Medicare turns 50 years old this month and has recently given a nicely wrapped present to advocates for more healthcare dollar value: a better way to pay for hip and knee replacements in the form of bundled payments.
Today, patients--and the employer or government sponsor paying a big share of the costs--generally don't know the total cost of healthcare procedures, and they have no information on the likely outcome: whether one hospital is more likely to have them up and walking and pain-free than another. Patients have no ability to choose a hospital or surgeon based on their expected costs or quality results--the "value" of each health care provider.
The Centers for Medicare & Medicaid Services (CMS) wants to change this with a new initiative that offers incentives to hospitals that provide care more efficiently and get better patient outcomes for hip and knee replacement surgeries, the most common surgical procedures for Medicare beneficiaries.
CMS wants to start mandating value-based payment for these procedures within 75 specific geographical areas, making hospitals and surgeons accountable for the quality and cost of care from the time of admission through 90 days after discharge. This is an important and positive change that will stimulate improvements in quality of care and outcomes for thousands of patients.
Large employers have created these kinds of "bundled payment" projects across the US in the last decade, and we've learned at least six valuable lessons that might help refine the Medicare approach. First, while changing hospital payment is essential, and can motivate hospitals, surgeons, nurses, rehabilitation therapists and many others to work together to get the best outcomes for patients, it's not enough by itself to achieve lasting improvement.
Aligned incentives have to pass through to every provider in the care team--and all payers (not just Medicare) need to use the same payment approach in order to drive consistent behavior. Second, we have found that hospitals and surgeons have more opportunity to innovate in how they deploy professional staff, choose technology, and engage with outpatient and home-based services when they have full flexibility within a budgeted payment amount. The new Medicare proposal still relies on retrospective reconciliation within a fee-for-service reimbursement system and will effectively limit the kinds of innovation and care coordination we think are possible and beneficial. Third, we've learned how important it is to capture standardized information on "patient reported outcomes" like levels of pain and functional limitation, and share that information with doctors and the larger community, so people know whether treatments are really working for patients in their daily lives.
The new Medicare proposal offers a voluntary financial incentive to hospitals that start collecting outcomes information from patients--and we hope every participating hospital will take advantage of this opportunity to really understand how their patients are doing after surgery. Fourth, purchasers have learned to insist on a culture of continuous improvement.
In our Employers' Centers of Excellence Network, for example, all participating surgeons must come together regularly to share best practices and key learnings with each other, so that everyone improves. Fifth, bundled payments to providers work best when combined with consumer incentives--such as waivers of deductibles and coinsurance--to seek out and use the best providers. This would probably require legislative changes in Medicare, but it would accelerate the move to improved quality and affordability. Finally, the information on cost and quality has to be made fully available to the public--so that patients and families and referring physicians can see who's doing the best job and create a market signal that rewards high performers.
In 2013, there were more than 400,000 inpatient joint replacements which cost Medicare more than $7 billion for hospitalization alone, according to CMS. Although it won't solve the problems of out-of-control spending and inconsistent quality of care, the new mandatory payment model will help align payers and encourage providers to invest in the rest of the improvement infrastructure. It will also help increase transparency, standardize care and improve quality while stabilizing pricing.
The new Medicare total joint program may not be the ultimate solution, but it points the way to a dramatic transformation of how healthcare works.
David Lansky is the president and chief executive officer of the Pacific Business Group on Health.