Knee arthroscopy, ACL repair: $11,600
  • Arthroscopic ACL with meniscal repair: $13,250
  • Open rotator cuff repair: $7,925
  • Arthroscopic rotator cuff repair: $10,475

Success rate

17. More than half of the hospitals that have tried bundled payments want to increase the number of procedures, care settings and partners included in the bundles, according to Strategy&.

18. Forty percent of hospitals reporting savings achieved savings of 5 percent or more.

19. More than 80 percent of the hospitals with bundled experience improved patient engagement, increased alignment with physicians and reduced administrative costs.

20. Sixty percent of payers with bundles plan to expand their bundling efforts and 57 percent of physicians say they will adopt bundles if their payers adopt them as well. 

21.More than 80 percent of hospitals with bundle experience have seen greater patient engagement, increased alignment with physicians and further reduced administrative costs, according to Strategy&. Hospitals that have implemented bundled payments include Hoag Orthopaedic Institute, Lancaster General Hospital (Pa.) and Buffalo General Hospital in New York, among others,

CMS' bundled payments — CCJR 

22. CMS launched The Comprehensive Care for Joint Replacement payment model, which will begin April 1, 2016, aiming to hold hospitals accountable for quality of care for hip and knee replacements. The Bundled Payments for Care Improvement program offers four different project models:

  • Models 1 and 4 are inpatient-specific.
  • Models 2 and 3 focus more on a broader continuum of care.

23. CCJR will include 800 facilities and all physicians working at those hospitals in 67 metropolitan areas are de facto participants. The rates are based on historical performance, which rewards inefficient facilities while efficient centers have less room for improvement.

24. Medicare's program is a retrospective bundle; Medicare sets a rate and if the episode of care costs more than the set rate, providers owe Medicare the difference. If the care costs less than the bundled rate, providers distribute the remaining amount among key stakeholders.

25. The Medicare bundles are focused on the inpatient setting, whereas more commercial payer initiatives are pushing these procedures outpatient. 

26. There are some hospitals already participating in Medicare's bundled payment program pilot initiative, including St. Luke's Medical Center in Phoenix. The hospital received feedback for patients who participated in the program from July 2014 to June 2015, and found their patients did better than average for hospital length of stay — 1.2 days compared with 4.4 days for the national average — in both knee and hip replacement surgeries. 

They also realized cost savings and reduced 30-day unplanned readmissions. The national average for 30-day readmissions is 6.2 percent and St. Luke's achieved 0.7 percent under the bundled program.

Creating bundled payments

27.Bundled payment plan success for providers depends on the following, according to HCI3:

  • Valuing leadership that articulates a unifying patient care vision and challenges participants to creatively develop strategies.
  • Mapping the arc of patient progress across the episode timeframe and quickly identifying patients who deviate from the expected path.
  • Tracking costs and utilization in real time.
  • Using a quality improvement model for care processes.
  • Integrating unaffiliated post-acute providers.
  • Adjusting the organizational structure to support and sustain the change in care delivery design.
  • Continually communicating with patients involved in the episode.

28. Bundled payments aren’t the most prevalent value-based payment model, according to revenue cycle management and business solutions provider Availity. The report found:

  • 31 percent of 540 healthcare providers surveyed participate in a bundled payment plan 
  • 38 percent participate in accountable care organizations 
  • 49 percent in pay-for-performance programs 
  • 53 percent participate in Medicare quality incentive programs


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