Bundled Payments and Joint Replacement

Joe Cantlupe, for HealthLeaders Media , June 13, 2012
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Success key No. 1:  Negotiating with vendors
The vendor meeting that helped Baptist Health successfully save $2 million was a part of an initiative to reduce the number of vendors, says Zucker.

He says that health systems must incorporate procedures to reduce expenses for medical devices, which in some cases represent nearly half the cost of joint-replacement care. One red flag is the great variation in pricing from one hospital to another. Zucker says he's evaluated prices from certain vendors for hip-joint devices and contacted officials from other hospitals who tell him they were paying half the cost of the estimates he was given.

Through a relationship with the physicians, Zucker says the hospital was able to make inroads on pricing by eliminating some vendors from a preferred list. Baptist's ACE and physician health organization governing board has defined parameters for cost, quality, and other benchmarks, including protocols and metrics, he adds.

The committee structure, using the governing board protocols, has enabled the physicians to work with the hospital on vendor contracts. The ACE program also created a way for the hospital and independent physicians to be more aligned, Zucker says.

Without such a program, "very little incentive exists for physicians to collaborate with hospitals," he says. "The bundling and gainsharing components of ACE have enabled us to achieve these results. Hospitals realize much of the decisions about utilizing devices are based on physicians' preference.

"We recommended to the physicians that we would have to reduce the number of vendors in order to achieve significant pricing concessions," Zucker says. The hospital and the physicians then decided to limit the number of vendors and made clear there were certain prices that were off limits. "We told them the amount we were willing to pay in; it was up to the vendors to accept the price."

The 1,275-licensed-bed Oakwood Healthcare Inc. system based in Dearborn, Mich., also uses a committee structure involving physicians to reduce vendor costs, says Sandra Sneed, administrator of clinical services for Oakwood's Center for Orthopedics and Neurosciences. "We collaborate with our physicians and let them know that, in most cases, we try to maintain a physician preference and product price cap," says Sneed. "If that vendor wants to do business with our hospital, they have to meet the price cap."

Because of confidentiality clauses, Sneed declined to disclose specific amounts, but said, through physician alignment "we were able to achieve significant price discounts on orthopedic implants," and "we know we were able to save a significant amount when these contracts were up."

Success key No. 2: Physician alignment
Initially, when he met with physicians at Baptist Health to go over proposed bundled payment programs, "physicians were lukewarm at best," Zucker recalls.

Physicians weren't thrilled about being involved in bundling projects—especially since they would not receive payment through Medicare; the hospitals would. Suddenly, "we were the bank," Zucker says. He portrays the independent physicians as being filled with anxiety, and with an attitude. "They were not excited about this. It was more like, ‘How can you do this to us?'" he explains. Within a year, when hospital physicians received more than $1 million in gainshare distribution under the bundled payment plan, they were certainly more enthusiastic.

Under the CMS ACE demonstration project, physicians received up to 125% of Medicare reimbursements, based on quality and overall cost improvements involving the treatment of 4,000 patients.

While the hospital has agreed to discount its fee, physicians still are paid 100% of the Medicare allowable rate and do not have to worry about collecting the 20% patient copayments; the hospital handles that. If quality and cost saving goals are achieved, gainsharing distribution is made to physicians who qualify on a monthly basis. 

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