The Journal of Arthroplasty 30 (2015) 351–352
Contents lists available at ScienceDirect
The Journal of Arthroplasty journal homepage: www.arthroplastyjournal.org
Practical Tips for Implementing Bundled Payments in Your Practice Hoag Orthopedic Institute – A Joint Venture Model for Value-Based Care Delivery James T. Caillouette, MD Joan and Andy Fimiano Endowed Chair in Orthopedic Surgery Chief Strategy Officer Hoag Orthopedic Institute, 16250 Sand Canyon Avenue, Irvine, CA., 92618 USA
The movement to managed care began early in California with Kaiser’s development of an employer-based model for healthcare insurance and care of their shipyard workers during the Second World War. The combination of federal legislation in the late 1970s along with innovative insurance products being developed in Southern California led to an aggressive shift in the market by the late 1980s. This has never abated in California, nor has it had the same impact throughout the US. By 2012, California had a managed care penetration rate of 43.5%, well above the national average of 23.3%. Kaiser Permanente controlled just over one third of the California market, in essence reducing the supply of patients to the market and thus increasing the competition among those providers outside of the closed Kaiser system. The insurance payers saw a market with a relative oversupply of providers and thus began to drive reimbursement down compared to the remaining US through the introduction of “Narrow Networks” where a captured population of patients could see only those physicians within their network, or pay a high premium to go outside the network. The macroeconomics of the market were clear and we saw a trend line of lower reimbursement and limited access to patients for the private practitioner in orthopedics. The resources for care delivery were increasingly limited. Our view was that the combination of declining reimbursement and narrow networks would demand a level of efficiency in care delivery that would disrupt the traditional relationships of community medical care. Specifically, we felt that true partnership with our community hospital was the path to the highest level of efficiency, which in turn would offer an opportunity to thrive long term. Traditionally, private practice orthopedic surgeons were at odds with their community hospital when it came to ancillary facility ownership. At that time, in the 1990s, many ambulatory surgery centers (ASCs) were owned by surgeons and competed directly with their community hospital for case volume. While community hospitals were able to command higher reimbursement through HOPD payment schedules, the physicians typically controlled where the patients went for surgery. This competition often lead to duplication of resources and general ill will between the 2 competing entities. In our view, this competition in a market of scarce resources was inefficient and
The Conflict of Interest statement associated with this article can be found at http:// dx.doi.org/10.1016/j.arth.2014.12.032. Reprint requests: http://dx.doi.org/10.1016/j.arth.2014.12.032 0883-5403/© 2015 Elsevier Inc. All rights reserved.
destructive. The challenge was to create alignment in a way that both sides could embrace. Education, at the fundamental level, held the key. The private physicians were small businessmen and women. They needed patients coming to see them to survive in business. The hospital required patients to perform its business. The relationship is symbiotic; the struggles for power and control between the two were not. A joint venture involving equal equity and governance was created by a group of orthopedic surgeons initially for our orthopedic ASC (OSCOC), and after seven years the level of trust and alignment was such that the next larger step could be taken. If we could maintain a “frictionless relationship” between the physicians and the hospital we could exploit each other’s strengths to the fullest. By 2007, talks were underway to create a joint venture orthopedic specialty hospital. A second, similar size orthopedic group with their own ASC was invited to join the effort. In November 2010, Hoag Orthopedic Institute, a 70-bed inpatient specialty hospital and 2 ASCs opened for business. The concept was simple: • Align all elements of care delivery in a new model • Shared equity and governance – 50/50 partnership – “skin in the game” results in trust • Best practices for best outcomes • Evidence drives care excellence and controls cost • Value is our cultural mantra We were heavily influenced by [1] Michael Porter and Elizabeth Teisberg's Redefining Health Care and focused on the “Value Equation” as a cultural driver for the enterprise. We aligned not only the physician and hospital leadership around this concept, but the front line employees as well. Our focus has been on the 3 elements of the equationoutcomes, patient experience, and cost of care delivery. We track clearly defined metrics in all 3 areas and meet monthly as the performance improvement committee in order to review and refine our processes and protocols related to these metrics and the evolving market forces. In 2013 HOI performed 4,677 inpatient surgical cases and 6,740 outpatient surgical cases. Our readmission rate was 2.61%; overall SSI of 0.32% (TKA 0.12%; THA 0.31%); average HCHAPS score between 97% and 99%; and we have lowered our implant and supply costs between $750,000 and $1,000,000 per month since opening. We publish our outcomes annually both in hard copy and online. If value = outcome × patient experience/cost, HOI is moving forward in redefining healthcare in our market.
