Most hospitals and health systems have examined some form of value-based payment model as a strategy to cut the bottom line while maintaining high quality care. Whether co-management, bundled payments or other shared savings programs, these models all attempt to balance cost and outcomes. Yet unless there are also incentives for surgeons to align with hospitals, the procedures physicians perform and the devices they select to perform them could continue to inflate expenses.
Since the 1990s, hospitals have been wary about developing incentive-based alignment programs with surgeons — and understandably so, given multiple warnings from the HHS Office of Inspector General. However, in 2005 the government took another look at the national healthcare landscape and recognized many of the issues it faced regarding the cost and quality of care could be tackled meaningfully if surgeons, hospital administrators and others were allowed to work together and mutually benefit from productive solutions that control cost while ensuring quality in patient care.
As a result, the government relaxed its earlier position on shared savings arrangements and gainsharing models. While the OIG recognizes improper alignment methodologies still can lead to illicit behaviors, it also acknowledges that, when constructed properly, alignment strategies can help hospitals and physicians create real change. For instance, in August 2008, the OIG issued an opinion on gainsharing and shared savings relationship that stated "…Properly structured, arrangements that share cost savings can serve legitimate business and medical purposes…Specifically, properly structured arrangements may increase efficiency and reduce waste, thereby potentially increasing a hospital's profitability."
Understanding shared savings
Now that the OIG has reconsidered its stance and put regulatory safeguards in place, business strategies designed to increase profitability by motivating decision makers to share in the gain while driving quality are becoming more popular. Currently, for example, Medicare is evaluating large-scale payment reform with its Bundled Payments for Care Improvement initiative.
Furthermore, the Center for Medicare & Medicaid Innovation is testing a variety of payment and service delivery models. It has set forth certain rules regarding acceptable gainsharing arrangements, which include the following:
- Bonuses cannot exceed 50 percent of the providers' non-discounted Medicare fee schedule payment rates; the maximum provider payment is 150 percent of standard fee schedule rates.
- Eligible providers must meet minimum quality thresholds and actively engage in improvement efforts.
- Gainsharing models cannot encourage providers to reduce or limit medically necessary care.
- Bonuses must be based on demonstrated cost savings and cannot reflect the value of participating physicians' referrals.
One of the theoretical virtues of a gainsharing program built on the government's safeguards is that it can be constructed with equality and continuity for all patients, surgeons and hospitals. It does not have to be part and parceled by surgeon employment relationship, commercial or non-commercial payer bias, or other considerations. These types of programs can ensure all patients are the recipients of the best care available with sensitivity to episodic value. With guidelines such as these, hospitals and physicians across the country are developing different ways to align for shared savings that improve patient care and outcomes and ferret out costs.
Setting and meeting savings goals
Overall, the desire to implement a gainsharing/shared savings program should be lead by patient outcomes and quality metrics. Additionally, there are goals to consider from a continuity and savings effort, including the following:
- Shorter inpatient stays where appropriate
- Fewer marginal but expensive diagnostic tests
- More formulary compliance to drug therapy
- Effective operating room use
- Cost-effective critical care use
- Reduced duplicate services
Although there are different methodologies hospitals can consider to accomplish these goals, the first step in developing a productive shared savings program is to gain the acceptance of the physicians — and key leadership, if possible. Strong physician leadership may encourage once doubtful physicians to participate. In most successful shared savings programs, there are multiple groups of clinicians involved in program quality metrics.
When constituents are properly motivated, an effective and durable shared savings program can be implemented relatively quickly — within four or five months. However, achieving physician buy-in across the board can sometimes be difficult, and it is not necessary. There are also protections for surgeons if they choose not to participate.
Arguably the most productive way to significantly impact PPI is to have as many physicians as possible become part of the solution, but the programs can start with as few as are willing. They should have ownership over the program so they can take control of the spend. When physicians actually see device and supply prices and can compare costs alongside quality data, they can more easily comprehend the value of change.
Shared savings in orthopedics
In most situations, supply costs are "low-hanging fruit" for shared savings programs.
This is especially true in the case of orthopedic joint replacements because hip and knee implants are among the costliest supplies in the supply chain. They also provide a good illustration of the potential for sizeable roadblocks in reducing cost because, over the years, many orthopedic surgeons have formed tight-knit relationships with their implant device manufacturers and representatives. They are understandably reluctant to break those ties, and the available data shows alignment models are the most successful means to date for initiating changes to this long-standing culture in joint replacement.
In the past, hospital administrators afraid that orthopedic surgeons would take their cases to competing facilities would simply chalk up expensive PPI demands to the cost of doing business. Now, with a renewed focus on the cost of care, purchasing less expensive and technologically stabilized implants presents an opportunity for significant savings — especially since almost all replacement implants do very well in survivorship studies.
By implementing shared savings programs in which hospitals and surgeons are both aligned toward common goals, hospitals can start driving down the costs of implants. In fact, many device companies — well aware of the cost pressures on providers — are finding strategies to lower costs. Physicians still can use a variety of vendors and products depending on which implants they deem appropriate, without the traditional high costs associated with the orthopedic service line.
Seeing long-term results
Many hospitals striving to reduce supply chain costs are moving toward shared savings initiatives. Both non-commercial and commercial payers are promoting shared savings programs through bundled payments and other initiatives. Already functionally integrated hospitals can structure models that minimize hospital loses. No matter which alignment strategy hospitals choose, the key is finding the right incentives while driving quality for patients. Consulting organizations can help guide hospitals and physicians through the steps necessary to develop a successful alignment plan, as well as help construct an individualized infrastructure for making it operational.
In the end, changing long-established habits can only happen if hospitals, physicians and patients alike experience the benefits. Once aligned toward common goals, the quality of care for patients should remain steady or improve, while costs should rapidly decline.
Jason M. Baty is lead alignment partner of Implant Partners, a leading provider of orthopedic implants and services.
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