A Payment Model That Prevents Unnecessary Medical Treatment

As payers and providers in the U.S. health care system shift from fee for service to value-based approaches that pay providers for quality, they are turning to two models: One is procedure- and DRG-based bundled payments that pay one price for all the care related to treating a condition. The other is population-based “global” or “capitated” payments” such as accountable care organizations in which a provider is paid a fixed amount to cover all of a patient’s health needs for a specified period of time.

The Center for Orthopedic Research and Education (or CORE Institute) — a group of musculoskeletal, neurologic, and rehabilitative physicians in Arizona and Michigan that includes orthopedic, spine, and pain-management physicians and a number of other types of clinicians — is pioneering an approach that represents a middle ground. It addresses a central criticism of bundled payments: that the approach doesn’t prevent unnecessary care.

Here’s how it works: The provider is accountable for the full cost of treating a patient with a particular diagnosis but then can decide which particular type of treatment to provide or, most significantly, not to provide. For example, while the current bundled-payment model covers the full cost of the care related to a knee replacement from surgery through physical therapy, CORE’s model allows a provider to be paid if the provider chooses alternative therapy to a knee replacement (e.g., injections of medication into the joint and/or physical therapy).

For medical conditions or sets of related medical conditions that can easily be treated on their own, the advantage of this model relative to the global payments model is that the provider is only financially accountable for the types of diagnoses that it can reasonably influence.

Initially, beginning in 2009, CORE began taking on financial accountability for all musculoskeletal physician-related medical expenses (paid claims) with one insurer, which pays CORE a per-member per-month (PMPM) fee that represents about 20% of the total physician medical expense for musculoskeletal care. In this early model, the institute has upside financial potential if the total musculoskeletal physician-related medical expense for a patient is below the negotiated benchmark and effectively loses money if that total expense exceeds the benchmark, regardless of whether CORE or another provider delivered the care. (If CORE refers the patient or the patient chooses to go to an outside physician, CORE is responsible for the charge — an obvious risk to CORE.)

The CORE Institute has now expanded the scope of its model from physician payments so it is now accountable for the entire diagnosis-based spend annually. For example, if an unnecessary MRI is ordered by a physician, it is ultimately paid for by CORE. If a physician performs a knee replacement on that patient, the hospitalization and all the care provided in the hospital, and all facilities for that matter, are ultimately paid for by CORE, as are all of the medications related to the patient’s musculoskeletal conditions during the year. If a patient falls and is seen in an urgent care center with a diagnosis of shoulder pain, all the care, medications, and testing are covered.

Why is CORE willing to take on such global risk? Relative to procedure- or DRG-based bundled payments, the medical-condition-based bundled payment/population health model provides three levers to influence the costs and outcomes for patients beyond those available to providers in procedure-based bundles.

The first shift is that the provider wins by keeping patients healthy and preventing conditions from occurring. For instance, the institute has launched a bone health program to reduce the likelihood of patients developing fragility fractures and to manage osteopenic patients preoperatively before elective surgery to improve outcomes and decrease complications. The institute houses its own clinic for postoperative blood clots to keep patients out of the emergency room, which are both higher cost and often over-treat patients, leading to postoperative bleeding and the need for additional surgery. By using evidence-based, proven care pathways, and algorithms, which are fully standardized and vetted by a national quality team of physician specialists and experts, the appropriate care is provided to each patient.

A second lever afforded by medical-condition-based bundles is that providers win by selecting high value treatments and care pathways. For instance, the CORE Institute’s Excellence through Evidence pathways and protocols define when non-operative treatments are and are not likely to be more successful than surgery. To use another example, a provider accountable for all care for a particular type of bone cancer would have an incentive to be mindful of whether surgery, chemotherapy, radiation, and so on would be the highest-value care pathway for a given patient in a given situation.

A third lever is the ability to select the appropriate site of service for each type of care. Most bundled payment models today such as the Comprehensive Care for Joint Replacement program start with the admission to a participating hospital. A medical-condition-based bundle allows for delivering care at the best location, whether that is a different hospital or type of facility. For instance, the most appropriate way to perform a hip replacement for one patient may be as an inpatient at a large tertiary hospital with an ICU, while it might be best to perform the same surgery on another patient at a surgery center where he or she could go home the same day.

To be able to optimally pull these levers in a consistent fashion across providers and patients, CORE has developed, invested heavily in, and implemented a set of tools and management systems. These informatics systems include patient-engagement tools, complications-tracking applications, automated clinician-evaluation software that audit provider compliance with evidence-based practice, and functional and patient-reported-outcomes scoring tools. Most uniquely, due to the standardized data set available to the group now, they have successfully launched predictive analytic tools. For example, one validated tool will predict before a surgery whether a patient will need to be sent to a skilled care center instead of home after surgery, and will identify what variables need to be modified to allow such a patient to go home if possible. Access to these types of technologies is critical for providers who want to succeed with medical condition-based bundles.

The CORE Institute has been shown to provide better outcomes at costs as much as 30% below others in the region. Between 2012 and 2016 the organization saw almost a 50% reduction in PMPM costs with certain at risk populations they managed. These savings were driven by reductions in readmissions of up to 50% compared to competitors, decreased wasteful utilization for interventions with little or no benefit, decreased utilization of post-discharge facilities such as nursing homes, decreased complication rates, and transparent partnerships with progressive, high quality hospital systems such as Banner Health. These global risk programs also involve the engagement of primary care physicians and specialists in new and unique ways. Two-way communication and two-way education between everyone touching the continuum of care around a diagnosis is of paramount importance for these broader programs to be successful.

For medical conditions or sets of related medical conditions that can easily be treated on their own, the advantage of the condition-based payment model relative to the global payments model is that the provider is only financially accountable for the types of diagnoses that it can reasonably influence. As a physician group of largely orthopedic surgeons, the CORE Institute would not be in a position to take on accountability for the total medical expense of patients across all conditions, such as emphysema. However, specialists can manage the costs of musculoskeletal care better than any non-specialist group. The coalescence of such high value networks of different specialties by insurers, hospital systems, or large provider groups might just be the high-value solution that our patients have been waiting for.

Lila Kelso of Harvard Business School provided valuable research support for this article.

David J. Jacofsky, MD, is the CEO and founder of the CORE Institute and a specialist in complex adult joint reconstruction and oncology. Derek A. Haas is project director of the Value-Based Health Care Delivery initiative and a fellow at Harvard Business School and a founder of Avant-garde Health, a health care technology and analytics company.


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