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Expect Fundamental Changes in Reimbursement

Mounting cost pressure will force physicians to rethink payment models

Peter Pollack

Our piece of the pie is getting smaller,” announced John Cherf, MD, MPH, MBA, at the AAOS Annual Meeting. “In 2009, about $2.5 trillion was spent on health care in the United States. If you look at the pie chart (Fig. 1), two pieces stand out pretty clearly: 31 percent of the money goes to hospitals and 21 percent to physicians. Just a couple of years earlier, the physician component was 22 percent, so we dropped 1 percent. Assuming 655,000 physician providers, a 1 percent change is about $38,000 in reimbursement. For an orthopaedic surgeon, that might be 7 percent or 8 percent of our pay. For a primary care doctor, that’s an even bigger cut.”

John Cherf, MD, MPH, MBA

Dr. Cherf pointed out that data released last year by the Medical Group Management Association found that orthopaedic surgeons average $514,659 in compensation per year—the highest rate of all medical specialties in the United States. At the other end of the spectrum, the average compensation for family practice physicians was $189,402 per year.

“There is pressure to increase pay to primary care doctors,” said Dr. Cherf. “That money is going to come from somewhere, and some of it is probably going to come from us. We’re the highest-paid providers in the healthcare economy, and we have no friends in this game. If we want to preserve our income opportunities in the future, we will need to become more creative and much more capable of managing risk.”

Pressure to reduce costs
According to Dr. Cherf, payers—both commercial and government—are becoming increasingly concerned with utilization as a pathway to reducing healthcare spending.

“Commercial payers may pay $30,000 for a total knee,” he said. “They can work with the vendors on cost and encourage the hospital to release the patient a few hours earlier, and maybe save $4,000 or $5,000. But from the payer’s point of view, they’d rather not do the procedure at all and save $30,000.

“The U.S. Government Accountability Office has looked at orthopaedic procedures and determined that about 30 percent of them have low value. This means that we, as well as hospitals and insurers, have a way to decrease utilization. That’s one of the things orthopaedic surgeons need to consider when dealing with payers.”

Tiered provider networks are another factor affecting physicians.

“The people who purchase insurance from commercial payers are saying, ‘We don’t necessarily want every provider; we want the best providers. We don’t want the doctors who have high complication or readmission rates, or who are using technologies irrationally. We want providers who deliver value,’” he said. As a result, physicians must strive to be in the top tier, because tiering will drive volume.

Marketing 101
Dr. Cherf argued that physicians need to review what he called “Marketing 101.” He explained that the healthcare market is best understood as an oligopsony—a system in which a small number of purchasers—health insurers, including the government and a heavily consolidated insurance industry—purchase from a large number of sellers, or healthcare providers.

“The basic tenets of marketing are segmentation, targeting, and positioning,” he said. “Rank your payers. Segment the market and target the ones you want to accept.”

For example, physicians might want to look at reimbursement levels among payers and projected volume from payers that other providers might view as less desirable. Dr. Cherf also continues to accept Medicare, he said, because it would take him 2 years to return to the system if he chose to exit it.

“How do physicians position themselves to get these patients?” he asked. “Start developing relationships with payers. Let them know that you’re a good provider and that you understand the system.

“To entice people to come in your door, make the patient experience better. Make sure patients are seen quickly, improve access, and perhaps consider some level of concierge service. Think about hiring a patient navigator to make sure patients get through the system properly. You want to both be perceived as providing and delivering low cost, high quality care. Be accurate, don’t upcode, and consider integrating innovative technologies that are user friendly. These are long-term goals. Keep in mind that you’re aiming for a competitive advantage in the market.”

Orthopaedic surgeons might consider the advantages of becoming involved with an independent practice association (IPA).

“Solo and duo practitioners don’t have a lot of market power,” he said, “so to generate scale, they might want to join an IPA.”

Alternate revenue sources
Dr. Cherf also recommended branching out into what he referred to as “non-payer” revenue.

“It’s important for orthopaedic surgeons to diversify,” he said. “Most orthopaedists make money by seeing patients and doing procedures. This means that they have a lot of eggs in one basket. In my home town, Chicago, the workers’ compensation payer issued a 30 percent pay cut in one day. The federal government is now looking at a 27.4 percent cut to Medicare reimbursement.

“Orthopaedists are vulnerable to a very concentrated payer market,” he continued. “The way revenue is generated should be diversified. Such a move will decrease vulnerability in a market that will see economic compression.”

Areas into which physicians may consider expanding include so-called “forensic medicine,” such as independent medical examinations (IMEs), record reviews, and depositions.

“Co-management agreements, clinical studies, consulting with industry, and gainsharing are other possibilities,” he said, expressing his own preference for gainsharing.

Changing payment models
According to Dr. Cherf, the healthcare market is moving from a volume-driven to a value-driven model.

“Orthopaedists have done very well as a profession in the traditional fee-for-service model,” he explained. “But new payment models are forcing risk management around a budget. Bundled payment and episodic payment models share payments and risks across providers. Three models are gaining momentum in both the government and private sectors.”

Those models include the Centers for Medicare & Medicaid Services’ Innovation Center’s bundled payments proposals, the Medicare Episode-of-Care pilot project, and the accountable care organization (ACO) model that is included in the Patient Protection and Affordable Care Act.

“Some people think the ACO model is a fad; some people think it’s the future of health care,” said Dr. Cherf. “I would argue that ACOs will not be feasible in some markets, and they’re already in other markets. I look at this as an enormous opportunity to do the right thing, to lower healthcare cost, to take on risk, and to be handsomely compensated.

“Historically, we view ourselves as orthopaedic surgeons,” concluded Dr. Cherf. “I encourage as many orthopaedists as possible to think of ourselves as more than that, so we don’t get marginalized. We should really be ‘musculoskeletal care providers’—even if that means delivering nonsurgical care.”

Disclosure information: Dr. Cherf—Innomed, Breg, DePuy, Wolters Kluwer Health.

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