State of the Musculoskeletal Service Line: What's New in 2013 and Beyond?

DISCUSSION DRAFT12-10-13

2013 ECG Webinars

State of the Musculoskeletal Service Line:What’s New in 2013

December 10, 2013

Mr. Todd W. Godfrey, Senior Manager

Ms. Krista L. Fakoory, Manager


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Ms. Krista L. FakooryManager

[email protected]

858-436-3220

Mr. Todd W. GodfreySenior Manager

[email protected]

703-522-8450

Our Speakers


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Agenda

I. Industry Trends

II. New Methods of Payment

III. Hospital/Physician Alignment

IV. Closing Remarks


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I. Industry TrendsStrong Volume Growth Expected

Key Drivers

• Aging Population – The over-45 population segment is expected to grow by 58% between 2000 and 2030.

• Obesity Epidemic – Obese adults have twice the rate of hip and knee arthritis as adults with a healthy body weight (32% versus 16%).

• Insurance Coverage Expansion – Implementation of the PPACA will result in coverage for 33.8 million more Americans, which is expected to drive demand for MSK services.

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MSK services are projected to experience significant growth over the next 10 years.

Cardiovascular

General Medicine/Surgery

Pediatrics

Obstetrics

Cancer

Neuroscience

Orthopedics/Spine

-20% -10% 0% 10% 20%

-17%

-6%

-3%

2%

6%

12%

17%

Obstetrics

Pediatrics

Orthopedics/Spine

Neuroscience

Cardiovascular

General Medicine/Surgery

Cancer

0% 5% 10% 15% 20% 25% 30% 35%

12%

14%

24%

28%

29%

30%

31%

10-Year Inpatient Growth Rates 10-Year Outpatient Growth Rates

Source: Sg2, Health Care Intelligence, Orthopedic Forecast 2012.


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I. Industry TrendsVolumes Expected to Shift From Inpatient to Outpatient

Key Drivers

• Reimbursement Changes −

– ASC reimbursement policy changes, such as the growth in Medicare allowed charges per beneficiary, have increased flexibility for the type and complexity of orthopedic services provided in ASCs.

– Medicare and commercial payors are driving new orthopedic volume from hospitals to ASCs by exploring reimbursement for total joint replacements (TJRs) for knees and some total hip replacements in the ASC setting.

• Technological Advances − Advancements in minimally invasive techniques and the improvement of short-acting general anesthetics have reduced operative and recovery time, driving procedures from the inpatient to ambulatory setting.

• Low-Cost Alternative − ASCs are increasingly seen by payors as a vehicle to drive down costs due to their lower overhead and operating expenses.

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Growth in outpatient orthopedic surgery is expected to outpace inpatient surgical growth due to shifting reimbursement and technological advancements.

Ensuring that patients are cared for in the most efficient manner means that more care will be shifted to less-intensive and -expensive outpatient care sites.


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I. Industry TrendsHospital and Physician Reimbursement on the Decline

• Since 2010, the average Medicare payment across the 25 most common orthopedic CPT codes has declined by more than 12%.

• Facility payments have increased slightly over the same period; however, the rate of increase has slowed substantially in recent years.

• In addition to the broader payment trends, provider organizations are now subject to an additional 2% reduction in Medicare reimbursement as a result of the sequestration cuts that went into effect April 1, 2013.

Continued downward pressure on reimbursement is driving health systems to focus on lowering costs and exploring value-based payment opportunities.

2011 2012 2013 Cumulative Change

-20%

-10%

0%

10%4.9%

-12.0%

-5.4%

-12.5%

2011 2012 2013 Cumulative Change

-20%

-10%

0%

10%3.3% 1.8% 0.4%

5.5%

Professional Fees – Top 25 CPT Codes Facility Fees – All Orthopedic MS-DRGs

Average Medicare Payment Rates – Change From Prior Year


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I. Industry TrendsPhysician Compensation

• Corresponding clinical productivity trends suggest that physicians are working less than in years past.

• However, with per unit reimbursement on the decline, many physicians are looking to the technical revenue generated from in-office ancillary services to bolster incomes.

• Furthermore, increasing numbers of MSK providers have entered into hospital employment arrangements in which compensation is often determined in a manner that does not reflect the reimbursement environment.

