Bundled pricing can offer potential — eventually

Practice’s experience shows importance of referrals

Practices shouldn’t expect a bundled pricing concept to pay off overnight if one Richmond, VA, practice’s experience with the concept is any indication.

Advanced Orthopaedics has seen no increase in patient volume since the practice entered an episode-of-care arrangement (the term used for bundled pricing by BlueCross BlueShield) with Trigon BlueCross BlueShield in 1996 for total joint replacement surgery. Despite this setback, Douglas E. Jessup, MD, MBA, a surgeon in the practice, says bundled pricing is the way to go — provided the proper provisions are put in place up front.

"The problem is [our agreement] has no financial incentives for referring physicians," Jessup explains. "It’s not that I think BlueCross BlueShield isn’t trying to hold up their end of the bargain, because they are. It’s just that the efforts so far haven’t worked. The next time I do this, I’m going to sit down with the payer and either ask for volume guarantees or ask them how they plan to educate referring docs and enrollees about what this program has to offer."

Jessup’s opinion is that withhold agreements for primary care physicians be adjusted or member copayments be lowered when they use the "episode of care providers" — sort of a twist on the Centers of Excellence program many managed care organizations have in place, which offer direct or indirect financial incentives when members use organizations with a proven track record of quality and cost-effectiveness for a particular procedure. He plans to discuss these ideas with Trigon and with other payers he approaches about the program.

Bundled arrangement lowers prices

The agreement with Trigon calls for Advanced Orthopaedics and HEALTHSOUTH Medical Center, its partner in the venture, to provide total hip replacement episodes of care for $14,625, and total knee replacement episodes of care for $13,275. By comparison, the cost of comparable total hip episodes for Trigon members in 1993 was a median $20,047, and the cost for total knee replacements was a median $17,444, according to Trigon.

Jessup still is convinced he’s on the right track by proposing bundled pricing arrangements to payers. In fact, his practice initially approached Trigon in 1989 about a bundled pricing arrangement because the practice’s two surgeons who perform total joint replacement surgery — Jessup and Richard L. Worland, MD — say it offers greater rewards to physicians who practice quality, cost-effective care.

"I always felt that from an ethical standpoint, we were doing the right thing [in terms of quality]," he explains. "From a societal standpoint, it was really mandatory that we study costs and try to manage costs. From a competitive standpoint, we’d like to be rewarded for our efforts. There was no mechanism in place for that to happen. In a lot of ways, from the payer’s perspective, providers were commodities. They figured providers were interchangeable and that they could go with the lowest-cost provider."

As a result, Jessup and Worland approached HEALTHSOUTH Medical Center in Richmond, where the practice performs 95% of the approximately 400 joint replacement surgeries the practice does annually. The process of coming together was much less structured than the committee meetings and process models advocated by Columbia in Richmond, which is pursuing a similar venture with an orthopedic practice.

Shared history makes it easier

"Both of us had years of experience in working with each other," Jessup explains. "Each of us trusted the other one implicitly to deliver the terms of the agreement. We were starting from a very good point. In my opinion, if you [a physician practice] took this to a hospital where you didn’t have a history of working together, it would be difficult."

Unlike the Columbia group, which advocates putting critical pathways on paper, Jessup does not believe in capturing care pathways in writing. "I’m not a big fan of having it down on paper — we learn as we do it along the way, and we’d constantly be spending time updating a piece of paper," Jessup says. The practice already had developed care pathways informally, and knew what its costs to perform the procedure were, Jessup elaborates. The next step was to recruit anesthesiologists, internists, and two suppliers the practice has traditionally worked with.

To arrive at a price for the procedure, Jessup simply asked each party involved to let him know what it would cost them to be a part of the group, added up those costs, and submitted the final figure to Trigon. After "a little bit of back and forth" on price, Trigon, Advanced Orthopaedics, and HEALTHSOUTH had a deal.

"My advice is to keep the whole process simple. I’m not a committee person. Limit the number of people involved, and include people who have an element of trust in their partners," he concludes.

The verdict one year later: Although Jessup realizes Trigon has very few members who need total joint replacements, he feels the long-term potential is still there. "Although they don’t have a high volume of those patients, it’s a good way for them to start learning the [episode-of-care] business. And once they understand it better, they can expand it into areas where those services represent a much higher proportion of expenditures," he explains.

Trigon officials agree the potential is definitely there. Even though Trigon was not prepared to put the episode-of-care concept into place when Jessup and Worland originally approached the company in 1989, Trigon remained interested in the idea. Advanced Orthopaedics kept in touch, and eventually they signed a contract in 1996.

"We were looking at ways we could reward those providers that were very efficient," says Linda Hopkins, manager, network development for Trigon. "We thought that episode-of-care reimbursement would reward the provider that took it upon themselves to coordinate care, because excellent coordination takes extra effort."

Trigon predicts the episode-of-care concept to have excellent potential around specific disease states. The company also has an episode-of-care contract with a freestanding laboratory to provide sleep studies for patients with sleep apnea and other disorders where this procedure would be appropriate, Hopkins says.

Trigon purposely did not want to provide incentives for its primary care physicians to refer patients needing a total joint replacement to Advanced Orthopaedics, Hopkins says. The company is making members and primary care physicians aware of the service through such mechanisms as a two-page edition of its Medical Forum newsletter devoted to the agreement with Advanced Orthopaedics. Trigon thinks it is more appropriate to let the primary care physicians make the referral decision based on their own judgement, Hopkins says.