UnitedHealthcare's prospective bundled payments for orthopedic procedures started as a small pilot program last year in the Southeast. It involved four healthcare facilities and a handful of employers who wanted to pay set—that is, predictable—fees when their employees underwent hip, knee and back surgeries.
Now, the Minnetonka, Minn.-based insurer is expanding that payment model, which currently is in 25 markets. Come January, it will reach 28 geographic areas, 40 hospitals and 2.2 million patients from 55 companies. This expansion by a major commercial insurer comes as government initiatives for similar payment models, tested by Medicare, face an uncertain future under the administration of President-elect Donald Trump.
“A lot of this was driven by the employer interest,” said Dr. Jon Friedman, chief medical officer for the complex medical conditions programs at Optum, UnitedHealth Group's health services platform. “This is a program that has a lot of potential to impact cost reduction,” he said.
The average commercial employer spends 17% of healthcare dollars on musculoskeletal care, with a third of that going to surgical interventions, Friedman said.
In its bundled-payment pilot, employers saved on average at least $10,000 per operation, UnitedHealthcare said. Bundled payments are just one of the more than 800 value-based arrangements the insurer says are tied to nearly $50 billion a year in reimbursements. By 2018, it expects such reimbursements to reach $65 billion.
In establishing bundled payments for orthopedic procedures, UnitedHealthcare assesses medical centers, identifying those that perform a high volume of surgeries and have superior patient outcomes as centers of excellence. It then negotiates with those centers, which are in Boston, Denver, Indianapolis, Los Angeles and elsewhere in the country.
UnitedHealthcare tallies the total cost of a procedure on a fee-for-service basis—the costs of the surgeon, anesthesiologist, radiologist, ancillary services and everything else involved in the operation—and offers to pay a prospective bundled rate that's 20% to 25% less, said Michelle Lobe, vice president for network strategy and innovation at UnitedHealthcare. The negotiated rates vary by region.
Employers, Lobe added, appreciate the predictability of this model.
“The average cost of a knee replacement is anywhere from $37,000 to $60,000, depending on where the patient goes, and that'll just drive a CFO crazy,” Friedman said. With bundled payments, “We can say, 'If everybody goes to this center, we know what the cost will be and we know what your rate will be.' ”
Patients are not required to choose these centers participating in bundled payments for orthopedic care, but employers can impose incentives or penalties encouraging them to do so. Bonus contributions to health spending accounts or zero out-of-pocket costs for using a center of excellence are two examples.
“Many employers are very interested in promoting the use of centers of excellence,” Lobe said. “There are different configurations of incentives.”
Patients should benefit from the new model as well, according to Lobe. “They don't receive as many balance bills from each of the independent professional groups,” she said. “It creates a better experience for the member.”
The underlying theory to support bundled payments, along with other value-based payment models, is that it holds providers—hospitals, physicians, and other clinicians— financially accountable for quality of care. But it's still unknown whether they've proven effective at actually improving care while lowering costs.
In September, the CMS released a report on its voluntary Bundled Payments for Care Improvement initiative that found “no statistically significant differences in the change in Medicare standardized allowed payments between BPCI participants and comparison providers.”
The fate of Medicare's two bundled-payment programs—its voluntary BPCI and mandatory Comprehensive Care for Joint Replacement—are uncertain under the coming Trump administration. The president-elect's pick for HHS secretary, U.S. Rep. Tom Price, is a vocal critic of the CMS Innovation Center, which is tasked with testing these value-based payment models. The Obama administration's goal is for 50% of Medicare dollars to flow through value-based models by 2018.
In September, Price called for the Innovation Center to “cease all current and future planned mandatory initiatives.”
Nevertheless, among employers, bundled payments are gaining popularity. About 20% of employers surveyed by the consultancy PricewaterhouseCoopers in 2015 and 2016 said they had adopted bundles, up from 7% in 2014.
“If you look at what's happening in the private market, payers, you could argue, moved before CMS. Or CMS was a catalyst,” said Clay Richards, CEO and president of naviHealth, a Nashville-based company that manages post-acute care. “There's broad adoption of these volunteering models in the private market,” he added, because no matter what happens politically, “the need to transform our healthcare system is not going away.”