Rothman Orthopaedics’ decision to drop Medicare bundled payments shows why it’s so hard to slow rising health costs

Experts pinpointed a solution to the United States’ ever-rising health-care expenditures long ago: Hold doctors and hospitals financially accountable for cost and quality, instead of paying them more for providing more care regardless of results.

Yet savings have been elusive, even when providers and hospitals embrace the call to action.

Take Rothman Orthopaedic Institute: The leading Philadelphia orthopedic practice was among the early adopters of Medicare’s so-called bundled payments, an arrangement in which doctors are paid a set amount for a surgery and all services that go with it. If they do it for less, they get to keep part of the savings. They lose money if they go over the cost target.

Under that approach — one of the more popular to come out of the Centers of Medicare and Medicaid Services under the Affordable Care Act — Rothman has saved Medicare and private insurers more than $100 million over the last five years and gotten to keep $50 million of that. But the company abandoned Medicare’s bundled-payment program in 2018 after having to pay Medicare $6.7 million.

“We bottomed out,” said Rothman president Alexander Vaccaro. “It comes to the point where you can’t save more money.”

Rothman is still expanding bundled payments with insurers, including Independence Blue Cross, Aetna, and Horizon Blue Cross Blue Shield of New Jersey, because they offer more flexibility, Vaccaro said.

But the organization’s experience exemplifies the challenges of altering a health-care payment system that has been built on the back of the massive Medicare program.

“It’s a large boat we’re trying to change the direction of,” said Rachel Werner, a physician and the executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania.

The federal government has been trying to make the U.S. health-care system more efficient since at least 1983, when Medicare started paying hospitals predetermined amounts for each hospital admission no matter how much it cost the hospital.

The 2010 Affordable Care Act brought a renewed push. The Centers for Medicare and Medicaid Innovation Center (CMMI) launched more than 50 experiments to reduce costs and improve quality — in part by changing the way it pays doctors and hospitals.

The results have been discouraging, said Werner.

“CMMI has tested dozens of models and only a few of them have been successful if you define success in terms of saving money for CMS,” Werner said, referring to the Medicare and Medicaid regulator. The experiments have not been big enough in terms of rewards and incentives to have an impact, she said.

Rothman had plenty of company in leaving its Medicare bundled-payments program after Medicare changed its benchmarking method, making it harder for providers succeed. The number of doctors and hospitals participating in that program fell to 749 last year from 1,707 in 2020, but it’s not clear how many dropped out after having to repay Medicare, like Rothman did.

Some experts said progress toward changing the way health care is paid for has stalled, in part because Medicare is not pushing for alternative payments, such as bundles, as hard as it used to.

Jeff Helton, a clinical assistant professor of health administration at the University of Colorado-Denver blamed the Trump administration for the retreat from experimentation. “The wind came out of the sails back in 2017 on really a broad rollout from the federal government standpoint,” he said.

The University of Pennsylvania Health System experienced firsthand Medicare’s pullback. The system’s radiation oncologists were preparing for a bundled payment for the treatment of breast cancer. They reduced the number of radiation treatments for breast cancer to 17 from 22, or more than 20%.

“It was about to happen, and then they decided to pull the plug,” said Keith Kasper, the health system’s chief financial officer.

Kasper said Penn Medicine has a breast cancer bundled-payment program with IBC but hasn’t been able to convince the insurer to do bundles for other types of cancer. Other private insurers haven’t agreed to any cancer bundles with Penn, Kasper said.

Reducing the number of treatments needed to treat cancer benefits patients and means insurers pay less, but doctors end up with less revenue. That’s a central conflict in health-care finance.

Rothman benefits from its focus on orthopedics, which lends itself to bundled payments because there’s relatively little variation in treatment, according to Richard Snyder, an executive vice president at Independence Health Group, the largest insurer in the Philadelphia region.

“The mechanics of replacing a knee are pretty similar whether you’re a female or a male, you’re 50 or 60 or 70,” Snyder said.

To help enter the world of bundled payments, Rothman brought nurse-navigators into its practice in 2014. It now has eight of these nurses who analyze the condition of every Rothman patient scheduled to have a hip, knee, or shoulder replaced, plus certain spine surgeries.

“The navigators are agnostic to insurance. If you’re having a hip or knee replacement at Rothman, you’re being navigated the same way whether we’re in a bundled payment or not,” said Diane McGonigal, Rothman’s first nurse navigator and now director of nurse navigation and episodes of care.

Much of what nurse navigators do is assess a patient’s health risks to figure out if the surgery can safely be performed in an ambulatory surgery center or at a more expensive site. They also look at how much help a patient needs after surgery — whether they need inpatient rehabilitation or can go straight home with home care or sometimes with just a visits from a physical therapist.

Much of the savings from bundled payments — which are expected to cover emergency department visits, hospital readmissions, physical therapy, and medical equipment ― have come from the shift to outpatient surgery for most joint replacements and the elimination of inpatient rehabilitation, according to Medicare.

Since 2018, when Rothman started using its own patient navigation software, the number of patients each nurse navigator handles has increased to 2,900 per year from 2,100 per year, McGonigal said. That amounts to 30% of Rothman’s surgical patients.

Rothman started bundled payments with IBC in 2018 and has maximized its share of savings, keeping about 80% because it has been doing well on quality measures, said Bryan Wellens, Rothman’s vice president of population health.

In orthopedics, Rothman was an early adopter of bundled payments in the Philadelphia region, but its biggest competitor, Premier Orthopedics, was close behind, said Independence’s Snyder.

Snyder also said that progress away from the traditional fee-for-service payments, which pay doctors and hospitals based on the volume of services provided, varies depending on the specialty.

Because Rothman and Premier combined have a large market share of orthopedics in the Philadelphia region and both have adopted bundled payments, the region is moving pretty fast away from fee-for-service in that specialty, Snyder said.

“We’re pretty far out in front,” he said.