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J.T. Caillouette / The Journal of Arthroplasty 30 (2015) 351–352
We began global payment cases in 2008 at OSCOC. We saw the efficiencies with this type of care delivery model and thus built the infrastructure to accept bundled payment by the end of 2009. We joined the Integrated Healthcare Association bundled payment pilot in 2010 and performed the largest volume of cases during the pilot. We have performed hundreds of cases under “value based” payment models and continue to have bundled payment contracts with Aetna, Cigna and Blue Shield for primary joint arthroplasty as well as global payment contracts for orthopedics with self-insured employers. The appeal of both global and bundled payment is clear – a predictable price for a given procedure with a negotiable warranty period applied to bundled payment. The biggest hurdle for most trying to negotiate a bundled payment is trust. The single payment for the episode of care is delivered either to the facility (hospital) or the professional side of the care delivery team. Typically, the hospital doesn’t trust the physicians to negotiate
the terms and receive and divide the single bundled payment and vice versa. One of the values of our joint venture model is that it drives trust through equal governance, equal equity and shared risk. We negotiate as a team. The value of trust between the hospital and physician leadership cannot be overstated as we move into the new world of value-based care delivery. Alignment results in trust, and trust opens the door to new opportunities for efficient care delivery where process and protocol must adapt to change. “It is not the strongest of the species that survives, nor the most intelligent that survives. It is one that is the most adaptable to change.” Charles Darwin Reference 1. Porter M, Teisberg EO. Redefining Health Care. Harvard Business Review Press; 2006.
Contents lists available at ScienceDirect
The Journal of Arthroplasty journal homepage: www.arthroplastyjournal.org
Practical Tips for Implementing Bundled Payments in Your Practice Hoag Orthopedic Institute – A Joint Venture Model for Value-Based Care Delivery James T. Caillouette, MD Joan and Andy Fimiano Endowed Chair in Orthopedic Surgery Chief Strategy Officer Hoag Orthopedic Institute, 16250 Sand Canyon Avenue, Irvine, CA., 92618 USA
The movement to managed care began early in California with Kaiser’s development of an employer-based model for healthcare insurance and care of their shipyard workers during the Second World War. The combination of federal legislation in the late 1970s along with innovative insurance products being developed in Southern California led to an aggressive shift in the market by the late 1980s. This has never abated in California, nor has it had the same impact throughout the US. By 2012, California had a managed care penetration rate of 43.5%, well above the national average of 23.3%. Kaiser Permanente controlled just over one third of the California market, in essence reducing the supply of patients to the market and thus increasing the competition among those providers outside of the closed Kaiser system. The insurance payers saw a market with a relative oversupply of providers and thus began to drive reimbursement down compared to the remaining US through the introduction of “Narrow Networks” where a captured population of patients could see only those physicians within their network, or pay a high premium to go outside the network. The macroeconomics of the market were clear and we saw a trend line of lower reimbursement and limited access to patients for the private practitioner in orthopedics. The resources for care delivery were increasingly limited. Our view was that the combination of declining reimbursement and narrow networks would demand a level of efficiency in care delivery that would disrupt the traditional relationships of community medical care. Specifically, we felt that true partnership with our community hospital was the path to the highest level of efficiency, which in turn would offer an opportunity to thrive long term. Traditionally, private practice orthopedic surgeons were at odds with their community hospital when it came to ancillary facility ownership. At that time, in the 1990s, many ambulatory surgery centers (ASCs) were owned by surgeons and competed directly with their community hospital for case volume. While community hospitals were able to command higher reimbursement through HOPD payment schedules, the physicians typically controlled where the patients went for surgery. This competition often lead to duplication of resources and general ill will between the 2 competing entities. In our view, this competition in a market of scarce resources was inefficient and
The Conflict of Interest statement associated with this article can be found at http:// dx.doi.org/10.1016/j.arth.2014.12.032. Reprint requests: http://dx.doi.org/10.1016/j.arth.2014.12.032 0883-5403/© 2015 Elsevier Inc. All rights reserved.
