Practical Tips for Implementing Bundled Payments in Your Practice: Hoag Orthopedic Institute – A Joint Venture Model for Value-Based Care Delivery

Abstract

The movement to managed care began early in California with Kaiser’s development of an employer-based model for healthcare insurance and care of their shipyard workers during the Second World War. The combination of federal legislation in the late 1970s along with innovative insurance products being developed in Southern California led to an aggressive shift in the market by the late 1980s. This has never abated in California, nor has it had the same impact throughout the US. By 2012, California had a managed care penetration rate of 43.5%, well above the national average of 23.3%. Kaiser Permanente controlled just over one third of the California market, in essence reducing the supply of patients to themarket and thus increasing the competition among those providers outside of the closed Kaiser system. The insurance payers saw amarketwith a relative oversupply of providers and thus began to drive reimbursement down compared to the remaining US through the introduction of “Narrow Networks” where a captured population of patients could see only those physicians within their network, or pay a high premium to go outside the network. Themacroeconomics of themarketwere clear andwe sawa trend line of lower reimbursement and limited access to patients for the private practitioner in orthopedics. The resources for care delivery were increasingly limited. Our view was that the combination of declining reimbursement and narrow networkswould demand a level of efficiency in care delivery that would disrupt the traditional relationships of community medical care. Specifically, we felt that true partnership with our community hospital was the path to the highest level of efficiency, which in turn would offer an opportunity to thrive long term. Traditionally, private practice orthopedic surgeons were at odds with their community hospital when it came to ancillary facility ownership. At that time, in the 1990s, many ambulatory surgery centers (ASCs) were owned by surgeons and competed directly with their community hospital for case volume. While community hospitals were able to command higher reimbursement through HOPD payment schedules, the physicians typically controlled where the patients went for surgery. This competition often lead to duplication of resources and general ill will between the 2 competing entities. In our view, this competition in a market of scarce resources was inefficient and