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As compensation levels off, physicians will increasingly be looking for new sources of revenue.

NOTE: Figures may not be exact due to rounding.

Source: ECG Management Consultants, Inc., National Provider Compensation, Production, and Benefits Surveys, 2008 to 2013 reports, each based on previous-year data.

Specialty

General Orthopedics

2008 2009 2010 2011 2012 2013 Percentage Increase

Total Compensation $440,049 $449,929 $453,562 $496,862 $503,317 $504,955 14.7%

Work RVUs (WRVUs) 7,210 7,127 8,381 8,212 8,078 7,126 -1.2%

Collections Per WRVU $45.88 $46.71 $47.92 $46.17 $41.51 $38.70 -15.6%

Total RVUs 14,494 14,367 16,888 16,203 17,643 16,307 12.5%

Compensation and Productivity Trends – 2008 to 2013


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I. Industry TrendsPrivate Practice Independence

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Employment rates of orthopedic surgeons, while increasing over the past few years, continue to lag behind other specialties, such as cardiology and oncology.

Regardless of independence, it is evident that orthopedic practices are affected by healthcare reform and will need to develop partnerships

and tighter alignment with hospitals and primary care networks.

Source: Orthopedics: Service Line Strategic Outlook, The Advisory Board Company, 2011.


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I. Industry TrendsNational Trends in Orthopedic Services

Health systems need to understand the factors affecting volume and design a program that positions the organization to benefit from growth opportunities.

DriverImpact on Hospital

Volume Description of Impact on Hospital Volume

Drivers Affecting All Inpatient Volume

Penetration of ACOs The establishment of ACOs and other payor/provider risk-sharing models will heighten the emphasis on primary care and drive down the use of high-cost procedures, particularly those with limited or unproven clinical benefit.

Coverage Expansion The expansion of coverage will create new populations seeking care.

Drivers Specific to Orthopedics

Demographic Shift Demand for orthopedics will grow based on increased activity levels for younger generations, the overweight population, and a growing population age 65 or older.

Use of Technology Advances in technology, along with new applications of existing technology, will continue to drive volume upwards.

Decrease in Utilization The Centers for Medicare & Medicaid Services (CMS) and private insurers will focus on high-utilization procedures (e.g., spinal fusion) and direct care to nonsurgical interventions.

Growth in Outpatient Surgeries

Although the volume of procedures may rise, cost pressures and advances in technology will result in an increasing amount of procedures moving from the inpatient to the outpatient setting.

Nonhospital Competition As outpatient volume increases and ASC reimbursement rises, ASCs will continue to compete with hospital outpatient departments for volume.


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II. New Methods of PaymentEmphasis on Value

Ushered in by PPACA, new reimbursement structures are shifting risk from payors to providers and moving to a more value-based system.

Enhanced Pay for Performance (VBP) Bundled Payments Narrow Networks

Other Risk-Based Contracts (ACOs)

Rationale Adherence to best practices can improve outcomes and reduce long-term utilization.

Better care coordination across providers and multiple care settings can reduce expenses associated with specific episodes of care.

To keep rates down, payors and employers are pressing providers for discounts and offering narrow networks that would drive volume to the provider.

Better care coordination across providers can reduce unnecessary utilization, lower the cost of care, and improve outcomes.

Payment Mechanism

Financial bonuses, penalties, or withholds are assessed based on outcome and/or process performance.

Payors disburse a single payment to cover hospital, physician, or other services performed during an inpatient stay or episode of care.

The provider accepts reduced payment in exchange for designation as a network member for the population.

Total expenses for a population are compared to risk-adjusted benchmarks, and a portion of any savings above the benchmark threshold is returned to providers.


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II. New Methods of Payment Value-Based Purchasing

Key Characteristics of VBP

• Focus on quality, with cost as a balancing mechanism.

• Data and performance transparency.

• Focus on satisfaction among those delivering care to the patient.

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Central to value-based purchasing (VBP) is an emphasis on objectively measuring and financially rewarding care coordination, efficiency, and quality of care.

InitiativeImplementation

Year Overview

Medicare Hospital VBP Program

2013 Participating hospitals will be able to earn a higher DRG payment by meeting or exceeding performance standards related to patient experience and clinical processes of care.

