orthopedic care delivery transformation: is your health system … · 2019. 11. 1. · orthopedi...

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Orthopedic Care Delivery Transformation: Is Your Health System Prepared?Authors: Sue Anderson and Emma Bijesse

Orthopedic services have historically operated as a major profit center in many health systems, boasting sizable, if somewhat declining, margins. This standing as an anchor service line is increasingly in jeopardy as total joint replacements shift to the outpatient setting, putting pressure on margins. Managing these changes requires retooling historic strategies for orthopedic services, including adopting innovative care models, reducing clinical variation, creating stronger aligned physician relationships and anticipating the further move of cases to the outpatient setting by exploring multiple facility options.

Transformation of Orthopedic Care Delivery and Potential Impact on Health System MarginsProviders and payors are driving the shift to outpatient orthopedic services, with CMS beginning to reimburse joint procedures in the outpatient setting. In 2018, CMS removed total knee arthroplasties (TKAs) from the inpatient-only list, allowing for reimbursement of TKAs as hospital outpatient procedures, a move supported by many physicians. Beginning in 2020, CMS removed total hip arthroplasties

2018: TKAsTKAsCMS removed total knee arthroplasties from the inpatient-only list, allowing for reimbursement of TKAs as hospital outpatient procedures

2020: THAsTHAsCMS removed total hip arthroplasties from the inpatient-only list, and also expanded TKA reimbursement to SCs.

Orthopedic Care Delivery Transformation: Is Your Health System Prepared?

(THAs) from the inpatient-only list, and also expanded TKA reimbursement to ASCs.1 Industry experts predict that total shoulder arthroplasties will likely follow this pattern of removal from the inpatient-only list and then reimbursement in an ASC setting.

Commercial payors have also begun reimbursing total joint procedures in both hospital outpatient departments and ASCs. The recent move by UnitedHealthcare to limit the circumstances under which certain procedures, including some joint procedures, may be reimbursed in hospital outpatient settings indicates that commercial payors will likely drive joint procedures toward the lowest-cost site of service, ASCs.2 Moreover, commercial payors continue to move toward value-based reimbursement policies for orthopedic services with expanded focus on bundled payments.

Independent physician groups with ASCs are increasingly partnering with payors to expand bundled payment options for orthopedic services. For example, Rothman Orthopaedic Institute and DISC Sports & Spine Center have both partnered with insurers to offer a variety of bundles for orthopedic services.3 Large physician groups with expansive ambulatory surgery platforms, such as Rothman, have an opportunity to quickly expand into new markets and serve as a national low-cost partner for payors.

The shift to outpatient total joint could be significant and swift. The shift of knee replacements to outpatient varies dramatically by region; however, several markets have experienced rapid movement. Influencing factors include regional physician preference, payor dynamics, certificate of need laws and outside investment in orthopedic services (e.g., private equity investments; see sidebar). The readiness of outpatient centers for total joints, which includes having highly trained staff, larger operating rooms, essential equipment and integrated care management, will also impact the shift from inpatient to outpatient.

The change in site of service for total joint procedures will likely significantly decrease margins for orthopedic service lines, with projected volume growth offset by declining rates. Today, there are more than one million total joint procedures performed in the United States each year.7 Total joint procedure volume is projected to increase significantly to

Projected Share of Total Joints Moving to Outpatient, by Type4

SHOULDERREPLACEMENTS

5050%% 7070%%to

HIPREPLACEMENTS

4040%% 60 60%%to

KNEEREPLACEMENTS

4040%% 60 60%%to

Private Equity Investmentin Orthopedic Services

The orthopedic space is experiencing significant private equity investment, with approximately 23 deals in orthopedics and physical therapy services occurring in 2019.5 The industry is an attractive investment opportunity as a result of appealing operating margins, projected growth in outpatient surgical volumes, opportunities in ancillary services and potential to consolidate a fragmented industry of independent providers.6


nearly four million by 2030, driven by an aging population and an increased demand from younger patients (under 65 years old).8 However, downward margin pressure on total joint replacements given site of service changes could have a negative impact on revenues and contribution margins for orthopedic service lines, despite this growth.

