The confluence of market and regulatory forces in the orthopedic surgery space has created the perfect “migration storm” with extensive implications for acute care providers. The shift of these procedures to outpatient (OP) status and the migration of total joint replacement to ambulatory surgery centers (ASCs) have accelerated with CMS’s latest proposals — removing total hip replacement from the inpatient (IP)-only list and adding total knee replacement to the ASC-covered procedures list for 2020.
And, the winds of change aren’t stopping there — they’re blowing into 2020 and beyond as CMS considers removing lumbar spinal fusion from the IP-only list. Additionally, Sg2 analysis finds that while approximately 50% of OP orthopedic procedures are comfortably performed in an ASC setting (e.g., carpal tunnel release, trigger finger release, anterior cruciate ligament repair), they continue to be performed in hospital outpatient departments (HOPDs).
The good news is the reimbursement gap between IP and HOPD payment rates is expected to diminish substantially in 2020. While hospitals celebrate this gap, though, CMS has also taken steps to increase reimbursement for ASCs, including aligning inflation-adjusted payment between HOPDs and ASCs, where the proportion of orthopedic procedures performed is expected to grow rapidly. As always, commercial payers are taking note of all this action.
How commercial payers are reacting
Earlier this year, Blue Cross Blue Shield released a study on knee and hip replacement surgery and pointed out the “extreme cost variation” related to IP and OP knee replacement. According to the study’s findings, “the average price for an IP knee replacement is $30,249, compared to $19,002 in an outpatient setting.”
Last November, Medicare launched an outpatient procedure price comparison tool highlighting the member’s out-of-pocket differential between the ASC and HOPD settings. Additionally, bundled payment arrangements via Medicare Advantage are evolving, allowing providers to share savings from the cost differential across surgical sites of care.
Commercial payers are now following CMS’ lead by aggressively shifting a greater proportion of the orthopedic procedures they cover to lower-cost sites of care. Notably, in November UnitedHealthcare will begin implementing a musculoskeletal surgical procedures site-of-service review, intended to drive cases out of HOPDs and into ASCs, where services are expected to include an additional 65 arthroscopic and foot surgery procedures. (Note: Texas, Massachusetts, Kentucky and Alaska are not included in the initial implementation.)
These changes, combined with increased physician leverage through ASC ownership, direct-to-employer- and health-plan relationships, will have a dramatic impact on care delivery and further challenge most every hospital’s bottom line. Health care leaders looking to navigate successfully through this turbulence will need a strong foundation in physician engagement and must work quickly to enhance the value of their offerings.
Driving physician and consumer value through strategic and timely action
The rapidly changing orthopedics landscape requires swift action to promote value to physicians, payers and consumers. The following strategies should be top-of-mind for health care leaders tasked with finding smart growth (sustainable, clinically appropriate) opportunities amid this migration storm.
- Connect your ASC strategy to your acute care facility strategy. Historically, ASCs focused on efficient throughput of low-volume cases, which resulted in an attractive economic- and experience-model for physicians, payers and patients. While many hospitals and health systems secured early partnerships with these facilities, the relationship was often passive and discrete. Their increasing importance has prompted hospitals to further integrate ASCs so as to deliver the highest value to all stakeholders. Connect your ASC and hospital outpatient strategies through efforts targeting market, financial and quality performance improvements.
- Actively pursue payer and consumer value across all care settings. As more complex cases (such as joint replacements) are permitted in ASCs, payers are actively highlighting the price differential to steer their beneficiaries. However, many patients will continue to require hospital-level services. Hospitals will need to commit to appropriate site-of-care selection and further compete on value (quality, cost and experience) because as payers compare HOPD and ASC prices, competition ramps up for market share.
- Intensify physician alignment efforts. An accelerated shift of both traditional and nontraditional (e.g., joint replacement) cases to ASCs may result in decreased access to surgeons necessary for urgent and emergent hospital care, particularly in areas where generalists provide call coverage. Engage your physicians to understand and overcome barriers through noncontractual and contractual avenues. For example, invest in operating room efficiency and dedicated staffing, modify formal comanagement agreements to enhance physician engagement, explore joint venture opportunities in ASCs, and/or share risk with surgeons in bundled payment and gainsharing initiatives.
- Evolve your bundled payment strategy. Proliferation of the bundled payment model has resulted in remarkable reductions in utilization rates of higher-cost post-acute care. As bundled payment models for joint replacements evolve, a key area of focus will be lower-cost surgical sites of care. Market bundled payment offerings that include hospital and ASC options to large employers and insurers.
- Aggressively market program benefits. Highlight new technologies, minimally invasive surgery offerings (e.g., anterior approach for total hip replacement, robotic technologies, OP joint replacement), high-value outcomes, experience, access and convenience.
- Webinar: Orthopedics Landscape 2019
- FAQ: Outpatient Joint Replacement—Managing the Transition and Positioning for Growth
About the author. Ryota Terada, a member of Sg2’s Intelligence team, contributes to the development and delivery of orthopedics and spine offerings. He also contributes to the annual development of Sg2’s Impact of Change® forecast and other analytical tools, webinars and publications.