Medicare Physician Value-Based Payment Modifier

2015 PPACA mandates that Medicare incorporate in the PFS by 2015 a budget-neutral payment modifier that provides for differential payment based upon the quality of care furnished compared to cost.

While most health systems have already taken significant steps toward meeting VBP standards for hospitals, meeting the standards for the next phase will require significant collaboration between physicians and health systems.


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II. New Methods of PaymentValue-Based Purchasing (continued)

• Implant Cost – Focus on product standardization to minimize the number of implant vendors. Success will be challenged by the implementation of the medical device tax.

• Average Length of Stay – Ensure that the inpatient hospital course is effectively managed to ensure appropriate length of stay (e.g., provide physical therapy [PT] on same day of surgery for TJR).

• Avoidable Admissions – Reduce utilization to ensure that surgical treatment is medically indicated (e.g., spinal fusions).

• 30-Day Readmissions – Reduce 30-day readmission rates, which are relatively low within orthopedics.

– Comorbidities (e.g., obesity, COPD) have a significant impact on patient outcomes.

– Preoperative guidelines and education, medical management, and postoperative follow-up are important components in reducing readmissions.

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In particular, MSK programs will need to demonstrate lower costs and higher quality to remain competitive in the market. Specific metrics to focus on include the following:


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Bundled payments have been tested extensively for orthopedic surgery and have been shown to lower costs by decreasing reoperations,

complications, and readmissions, as well as shortening lengths of stays.

II. New Methods of PaymentBundled Payments

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While bundled payment arrangements are not yet widespread, many orthopedic programs see this option as a beneficial payment mechanism that aligns with steps they are taking to better manage costs and coordinate care.

Anchor MS-DRG Facility Payments

Anchor MS-DRG Professional Payments

Readmission MS-DRG Facility Payments

Readmission MS-DRG Professional Payments

(Discount Percentage)

Bundled Payment for

Anchor MS-DRG

Acute Care Hospital

Surgeons and Anesthesiologists

Other Consulting Physicians/Midlevels

Prospective Acute Care Only Bundle


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II. New Methods of PaymentBundled Payments – Demand Matching1

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Source: Courtesy of the Rothman Institute.1 Demand matching – Selecting the appropriate implant (facility) based on five demand categories: age, weight, expected activity, general health, and bone

stock (Lahey Clinic,1995).

BundledPayment

ASCSpecialt

y Hospital

Community

Hospital

University

HospitalPT

Home Health

Rehab Facility

Low

Acute Care (Operative Facilities) Postoperative Care (Rehabilitation)

Cost Structure

Rehab Requirements

Cost Structure

Preop

Acuity Level

High

Low High

Low High

Low High

Organizations are adopting the concept of demand matching for the selection of total joint implants and applying a similar logic to determine the most appropriate

setting of care to maximize the effectiveness of the bundled payment.


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II. New Methods of PaymentBundled Payments

Proven Benefits• ACE hospitals saw immediate improvement in adherence to quality measures. • Bundled payments provide an opportunity to embed evidence-based best practices.• Baptist Health saved $6.15 million before distribution during the first 18 months.

Gain Sharing• Physicians may have upside potential through their participation in care redesign and gain

sharing. • Gain sharing allows for economic alignment between hospitals and physicians.

Volume• Insurers/employers are looking for low-cost, high-quality providers for elective procedures.• Due to the growth of healthcare consumerism, patients are seeking predictable out-of-pocket

costs with a quality warranty.

Wave of the Future• There is the possibility that bundled payments will become a Medicare mandate.• Experience can be gained implementing and tracking quality-improvement efforts.• Participation leads to greater hospital/physician collaboration ahead of an official mandate.

Bundled payments are an opportunity for physicians and hospitals to collaborate to improve the value of care and create a sustainable payment mechanism.


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CalPERS/Blue Shield Blue Distinction Center Model• Established for knee and hip replacement surgeries; requires orthopedic surgeons to submit an

application to be included in the collaborative effort. – Applicants must demonstrate quality improvement outcomes in order to be accepted as a “distinction

center” for total joint surgeries.– Members will be directed to qualified centers.

