With a bundled-payment pilot program instituted by the Patient Protection and Affordable Care Act set to begin in 2013, it is interesting (and perhaps instructive) to look at a three-year CMS project nearing its endpoint—the Acute Care Episode (ACE) Demonstration1 for orthopedic and cardiovascular surgery—through the eyes of one participating radiology practice. It was purely by chance that Phil Russell, MBA, CEO of South Texas Radiology Group (San Antonio) first learned that Baptist Health System, San Antonio, had submitted a bid to be one of five hospital systems participating in the program. After Baptist Health System announced that it had been awarded the contract, a meeting was called to explain to all providers how they would be affected. The program is testing the use of bundled payment for a selected set of inpatient episodes of care for orthopedic and cardiovascular procedures. In all, 28 cardiovascular DRGs are included, ranging from cardiac-valve and other major cardiothoracic procedures with cardiac catheterization and multiple complications to cardiac-pacemaker revision (except device replacement without complications). Nine orthopedic DRGs are included; they range from bilateral or multiple major-joint procedures of the lower extremity with multiple complications to knee procedures without postdischarge occurrence of infection and without complications. According to CMS,1 the project’s purpose is to align hospital and physician incentives for improved quality and efficiency of care. Another stated purpose is to test whether the provision of price and quality outcome information affects the choices made by Medicare beneficiaries about where to have their procedure done. In addition, the program employs a shared-savings element, but in this case, it is the patient, not the provider, who receives the incentive payment from the government. At Baptist Health System, it ranges from $84 to $1,199, depending on the DRG involved. The carrot for physicians—including cardiologists, orthopedists, radiologists, anesthesiologists, and hospitalists providing services to ACE patients at Baptist Health System—is receiving 100% of Medicare’s allowable fees, not the customary 80%. If the hospital delivers care for less than the bundled rate and succeeds in meeting specific quality measures—including ensuring that antibiotics are administered an hour prior to surgery and stopped 24 hours later—it keeps the additional money as profit. Unfolding in Texas In the San Antonio market, ACE was rolled out using radio spots alerting patients to the fact that if they used Baptist Health System for a heart procedure or joint replacement, they would not only be excused from copayments, but also would receive as much as $1,199 as an incentive. Russell admits some discomfort in knowing that his tax dollars were used for radio spots, although ultimately, the cost to the government is less than is typical for the 37 DRGs in the ACE program. “The hospital bid some number that was less than the standard Medicare payment, and some portion of that difference, which was pure savings for CMS, was then the bounty, if you will, that was paid to these individual patients,” he notes. According to the Washington Post Wonkblog,2 Baptist Health System bid about 5% less than the typical rate. In order for the hospital to make up for the discount—and cover the additional 20% that it paid physicians, plus incentives that surgeons were eligible for if they achieved certain quality levels—it had to find savings in supply costs, Russell speculates. “We are getting 100% of the Medicare allowable, whereas CMS usually pays 80%—so for the physician, there is an arbitrage, which is coming out of the hospital’s pocket,” he explains. “The hospital has to make that up (plus something else), and my understanding is that the overwhelming majority—perhaps all of the money that it was counting on—was going to come by way of reduced supply cost.” Squeezing the Suppliers Russell believes that Baptist Health System assembled the orthopedic surgeons and stipulated that participation in ACE was contingent on, for instance, deciding on two kinds of knee prostheses that the hospital would then bid out to the vendors at a discount. “If they are making money on it, they must have done a tremendous job squeezing the supply vendors,” Russell notes. In fact, about 90% of the efficiencies the hospital achieved came from savings in supply costs, according to Michael Zucker, the system’s chief development officer.² From the radiologist-practice perspective, the ACE patient flow is opaque: There is no prior knowledge of the identity of ACE patients. “We get our data downloads from the hospital daily, as we always have; we sort, code, and send out claims,” Russell says. Subsequently (generally within two weeks), the practice gets a notice from Medicare explaining that the claim for a particular patient has not been paid and, instead, has been forwarded to the payor that is administering payment for ACE-program patients. Within two or three weeks, the practice receives payment (from a third-party administrator hired by Baptist Health System) for 100% of the Medicare allowable amount. Russell reports that for 2% of patients (or fewer), there is a subsequent determination—sometimes, as much as a year later—that a patient should not have been part of the ACE program. For those patients, the practice is required to refund payment to the third-party payor and resubmit a claim to Medicare. “Generally, it seems to have worked fairly well,” he reports. “From a radiologist standpoint, an argument could be made that this is a wonderful improvement over the normal course of business.” Reading the Scorecard In June 2012, the program will have run its three-year term at Baptist Health System, and some time during the next year, CMS is expected to publish the results. Although Baptist Health System requires surgeons to meet quality measures, they are not part of the public advertising campaign, and Russell is unaware of the metrics applied. Based on the reduced cost to the government, and barring any unforeseen negative outcomes, Russell suspects that CMS will be pleased. “They really don’t care how you bring it together,” he suggests. “They were just focused on the willingness of some people to accept less money than they were used to paying.” While the program seems to be working for Baptist Health System and the attending cardiologists and orthopedists with whom Baptist Health System is aligned, Russell suggests that engaging radiology, anesthesiology, and hospitalists potentially could have resulted in further cost efficiency. “The hospital, for whatever reason, didn’t engage each and every individual physician on its medical staff as to how this was coming about, perhaps because of time constraints,” he says. Acknowledging that he is not a physician, Russell speculates that perhaps some number of preoperative or postoperative exams might not have been necessary. “It may well be that those procedures have been done for such a long time that the standards of care are established and appropriate, and maybe there aren’t any savings to be had,” he says. If there are services involved from physicians other than the surgeon, he adds, it would benefit the sponsors of such projects to explore potential savings opportunities with those other physicians. Russell can’t say whether the project has resulted in any increase in the number of imaging exams associated with the selected DRGs or whether the hospital achieved the anticipated increase in activity for the 37 designated DRGs. “Because of the volume of activity through a practice like this, it might have quadrupled or even moved the volume of these procedures by a factor of 10, and that just wouldn’t appear on our radar,” Russell says. Russell suspects that patient traffic continues to be driven by primary-care and specialist physicians who have their preferences about where they like to provide services; in addition, some will not have staff privileges at Baptist Health System facilities. “It is a stretch to think that the patient is going to hear a radio ad, call up that hospital, and be routed to some random physician,” he says. While 78% of surgeons received bonuses based on quality measures, there was some grumbling about whether they received their fair share. As Ty Goletz, MD, of the Center for Orthopaedic Surgery and Sports Medicine (San Antonio), tells the Washington Post, “The hospital got $8 million, and the surgeons got $1 million. That’s not necessarily looked on favorably by physicians.”² Ultimately, Russell pronounces the program benign—on a superficial level. “They will gather some statistics and say the quality was better, worse, or the same,” Russell predicts. “Unless it shows that this patient population had twice as many deaths as the general population, I think everyone will look at the data and say this seems to be OK. The government saves some money; let’s do it everywhere.” He adds a caveat to that assessment: Theoretically, if the hospital is unable to achieve the cost saving at the supply level, it could decide to pay physicians a percentage of the Medicare allowable fee. “That’s the danger and the threat, in the long run, for these kinds of programs,” he warns. “If a hospital set out to control all of the dollars and control all of the shots, there are all kinds of implications about who would want to work for the hospital that tried to play bully with that kind of situation. In this instance, it has worked, but that is not to suggest that this is a panacea that everybody should be looking for to simplify his or her life.”