The crux of healthcare — How the healthcare system benefits from bundling episodes of care

Although healthcare is trending toward more transparent payment plans, patients as a whole are generally unaware of the actual costs associated with the entire surgical process.

One study found that patients believed their surgeon should receive $14,358 for a knee replacement. They also believed that Medicare actually reimbursed their surgeon $8,212 for their surgery (J Arthroplasty. 2012 May;27(5):703-9. Patient perception of physician reimbursement in elective total hip and knee arthroplasty. Foran JR, Sheth NP, Ward SR, Della Valle CJ, Levine BR, Sporer SM, Paprosky WG.).

Chicago-based orthopedic surgeon Blair Rhode, MD, advocates for bundling episodes of care in a free market system in which the patient and the provider, or the patient and a facility, negotiate a price for certain procedures.

A patient's entire episode of care encompasses several different costs, including facility, anesthesia, surgeon charges and postoperative fees, among several others. The consumer is paralyzed by all these moving parts. "Who can negotiate with the hospital, the surgeon, the anesthesiologist and the implant company?" says Dr. Rhode. "This is why bundled payment plans are an attractive option."

Self-insured entities such as union plans or municipalities could particularly benefit from utilizing bundled payments, because they often operate in a model that does not promote fair pricing. They generally utilize a group insurer as a third party administrator to gain access to their lower contractual rates. The problem is that the third party administrators profit by taking a portion of the net savings. This keeps pricing high as there is downward pressure to achieve lower hospital pricing. "Self-insurers are waking up to this," explains Dr. Rhode. "They realize they can negotiate with directly with facilities and providers on a price and not pay the third party administrator the juice."

Patients with high deductible health plans also may be a viable market for bundled payments. As consumers are faced with escalating deductibles, negotiating a bundled fee for an outpatient procedure may be cheaper than using their high deductible insurance and going to the hospital. A patient that has a $6,000 deductible and needs a knee arthroscopy can likely find a bundled price far lower than their deductible. "This is a definite market that is evolving," says Dr. Rhode. "The consumer has to wake up and start crunching the numbers."

Drs. Blair Rhode and William Rhode conducted a study, "Rotator Cuff Repair Facility Costs in an Outpatient Surgery Center and Hospital Setting," that analyzed the varying supply costs associated with rotator cuff repair surgery in an outpatient surgery center versus a hospital-based setting. The study found if rotator cuff repairs were performed at an outpatient surgery center using a wholesale model with stable technology, the net savings totaled approximately $1,775. Surgical supply costs are 4.96 times at a hospital using a sales rep model. The study indicates that outpatient centers utilizing stable technology creates a situation where centers can offer a fair bundled price for their services.

To implement a successful bundled payment system, alignment between the surgery center and surgeon is crucial. Surgery centers can recruit surgeons for bundled payments through financial incentives. By offering surgeons a portion of the net savings, more surgeons will want to utilize bundled payments, as they benefit the facility, surgeon and patient.

Although surgery centers can save a substantial amount of money utilizing stable technology, surgeons often dictate what implants they want to use for certain procedures even though they have no responsibility for cost. Centers can lower cost by as much as 80 percent if they utilize stable technology. For a rotator cuff repair, the average surgeon Medicare reimbursement is approximately $960. If a surgery center splits the net savings with the participating surgeon, the surgeon's reimbursement can almost double. This serves as a strong method to align the surgeon with the goal of lowering costs while continuing to provide quality care. "In a bundled payment system, surgery centers can align the surgeon with procedure cost by sharing the net savings," says Dr. Rhode.

A problem many facilities face is finding patients, who are often unaware of the benefits bundled payments provide. Companies who seek patients for bundled payment systems, often referred to as finders, are emerging in the healthcare field. A Chicago-based company, HealthEngine, seeks consumers, primarily self-insured patients.  

In a system dominated by health insurers and high premiums, bundling episodes of care may be the solution to many problems plaguing patients, providers and facilities. However, consumers need to become aware of bundled payments' benefits so they have access to affordable, quality healthcare.

"The problem is we don't sell ourselves to the consumer, we sell ourselves to the third-party insurers," Dr. Rhode says. "In an ideal model, the best way to get value and quality is to have the patient connected to the payment."

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