For example, Blue Cross Blue Shield (BCBS) estimates that the price of knee and hip procedures performed in hospital outpatient departments (HOPD) or ASCs is on average 30 to 40 percent less than that of procedures performed in an inpatient setting.A,9 The rate differential may increase as more procedures move to ASCs, where reimbursement is generally substantially lower than HOPDs.B,10 In addition to the rate difference, the negative revenue impact will be intensified if health systems fail to capture projected volume growth as physicians and patients choose unaligned ASC locations over hospital sites of service.

CURRENTSTATESTATE

FUTURESTATESTATE TKA RATE CHANGE

IMPACTIMPACT100% Inpatient TKAs

=$30MTKA annual revenue

40% Inpatient & 60% Outpatient TKAs

=$23MTKA annual revenue

-$7Mon health system revenue

1,000 X

$30,249

*

**

400X

$30,249

600X

$19,002

* Inpatient TKAs** BCBS TKA average inpatient reimbursement

*

**

***

****

DECLINE23%23%

in revenue

Potential TKA Reimbursement Impact on Health System RevenueIllustrative Example using 37% Decrease in BCBS Average Rates11

*** Outpatent TKAs**** BCBS TKA average outpatient reimbursement

A The average price for knee replacements performed in outpatient settings, hospital outpatient departments or ASCs, was $11,247, or 37% less, than in inpatient settings (outpatient TKA = $19,002; inpatient TKA = $30,249). The average price for hip replacements performed in outpatient settings was $8,607, or 28% less than in inpatient settings (outpatient THA = $22,078; inpatient THA = $30,685).

B In 2020, the proposed Medicare payment rate for total knee arthroplasty is $11,960.25 for procedures performed in hospital outpatient settings and $8,639.97 for procedures performed in ambulatory surgery centers. In FY2017, average total Medicare payments for inpatient total knee procedures without complications, DRG 470, ranged from $11,854.52 to $23,399.03 depending on the state. The average total payment was $14,752.16.


Five Steps Health Systems Should Take to Plan for ChangeChanges of this magnitude require transformative strategies to secure the future success of the service line. This means rethinking the care delivery model, cost structure of services, and models for working with payors and employers.

1

Know What’sat Risk

1 4 Evaluate and Evolve Care

Models

Understand Changing Physician

Relationship Needs

3DetermineAmbulatory

NetworkRequirements

2 Look for New Ways to Attract Patients

5

Step 1: Know What’s At RiskThe first critical step is to calculate the impact these changes will likely have on the organization’s volume, and ultimately, revenue. Initial projections indicate that more than 50 percent of current inpatient total joint volume could be at risk.12 Estimating potential impact entails examining recent local market trends in TKAs moving to outpatient and understanding how many surgeries are currently being performed with a one-day length of stay, as these are the cases that will move to the outpatient setting first. Looking at current volume by payor can also be helpful; commercially insured patients may transition to the outpatient setting at different rates depending on how aggressively payors are changing their policies. Taking the pulse of the local physician and ambulatory surgery landscape can also help more accurately forecast how swift the change is likely to be in specific markets and how quickly organizations may experience the impact.

2Step 2: Determine Ambulatory Network RequirementsVolume estimates of cases that are likely to move from the inpatient setting can then be used to determine capacity needs for hospital outpatient-based space and ASCs. For some systems, existing outpatient capacity can be repurposed for orthopedics, but for those that are already capacity constrained, the lift will be much greater.

One strategy to rapidly expand the ambulatory footprint may be exploring partnerships with independent orthopedics groups to create joint-ventured ASCs. Other potential health system partners include for-profit ASC operators and private equity-backed orthopedic groups. Examples of creative partnerships can already be seen in some markets. In the greater Pennsylvania area, Jefferson Health and Rothman Orthopaedic Institute, as well as private equity-backed NueHealth and MUVEHealth, have partnered to develop ASCs.13 Rothman Orthopaedic Institute plans to expand this partnership model in other markets, such as Florida, Texas and the Midwest, continuing to grow a program that already performs 14,000 hip and knee replacements annually.14,15


3Step 3: Understand Changing Physician Relationship NeedsGiven changing market dynamics, it is more important than ever to work closely with orthopedic surgeons to understand how their needs are evolving. Service line leadership and governance structures should actively involve physicians in planning efforts and forge tighter relationships with both employed and independent orthopedic groups, to the extent that there are independent groups in the market. A combination of tools for aligning with independent groups, such as management services agreements, professional services agreements and/or co-management agreements, can be created spanning the inpatient and outpatient settings. Creating consistent orthopedic care and patient experiences across all sites of service will require uniting orthopedic program leadership around shared goals of cost reduction, enhanced quality metrics and rapidly deploying capital to benefit from new market opportunities.