Two Large Fortune 500 Firms Launched a Strategy on January 1, 2012• Redesigned each self-funded plan’s employee benefits to encourage use of narrow network providers.• Benefits are reduced for out-of-network provider utilization for elective services (e.g., co-pays double).• Participating hospital system negotiated volume guarantees defined by total market spend in exchange

for discounted rates. – Higher volume of patients offsets the discounted rates, yielding improvements in margin.– Unmet volume, or market spend, triggers an 8% rate increase or 12% at the start of the next annual

period.

Commercial payors and employers are exploring narrow networks in which patients are directed to Centers of Excellence (COEs) or defined

physician networks through payor contracts or employee benefit design.

Aligning financial and qualitative goals creates cost-effective initiatives to incentivize both payors and providers.

II. New Methods of PaymentNarrow Networks


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Payors are also looking to providers to be accountable for the quality, cost, and the overall care of beneficiaries, and are piloting contracting

structures (e.g., ACOs) to align payment with the assumption of new risk.

A comprehensive care delivery network, coupled

with population health management capabilities, enables organizations to

align reimbursement mechanisms with population health

management strategies.

Premium Dollars

Clinical TransformationR

isk

Sh

ari

ng

Clinical Informatics

Ne

two

rk

De

ve

lop

me

nt

Disease Management

Clinical Innovation

Organization/Governance

Clinical Standards/ Protocols

Funds Flow and

Distribution

Premium Pricing

Payor Contract

Restructuring

Benefit and Product Design

Quality and Performance

Standards

Utilization Management

Performance Reporting

Infrastructure and

Maintenance

Clinical and Geographic

Scope

II. New Methods of PaymentOther Risk-Based Contracts


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II. New Methods of PaymentOther Risk-Based Contracts (continued)

Preventive Care

• Wellness/integrative medicine.

• Weight loss.

Nonoperative Care

• Pain management.

• Osteoporosis management.

• Physiatry.

• Rheumatology.

• Neurology.

• PT.

Operative Treatment

• Joint replacement.

• Spine.

• Trauma/fracture.

• Sports medicine.

• Foot and ankle.

• Podiatry.

• Hand and upper extremity.

• Pediatric orthopedics.

Post-Acute Treatment

• Home health protocols.

• Skilled nursing protocols.

• Rehabilitation protocols.

Outcomes

Satisfaction

Cost

Orthopedic programs will require close alignment to preferred, post-acute providers to ensure their patients are treated in

accordance with the clinical pathways and protocols.

To succeed under these risk-based contracts, the delivery model must evolve from isolated episodes of care delivered by independent

physicians to a more collaborative approach with greater accountability.


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III. Hospital/Physician AlignmentDriving Forces for Physician Alignment

• March of Time – Younger physicians are invariably more likely to pursue health system employment; therefore, the number of employed orthopedic surgeons will increase.

• Practice Economics – Many physicians anticipate that professional revenue will continue to flatten and that costs will continue to rise.

• Lack of Capital – Capital needs (such as for EHRs) will increase; hospitals and large systems can more easily access necessary capital.

• Call Coverage – Orthopedic call coverage is expensive from a hospital’s standpoint. From a hospital administrator’s perspective, it is often cheaper to employ.

• Joint Replacement – For physicians who specialize in joint replacement and therefore spend most of their time in hospitals, some level of alignment is likely.

• Uncertainty of Reform – Looming payment reform, such as bundled payments for specific conditions or episodes of care, as well as new clinical models, will likely result in lower reimbursements.

• Importance of Demonstrating Quality – The need to demonstrate clinical quality across the continuum of care requires a tighter affiliation between hospitals and physicians.

In addition to the new payment models, several economic and environmental factors are driving an increase in partnerships between orthopedic surgeons and hospitals.


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III. Hospital/Physician AlignmentRange of Alignment Models

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A variety of alignment options exist that allow for varying degrees of financial and operational integration between physicians and the hospital.

Medical Directorship

EmploymentComanagement Arrangement

Loosely Integrated

Degree of Physician/Hospital

Integration

Tightly Integrated

Leadership Council

PSA and MSA

ASCJoint Venture

(JV)

We will focus on the ASC JV, comanagement arrangement, and employment models today.


