In February 2009, Michael Zucker told a group of high-paid surgeons something they did not want to hear: The way they earned a salary was about to change.
Zucker is the chief development officer at Baptist Health System, a five-hospital network in San Antonio. For 37 common surgeries, such as hip replacements and pacemaker implants, it would soon collect “bundled” Medicare payments. Traditionally, hospitals and doctors had collected separate fees for each step of such procedures; now they would get a lump sum for treating everything related to the patient’s condition.
If a hospital delivered care for less than the bundled rate, while hitting certain quality metrics, it would keep the difference as profit. But if costs were high and quality was too low, Baptist would lose money. For the first time in their careers, the doctors’ paychecks depended on the quality of the care they provided.
Four surgeons quit in protest.
“I’d describe the reception as lukewarm at best,” Zucker says. “There was a lot of: ‘How could you do this?’ and ‘I’m not going to participate.’ ”
The program launched in June 2009 with a checklist of quality metrics. To earn a bonus, surgeons would, among other things, need to ensure that antibiotics were administered an hour before surgery and halted 24 hours after, reducing the chances of costly complications.
Only three doctors hit the metrics that first month, but their bonuses caught the attention of others. “There was a lot of, ‘Why are those doctors getting more, and I’m not?” Zucker says. Eight doctors got bonus payments in July; two dozen got them in August. Compliance with certain quality metrics steadily climbed from 89 percent to 98 percent in three months.
Two-and-a-half years later, Baptists’ surgeons have earned more than $950,000 in bonuses. Medicare, meanwhile, has netted savings: Its bundled rate is about 5 percent lower than all the fees it used to pay out for the same services. “It wasn’t a home-run,” says Zucker, noting the start-up costs in administering the program — not to mention a handful of lost employees. “But I’d call it a solid triple.”
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The Affordable Care Act ultimately included 45 delivery system reforms. Fifteen of those change how Medicare doctors and hospitals are paid, according to an analysis by Sen. Sheldon Whitehouse (D-R.I.). The six that have rolled out thus far are largely voluntary, allowing those who think they can deliver more cost-efficient care to opt-in to new payment models.
But the remaining changes will be mandatory. Beginning in October, hospitals stand to lose 1 percent of their Medicare revenue if they can’t hit key metrics on “preventable readmissions” — patients who turn up at the hospital with a complication from an earlier procedure. That’s a big change from the current, volume-based system in which those readmissions generate additional revenue for a hospital.
Although it’s not fully implemented, some say the Affordable Care Act has already significantly catalyzed the health-care system. Leaders know where Medicare wants to go, even if they didn’t chart an especially aggressive path for how it would get there. “Forever and a day, everybody had been saying we had to change the way we paid for health care,” Roades says. “Now, we have a sense of direction of where the country’s biggest payer is headed. And that provides cover for everybody else to move in that direction.”
Roades calls the past two years ones of “breathtaking change.” When the Advisory Board Co. surveyed 69 hospital executives in November, just 16 percent said they had bundled payments in place. But of those who didn’t, 75 percent expected to within two years. Two-thirds expected they would have such payment arrangements with Medicare.
The health-care system has become increasingly integrated, with hospitals and insurance plans buying up doctors’ offices. Consulting firm Irving Levin Associates saw health-care merger activity shoot up 11 percent, from $205 billion in 2010 to $227 billion. Their analyst, Stanford Steever, attributed that largely to the Affordable Care Act.
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Other providers who like the idea of more value-based reimbursement also question its limits. Baptist Health Systems managed to net $8 million in savings when it started accepting flat fees. But most of that came from negotiating lower prices on the medical devices it used. Only about 10 percent of savings came from making the hospital’s care model more efficient. “What we got first was the low-hanging fruit,” Zucker says.
Value-based reimbursement comes with a bevy of logistical challenges. A health-care system must figure out what counts as quality care, the metrics by which it ought to judge its doctors and hospitals. It also has to decide who gets what share of the savings. At Baptist, surgeons have questioned how the hospital divvies up its own savings (which is, in some ways, constrained by the terms Medicare set).
“The hospital got $8 million, and the surgeons got $1 million,” says Ty Goletz, a orthopedic surgeon at Baptist. “That’s not necessarily looked on favorably by physicians.”
The obstacles likely explain why, for its part, Medicare does not expect volume-driven medicine to disappear overnight. “For the time being and the future, we’re going to have a large proportion of Medicare who are paid through fee-for-service,” Medicare’s deputy administrator Jonathan Blum said.
But the system, he says, is shifting away from it. “The goal, quite simply, is to improve our quality metrics and bring down per-capita costs,” Blum continued. “That’s going to be the ultimate success.”
When Baptist Health Systems started down this path in 2008, it had little idea where it would lead or whether the doctors would revolt. Now that 78 percent of his doctors have received bonus checks, Zucker is more confident.
“It’s created a different relationship between us and our physicians,” he says. “For a long time, we’ve kept each other at arm’s length. And this really changed how we looked at physicians.”
Baptist Health System recently applied for the Affordable Care Act’s new bundled-payment program, which will shift more procedures to flat fees. That program will also expand the amount of cost savings that doctors are allowed to receive. It’s another step in the right direction, says Goletz, who has operated at Baptist for three decades.
“The way I look at it, Medicare used to pay a bunch of money into a bunch of little buckets, and some were ours, and some were theirs,” he says. “We decided that rather than paying into those little buckets, we should pay into one big bucket. We cleaned up the waste, saved money and lowered our costs.”
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