Surgery centers currently can negotiate bundled payments for total joints only with private and commercial payers. "Because hips and knees are still not approved to be done in ASCs, we're not operating under any bundled payment scenarios for Medicare patients," explains Mr. Uba. "We've been doing outpatient joints for 5 years now and have a body of work and outcomes data on at least 750 patients. CMS has this data, too. It'd be much easier if CMS finally determined to allow [total joints] at ASCs."

Dr. Gonzales says commercial payers often want to contract with surgeons' groups because they're in the best position to coordinate care across the full episode, from the time the patient enters their clinic with a referral for surgery to the time the patient is up and moving and progressing toward successful recovery.

It's essential to determine what services and providers will be included in the bundle, and engage the providers in charge of those elements of care. Put together a tight list of all the services that are part of care coordination, focusing on providers that you really trust to provide consistent quality and affordable care, suggests Dr. Gonzales. "If you have all those components, you should be able to put together a solid program with any payer," he says.

Ultimately, the ability to coordinate care across multiple providers is key. "If you don't have control over what's happening with patients [outside of your facility], your ability to operate in a bundled payment can be very limited," says Dr. Gonzales. "It won't really work out for you."

Mr. Uba says Excelsior was well-positioned for bundling. "We run all of the ancillary services — urgent care, MRI, imaging, DME, physical therapy — and we have an ASC that's 100% owned and controlled by our physicians," he explains.

That means his group has oversight of the entire means of production to do outpatient joints. "Managing risk has been easy for us," says Mr. Uba. "If you don't know what you're doing under the bundle, things can go awry pretty quickly. It needs to be tightly managed. Your processes need to be crisp."

For that reason, Excelsior has several pages of flowcharts that outline patients' care processes that are implemented as soon as surgeons identify potential outpatient candidates, all the way through to discharge, physical therapy and follow-up clinic visits. "Patient selection criteria, the right protocols, good care pathways, the right pain management protocols — there are a lot of components to this, but the bundle sets up the structure within which all those things can be aligned and managed properly," says Mr. Uba.

Delivering cost-effective care is also key to succeeding with bundled payments. "Instead of paying for volume, as you do when you're seeing patients under the fee-for-service model, there's an expectation that the care they're receiving across an episode is coordinated to improve quality at an overall reduced price," says Dr. Gonzales. "By looking at how to control all the costs in the episode, not just at the [surgical] facility, you can gain from some of the savings the payer recognizes by the patient's overall care being less expensive."

Don't cut corners in order to save money, warns Dr. Gonzales, because payers aren't just looking to lower costs — they also want higher quality of care. Complications, revision surgeries and infections can run up costs and wipe out profits in an episode. "If you avoid a wound infection or a contracture, and make sure the patient has good range of motion and is really progressing well with their functional scores, then in theory that should result in overall less cost, and the patient's happier," says Dr. Gonzales.

Payers often award preferred status to providers they believe deliver high-value care, says Dr. Gonzales. "A provider may come in under budget, but their quality outcomes might not be good, which could indicate they're meeting their budget by underutilizing care. Then their opportunity to become a preferred provider and get additional volume starts to suffer."

Seek out providers of outside services who are interested in delivering value-based care. Although Excelsior runs every element of the episode of care, the bundled payments Dr. Uba negotiated with local payers includes some financial wiggle room if they need to contract with external providers.

"We have that flexibility in the bundle, as long as everybody's motives are aligned," he says. "You need reasonable people who aren't fighting over a dollar. You need the right people around the negotiating table with the right motivations, [getting involved in joint replacement care] for the right reasons, not as a money grab."

Before negotiating bundled payments with commercial payers, calculate how much it would cost to provide services in the bundle and your desired reimbursement rate for each element. Include enough padding for profit and paying for unexpected outcomes. If possible, find out what insurers are paying facilities in your area and offer to deliver the same care with quality outcomes for less. You'll be in a powerful position at the negotiating table if an insurer is paying the local hospital $33,000 to replace joints and you propose to perform the same procedures — ?and take on the financial risk of delivering excellent outcomes — ?for $10,000 less.

On the right is a list of the basic components of a typical bundle for outpatient total joint arthroplasty, courtesy of David Uba, CEO of Excelsior Orthopedics in Amherst, N.Y. Only the total cost is negotiated with the payers; the individual allocations are determined by the entities providing the services. "Insurers give us the bundle, and we determine who gets what," says Mr. Uba. Instead of paying the surgeon $1,400 for a joint replacement, for example, they might give him $4,700 because he's taking on more responsibility for the patient's care and outcomes. They get to assign value to the entire episode of care.

Mr. Uba says bundling impacts vendor negotiations, too. "We know what our allowance is in the bundle for implants, so vendors can either play at that level or not," he says. "It helps us in those negotiations to say, 'Meet our price or we're going with a different vendor.' Every dollar you save on that implant, you can allocate to something else."

— Joe Paone