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III. Hospital/Physician AlignmentASC JV – Opportunities and Challenges

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Although the lower-cost structure of ASCs is attractive in many ways, ASCs face some degree of uncertainty.

ASC Opportunities ASC Challenges

• High efficiency and low-cost structure, which consistently make ASCs an attractive venue for ambulatory surgery and position ASCs well for healthcare reform.

• Volume growth attributable to the increasing complexity of cases that are being performed in outpatient settings.

• Changing payor policies that are aligning reimbursement with this shift.

• Downward pressure on reimbursement overall.

• Market saturation.• Disappearance of out-of-network

billing.• More stringent documentation

requirements leading to increased denials and longer A/R cycles.

• Migration of surgeons to hospital employment, limiting number of physician investors and future growth of independent centers.


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III. Hospital/Physician AlignmentComanagement Agreement

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Initial minimal start-upcapital.

Governing Board

Comanagement agreements provide organizations with a structure to pay physicians for the management of the MSK service line.

These arrangements work very well when the primary goal is not financial.

Physicians/ Physician Group

InvestorsEquity distributions.

Service line management and oversight.

Fixed/variable payments.

HospitalManagement

Company

Management services.

Quality CommitteeOperations Committee

Finance Committee

• Reimbursed for service line administrator duties.

• Includes medical director fee.

• Agrees to migrate to Epic.

• 50% to 60% fixed.

• 40% to 50% variable.


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III. Hospital/Physician AlignmentComanagement Agreement – Incentive Compensation

Incentive compensation is determined based on jointly identified goals that tie financial rewards to the achievement of various performance levels.

Model Comanagement Incentive Metrics Performance Target SourcesPercentage of

Total Incentives

Quality • 30-day readmission rate.

• SCIP index.

• OP-7 antibiotic selection.

• Safe-surgery checklist compliance.

• CMS.

• Industry best practice standards.

20%

Operational Excellence

• On-time surgery starts.

• Surgery staffing – variance from target.

• OR – block utilization.

• Industry best practice standards.

• Internal hospital targets.

35%

Satisfaction • Associate satisfaction survey.

• Nursing patient satisfaction survey.

• Physician patient satisfaction index.

Custom and patient satisfaction surveys.

20%

Access • Call to first appointment for new patients.

• Referring physician satisfaction survey.

• ED “transfers out” meet hospital-to-hospital transfer guidelines.

• Patient referrals – 1 business day.

Jointly developed targets. 25%


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III. Hospital/Physician AlignmentEmployment Model

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Overview of Common Physician Employment Structures and Benefits

Physicians (and staff) are employed directly by the hospital/health system.

• Integration.

• Economies of scale.

• Limited duplication of resources.

• Contracting leverage.

The medical group is incorporated as a wholly owned, nonprofit subsidiary of the hospital, and physicians (and staff) are employed by the new subsidiary company.

• Greater physician autonomy.

• Distinct wage and benefit scale.

• Ancillary ownership and distribution (assuming group practice exemptions are met).

• Medicare cost report advantages.

The physicians (and staff) can be employed by a for-profit company that is owned by the hospital/health system.

Offsets earnings from other business lines to minimize tax implications.

Direct Employment

Wholly Owned

Nonprofit Subsidiary

For-Profit Subsidiary


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IV. Closing RemarksKey Takeaways

1. Not unlike many other service lines, contradictory market trends within MSK services have forced provider organizations to dually focus on volume and value.

2. Organizations are expanding the MSK service line to include complementary programs to ensure care is comprehensive and coordinated across the continuum.

3. Alternative payment models, such as bundled payments, are slowly emerging in MSK services, creating new partnership opportunities for health systems and physicians.

4. Leveraging these physician partnerships to reduce costs and manage patients across the continuum of care will be imperative to maintaining the viability of the MSK service line.

5. A pluralistic approach to physician alignment will likely be necessary because many MSK providers continue to remain independent and seek nonemployment alternatives.

6. Medical tourism is increasingly popular and could pose a potential threat to service line growth for high-cost organizations.


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State of the Musculoskeletal Service Line: What's New in 2013 and Beyond?