Hoag Orthopaedic Institute began doing bundled payments in 2008 with patients traveling from around the country for their orthopedic services. Most of these patients were employees of large, self-insured companies who were seeking elective procedures. James Caillouette, MD, an orthopedic surgeon with Newport Orthopedic Institute and Hoag Orthopaedic Institute in Irvine, Calif., participated in the coordination of those programs and more recently sat on the advisory board for the Integrated Healthcare Association's pilot project for bundled payment in California. The programs he has been involved in include several different payors — the Blues, Cigna and Aetna — and recently an agreement was announced between Hoag Orthopaedic Institute, Aetna and technology giant McKesson for bundling knee and hip replacements. Dr. Caillouette and Gabrielle White, director of Perioperative Services at Hoag Orthopaedic Institute, provide their insight for creating a successful bundled payment agreement for orthopedic procedures — an alliance that has become increasingly important post-healthcare reform."I think bundled payment could become the standard in the future," says Dr. Caillouette. "It will take some time, but there is opportunity for specialties with high volume procedures, such as knee and hip replacements, to establish bundled payments."
1. Negotiate which patients will be eligible for bundled payments. Not every patient is a good candidate for the bundled payment program because providers won't want to receive the flat rate for care if patients have high comorbidities or likelihood for readmissions. "We negotiate which patients will qualify based on medical criteria," says Dr. Caillouette.
The patients in the IHA bundled program must meet certain criteria, including:
• An American Society of Anesthesiologists score of 1 or 2
• BMI less than 39 (although Dr. Caillouette recommends a BMI less than 35)
• A member of the participating payor's PPO
• A lack of comorbidities increasing the likelihood of complications, such as diabetes or HIV
"We look at the patient's history, comorbidities, age, insurance status and all of these different factors are used to determine whether the patient is eligible to be part of the bundled pilot program," says Dr. Caillouette. "Beyond the IHA bundled payment pilot, we set up specific criteria with each patient."
In the past, insurance companies reimbursed for the extra work associated with complications and readmissions, but the bundled payment program eliminates that payment during an agreed upon postoperative period.
"We want ideally to have the healthiest patients possible for all surgery, especially the episode of care because we want to minimize the risk for infection, complications and readmissions," says Dr. Caillouette. "The negotiations for the IHA pilot took well over a year because, from a payor standpoint, they are trying to reduce their risk. From a provider standpoint, we don't want to take on too much risk. The negotiation goes back and forth."
2. Understand the literature and do risk adjustment. Providers going into bundled payment negotiations should understand the outcomes data and literature for a given procedure to negotiate the most desirable terms for patient selection.
"You really need to look at procedure-specific data and understand what the highest risk factors are for postoperative complications," says Dr. Caillouette. "This should be national data — that's what payors are looking at. Everyone is mining the data and trying to offset their risk. That's what people really need to understand when they are getting into this kind of payment system."
Examine the data and figure out how to leverage it during the negotiations. Keep in mind you'll want to focus on including patients who are likely to have the best outcomes for the procedure. "When you do negotiations, you want a risk adjustment for your payment," says Ms. White. "Insurance companies ask patients all types of questions about prior illness to determine the price of the premium they are going to charge the patient, which is risk adjusted. Providers should do the same before negotiating bundled payment contracts."
3. Think like the insurance companies. Providers understand the clinical world when taking care of patients; with bundled payments, you must begin thinking like the insurance companies to negotiate terms that make sense for the providers. Figure out how you can predict which patients are most likely to succeed or are at increased risk for complications..
"You want to focus on predictability and that's where you get into a lot of the literature search and statistical analysis," says Dr. Caillouette. "This is something very different for providers; providers have never had to enter this world before. Now we have to understand and act in the world where actuarial and insurance companies have been for a long time."
If providers don't understand the data, they could accept more risk than they are able to absorb. "The biggest risk for physicians and hospitals is they are naïve to all this and they might accept risks that they shouldn't accept," says Dr. Caillouette. "If they are going to accept them, build in financial safeguards so they can absorb complications as they occur."
4. Define when the 'episode of care' begins and ends. It's important to define when the episode of care will begin for the bundled payment. In the IHA pilot, the episode of care began the day of surgery and extended 90 days postoperatively. It may take some time to negotiate these terms, but will ultimately be beneficial to minimize the new risk providers take on.
"There is more shared risk for the payor and provider with bundled payment," says Ms. White. "Providers are taking on more risk than before."
