Pillars of Innovation Part 1: Value-Based Payment Models
Edition #3
Wheels In — Intro + Opening Thoughts
The road to healthcare innovation is a long one. To figure out where you’re going, you must understand where you are and where you’ve been. This week, we launch the first in a series of articles defining the current state of play. This week’s edition of The Surgeon’s Record, presented by Commons Clinic, proposes three pillars of healthcare innovation, and presents a deep dive into Pillar #1: Value-Based Payment Models. The goal is to set the stage for future articles that will walk down the path set forth in this foundational series. Where will we be in five years? Ten years? What advances in payment models, healthcare technology, and site of service will take us there? Level setting here will eventually lead us to the answers.
But first, Pillars of Innovation Part 1: Value-Based Payment Models.
Dem Dry Bones
From the EIC’s Desk
The concept of value-based healthcare is not new. Michael Porter’s seminal work, “Redefining Health Care: Creating Value-Based Competition on Results,” was published 18 years ago. While there have been some advances in bringing value to care delivery, these efforts have largely underwhelmed. Though there is much discourse around the need for value-based care, participation in such programs remains low. Fee-for-service (FFS) still dominates, and some value-based programs are simply FFS with a thin, value-based care (VBC) wrapper. How do we walk down the road of care delivery innovation to reach the destination of sustainable value-based specialty care?
To reach our destination, we must understand and leverage the three pillars of innovative musculoskeletal (MSK) care: Value-based payment models, migration of care to ambulatory surgery centers (ASC), and implementation of technology.
The Three Pillars of Innovative MSK Care
Value-Based Payment Models
Migration to ASCs
Implementation of Technology
Pillar #1 — Value-Based Payment Models
Treatment of musculoskeletal conditions costs the government and employers a lot of money. According to Optum, the U.S. spends $130 billion per year addressing MSK conditions, second only to cardiac diseases at $181 billion. MSK is the third highest contributor to total healthcare spending and, at $20 billion per year, takes up 17% of employer healthcare budgets. It’s no surprise that innovation efforts, including VBC programs, have made MSK conditions a central focus of their initial efforts.
Many argue—rightfully so—that the current FFS model of paying for MSK care simply isn’t sustainable. A shift to VBC is the preferred method of “bending the cost curve.” CMS has led the way in driving value-based MSK models, primarily through two programs: Bundled Payments for Care Improvement (BPCI) and Comprehensive Care for Joint Replacement (CJR). BPCI (and its successor BPCI-Advanced) is a voluntary program that allows participation from provider groups. CJR, meanwhile, is a mandatory program involving hospitals and health systems. The goal of both programs is to reduce costs and improve quality through bundled payments tied to a surgical procedure (episode). A target price is set for each episode (e.g. hip replacement surgery) based on historical baseline data with adjustments for regional cost variations and certain risk factors. In theory, these models incentivize evidence-based, high-quality care through upside and downside risk. Performing well in the program leads to rewards in the form of reconciliation payments. Poor model performance (costs above target price) means owing money back to Medicare.
Are these models successful? The answer is complicated. Both programs deliver payment reductions. Neither seems to negatively impact care quality or access. In its first two years of existence, CJR resulted in a 3.7% decrease in episode payments—about $146 million. However, after accounting for reconciliation payments, net savings to Medicare were a modest $17.4 million. (CMS spends over $7 billion per year on joint replacements alone). Despite successfully reducing episode payments, CMS lost money on the original version of BPCI. Why? Reconciliation payments to providers were greater than the decrease in total payments. Like many other VBC programs, CJR and BPCI result in, at best, modest net savings. At worst, they cost the government money.
The easy answer to this problem is to reduce reconciliation payments by lowering target prices. But doing so creates the much-maligned ratchet effect (otherwise known as the race to the bottom). High performers become victims of their own success. Downside risk becomes much greater than upside risk, and providers eventually drop out of voluntary programs like BPCI.
I spent three years in the BPCI-A program and learned some important lessons. If entering a VBC model requires broad organizational changes, shifts in mindset, or a significant reworking of care processes, achieving sustainable success will be difficult. I've always tried to stay current on practice trends and the latest care delivery approaches. Prior to entering BPCI-A, I was already optimizing patients for surgery, employing advanced anesthesia techniques, implementing rapid recovery protocols, and minimizing the use of costly (and often unnecessary) post-acute services. As much as I'd like to claim credit for these advances, I learned them from attending meetings, talking to colleagues, and reading ortho journals (shocking!).
To ensure success, we made some changes. Developing more granular hard stops for surgery allowed for clearer decision-making. Hiring a nurse navigator to coordinate pre- and postoperative care was money well spent. In VBC programs, care navigators pay for themselves through improved patient satisfaction, reduced ER visits, and fewer complications. Education and patient engagement were key components of setting expectations and helping patients feel comfortable with the treatment plan. Consistent messaging is critical—one break in the chain can derail even the most carefully designed care process.
My first year in BPCI-A was successful. Cost savings per total joint episode approached $7,000 with a total savings of over $400,000. There were a few "bundle busters," outlier patients whose episode costs far exceeded the target price. Two of my biggest downside risk experiences involved medical costs not related to the procedure itself. One such patient resumed use of a costly infusion medication during the bundle period to the tune of $14,000, twice my average cost savings. Another patient was diagnosed with head and neck cancer in the 90-day window requiring an unrelated surgical procedure. A program flaw: all medical costs incurred during the episode come out of the bundle, even those unrelated to the procedure itself.