4Step 4: Evaluate and Evolve Care ModelsDownward pressure on margins for orthopedic procedures will necessitate new models of care that focus on quality and cost reduction across the care continuum. This includes evaluating expanded physical therapy hours, increasing PACU beds and hours, modifying staffing models and adjusting pain management protocols. Most importantly, vendor contracts for implants and other key supplies should be evaluated and potentially renegotiated. Quality and costs should be measured and closely monitored to understand opportunities to reduce clinical variation, improve outcomes and decrease costs. With pressure on margins, cost control will be a key to strong financial performance.

Ensuring that patients are assigned to a clinically appropriate and low-cost surgical site will also be key to reducing clinical variation and managing costs across the orthopedics service line. Ultimately, physician clinical judgement and consumer preference inform the best site of service for each patient. Factors such as joint type, patient age, comorbidities, obesity and home environment impact a physician’s decision to perform the case in an inpatient versus outpatient setting. Protocols and a rigorous patient triage process will help inform site of care selection.

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Step 5: Look for New Ways to Attract PatientsAlong with appropriately managing the cost of care, new revenue sources become increasingly important to program sustainability and long-term success. The market forces described create the ideal conditions for enhanced payor and direct-to-employer partnerships. As the focus turns to providing low-cost, high-quality joint replacements, there are opportunities to explore bundled payments and value-based arrangements for joint replacements. On the commercial payor front, current managed care contracts should be examined to ensure that rate structures are designed to support growth in outpatient procedures. Reimbursement for total joint procedures in outpatient settings is a recent change, therefore relevant CPT codes will need to be reviewed and renegotiated.

Another potential source for attracting new patients in an increasingly competitive business is creating a better consumer-oriented experience. Many orthopedic procedures are elective, giving consumers time to research procedures, physicians and prices; as a result, consumers will play a more central role in orthopedic services. Price transparency will become increasingly important as consumers shop for services. In addition, to succeed in a consumer-driven market, health systems must offer superior patient experience and convenience. For example, University of Minnesota Health has partnered with Hilton to provide access to hotel suites to meet the post-recovery needs of orthopedics patients including nursing care, pain management and physical therapy.16 Digital health capabilities, such as digital applications for patient education and guided exercises, as well as virtual follow-up visits and rehabilitation will also play a critical role in attracting patients and providing a patient experience centered around convenience and support throughout the perioperative experience.17,18

To thrive in this changing orthopedics landscape, health systems need to move swiftly and proactively to create new care delivery models that focus on creating options for ambulatory surgeries, offer quality care, and appeal to payors and consumers. The current status quo will not be sustainable in coming years as CMS, commercial payors and a wave of private equity investment fundamentally change the dynamics of the orthopedics market.

5


Sources1. “CY 2020 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System

Finale Rule (CMS-1717-FC),” CMS Medicare, published November 1, 2019, https://www.cms.gov/newsroom/fact-sheets/cy-2020-medicare-hospital-outpatient-prospective-payment-system-and-ambulatory-surgical-center-0.

2. “Site of Service Medical Necessity Reviews for Certain Surgeries,” UnitedHealthcare, published September 3, 2019, https://www.uhc.com/employer/news/midsized-business/site-of-service-medical-necessity-reviews-for-certain-surgeries.

3. Laura Dyrda, “2 Orthopedic Groups with ASCs Partner with Insurers on Bundled Payments in the Same Week: 5 Things to Know,” Becker’s ASC Review, published May 23, 2018, https://www.beckersasc.com/orthopedics-tjr/2-orthopedic-groups-with-ascs-partner-with-insurers-on-bundled-payments-in-the-same-week-5-things-to-know.html.