Providers are at increased risk with bundled payments because they receive a flat rate for care regardless of whether the care includes complications, readmissions or other unforeseen costs. From a provider standpoint, it's beneficial to begin the episode of care the day of surgery because there is too much variation in care during the pre-surgical period that the surgeon can't control.
"You have to know what will and will not be covered in the bundled payment," says Ms. White. "There are so many variables and providers who could care for patients during the preoperative period, which could cause problems. If you start the program on the day of surgery, you have control over the care patients receive in the program."
While the IHA pilot covers all care provided for the first 90 days after surgery, other programs may decide to cover shorter lengths, such as the first 30 days or first 75 days.
5. Complications are the provider's responsibility, and they will occur. Every physician knows that even in the best case scenario, complications are always a possibility. Under bundled payment agreements, the provider becomes responsible for covering procedure related complications and readmissions within the negotiated period, so be prepared.
"Complications are always going to happen," says Dr. Caillouette. "Even in the best of circumstances, you are going to have complications. You need to develop a system that allows you to be prepared for those complications."
6. Make sure your electronic systems are prepared for one bill. When payments are bundled, insurance companies will pay for a single negotiated rate for the episode of care. Providers traditionally billed multiple claims for each episode of care depending on the case and different providers associated with that care; it can be a big transition to coordinate billing systems into a single claim. This is one of the reasons why McKesson and Trizetto are involved in HOI's bundled programs.
"One of the biggest challenges for payors in bundled payments has been how to adjudicate the claims," says Dr. Caillouette. "All their systems are set up for multiple claim names per episode; now they have to load all of these different things together into a single claim yet still track the various elements that make up the total claim."
7. Educate physicians about the new concept to increase buy-in. All surgeons must be on board with the bundled payment agreement for it to work. Since this is a new concept, and it places more risk on the providers than ever before, some surgeons may be weary of joining the new program. Physician education sessions and complete transparency will help turn the tide of trust in bundled payments.
"The biggest challenge is helping the providers understand and trust this new concept," says Ms. White. "You have to create alignment between the physicians and hospital to agree to terms before going forward. Someone will be getting a big check and must distribute it among the others—that's something you need to discuss."
Be transparent with the payments, which isn't something hospitals and physicians usually share. It may take time for both parties to become comfortable with the arrangement.
"If you can educate all the providers in terms of the concept of bundled payments so they understand that everyone is sharing risk and everyone is accountable for the entire process of care, you have an opportunity to solve your problems," says Dr. Caillouette. "It creates a higher level of focus because there is a higher level of accountability than with other systems."
8. Only include top physician leaders in the bundled payment program. Since all the surgeons must be aligned and understand the bundled payment program to participate, not every surgeon is going to be willing or able to join in the programs.
"You have to have the right physician leaders in the room," says Ms. White. "Not everyone signs up for the bundle—you have to go with your 'A' team of providers. They also have to be leaders in change; that's where we have been very fortunate."
9. Take the higher administrative burden on the front end. It takes more administrative work on the front end to get programs off the ground, but once providers have experience and a high volume of patients participating in bundled payments, the burden will be lifted.
"It's more manual work for us right now because we haven't had enough volume to automate our systems," says Ms. White. "It takes time to check each patient and make sure they are properly selected for bundled or not bundled payments. We have an IT system that shows us when patients are eligible for the bundle, but we still have manual checking for lab reports and medical histories to make sure they are qualified."
After the patient is identified as eligible and qualified from the provider's perspective, you must receive authorization from the payor to bundle their episode of care. "Currently, it is a bigger administrative burden, but as the volume increases that will go away," says Dr. Caillouette. "If it moves in that direction, everything will become far more automated than it is today."
Another set back is the number of payors and providers who are part of the bundled payment; there are only a select few patients, physicians and payors who are able to work within the bundled payment structure. "If all payors, physicians and patients participated, and we had risk adjusted reimbursement for all patients, the system would be a lot simpler," says Ms. White.
10. Discuss the process with patients so they aren't surprised with one big bill. Patients are familiar with receiving multiple bills for their care, and each sum represents only a part of the whole. When the bill comes in parts, it seems more manageable than when it comes as an entire lump sum.
"Instead of seeing smaller amounts of out-of-pocket pay, they are seeing one big sum," says Ms. White. "It's the same amount of money, but they are seeing it all in one payment, which could be one downfall to the plan."
However, the one bill also has its advantages. Patients don't have to keep track of multiple bills, so paying for their care is simplified. "From the patient's standpoint, it's actually simpler because they only receive a single bill as opposed to the multiple bills they get right now," says Dr. Caillouette.
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