I’m sometimes accused of being anti-VBC. I’m not. Bundle buster issues aside, my experience in BPCI-A was net positive. These programs force us to think more holistically about care and adopt practices that are in the best interests of our patients. CMS simply hasn’t found a way to make them financially sustainable. However, CMS and CMMI are committed to VBC and accountable care. Future articles in this series will discuss one way to get there: condition-specific bundles.
I’m sometimes accused of being anti-VBC. I’m not.
[A word on commercial bundles—they do exist but are more challenging to arrange. As one might expect, each payer has their own requirements and approach. Getting commercial insurers to the table requires lots of data, persistence, and negotiation. Many independent practices lack the time and resources to do this successfully. There’s also the question of how interested commercial payers are in partnering on VBC programs. Entrepreneurial groups like the Surgical Center of Greensboro (Valere Bundled Solutions), King & Parsons (AVATAR), and Twin Cities Orthopedics (Excel) have developed and implemented such programs, and I suspect smart MSK providers will follow their lead (and learn from them). As I wrote about last week, Duke Ortho is developing a Joint Health Program to demonstrate ROI to payers. More to come here.]
The Gold Standard
Polling the Crowd
Small Incisions
Quick Takes on Timely Topics
The Big Bath of Tim Wentworth 🛁, or the Worst Day in Walgreens' History (AI Health Uncut)
Hot on the heels of Walmart Health’s demise comes more bad news for Walgreens and VillageMD. Making money in primary care is difficult, but losing money, as seen in the worst day in Walgreens’ stock history, is all too easy. Amazon/One Medical and CVS/Oak Street are left to soldier on, but it’s fair to wonder about the future for Big Retail and primary care. I’ve long argued that specialty care is a much better entry point for innovating care delivery models. Having experienced operators, strong clinical teams, and a clear plan doesn’t hurt either.
Amazon brings Amazon Clinic, One Medical under a single brand (Amazon)
Speaking of Amazon/One Medical, the company announced a rebrand of its Amazon Clinic virtual offering to “Amazon One Medical Pay-per-visit.” The name doesn't exactly roll off the tongue, but it clearly conveys what the service is and who provides it. It's a logical step in trying to consolidate Amazon's healthcare offerings in the minds of customers and patients. It also serves as another customer acquisition point for brick-and-mortar locations; patients needing or requesting an in-person visit already have an association with the One Medical brand (RIP Iora). My guess is that this approach will be more effective than putting clinic spaces in retail pharmacy stores to drive memberships and awareness. "Pay-per-click" healthcare is an interesting and smart way to frame virtual urgent care. People who use the service are more likely to be otherwise healthy and looking for easy access, low friction, affordable one-off interactions for low-acuity problems.
Overcoming Our Misplaced Nostalgia For Traditional Medicare (Forbes)
Controversy over Medicare Advantage rages on. The program has been lucrative for commercial insurers and health plans offering MA products. Claims of complexity hacking, overpayments, and outright fraud have invited increased government scrutiny, lawsuits, and the threat that the MA gravy train may be headed back to the station. Traditional Medicare (TM) has its flaws, but it’s more straightforward and avoids the hoops and hurdles imposed on patients and providers by MA. CMS will continue to evolve TM with a focus on accountable care and the development of mandatory VBC programs like TEAM. The sweet spot may be somewhere between TM and MA: value-based care without commercial payer chicanery.
New study says hospital mergers have hurt consumers, the economy (Advisory Board)
Higher prices. Increased unemployment. Reduced tax revenue. What’s not to like? The AHA's talking points claim that mergers create efficiencies, allow for the sharing of resources, improve quality, and support tighter care integration. However, evidence to support these claims is scarce. According to a study, 40% of hospitals involved in mergers raised prices more than 5% in the years following a deal. At the same time, headcount decreases by 0.4% for every 1% price increase. Not surprisingly, it isn’t the C-suite that gets consolidated; workers who make between $20,000 and $100,000 are most likely to be affected.
The Light Box
Healthcare Visuals
From the Gallery
Amplifying Community Voices
“The hype perpetuates a feed-forward cycle that relegates AI to a meaningless buzzword by rewarding those with nascent understanding and rudimentary technical knowhow.” — Prem Ramkumar, MD, MBA et al.
Meaningless Applications and Misguided Methodologies in Artificial Intelligence-Related Orthopaedic search Propagates Hype Over Hope (The Journal of Arthroscopic and Related Surgery, 2022)
Wheels Out — Signing Off and Looking Ahead
Making value-based MSK care a reality relies on designing and implementing sustainable payment models. So far, this goal has proven elusive. CMS/CMMI programs like BPCI and CJR have provided important lessons but have yet to solve the race-to-the-bottom problem. Will the TEAM and Making Care Primary models fare any better? Time will tell, but skepticism remains. Future editions of “The Surgeon’s Record” will outline another pathway to sustainable VBC — condition-specific episodes. But first, we’ll continue our journey among the pillars of innovation.
Next week, Pillar #2: Migration to ASCs
Until then,
Ben Schwartz, MD, MBA
Editor-in-chief/Senior clinical fellow
Great article Ben! This type of writing demystifying the exact mechanics of VBC is exactly what's needed in the industry.
Looking forward to reading more.