destructive. The challenge was to create alignment in a way that both sides could embrace. Education, at the fundamental level, held the key. The private physicians were small businessmen and women. They needed patients coming to see them to survive in business. The hospital required patients to perform its business. The relationship is symbiotic; the struggles for power and control between the two were not. A joint venture involving equal equity and governance was created by a group of orthopedic surgeons initially for our orthopedic ASC (OSCOC), and after seven years the level of trust and alignment was such that the next larger step could be taken. If we could maintain a “frictionless relationship” between the physicians and the hospital we could exploit each other’s strengths to the fullest. By 2007, talks were underway to create a joint venture orthopedic specialty hospital. A second, similar size orthopedic group with their own ASC was invited to join the effort. In November 2010, Hoag Orthopedic Institute, a 70-bed inpatient specialty hospital and 2 ASCs opened for business. The concept was simple: • Align all elements of care delivery in a new model • Shared equity and governance – 50/50 partnership – “skin in the game” results in trust • Best practices for best outcomes • Evidence drives care excellence and controls cost • Value is our cultural mantra We were heavily influenced by [1] Michael Porter and Elizabeth Teisberg's Redefining Health Care and focused on the “Value Equation” as a cultural driver for the enterprise. We aligned not only the physician and hospital leadership around this concept, but the front line employees as well. Our focus has been on the 3 elements of the equationoutcomes, patient experience, and cost of care delivery. We track clearly defined metrics in all 3 areas and meet monthly as the performance improvement committee in order to review and refine our processes and protocols related to these metrics and the evolving market forces. In 2013 HOI performed 4,677 inpatient surgical cases and 6,740 outpatient surgical cases. Our readmission rate was 2.61%; overall SSI of 0.32% (TKA 0.12%; THA 0.31%); average HCHAPS score between 97% and 99%; and we have lowered our implant and supply costs between $750,000 and $1,000,000 per month since opening. We publish our outcomes annually both in hard copy and online. If value = outcome × patient experience/cost, HOI is moving forward in redefining healthcare in our market.
352
J.T. Caillouette / The Journal of Arthroplasty 30 (2015) 351–352
We began global payment cases in 2008 at OSCOC. We saw the efficiencies with this type of care delivery model and thus built the infrastructure to accept bundled payment by the end of 2009. We joined the Integrated Healthcare Association bundled payment pilot in 2010 and performed the largest volume of cases during the pilot. We have performed hundreds of cases under “value based” payment models and continue to have bundled payment contracts with Aetna, Cigna and Blue Shield for primary joint arthroplasty as well as global payment contracts for orthopedics with self-insured employers. The appeal of both global and bundled payment is clear – a predictable price for a given procedure with a negotiable warranty period applied to bundled payment. The biggest hurdle for most trying to negotiate a bundled payment is trust. The single payment for the episode of care is delivered either to the facility (hospital) or the professional side of the care delivery team. Typically, the hospital doesn’t trust the physicians to negotiate
the terms and receive and divide the single bundled payment and vice versa. One of the values of our joint venture model is that it drives trust through equal governance, equal equity and shared risk. We negotiate as a team. The value of trust between the hospital and physician leadership cannot be overstated as we move into the new world of value-based care delivery. Alignment results in trust, and trust opens the door to new opportunities for efficient care delivery where process and protocol must adapt to change. “It is not the strongest of the species that survives, nor the most intelligent that survives. It is one that is the most adaptable to change.” Charles Darwin Reference 1. Porter M, Teisberg EO. Redefining Health Care. Harvard Business Review Press; 2006.