4. Internal Chartis Projections.5. Pitchbook, accessed November 2019; Chartis analysis.6. “PE Investment in Physician Practice Management – What’s to Come in 2019?” BakerHostetler, published February 13,

2019, https://www.bakerlaw.com/alerts/pe-investment-in-physician-practice-management-whats-to-come-in-2019.7. Caryn D. Etkin and Bryan D. Springer. “The American Joint Replacement Registry — the First 5 Years,” Arthroplasty

Today, no 3,2 (March 2017): 67-69, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5485224/#bib1.8. Susan Scutti, “More men, younger Americans having joint replacement surgery,” CNN, published March 6, 2018,

https://www.cnn.com/2018/03/06/health/hip-knee-replacement-surgeries-earlier-study/index.html9. “Planned Knee and Hip Replacement Surgeries are on the Rise in the U.S.,” Blue Cross Blue Shield, published

January 23, 2019, https://www.bcbs.com/sites/default/files/file-attachments/health-of-america-report/HoA-Orthopedic%2BCosts%20Report.pdf.

10. CMS CY2020 Proposed ASC and OPPS Payment Rate Schedules, CMS Medicare, accessed December 4, 2019, and CMS FY2017 Inpatient Charge Data, CMS Medicare, accessed December 4, 2019.

11. “Planned Knee and Hip Replacement Surgeries are on the Rise in the U.S.,” Blue Cross Blue Shield, published January 23, 2019, https://www.bcbs.com/sites/default/files/file-attachments/health-of-america-report/HoA-Orthopedic%2BCosts%20Report.pdf.

12. Internal Chartis Projections.13. “NueHealth will Co-Own, Manage New $17M Ambulatory Surgery Center in Southern New Jersey,” NueHealth,

published February 1, 2018, https://nuehealth.com/nuehealth-will-co-manage-new-17m-ambulatory-surgery-center-southern-new-jersey.

14. Laura Dyrda, “Rothman Orthopaedics Aims to Expand Nationally with NueHealth, MUVE Joint Venture: 5 Things to Know,” Becker’s ASC Review, published February 20, 2019, https://www.beckersasc.com/asc-transactions-and-valuation-issues/rothman-orthopaedics-aims-to-expand-nationally-with-nuehealth-muve-joint-venture-5-things-to-know.html.

15. “About Us,” Rothman Orthopaedics, accessed December 4, 2019, https://rothmanortho.com/about-us.16. “Recovery Advantage Program,” University of Minnesota Health, accessed December 4, 2019, https://www.mhealth.org/

care/services/recovery-advantage-program.17. “Digital Health and Technology in Hip and Knee Surgery,” UCSF, accessed December 4, 2019, https://orthosurgery.ucsf.

edu/research/clinical-research/Digital-Health-and-Technology-in-Hip-and-Knee-Surgery.html.18. Arundhati Parmar, “Virtual Rehab to Gain Ground in Orthopedics as Bundled Payments Take Hold,” MedCity News,

published March 14, 2017, https://medcitynews.com/2017/03/virtual-rehab-gain-ground-orthopedics-bundled-payments-take-hold/?rf=1.


About the Authors

Sue [email protected]

Sue Anderson is a Principal at The Chartis Group and has nearly 20 years of healthcare management consulting experience advising hospitals, health systems, academic medical centers and physician practices. Her work is concentrated in strategy development, service line strategic planning, organization design, hospital/physician alignment and programmatic development. Of note, she has extensive experience in orthopedic services planning and ambulatory strategy development.

Emma BijesseEngagement [email protected]

Emma Bijesse is an Engagement Manager with The Chartis Group. She has advised clients on an array of strategic initiatives ranging from funds flow and economic alignment of academic faculty practices to strategic partnerships and service line planning. Her previous experience includes analytics and dashboard development for population health management programs at Kaiser Permanente.

© 2020 The Chartis Group, LLC. All rights reserved. This content draws on the research and experience of Chartis consultants and other sources. It is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

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About The Chartis Group

The Chartis Group® (Chartis) provides comprehensive advisory services and analytics to the healthcare industry. With an unparalleled depth of expertise in strategic planning, performance excellence, informatics and technology, and health analytics, Chartis helps leading academic medical centers, integrated delivery networks, children’s hospitals and healthcare service organizations achieve transformative results. Chartis has offices in Atlanta, Boston, Chicago, New York, Minneapolis and San Francisco. For more information, visit www.chartis.com.

orthopedic care delivery transformation: is your health system … · 2019. 11. 1. · orthopedi...

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